OUA LSCM 5052: Procurement and Purchasing Case Study Report

This report analyzes a case study involving a company, Crank, with decentralized procurement processes across three locations. The report explores alternative procurement structures, potential obstacles to change, and the business benefits of adopting a centralized procurement model. It delves into topics such as sourcing and buying strategies, the role of procurement in managing inventory, and the implications of purchase requisitions. Furthermore, the report examines the costs of monitoring supplier performance, different pricing agreements, and the importance of procurement ethics and research. It also contrasts adversarial and collaborative negotiation approaches, providing a comprehensive overview of procurement and purchasing management principles and practices, including discussions on offshore purchasing and e-procurement implementation. The analysis covers various aspects of procurement, from category management to the impact of changing procurement structures on business performance and supplier relationships.

Purchase and procurement management

Contents
Case study........................................................................................................................................2
Alternative structures...................................................................................................................2
Potential obstacles to change.......................................................................................................3
Business benefits after a change in purchasing structure.............................................................3
Topic 6: Sourcing and Buying at the right place.............................................................................5
9.1. The Role of procurement in managing inventory.................................................................5
9.5. Procurement implications.....................................................................................................5
10.6. Cost of monitoring and evaluating the performance of suppliers.......................................5
11.11. Pricing agreements............................................................................................................6
Topic 7 Procurement performance and ethics.................................................................................6
17.11 Comments..........................................................................................................................6
17.12 Situation analysis...............................................................................................................7
17.18 Procurement and inventory management...........................................................................7
Topic 8. Contrasting approaches and buying from overseas...........................................................7
13.1 Potential risks when purchasing offshore............................................................................7
13.4 Selection of freight agent.....................................................................................................8
16.7 Buying new capital equipment.............................................................................................8
Topic 9. Negotiation........................................................................................................................8
14.1 Negotiation is some situations.............................................................................................8
14.2 Negotiation in purchasing IT software.................................................................................9
14.3 Rough Order of Magnitude..................................................................................................9
14.4 Negotiation and consultation...............................................................................................9
Reference.......................................................................................................................................10

Case study
Crank is running a business since the 1920s and they have manufacturing operations at three
locations which are Leicester, Southampton, and Glasgow. In the organization, the procurement
process is decentralized. During the operations there are some common purchases for all the
locations of the organizations. The company has not implemented any strategy for procurement
and purchasing management. in the organization, no tender stays more than two years in any of
the locations. The company includes the new process of logistics practice like Just in time and
On-time in full methods. In the purchasing teams of the three different locations, there are no
communication and cooperation facilities between the teams.
Alternative structures
The company can adopt various alternative structures for the procurement and production
management. It is necessary for the three different locations to manage the procurement. A new
structure for the company can include the corporate head of procurement and having a central
team of the procurement specialists can help the company in managing the procedure of
purchasing material for all the locations. The corporate head is required for managing and taking
decision-related to buy and make the group purchase contracts for removing and errors and
conflicts. In the organization, five major purchases are included and number of suppliers is 40.
The suppliers must be reduced by critically analyzing all the products and prices, suppliers
number can be reduced which can help in reducing the confusion and building good relations
with the suppliers. The corporate head can be created who will be responsible for making the
strategic directions and decisions of the procurement in the crank. In the organization,
procurement can be outsourced from the specialist providers (Walker and Phillips, 2009). The
main purpose of effective procurement procedure is to minimize the errors and opportunities of
lost savings. The procurement system can be implemented and organization can make an
investment in the software as it helps in decreasing the errors, delays, and over-payments of the
organizations. It will increase the productivity of all the locations and errors can be minimized by
reducing the redundancy. The payments can be tracked and help in meeting the standards in
purchasing. E-procurement structure will be effective for the organization as new software and
system can help in making effective decision and resources can be used effectively and
efficiently (Gospel and Willman, 2003).

Potential obstacles to change
Crank is facing the obstacles which are required to be changed. The site directors of the company
are losing autonomy. Proposed changes are required in the business but the purchasing staff at
the different location are not familiar with the change and it is necessary to bring the change for
the modernization and adopting latest technology and necessary for achieving the goals and
objectives and provide the material for further production to another department (Grzegorz,
2008). As all the capital equipment is purchased by the group chief engineers and in making the
decisions they are not relinquished.
With the implementation of a new structure, the various suppliers will feel threating with the
introduction of tendering method. The organization will face the strategic challenges and it is
necessary for the expertise to overcome the challenges and consider the issues and try to reduce
the errors which may occur after the change in the methods and techniques of procurements
(Kim and Shunk, 2004). With the change in the program and structure of the procurement and
purchasing management, it will surely impact the performance of the manufacturing for some
time till the implementation takes place successfully and also some loss may occur and take
some time in implementing the system and software successfully. In case of e-procurement
implementation, the employees will be worried more as the work will be done automatically and
company will require to reduce the number of employees (Krause, et al., 2009).
Business benefits after a change in purchasing structure
New Purchasing structure will provide the various business benefits to the organization as it will
help in formulating the long-term procurement strategies which are required for achieving the
long term goals and objectives of the organization. In order to manage the risk of procurement,
change of purchasing structure will provide this benefit to crank. If the organization adopts the
latest technology in the organization, it will help in automating the process of supply and also
helps in bringing essential benefits in the bottom line of the company and increase productivity,
more visibility and cost efficiency (Minner, 2003). When the procurement structure will be
updated it will help in creating effective communication with suppliers and centralizing the
tracking and lower the costs. The change in structure of the procurement will help the company
in uniforming the processes and policies of the procurement which are required for the strategic
decisions. Experts with high skills and levels can be hired for the team of procurement. E-

