Global Procurement

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Jomo Kenyatta University of Agriculture and Technology, Nairobi *

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102

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Management

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Nov 24, 2024

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docx

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Answers a) Highlight some compelling reasons that could have guided Plastico’s decision to single-source. [5 Marks]  Cost Efficiency: Plastico might have chosen single-sourcing initially due to cost savings. Dealing with a single supplier can often lead to bulk purchasing and negotiation advantages, potentially lowering costs.  Quality Control: A single supplier can ensure consistent quality standards across the raw materials. Plastico might have believed that this approach would help maintain their product quality.  Technical Expertise: The chosen supplier from China might have had specific technical expertise that was crucial for Plastico's product line, making it difficult to find an alternative with the same capabilities.  Streamlined Logistics: Dealing with one supplier simplifies logistics and supply chain management, reducing complexities and potential delays.  Relationship Building: Plastico might have established a strong relationship with the Chinese supplier over time, fostering trust and cooperation. b) Demonstrate at least five sourcing strategies that Plastico would have implemented in their global procurement to guarantee resilience during a time of global interruption. [5 Marks]  Diversification: Instead of relying on a single supplier, Plastico could have diversified its supplier base across different regions. This would mitigate the risk of disruptions caused by a single supplier's closure.  Local Sourcing: Exploring local suppliers in Kenya could provide an alternative source of raw materials, reducing dependence on overseas suppliers and minimizing shipping delays.  Supplier Partnerships: Developing long-term partnerships with suppliers would encourage them to prioritize Plastico's needs and potentially offer more flexibility during supply chain disruptions.  Buffer Stock: Maintaining a strategic buffer stock of raw materials would help Plastico continue production during unexpected interruptions without relying solely on real-time deliveries.  Supply Chain Visibility: Implementing technologies like RFID and IoT sensors could provide real-time visibility into the supply chain, enabling Plastico to anticipate and respond to disruptions proactively. c)With reference to Plastico’s case, explain how global procurement can make or kill a business. [5 Marks] Global procurement can significantly influence a business's success or failure:  Opportunities: Global procurement expands the supplier base, potentially leading to cost savings and access to specialized expertise.  Risk Management: Depending solely on a single overseas supplier, as seen in Plastico's case, exposes the business to geopolitical, economic, and logistic risks.  Resilience: Diversifying procurement sources globally can enhance a business's resilience to disruptions like the Covid-19 pandemic or geopolitical conflicts.  Innovation: Global procurement encourages exposure to diverse perspectives, leading to potential innovation in product design and production processes.

 Complexity: Managing a global supply chain requires careful coordination, as differences in regulations, cultures, and logistics can complicate operations.  Business Continuity: Overreliance on a single supplier, especially from a different country, can leave a business vulnerable to sudden disruptions, as evidenced by Plastico's case. a) In purchasing negotiation is used as a decision-making process and to achieve a successful negotiation, both sides must win something i.e., it is a win-win negotiation approach. Discuss the objectives of procurement negotiation aimed at developing a sound and a long-term business partnership. [5 Marks] Successful procurement negotiation aims to establish a strong and long-lasting partnership between the parties involved. The objectives of procurement negotiation include:  Long-Term Sustainability: The negotiation aims to lay the groundwork for a relationship that extends beyond a single transaction, focusing on continuous improvement, innovation, and collaboration.  Mutual Benefit: The negotiation should result in a win-win outcome, where both parties gain value from the agreement. This helps foster trust and collaboration.  Relationship Building: The negotiation process provides an opportunity to build a foundation of trust and understanding between the buyer and supplier, enhancing the chances of a lasting partnership.  Value Maximization: Negotiation seeks to optimize the terms and conditions, pricing, and added value from the supplier's side, ensuring that the buyer receives the best possible deal.  Risk Mitigation: By discussing and aligning on potential risks and how to manage them, the negotiation can contribute to a more resilient partnership that can adapt to changing circumstances. b)Climate change is arguably the greatest environmental challenge facing the 21st century and governments across the globe are negotiating on how to arrive at a climate neutral world. As a procurement professional, describe the rationale for implementing Green Purchasing. [5 Marks]  Environmental Impact: Green purchasing aims to reduce the negative environmental impact of procurement activities, contributing to global efforts to combat climate change and preserve natural resources.  Corporate Social Responsibility. Implementing green purchasing demonstrates a commitment to sustainability, which aligns with CSR initiatives and enhances the company's reputation among environmentally conscious stakeholders.  Regulatory Compliance: Many countries have introduced environmental regulations and standards. Green purchasing helps organizations comply with these regulations and avoid potential legal issues.  Risk Management: Businesses that rely on scarce or non-renewable resources are vulnerable to supply chain disruptions and price volatility. Green purchasing promotes diversification and resilience in sourcing.  Cost Efficiency: Over time, green purchasing can lead to cost savings through energy-efficient products, reduced waste, and improved resource management.

