Risk and Contract Management in Procurement: A TESCO Analysis

This report evaluates the procurement processes of TESCO, a multinational supermarket and retail company, and how these processes contribute to achieving a competitive advantage. It begins by defining procurement and its importance in selecting appropriate suppliers at reasonable prices. The report highlights the various stages of the procurement process, including sourcing, purchasing, and payment, and analyzes how each stage can provide a competitive edge through cost reduction, increased productivity, innovation, supplier risk reduction, and supply chain resilience. It also discusses the risks associated with each stage and strategies for risk mitigation. The document emphasizes the importance of building strong supplier relationships, negotiating favorable terms, and maintaining quality assurance to maximize profitability and operational efficiency. This student contributed assignment is available on Desklib, a platform offering study tools and solved assignments for students.

Procurement Risk and
Contract Management

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
1. Evaluate how the different stages of the procurement process can help the organisation to
achieve competitive advantage...............................................................................................1
2. Analyse the key risks that the organisation faces at the different stages that you have
identified.................................................................................................................................5
CONCLUSION..............................................................................................................................11
REFERENCES .............................................................................................................................12

INTRODUCTION
The report discusses about the different stages of procurement procedure of TESCO
which mainly assist the firm to achieve the competitive advantage (Bag and et.al., 2020). It this
report the procurement process means that it assists the firm to find an appropriate supplier.
TESCO is a multinational company which deals in supermarkets and in into the retail business.
Apart from this in another part it also explains that the type of risk company face in each and
every stage of the company and how it influences the projected task of the organization and
create disruptions in an operational activity of the firm.
TASK
1. Evaluate how the different stages of the procurement process can help the organisation to
achieve competitive advantage
Theories of procurement process
The company TESCO also use the procurement process in their grocery business to select
the appropriate supplier in a reasonable price. Before describing the procurement process firstly,
it is important to understand the concept of procurement, it play a very significant role in a
business work. It handles productively and completed well, it can also assist to maximize the
firm's profitable condition. It also involves the part of task which mainly includes in sustaining
the products and services such as creating purchases, sourcing, terms negotiating and tracking
the records when suppliers are keeping and received (Boadu and et.al., 2022). This process of
procurement its need to be daily monitored and find any weak point or inefficiency.
Procurement process is mainly important in the companies also for knowing the supply chains,
because it assists the firm to identify some appropriate suppliers. It can provide rivalry price of
products and services that equalize the organization's requirements. For example: if a firm
required a new supplier to give an ongoing service for an unfixed duration of time like an email
safety solution in this case procedure of procurement assists the firm to select the supplier that
better achieves all the firm's necessity in an appropriate price. It includes the firm to eliminate
the wasting of time, money and valuable funds dealing with an appropriate way.
Declining the cost is one of the major prospect of bettering the procedures of procurement. But
it's also play an important role to determine suppliers that give the superiority of products and
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services that the firm requires and have the potentiality to supply appropriately and a track record
of performing.
The procedure of procurement is determining and accepting the terms and getting products,
services or functions from an external origin, frequently through tendering or the procedure of
rivalry bidding. The process of procurement is mainly includes to creating the purchasing
decisions below the scarcity conditions. It explained about the kinds of procurement and multiple
techniques of procurement which are mainly utilized for sustaining the superiority products and
services.
The department of procurement is answerable for getting the products and services for a
company. It may include about the purchasing of the products at rivalry prices, managing all the
legal process connected with receiving a contract, products budgetary expenses, and researching
financial trends to confirm that organizational money is being wisely spent.
The process of procurement can be classified in certain manners. It can be categorized as direct
or indirect procurement, which depends upon on how the firm will utilize the elements that are
being procured. It can also be classified as products or services which depends upon the thing
that are being procured.
 Direct procurement: It can be define as for acquiring anything that is needed to
manufacture the ended- good. For the production firm, it involves raw material and
factors. For a seller, it belong of any elements acquired from a distributor for selling to
consumers.
 Indirect procurement: It mainly includes the elements which are purchases ad
necessary for the daily operational activity but do not share instantly to the firm's lower
line. It can involve providers office and furniture to advertise the drives, services of
consultancy, and the maintenance of tool.
 Commodities procurement: It highly shows to the physical elements of procurement
process, but it can also involve items such as subscriptions of software. Procurement of
functional products mainly it depends on the supply chain of product administration
exercises. It may involve both the procurement such as direct and indirect.
