BLC304/05 Procurement Management Assignment: Jan 2020 Semester

This assignment addresses key concepts in procurement management, beginning with a PESTLE analysis of PETRONAS, examining political, economic, social, technological, legal, and environmental factors influencing its procurement strategies. The analysis highlights how external factors impact the company's operations and decision-making. The assignment then explores the challenges of outsourcing in procurement, discussing problems such as loss of control, communication issues, loss of organizational trust, and data insecurity. Each problem is illustrated with relevant examples, providing a comprehensive overview of the complexities and considerations involved in procurement outsourcing. The assignment concludes with a discussion on the benefits and drawbacks of outsourcing as a procurement strategy, considering the impact on costs, innovation, and overall performance.

Running head: PROCUREMENT MANAGEMENT
Procurement Management
Name of the Student
Name of the University
Author Note

1PROCUREMENT MANAGEMENT
Table of Contents
Answer to Question 1.................................................................................................................2
Answer to Question 2.................................................................................................................4
References..................................................................................................................................7

2PROCUREMENT MANAGEMENT
Answer to Question 1
The companies use PESTLE Analysis as a tool that helps them to track the
environment within which their business is operating and provides a broad view of the
business environment. The organisation chosen here to elaborate Pestle analysis in terms with
their procurement is ‘PETRONAS’ which is an oil and gas company in Malaysia. Petronas is
involved in its global operations that consist of exploration, expansion and production of
crude oil and natural gas (www.petronas.com 2020). The Pestle analysis of Petronas will
provide a detailed report on the external factors that can affect the company’s macro-
environment.
PETRONAS PESTLE ANALYSIS
POLITICAL
 Political Instability
 High Taxation
 Trade Barriers
ECONOMICAL
 Impact of Economic Growth at
Global level
 Reduction in Prices of Oil
 High Unemployment Rate
SOCIAL
 Distribution of Population’s Class
 Maintaining Islamic Brotherhood
 Immense Job Cuts in Oil Sector
TECHNOLOGICAL
 New Sensor Technology
 Latest Drilling Technologies
 Technology’s Impact on the
Profits

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LEGAL
 Malaysian Government Taxation
Policy
 Consumer Rights Protection
 Employee Benefits
ENVIRONMENTAL
 Oil Exploration’s Harmful Effects
 Environmental Sustainability
 Use of Appropriate Technology
Political: The Company has given its overall trust through the government of
Malaysia to conduct its business operations independently. The government holds the whole
of Petronas that allows formulating and implementing energy policies also consisting of oil
and gas. The level of political instability is increased in recent years, which is considered as
one of the external factors. The high taxation level and trade barriers may demotivate in
maximising the profit and preventing potential exports.
Example: Countries like Sudan and Iraq have abundant resources of oil and gas,
political instability and deep cultural and religious differences, which make Petronas for oil
exploration within the high political risk. Further, PETRONAS has to pay to the Federal and
State governments in context to dividends, taxes and royalties that contribute high taxation to
the government.
Economical: The geopolitical uncertainties and commitment in terms of renewable
from other countries such as China and India may affect the confidence of the business. The
US has more production in Oil, and there may be a decline in price due to oversupply
(Steinecke2015). The profit margin of Petronas can be affected due to the constant decrease
in oil’s costs, as there is an increase in global oil supply. However, high unemployment will
state that the people are agreeable to work in lesser wages that will lessen the costs of the
company.

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Example: As the price of oil has a strong relationship with the sales performance of
Petronas so, if price increases then its sales also increases and vice versa. Further, during
inflation, Petronas may be affected by the higher interest rates as it downfalls the purchasing
power that ultimately affects its cash flow.
Social: Petronas cannot be able to promote a premium product to the public if there is
a majority of the lower class. Malaysian government always is proactive to maintain relation
as concerned to Islam unity. The business has succeeded to grow its business operations to
Sudan and Iraq (Eissa, Abdelsalam and Omar 2019). The male population is less than the
women’s population and children that will influence the marketing of the products as well as
cut off jobs.
Example: The demographics of a country’s population in terms of ages and genders
widely influence the certainty of a product being marketed to them. The marketing products
like for makeup is generally catered to the women. Therefore, targeting the population will be
less of men as compared to women.
Technological: The Company has initiated with new sensor technology as Metocean
sensors that will have the benefit of underwater measurement. New technology like
Intelligent Circulation While Drilling allows the company for cost savings regarding drilling
operations (Petronas.com 2020). The company can face a decrease or increase in profits as
technological impact so there may be a requirement to reinvest in R&D department to ensure
sustainable profit.
Example: Technology has a high impact on the costs subject to have a tendency of
increase or decrease in profits. If the profits are right, then the company may have to reinvest
into the R&D department where the future innovation in technology improves the level of
profits while ensuring sustainable earnings for an extended period.