c)The adoption of electronic methods of obtaining of goods and services has revolutionized the conventional procurement process, payment and potentially the contract management too. Discuss the different types of E-Procurement platforms. [5 Marks]  E-Sourcing Platforms: These platforms facilitate electronic bidding, supplier registration, and document sharing during the sourcing process. They enhance transparency and streamline supplier communication.  E-Procurement Marketplace: These online marketplaces connect buyers and suppliers, enabling efficient procurement of goods and services. They often offer a wide range of products from various suppliers.  E-Auctions: Online auctions allow suppliers to bid in real-time for contracts, helping organizations achieve competitive pricing and transparency.  E-Invoicing and E-Payment Platforms: These platforms automate the invoicing and payment processes, reducing paperwork, errors, and processing time.  E-Reverse Auction Platforms: Reverse auctions are conducted online, where multiple suppliers bid to win a contract from a buyer. These platforms promote competition among suppliers, leading to potentially lower prices and improved terms for the buyer a) Depending on countries, cultures, customs, and even industries, definitions of what is ethical or unethical in procurement may vary. Practices defined as corrupt by some parties may be taken for granted by others and considered a normal part of doing business. With regard to best practice, discuss your procurement ethical philosophy. [5 Marks]  Transparency: Being open and honest in all procurement dealings, from supplier selection to contract negotiation, to ensure that decisions are based on merit and value.  Fairness: Treating all suppliers equally, providing them with equal opportunities to compete for business, and avoiding favoritism or bias.  Integrity: Refraining from engaging in any form of corruption, bribery, or unethical behavior that could compromise the procurement process or harm the organization's reputation.  Responsible Sourcing: Ensuring that suppliers adhere to ethical and sustainable practices, and considering factors such as environmental impact, labor conditions, and social responsibility.  Accountability: My ethical philosophy emphasizes holding all parties involved in procurement accountable for their actions. This includes both the procurement team and suppliers, ensuring that commitments are fulfilled and ethical standards are maintained throughout the process. Choice of a transport mode is a trade-off between responsiveness and efficiency. For a business to be competitive, sometimes slower modes of transport may be preferred against faster modes of transport. With reference to the main five modes of transport explain instances when each mode may be preferred by a business. [5 Marks]  Road Transport: Preferred for shorter distances and door-to-door deliveries, providing flexibility and accessibility to remote locations. It's suitable for perishable goods, small shipments, and just-in-time inventory.  Rail Transport: Efficient for transporting bulk goods over longer distances. It's cost-effective, environmentally friendly, and suitable for items that are not time-sensitive.  Air Transport: Ideal for high-value, time-sensitive, and perishable goods. It offers speed and global reach but is relatively more expensive.