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Work of procurement process
The procedure of procurement is basically including a variety of steps. The firm determines a
specific products and services that it requires, supplier’s sources that assist the firm to attain its
business goals, bargain in terms and cost and then buys and get the appropriate elements (Duica,
Florea and Duica, 2018). In a small firm there is only one people to managing the procurement
of all products and services. Big firms may have a team of person which are mainly expertise in
dealing with dissimilar suppliers or leading particular internal company associations. For few
elements, the team may require to collect input for other dissimilar firm’s association in order to
identify the firm's whole necessities. For example: Firms usually goal to setup relations with key
suppliers to assist and acquire the better service at less possible expenses, it automatically
converts into more profit margins. Firms also require to organize daily quality assurance ensures
and examine the performance to make confirm to the suppliers systematically to achieve their
estimations.
Procurement process can provide TESCO a competitive advantage.
Competitive advantage in the firm's capability to give goods or services that are good and
provide in a high value than the other rivalry firms. Rivalry benefits are mainly grow extra time,
also with the sharing from many dissimilar fields of the company.
The process of effective procurement permits a firm to choose a good portfolio of suppliers and
adjust those suppliers to the firm's mission document(Nugroho, Napianto and Adithama, 2021).
It can be completed through favourable position and encourage cooperation with the help of
cross-working excellence.
The procedure of procurement should estimate present procurement procedures to identify if it
leads their firms rivalry benefits which truly depends upon the following manner:
 It decline the overall cost from the value chain: The main aim of procurement firm is to
supply the worth. The effective procurement section reduces the projections expenses by
buying providers and services at good available price. The procedure of effective
procurements supports for having the overall display into a firms expenses for all buying
task, which provides the capability to decline the procurements expenses, Bettering the
relations with stakeholders, and track buying designs to create financial improvements in
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long-run. If a company control the expense, then it capable to create the goods high
expense in the competitive market economy.
 High productivity: If the company is completely focused on their work and achieving the
objectives on time with full efficiency then it help the company to provide competitive
advantage. If organization set goals for the employees in the organization and maximize
the sales revenue of the company then it definitely helps in increasing the profits of the
company(Owusu, Chan and Darko, 2019). But they need to be highly focused on their
work to accomplish the task on time with greater productivity. They only achieve the
competitive advantage when they increase in their sales as compare to their rivalry firms.
 Innovation: In this process if company want to get competitive advantage then they need
to create new innovation. Because of this the demand of the product is increases and it
helps the firm to capture the market and provide competitive advantage to the
organization. Apart from this the goods are more in demand and increase the profits of
the enterprise. If company create something new in their innovation and launching after
improvise the product then it will definitely maximize the sales revenue of the
organization.
 Reduce the risk of supplier: The risk related to supplier can happen in four normal ways:
mitigation of risk involves elimination of risk, deduction of risk and sharing of risk which
should be followed and developing in respect to address all the risks related with the
companies past, present and future tasks. The effective procedure of procurement mainly
address the obtainable technique of determining, checking and finding the risks of
suppliers(Owusu, Chan and Wang, 2021). If the absence of readiness in the management
of risk does not similar the design of a firm's capable exposure, the results can influence
the firm's capability to fight.
 Helps the supply chain rebound: The procedure of procurement should address answers
and its durability like unanticipated situations like; uncertainty of economic, variations of
labour and natural calamities. The main challenges of 2020 have reasoned to procure the
divisions to align its plans to handle the disruption in supply and cash flow of the
company, while giving daily service to their stakeholders.
Companies are exposed to all sorts of risk and it is impracticable to address to all of them.
Many a times, resources spend on mitigating risk outweighs its usefulness. The primary goal of
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qualitative risk assessment is to prioritize risk based on probability and its impact. In the context
of Tesco plc, it has a higher risk probability of fake scotch. The likelihood of coming across a
fake product having branding of Tesco is high and frequent. The impact is directly on revenues
and profitability.
Stages of Procurement
 Stage of sourcing: This capture the main points in which the company determines its
requirement, generate a buying request and estimates the suppliers. After the completion
of main sourcing part its best exercise to establish a powerful relations with providers. It
can set field for providers to learn from partners, it improvise the goods and procedures to
grow the trust.
◦ Determine which products and services the firm required: It I very important for the
company to find the goods and services which they are require for a particular
element or a service. It may be a new element that he firm has not historically
purchased, re-inventory of available products or a contribution renewal (Qu,Wang
and Zeng, 2020).
◦ It submits the buying request: when a worker or company association requires to
procure a important amount of new provider or services, they create a formal buy
request (also called as buying appropriation)
◦ Evaluate and choose marketer: After the process of approved buying request now the
another step to identify the best seller. The seller projection should not be focusing on
the cost but also the goodwill, velocity, superiority and responsibility.
 Stage of purchasing: In this particular stage it involves negotiating terms, generating
orders, getting and examining products and services.
◦ It discusses terms and price: The similar best exercise is to achieve at least three
quotes from providers before taking a decision. Analyse each quote appropriately and
discuss if manageable.