procurement system will help in providing effective knowledge about the market supply.
Implementation of new program for the employees will help in increasing their learning and
development. Synergy can be improved with the help of integrated logistics. E-procurement will
be possible with the help in integrated system. In group business planning, the element of
procurement will play a crucial role and will help in making effective and strategic decisions. E-
procurement will help in saving money and will improve the return on capital (Stevenson, et al.,
2007). The data accuracy can be increased when the processing of things is done automatically
and it helps in streamlining to reduce the opportunities for errors.
The application of purchasing and procurement will help in supporting the various activities and
can make effective communication with the team and procurement of different locations can be
centralized. it will help in connecting with the buyers and suppliers whenever required and help
in accessing the products and services on wide ranges.

Topic 6: Sourcing and Buying at the right place
9.1. The Role of procurement in managing inventory
Procurement plays a crucial role in managing inventory as the aim of inventory management is
to provide the required service levels to internal and external customers which include the
quantity and ordering fill rate at optimum rates. Procurement helps in managing inventory
management by providing upstream and downstream inventory visibility in the supply chain. In
order to manage the inventory, process of procurement helps in managing the raw material with
the help of just-in-time and lean production method. Procurement role in managing inventory in
fashion retail business includes the management of products and services which are to be
delivered to the customers requires the effective management and making the products available
at the time of requirement, engineering inventory in an international airline is management by
the procurement team for making the equipments available for providing the facilities and an
automotive manufacturer requires the parts for the machine and procurement team is responsible
to deal with suppliers for getting the parts on reasonable prices.
9.5. Procurement implications
A purchase requisition is crucial in the process of procurement. If the purchase requisitions are
not raised in the process of procurement it will lead to various implications in the process. The
procurement team must include the methods and techniques for making the item available for
accessing openly (Talluri and Sarkis, 2002). Procurement can apply the implication of limited
accessing the items for reducing the unnecessary assessing of items as it may increase the loss.
10.6. Cost of monitoring and evaluating the performance of suppliers
In evaluating the performance of suppliers, the cost included in procedure is high in comparing
the prices and delivery of products from suppliers. Price based metrics, cost-based metrics and
quality-based metrics are required for evaluating the performance of suppliers. It is crucial to
measure the performance of suppliers for the well-functioning supply chain. The cost can be
reduced by analyzing the performance of limited suppliers and organizations must deal with
limited suppliers for the supply of raw materials, products, and services (Johnson and Whang,
2002). The benefits to suppliers in evaluating their performance are that they get to know about
their products and customer satisfaction and can bring some change in supply chain if required.
The required changes can be made by the supplier if their performance is evaluated and asked

them to change the supply method or change in product quality. Competitors' performance can
also be identified and it is necessary for the supplier to provide the best services to customers for
the competitive advantages. Evaluation of performance helps the suppliers in making their
performance effective. It increases performance visibility. It benefits in uncovering and
removing hidden waste and cost drivers in the process of supply chain (Mora-Monge, et al.,
2010).
11.8. In the procurement manual, the headings which will be included in conducting cost
analysis on tendered prices will include the cost breakdown in which direct costs, indirect costs,
and profits will be included for the cost analysis (Hsin Chang, et al., 2013). Profits in tender
prices include the difference between selling prices and direct and indirect costs. It is crucial to
analyze the profits while analyzing cost on the prices of tenders.
11.11. Pricing agreements
a) Fixed pricing agreements
b) In this case, a fixed pricing agreement is recommended to come in contract for manufacturing
the new component for the incorporation in a new product.
c) Time and material pricing agreement
d) The type of pricing agreement, in this case, retainer’s agreement which is an open-ended
agreement between the client and professional.
e) Cost reimbursement pricing agreement will be effective in this case (Becker, et al., 2017).
Topic 7 Procurement performance and ethics
17.11 Comments
a) Research in procurement is the process of gathering, recording and analyzing the information
and data systematically for researching the problems which are related to the purchasing of
goods and services. Research helps in providing the various benefits for purchasing the effective
products and services for the organizations.
b) Purchasing professional does not read the journals which include the various effective
knowledge and information 0related with the purchasing of effective products (Park, et al., 2010.

