Sample Business Studies Paper on Strategic Procurement

Nestle UK Ltd: Strategic Procurement

Strategic procurement is the process of acquiring, buying goods, and services, or works from an external source. It is imperative that the goods, services, or even the works are procured from the finest source with the best price to meet the specifications of the acquirer regarding quality, quantity, and time (Baily, 2008: 89). On the other hand, supplier relationship management entails strategically planning for, managing all interactions with the third party who is the supplier to maximize the value of the interaction. It involves creating closer relationships and collaborating actually key suppliers. This helps in reducing risks that might cause failure and in the realization of value (ASQ, 2008: 19).

The center of strategic relationship management is to derive a two-way, mutually beneficial relationship with the suppliers. This paper seeks to demonstrate the importance of SRM and how Nestle UKL Ltd, a UK based firm, can manage the dangers of economic and other risks arising from this relationship. Nonetheless, the paper aims at highlighting why nestle should adopt technology when it comes to procurement. It has many benefits, which can be so helpful. Nestle is the leading food processing firm in the UK, and they are among the biggest buyers of Greece products ranging from nuts to milk products.

Logistics has a critical role to play in the overall supply chain. It is a process and the Nestle Company is involved in global sourcing. Procurement is an individual department and has become almost a compulsory unit in every organization. There are many reasons as to why a buyer should maintain the highest levels of supplier relationships. For effective supplier relationship management, a procurement unit is needed. According to a research report published by Ardent Partners in 2011, purchasing is important for every organization. Its objective was to establish the performance of chief procurement officers and their significance in a business establishment. It was also done to gauge the performance of business with regards to their procurement unit. The report found that, procurement department managed close to 60% of the total enterprise spends. The group also achieved annual savings slightly above 6%. In addition, the contract compliance under their management rose to 52.6% (Culp, 2013: 46). That was a clear hint of how Nestle UK Ltd can realize its objective of minimizing cost and making the right purchase from the honest seller. Every organization that considers procurement as an essential part of their purchasing process would see them save on wastages.

Successful supplier relationship management requires the finest strategy and on top of that a dedicated supplier manager. It also requires essential tools that will help in tracking and evaluation of performance and results. This is how McDonalds, a successful Nestle competitor has been able to survive in the market. Giannakis (2012: 81) asserts that McDonalds engaged a team of experts who had expertise in developing a procurement strategy and provides the best research and analysis. The procurement unit also is involved in a company’s technology supplier management. The adoption of technology enables them to conduct conferences around the globe and coordinate objectives.

The strategy puts them on a different platform as they have placed themselves on a different level. Additionally, it further allows them to gain a competitive edge over its close competitors. Some of the products offered by the company include McDonald’s coffee. Its performance in the market is high. The practices they engage in sourcing is of much help to them. After employing the SRM methodologies and measurements, they began to see positive results (Giannakis, 2012: 136)). This is a clear illustration of some of the measures that Nestle can take to outdo its competitors. Competition is stiff and costs must be saved, as this is one of the factors that contribute to wastages. Establishment of excellent supplier management relationship and on top procurement strategy will aid in developing a great unit with an organization.

A report released by Forbes shows that the supply chain is becoming more complex and longer. Nonetheless, it is faced with numerous disruptions with its severity and frequency increasing. Weather conditions are not the only threats that can impede a smooth supply chain. There are other system vulnerabilities. Companies are advised, therefore to develop measures that would make their chains resilient and risk resistant. Organizations should ensure that the chains are adaptable and agile so that in the case of market or economic conditions change, they can be adjusted. The supplier managers should go a notch higher in striking a fine balance between effectiveness and efficiency. IT should also be configured into the same, and it should be done properly to ensure the stated efficiency (Culp 2013: 104). This makes another factor that Nestle can take into account as a company outsourcing materials from a global market and in this case, Greece.