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Legal: Petronas has a liability to pay to the federal and state government in context
with taxes, dividends and export duties. The company has to protect its consumer rights and
ensure acceptance amongst other oil and gas companies (Athar et al. 2019). The working
environments have to be safe, and there will be the availability of proper equipment and
sanitation that increases the costs.
Example: Laws for intellectual property and data protection is placed for the
protection of ideas and patents of Petronas where it is making profit based on this
information. However, If the data is stolen, then there is a great chance for Petronas to lose
the competitive edge and meet failure.
Environmental: The Company has to use appropriate technology that will meet the
environmental standards and reduces any harm to the environment. Consequently, it enhances
its performance and efficiency. It is responsible for proper management in operations that
contribute to biodiversity and conservatism. The community projects focused on creating
sustainable benefit and value to the communities.
Example: Many oil companies have created an ecological imbalance like marine life,
wildlife threat to oil spills, destruction of coastal wetlands, health and reproductive problems
and so on. Same as these, the image of Petronas is harmed due to its linkages with
environmental pollution.
Answer to Question 2
A large number of businesses is now considering outsourcing as a part of their
procurement strategies for gaining benefits by increasing performance. Outsourcing
Procurement is the specific transference of activities related to sourcing and supply
management to an outsider or the third party (Rosar 2017). Apart from benefits there are
some problems related to outsourcing that is described below with relevant examples.

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i. Loss of Control
The managers generally have a complaint about their technology process and quality
standards when it has outsourced the particular processes or services. The company personnel
earlier perform the work that has been transferred to the outsiders on outsourcing (Niu et al.
2019). This made less or no control over the quality or production, which may lead to
contractual disagreements.
Example: The use of sub-contractors or charging unpredicted or unjustified price,
upsurges to exploit the dependency of the company. Control problems can also be increased
due to geographical distance while the dealer is offshore and that will difficult to reaching or
communicating with them (Tang 2020).
ii. Language Problem
Communication is the essential factor of outsourcing, and if the team is not able to
communicate appropriately or reaching the same level of interaction, then it will create a
problem.
Example: If there is the outsourcing of customer call centres then there will be
differences in the manner of answering, interpreting and reactions to the customer’s phone
calls, which may have a chance of getting affected by local culture and language.
iii. Loss of Organizational Trust
The firm may face the occurrence of significant non-quantifiable risk due to
outsourcing, mainly of services that can be alleged as a breach in the relationship amongst
employer and employee. Staffs may think about the next outsourcing or functions that will be
outsourced.

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Example: Workers or staffs that have been displaced into other as an outsourced
organisation may feel conflicted about the identification of real boss; the new outer contractor
or the company that earlier employed them.
iv. Innovation and Data Insecurity
The companies can face insecurity with their innovation strategies and data due to
outsourcing. There may be the transference of data that can be negatively utilised for the
company.
Example: If IT, software development, or material management is outsourced, then
innovation may be impaired. Additionally, if external providers are employed for cutting
costs, or adjusting market fluctuation or any other purpose, then it may adversely affect the
corporate culture and have chances of data loss or transference.
However, this is often taken by large companies to reduce their costs and increasing
profit with appropriate procurement strategies. Outsourcing can also have several benefits
like cost reduction, bring in innovation, accessibility of better software products, and so on
but it would not be without problems.

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References
Athar, M., Mohd Shariff, A., Buang, A., Shuaib Shaikh, M. and Ishaq Khan, M., 2019.
Review of process industry accidents analysis towards safety system improvement and
sustainable process design. Chemical Engineering & Technology, 42(3), pp.524-538.
Eissa, G.S., Abdelsalam, E.A. and Omar, M.F.B., 2019. South-South Cooperation: A Case
Study of Contemporary Sudanese-Malaysian Relations. Intellectual Discourse, 27(2), pp.619-
642.
Niu, B., Mu, Z., Chen, L. and Lee, C.K., 2019. Coordinate the economic and environmental
sustainability via procurement outsourcing in a co-opetitive supply chain. Resources,
Conservation and Recycling, 146, pp.17-27.
Petronas.com 2020. online Petronas.com. Available at:
https://www.petronas.com/ws/sites/default/files/innovation/PETRONAS%20Technology
%20%26%20SES%20Brochure.pdf Accessed 3 Mar. 2020.
Rosar, F., 2017. Strategic outsourcing and optimal procurement. International Journal of
Industrial Organization, 50, pp.91-130.
Steinecke, T., 2015. National oil companies and state actors: an assessment of the role of
Petronas and ONGC in the foreign policy decision-making process of Malaysia and India
using the example of overseas investments in Sudan and South Sudan (Doctoral dissertation,
University of St Andrews).
Tang, C.H., 2020. Optimization for transportation outsourcing problems. Computers &
Industrial Engineering, 139, p.106213.
www.petronas.com 2020. PETRONAS GLOBAL. online www.petronas.com. Available at:
https://www.petronas.com/about-us Accessed 3 Mar. 2020.