academic research is required for professionals in the field of purchasing. It helps in making the
strategic decisions and helps in increasing the use of outsourcing of non-critical functions
(Piterbarg, 2010). E-procurement is also effective which helps in facilitating real-time payments
and ordering of equipment.
17.12 Situation analysis
a) In order to tackle this situation for saving the amount of expenditure, the various costs can be
minimized and dealing with the suppliers who will provide the material at low costs.
b) In order to attract buyers from other power stations, strategies will be effective to attract them
towards the business for increasing the sales.
c) In this case, suppliers play a crucial role in the organization if the suppliers provide the
services and products on time the problems can be solved.
17.18 Procurement and inventory management
Inventory management is the need of every organization as the procurement department is
responsible for the inventory of the business. Procurement and inventory management are
integrated with each other and helps in providing the supporting activities in the value chain of
the business.
Topic 8. Contrasting approaches and buying from overseas
13.1 Potential risks when purchasing offshore
While purchasing offshoring, the potential risks are included which are related to financial and
supply chain are the currency risks, supply market structure risks. It is necessary to consider the
various factors when buying the equipment from overseas are the durability, product quality,
reliability, standardization, and various costs. The various challenges are faced during
international sourcing are the JIT sourcing requirements, logistics support for longer supply
links, duty and custom regulations and fluctuation in currency exchange rates (Ellram, et al.,
2008).

13.4 Selection of freight agent
The qualities which are required in a freight agent for representing interest must have knowledge
and skill about the product or equipment, skills of negotiating different and multiple modes,
effective management and communication skills must be there in freight agent for dealing with
the suppliers. the credit background of the agent must be good and must be financially stable as
there must not be any delays in the delivery of order and orders must reach on time at the
destinations (Tate, et al., 2009). Experienced agents are always helpful for the process of freight.
An experienced person easily helps in dealing with the problems which are related to the
international as well as local freight. The agent must have networks with partners and other
agents to deal with the process of freight.
16.7 Buying new capital equipment
For the best value for money, procurement must have knowledge and skills about the new capital
equipment and it includes the durability of the equipment and its effectiveness for the company.
the prime purpose of the equipment, versatility, life of the equipment, reliability, the equipment’s
operations, maintenance, and installation costs. The space requirement of the equipment, safety
must be ensured by the procurement team (Tate and Ellram, 2009). It is crucial for the
procurement to purchase, finance and analyze the return on investment for buying new capital
equipment. in case of buying from overseas the various additional costs are also included so team
must analyze the costs and expense and convey it to the finance department.
Topic 9. Negotiation
14.1 Negotiation is some situations
a) In the case of buying a branded IT system, council and seller will deal with agreement and
negotiation will take place between them for implementing the effective system. A Council
includes the power for negotiating with the prices for implementing the system. Council includes
the high-level of skills of preserving and enhancing a business relationship. As negotiations are
required in procurement area and the required aspects are compliance with specifications and
council requires the long-term support product. In this case, collaborative negotiation is required
which includes the integrative or win-win negotiation (Nelson, 2005).

b) International airlines include the power of negotiation when buying aviation fuel from sellers
as fuel is required in flights and they can adopt the approach for solving the problem so that both
the parties gain without any loss.
c) In case of price negotiation between a monopoly seller and a customer, the power of
negotiation does not lie with customers as monopoly seller is a single seller in the market as
alternative option is not available to the customer to buy the product or service from elsewhere
and they are forced to buy the product from a monopoly seller at the set prices by the seller
(Taknæs, 2017).
14.2 Negotiation in purchasing IT software
During the purchase of the contract of IT system, negotiation with the supplier will be included
and the most important terms of contractual obligations will be related to the prices, warranty,
software licensing, after-sales services and quality. In case of pricing, the terms of payments,
quantity discounts, insurance, etc must be included.
14.3 Rough Order of Magnitude
Rough order of magnitude is effective in the case of project management and it helps in
providing various benefits to vendors and suppliers. in this case, setting objective is necessary for
negotiating with the supplier. ROM prices can be adopted as it helps in reducing the unnecessary
costs which are included in the fixed prices of the equipment.
14.4 Negotiation and consultation
Negotiation and consultation are different terms as negotiation includes the process of achieving
discussion with the help of agreement and consultation includes the act of consulting someone
for taking some decision. Negotiation includes both parties for reaching on some agreement
which includes more exercise of demand than the consultation. In case of negotiation, settlement
is necessary which includes the terms and conditions (Wanyonyi and Muturi, 2015). In case of
consultation, agreement is not required but genuine views are required and effective
representation is required. In organization, any changes which may affect the employees must be
done after the consultation.

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