Supply chain sustainability is becoming a critical business issue that will affect any organization’s logistical network regarding environmental, economic risk, and costs waste. It calls for the integration of supply chain management with environmentally sound choices. The sustainability is increasingly becoming the focus of every executive that runs a company. They consider it as an essential factor in a business and it can deliver long-term profits when compared to factors like cost and value (Weele, 2010: 19-23). It is an objective of every business that has interest in establishing itself well to make huge profits. The procurement department is one of the areas where they can save to ensure growth in profits. Nestle UK Ltd, for instance, is a multinational corporation with interests in many areas of investments. The areas in which Nestle UK Ltd, for example, has heavily invested in include infant foods, coffee, tea, confectionery, dairy products, ice cream, frozen food, pet foods among other things. Their investments in these areas amounts to billions of US-dollars (CNN 2010: 17). According to Monczka & Handfield (2011: 83-86), Nestle UK Ltd optimal procurement strategy has helped them to grow extraordinarily. Having an efficient and an effective buying strategy saw it reflected huge profit margins between 2009 and 2010. The effectiveness of the process of buying also contributed to improved environmental performance. They developed guidelines that ensured that supplies came from sustainable sources. The mentioned or rather said to be sustainable are ones that cannot fail. Nestle as a company has a responsibility of ensuring continuous production. Continuous production cannot be realized without a sustainable supplier.

The chain is faced with numerous challenges that should be outdone. Supply chain risks are one of the major threats that pile pressure on the buyer-supplier relationship. Nestle UK Ltd must seek ways that they will mitigate the interruptions experienced in the supply-chain. According to the article, Industry Week (2009), companies must develop strategies and tactics that will aid in addressing supplier-centric risks at the multiple stages of the relationship. A company may, for instance, leverage supplier scorecards for continuous improvements and use of benchmarks to measure supplier performance. Supplier networks can also be integrated to minimize the threats. This will give the company, say, Nestle, a platform where they can create defensive and offensive strategies that turn the threats to a competitive advantage, improve their position as a food processor in the UK, and lower supplier costs. Any company can be faced with the scarcity of resources. The resources are the raw materials that are used in production. Nestle is just like any other company. If they fail to have a sustainable supply chain, then most definitely they will encounter many challenges. The scarcity of materials is another component of risk.

Therefore, purchasing and supply focus majorly on sourcing, pricing, and buying the right items at the right price that does not necessarily mean cheap. This, however, should be done at the right time to enable an organization to deliver services and products to the market in good time. Many organizations are limited to measuring their sustainability operations. They are unable to extend these assessments to their primary suppliers and customers. Kumar et al. Argues that this is where the challenges will arise from since the ability of the organization to reduce cost is minimized. There are many wastes occurring in the supply chain, which is from the supplier to the buyer. That is why organizations should work to develop a sustainable supply chain (Kumar, Teichman, & Timpernagel 2012: 1278). They continue to say that the most central factor for a sustainable supply chain within an organization is a collaboration. The practice is what will see every organization attain their desired profitability index. Missing coffee beans because of the unsustainable supply chain will negatively influence the company’s profits, even if it is for a day.

The reason as to why Nestle should have a sustainable supply chain is to ensure that prices and supply are not affected just as it could be felt in other companies when a disaster occurs at the source for instance. Taking into consideration is the case of Nokia Corp., this is a mobile communication device manufacturer based in Europe. It requires the sustainable supply of chips from a reliable source. The availability of readily available supplies is what helps them the most is. Challenges arise when they only depend on a single vendor and they have no established supplier in the market. A worthy instance is a case where lightening hit a power line in Albuquerque, New Mexico in 2005. The lightning caused a power surge in the surrounding electrical grids. This is to say that production of chips stopped. The wave caused a fire in the production plant owned by Royal Philips Electronics. It damaged millions of microchips. Nokia Corp. Suffered a massive blow in its production, but due to sustainable supply chain management and for that matter, supplier relationship management, they began sourcing their chips from other Philip plants in Europe, Japan, and America. Thanks to multiple supplier strategy and response (Schwalbe, 2009: 257)). This is a clear indication of how strategic procurement can be critical. This scenario is an indication of how supplier relationship management can help in managing the economic crisis. Otherwise, the Scandinavian company would have suffered more losses than they sustain.