◦ Make a purchase order: properly fill the purchase order and send it to the provider.
The purchase order should be appropriately informed to determine the relevant
services or products required and implement the provider to complete the order.
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◦ Check and receive the supplied products: it important for the company to properly
check the deliverable goods. It also need to check product is supplied as particularly
in the purchase order and the superiority achieved or maximized the expectations.
 Stage of payment: Trade payable is used three-way coordination to check the order and
the adequacy of invoice. It can be passed and the payment is organized. They need to
maintain the proper records of all orders, payments and invoices need to appropriately
handle.
◦ Organize three-way matching: The main aim of the company is to check the products
and services received similar to the buying order and create the safe payment for
unofficial or inappropriate invoices.
◦ Pass the invoice and organize payment: if the three-way match is appropriate, pass
and pay the invoice billing procedure with the help of accounts payable that ensures
that payment similar to the value of invoice and due date.
◦ Maintaining the records: This process is very significant to maintain the records of all
the whole procurement procedure. These kinds of records is mainly helpful for
various purposes . It also assist the firm to reorder the products at the correct price in
the future also it helps with procedures of auditing and measuring taxes.
2. Analyse the key risks that the organisation faces at the different stages that you have identified
In different stages of procurement process company face some risk which mainly effect
the business of the organization and the working capacity of the employee(Alhola and et.al.,
2019). So, in that case its important for the company to be aware about the risk which are
unpredictable and effect the business in near future. In first part of this report company discuss
about the stages of TESCO plc. Procurement process now they need to identify the risk of the
stages which mainly influence the stage of sourcing, purchasing and payment. In the stage of
sourcing company can face problem in identifying the goods and services, submission of
purchasing request and measuring and selecting the seller. Also in purchasing stage company
face difficulty in discussing the terms and prices, order of purchases also in supplied goods. In
other stage of payment it effect the invoice payment and keeping the records. These are the risk
factors behind the each and every purchase a company creates. It can't be eliminated and ignored.
But it can also be handled. If TESCO plc wants to maintain their supply chain integral along with
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the business task. It doesn't matter what the whole global throws in their path, it require to
determine the 10 procurement risks and understand how to cope up with them in a good way.
The procedure of procurement risk management is determining the two types of risk in the firm
supply chain which includes internal and external risks. The demands of potential risk
administration destruct the circumstance that create unnecessary problem for the organization,
maximised risk(Alimov, 2019). It also includes some identifying solutions to mitigate or reduce
the internal and external risk of the firm which can harm the business through both of them.
Potential risk administration also needs to measure the risk. Basically firm require to find out the
risk effectively, the probability of happening or not happening the risk, and how much firm is
capable to potentially ignore those risks without creating any disturbance in the supply chain of
the organization. If firm can effectively managed the risk without harming the supply chain of
the company it shows the firm capability to effectively and efficiently manage the risk without
disturbing any other department of TESCO plc. The risk administration is not a one time event
till the firm should organize the projects of risk daily to confirm if they are prepared for any issue
also they require to determine the manageable courses of action. It involves:
 Avoiding the risks that shows no real threats.
 Diminishing the probability of occurring risk.
 Eliminating the happening of occurring risk.
 Handling the risk effectiveness with ready solutions.
The procedure of procurement risk administration should also assign which team members are
answerable for managing the definite kinds of risks. In that way they are prepared for an
arranged, fast reply.
The team leader and department of procurement risk management determine, measure, reduce,
strategy and display the effective risks to their supply chain(Altuntas, Berry-Stölzle and
Cummins, 2021). It provides the better opportunity to keep the business activity when
something goes incorrect.
Now, it understand how to ready for the risks to their procurement procedure, it require to
determine how risk comes into their firm, what kinds of risks they face and how to reduce them.
The risk of supply chain enters through the both internal and external types of risk. Each and
every type requires a individual approach.
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 Internal risks: This type of risk comes from how the companies execute their task, their
employees, demands of assessment and their procurement procedures.
 External risks: It comes through their supply chain in the sort of world events,
governmental events, seller relationships, and external performer.
There are 10 risk of procurement stages which mainly effect the stages of organization which are
discussed below:
1. Instability in price: Prices can be changes according to the time period. It neglect that
what is the condition of the contract, some suppliers require to maximise the expenses
due to some definite components. Some other times unanticipated costs incur(Antipov,
2020). This type of risk can effect the working of TESCO plc and influence the working
of employees also. Price fluctuations in market create external risk for the company and
its become difficult to fix the price of the commodity due to instability of prices. On that
basis, firm need to make sure about the budget to conceal any unanticipated costs. Do not
accept the maximisation of prices without any indecisiveness and be prepare to discuss
any maximisation of prices with their supplier directly.