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 Sea Transport: Suitable for large shipments of non-perishable goods, especially over long distances. It's cost-effective for bulk cargo but slower compared to air transport.  Pipeline Transport: Efficient for transporting liquids, gases, and certain solids over long distances. It offers a steady flow and is particularly useful for energy-related products. c)Marine insurance is required in many import-export trade proceedings. Justify the purpose of marine cargo insurance in global procurement. [5 Marks]  Risk Coverage: Marine cargo insurance provides financial protection against potential losses or damages to goods during transit due to accidents, natural disasters, theft, or other unforeseen events.  Minimize Financial Loss: In case of accidents or disasters, the insurance covers the value of the goods, preventing financial loss for the importer/exporter.  Enhance Reliability: Having marine insurance enhances the reliability and confidence of buyers and sellers in global procurement transactions.  Compliance: Some trade agreements or contracts may require marine insurance, ensuring compliance with contractual obligations.  Global Uncertainties: Marine cargo insurance acts as a safety net against unpredictable global events such as political unrest, piracy, and natural disasters, which can disrupt supply chains and lead to losses.  Preserving Cash Flow: In the event of a loss, marine cargo insurance prevents a significant financial burden on businesses by covering the cost of damaged or lost goods. This helps preserve the organization's cash flow and financial stability. a) Making reference to at least four incoterms groups, discuss the role of incoterms in facilitating international trade [5 Marks]. Risk Transfer: This role involves determining the point at which the risk of loss or damage to the goods shifts from the seller to the buyer during the transportation process. Example: The Incoterm "FOB (Free on Board)" exemplifies this role. In FOB, the seller's responsibility ends when the goods are loaded onto the ship at the named port of shipment. From that point onward, the risk and costs are transferred to the buyer. Cost Allocation: This role defines which party is responsible for specific costs associated with the transportation, such as freight, insurance, duties, and other expenses. Example: The Incoterm "CIF (Cost, Insurance, and Freight)" illustrates this role. In CIF, the seller bears the costs of both transportation and insurance of the goods to the named port of destination. The buyer takes over the risk and costs upon goods being loaded on the ship. Delivery Point: This role specifies the location where the seller is obligated to deliver the goods, and where the buyer takes responsibility for the goods. Example: The Incoterm "DDP (Delivered Duty Paid)" highlights this role. In DDP, the seller's role extends until the goods are delivered to the buyer's named place of destination. The seller handles all costs, risks, and duties, ensuring the goods are ready for the buyer at the agreed-upon location.

Transportation Responsibility: This role outlines whether the seller or the buyer is responsible for arranging and paying for transportation, including the selection of carriers and the means of transport. Example: The Incoterm "EXW (Ex Works)" demonstrates this role. In EXW, the seller's responsibility is limited to making the goods available at their premises, and the buyer takes full charge of organizing and paying for transportation from that point onwards. b)The fast-changing global procurement environment demands greater flexibility and skill in dealing with suppliers whose physical existence and capacity may not be known. In light of this statement clarify the extent to which your understanding of the Ten Cs of Supplier Evaluation is still relevant for online sourcing. [5 Marks]  Communication: Effective communication in online sourcing is crucial due to the lack of physical interaction. Online tools must ensure prompt, clear, and accurate communication.  Collaboration: Online sourcing platforms should support collaborative efforts between buyers and suppliers, facilitating information sharing, feedback, and joint problem-solving.  Capability: Assessing a supplier's capability might require more detailed online evaluations, such as analyzing their online presence, digital resources, and previous online transactions.  Credibility: Online reviews, ratings, and feedback mechanisms can help assess supplier credibility and reputation.  Cost: Online sourcing can enable quick and transparent cost comparisons, but attention is required to hidden costs and quality trade-offs. c) SBT Limited, a company that deals with importation of second-hand motor cars from Japan has recently opened an office in Kenya owing to the large number of orders that they are receiving from Kenyans. SBT is desirous of setting up a procurement department and you have been tasked to discuss the steps necessary to implement a sound procurement policy. [15 Marks]  Needs Assessment: Understand the specific procurement requirements of SBT Limited, considering the types and quantities of second-hand motor cars being imported.  Policy Development: Draft a comprehensive procurement policy outlining guidelines, processes, and standards for procurement activities.  Supplier Selection: Define criteria for selecting reliable suppliers from Japan, emphasizing quality, pricing, experience, and reputation.  Sourcing Channels: Decide whether to use online platforms, direct negotiations, or a combination of both for sourcing.  Supplier Evaluation: Adapt the Ten Cs framework for online sourcing, assessing suppliers' credibility, capability, capacity, commitment, and more.  Contract Management: Establish contract templates that cover terms, warranties, payment terms, and dispute resolution mechanisms.  Risk Management: Identify potential risks in the procurement process, such as shipping delays or regulatory changes, and develop strategies to mitigate them.  Ethical Considerations: Ensure ethical practices in supplier selection, including adherence to environmental and labor standards.

 Documentation: Develop a system for maintaining procurement records, including contracts, invoices, and communications.  Continuous Improvement: Establish mechanisms for ongoing monitoring, evaluation, and improvement of the procurement policy and processes.

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Global Procurement

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