Another scenario, different from that of Nokia Corp., but falls under the same line of production is Sony Ericson. Just like Nokia, they depended on Philips when it came to sourcing for materials like chips. Since Ericson had employed a single sourcing policy, their operations came to a standstill for months. When Philips was shut down, it was forced to close down its doors as well which ended up making the company lose $400million in sales. Ericson from that point has employed new tools to prevent such scenarios (Heldman, 2011: 99)). The illustration of Ericson is an indication of how poor procurement management can lead to damage.

Heldman (2011: 49) continues to assert that economic and other risks can be triggered by among other things, labor disputes, natural disasters, war, and supplier bankruptcy just to mention a few. They can disrupt the supply of materials or delay its delivery, and this can effectively be mitigated through an establishment of supply chain risk drivers. Companies who aim at procuring from a global platform want to exploit the benefits enjoyed at the platform. They aim at using, for instance, global efficiencies, and this has proved to reduce the cost of a company. However, global sourcing, just like how Nestle UK can source materials, say coffee from Greece, is associated with a centralized procurement strategy. They seek to achieve economies of scale in every part of the purchase through benchmarking and corporate-wide standardization (Heldman, 2010: 304)

Organizations must manage their inventory in their operational process. The procurement function handles the management of vendors and suppliers. This is referred to as supply chain where the raw materials flow right from the suppliers; they are processed and distributed to the vendors at sale points. This process must be managed effectively to ensure smooth flow. Most companies realize the need to manage vendors, but they lack discipline approach to implement their objectives. They instead spread their vendor management activities of various units within an organization. In global terms, a well-calculated sourcing strategy can save costs substantially. However, to develop a good strategy that would supply the network of vendors and supplier effectively, there must be a cross functional collaboration. Procurement has grown into a key driving force for every entity. It operates at three levels namely strategic, tactical, and operational levels. Strategic level impacts every activity within an entity, including product development, managements of suppliers, logistics among other key factors (Heldman & Mangano, 2009: 176).To connect the suppliers to the vendors, there must be a player in the central point. The player in this case is the procurement function of an organization. Nestle also has to effectively look after their strategic, tactical and operational levels. This is because they are at the central point where they manage both the vendors and their suppliers. All of the two should be taken care of since they are tasked with ensuring a steadfast flow of goods and services.

Technology has eased the management of vendors and suppliers by the procurement function of a business. In the case of Nestle Ltd, adoption of technology in the procurement function can change the way the supply chain is being managed. Vendors are representative of the manufacturer. On the other hand, suppliers are essential and no production can go on. The management of network of suppliers and vendors is the management of supply chain Guth (2009: 206). Guth in his book states that the procurement unit within an organization is essential. For it to manage the network of vendors and suppliers effectively, they need to follow some criteria. They must identify opportunities and identify suitable suppliers competently.

Quality of goods and services that will reach the vendor depends with the quality picked by the procurement department. They determine almost everything, including the prices. They introduce and leverage appropriate info systems for any organizations. They help to facilitate the communication process as well from both sides, which are the suppliers and the vendors (Harrington & McNellis, 2006: 164). In addition, the unit monitors the supply markets and trends. Big brands in the market like Nestle have realized how important it is to invest in sustainable procurement. This enables the firm, which are the main buyer and exporter of foodstuffs to report positive results according to reports released by the company.