2. Problems in supply chain: This problem in supply chain comes in various parts. In a
very situation everyone seen how COVID pandemic can create an impact on the supply
chain of the company. In which many external factors like political factors, changes in
economy, natural calamity and unique and innovative technologies which influence and
effect the working of supply chain it also effect the working of employees if any
employee is working hard and any of the component introduce in the market then it
reduce the motivation level of employee and it show the less efficiency of the firm. The
supply chain of TESCO plc also get affected due to these factors(Botlhale, 2022) .
According to that risk, its important for the firm to assess their providers to know which
one of them are more risky for the supply chain issue. Diversify their providers and have
another providers on standby.
3. Complexity in assessments: If project shows higher complexity then there is more
chance that it something gone wrong. Difficult assessments creates multiple problems no
matter how better they are planned out. Every level of assessment is depends upon the
past stages and effects. As a result, small problems can descent into difficult issues that
drive a assessment into a emergent stoppage. In case of TESCO plc if organization
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preform difficult or complex activity then it create the issues from the company and
working of employees also. Sometimes improper communication in the company also
influence the working then they face the difficulty to determine the problems quickly. On
the basis of the risk company require to clear their communication and measurement of
the assessment with their procurements demands will assist to maintain everyone on the
similar page and determine effective problems quickly.
4. Fraud: corruption in business is not similar. From buy to imitative invoices to
misappropriation, it shows abundance of fields in the procedure of procurement in which
bad performer can take benefit of dazzled spots in procedures of procurement and steal
from a company. It also create a risk from the complete firm(Chandavong, 2020). In case
of TESCO plc if any unlawful activity are come into the effect or shows unaccountability
and in-transparency in purchasing then it create a risk from the TESCK plc. According to
that risk company need to show improvement in transparency of procurement. Flowing
away from automatic procedures to manual procedures of procurement which means high
accountability and transparency in buying.
5. Variations in work atmosphere: Many firms work unlikely, but with high unlike
function comes with high challenges. Merging on assessments and with suppliers can
become complex. Highly displayed procedures, avoided necessities, and lost deadlines
can simply occur without being capable to confirm or follow up in faces of atmosphere.
In TESCO plc company face more complexity in selecting the individual framework for
communication and setup processes for distributing development. On the basis of that
risk TESCO plc need to select a individual platform for communication and setup
processes for sharing development, accomplishing deadlines, and need to discuss any of
the supply chain problems.
6. Poor practices of Supplier: In every business organization two entity involved buyer
and supplier. Buyers helps the firm to increase the sell and to make more profits whereas
supplier is the entity that provide business a raw material and services as well as delivery
to clients or consumers (Chicot and Matt, 2018). Supplier is also consider as business
partner in the market place because it play a most important part to en-chase or maximize
the gain during the period. The main work of supplier is to deliver the goods or services
as per the requirement, making good relationship or communication and cooperate with
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the business management team (SERGEEVA, KADYROV and STROGANOVA, 2018).
If the supplier are failed to fulfil the work requirement then it may causes lot of problem
in running the business smoothly. TESCO Plc also faces problem from supplier end that
effects their total outcome or profit, the issue are arises when the supplier not fulfil the
demand and expectation of the customers. To overcome from this situation, it is
mandatory for TESCO Plc to track each and every task of supplier as well as facilitate
vendor management program, where the business helps to rate their supplier performance
and differentiate their performance during a given period.
7. Unethical Sourcing: It is not easy to measure the needs and wants of the consumers
towards goods and services. Business firms or organization always tries to fulfil the
minimum needs of the costumers to increase the overall company profit over a
period(Eikelboom, Gelderman and Semeijn, 2018). Customers consider goods and
services of the specific company by analysing the industry practices in terms of
sustainable and ethical to manufacture the particular commodity. In context of TESCO
Plc, they are always tries to make the goods effectively and efficiently by maintaining the
company surrounding and considering client taste and preference. The organization
regulate this work with the help of business partners but sometimes business partner are
not actually fulfil their work. Vendor management program is the type of method that
allows business to store all necessary information on vendors as well as compare them to
other competitors. It is also termed as key component tool of the organization. Further
gives better business insights into suppliers.
8. Overspending: In the present time, generally all the business firm makes its own budget
or forecasting plan over a period. It helps the business to acquire more profits or gains in
future by reducing the wastage. It is also useful in effective or efficient management
practices. This type of planning is done by the top managers of the company because it
needs more knowledge and skill to make a perfect budget plan. There are two major
terms that are presented in a budget process income and expenditure, it covers entire
budget plan(Kamann and Kővári, 2021). When the company run its business without any
pre planned then it creates more chance of future failure, damaged vendor
communication or relationship and issue of additional fees. Company also spends its
money on wasteful goods or services which are not as such useful for running the
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