In strategic procurement, companies have seen the emergence of Electronic Data Interchange (EDI). This is simply the electronic exchange of business information. This is attained through public standard format. Electronic Data Interchange provides a business-to-business integration throughout the world. The businesses are able to communicate via electronic means. Organizations are able to send data and receive responses from the same partners without talking a lot of time. This in general terms as been considered as an E-Procurement platform. It functions to facilitate e tendering. When companies are purchasing materials, they must vet the suitability of the supplier. The supplier in this case is one who will apply for a tender. If submitted electronically, the process will be conducted through the EDI. This has been created to ease communication between parties (Guth, 2009: 301). Companies like Nestle which is a multinational can enjoy several benefits if they adopt this system. Being one of the major subsets in electronic commerce, the company does not require any traveling to the supplier’s country. The verification of the tendering documents can be completed electronically. This saves on among other things, the cost. That is why it is said that it reduces the cost. No individual is required to travel. Adoption of EDI would save on labor costs as well. If nestle adopts it, then it will definitely save them on the cost. In short, it is non-labor intensive. The companies can as well share more information on one platform in a very easy way. They will be able to learn many things from each other (Apolloni, Howlett & Jain, 2007: 192).

Outlined above are arguments on how the buyer – supplier relationship can be achieved. To nestle company, a food production company, there is need to adopt the procurement function in the organization. As stated, supply helps save on costs and time that would be spent looking for the right commodity. There are very many suppliers, both small and large scale in Greece. On the other hand, there is stiff competition in the industry. The providers are working to out-compete each other. Picking the correct provider should not be based on the price at which they can supply the materials.

Nestle UK Ltd should look at the broad base. Price is nothing without quality. What every professional who want to develop a robust unit should see how they are going to find the right quality. Afterwards, they can look at the quantity and the total cost. This is one way that will really help when it comes to singling out the correct supplier. To ensure sustainability, there is some need to look at how the companies perform. This will ensure that the Nestle food company can achieve the desired results of saving on cost and attaining higher profits. Besides, they will be able to create a sustainable vendor-supplier network. The points noted will help nestle as a company outdo its competitors. The company can address its procurements professionally since they have the opportunity to identify what suits them the most. At the end of the day, it is to the benefit of the firm.

Reference List

Apolloni, B, Howlett, R & Jain, L, 2007, Knowledge-based intelligent information and engineering systems: KES 2007 — WIRN 2007: 11th international conference, KES 2007 [and] XVII Italian Workshop on Neural Networks, Vietri sul Mare, Italy, September 12-14, 2007: proceedings, Berlin New York: Springer.

ASQ, 2006, McDonald’s Applies SRM Strategy to Global Technology Buy, Available from: http://asq.org/qualitynews/qnt/execute/displaySetup?newsID=573

Baily, P, 2008, Procurement Principles and Management, Harlow, England: Prentice Hall Financial Times.

CNN 2010, Nestle: Tailoring products to local niches, Available from: CNN Website [2 July 2010]

Culp, S, 2013, Supply Chain Disruption a Major Threat to Business, Available from: http://www.forbes.com/sites/steveculp/2013/02/15/supply-chain-disruption-a-major-threat-to-business/

Giannakis, M, 2012, The role of procurement in the management of supplier relationships, International Journal of Procurement Management (IJPM), vol. 5, No. 3.

Guth, S, 2009, Project procurement management: a guide to structured procurements, Alexandria, VA: Guth Ventures.

Harrington, H, & McNellis, T, 2006, Project management excellence: the art of excelling in project management, Chico, CA: Paton Press LLC.

Heldman, K, & Mangano, V, 2009, PMP project management professional exam review guide, Indianapolis, Ind: Wiley Pub.

Heldman, K, 2010, Project Manager’s Spotlight on Risk Management, New York, NY: John Wiley & Sons.

Heldman, K, 2011, PMP project management professional exam: study guide, Indianapolis, Ind: Wiley.

Kumar, S, Teichman, S, & Timpernagel, T, 2012, A green supply chain is a requirement for profitability, International Journal of Production Research, vol.50, Issue 5, pp.1278-1296

Monczka, T, & Handfield, N, 2005, Purchasing and Supply Management, Thomson South-Western.

Schwalbe, K, 2009, Introduction to project management, Boston, Mass: Course Technology.

Weele, A, 2010, Purchasing and Supply Chain Management: Analysis, Strategy, Planning and Practice, Andover: Cengage Learning.