EG7036 Business Procurement and Contractual Practice
Introduction(Dharmesh)
The process of procurement is considered to be one of the essential and baseline business activities for several organisations and enterprises. Bag et al., (2020), assert that the procurement process allows several enterprises in different industries to obtain and collect raw materials and resources that help the organisation to complete its production and manufacturing processes to create products and services that they offer to exist and potential customers. While the process of procurement is considered mandatory for all enterprises, it may have certain complexities and challenges attached to it (Ahsan and Rahman, 2017). The following report discusses the challenges associated with the different procurement processes. Along with this, the report will discuss the different types of procurement, and the strategies used to overcome the challenges associated with procurement.
Background to procurement and procurement challenges (Dharmesh)
According to Kaur and Singh (2016), the procurement process is established to be extremely important for all organisations. In the construction industry, several organisations are required to procure different materials and resources to help in the creation of different infrastructures. The process of procurement can be complex as organisations that are present in the construction industry are required to follow definite procedures that help the organisations procure quality-worthy resources. The process of procurement allows the construction companies to obtain resources that ultimately contribute to the finished products and services offered by the company (Rane and Thakker, 2020). The procurement issues that are presented to construction enterprises have a definite impact on the overall business production activities of the enterprise. During the process of procurement, the organisation’s decision-makers and procurement team must assess the different challenges that may be presented. Truong, (2019), asserts that the process of procurement has certain complexities that have the capability of suspending construction projects. Keeping this in mind, research into the challenges helps the organisation to overcome the issues and create products and services through the procurement of improved quality resources and raw materials.
It has been noticed that for every procurement challenges that organisations in the construction industry face, there are certain strategies that the organisations curate or adopt that either help mitigates the issue or allow the organisation to work around it. The strategies that are used byorganisations are based on the type and severity of the issue or procurement challenges of the company.
Types of procurement challenges present in the construction industry (Jamilbhai,Yash)
The construction industry is considered one of the most prominent industries where procurement takes place. According to Nawiet al., (2016), in the process of procurement, some different activities and operations take place during the process of procurement. The following enumerates the various challenges that are associated with the procurement processes in the construction industry.
- Miscommunication- The construction industry and the organisations that are present within it have several different business activities that require effective communication. Communication is one of the most important aspects of the process of procurement. However, often it has been noticed that there are provisions for miscommunication during construction projects. Heiniset al., (2022), believe that when there is miscommunication from the clients regarding their expectations, the procurement process is affected as the construction project may fall short of resources and materials.
- Dark purchases- When purchases are made by the construction company outside the given procurement list, it is categorised as dark purchases. These dark purchases are proven to be an issue in the procurement process as it makes provisions for the organisation to exceed the budget making the project fragile. Further, when the dark purchases cannot be justified or added to the budget of the project, the construction and the procurement of different operations may suffer as funds are reduced.
- Failure to adopt technology-While many organisations focus on using the advancements of technology to improve their projects and procurement processes, other organisations may find it difficult to adopt technology into their business processes and activities (Nicoletti, 2018). The failure to adopt technology in the procurement process provides a setback to organisations in the construction industry as they fail to adopt the cost-efficient methods provided through e-procurement.
- Supplier management- The suppliers that help and contribute to the process of procurement are integral to the procurement process. However, the maintenance of suppliers and tracking their progress can be complex and challenging in the process of procurement. Keeping this in mind, organisations need to focus on supplier management to mitigate the issue of quality that may arise.
Strategies used for procurement challenges Strategies used for procurement challenges (Prem ,Manideep)
For every risk or issue that an organisation presents in the construction industry faces during the process of procurement, certain strategies can be used by the organisation to mitigate the challenge efficiently. Each strategy that is created by the organisation and its decision-makers helps in creating better plans for efficient procurement (Atkinson et al., 2022). The following discusses certain strategies that may be used by enterprises in the construction industry to tackle procurement challenges.
- Effectively managing risks- Multiple risks are associated with the process of procurement. Before implementing any procurement plans, the decision-makers of the organisation must focus on managing the risk by running a risk analysis before procurement processes. This will help in creating a well-planned and executed procurement process.
- Collaborations between finance and procurement- While the dark purchases may start small for some organisations, they can continue to grow and become significant. These dark purchases allow the construction project heads to stray from the budget which can create future implications in terms of financial support and aid. To mitigate this issue, the best strategy adopted by many enterprises is the collaboration of the finance team with the procurement team (Alamet al., 2019).
- Focusing on sustainability- The procurement process requires the decision-makers to focus on procurement not just in the initial stages but also for future business purposes as well. Using the strategy to focus on sustainability the organisation makes provisions for current and future procurement activities (Leal Fihloet al., 2019). Sustainability allows organisations in the construction industry to use alternative methods and approaches that yield higher profits for the company in different ways and methods.
- Create effective communication plans– Internal and external communication within the construction industry, companies and the clients that are associated with them is essentially important in the creation and completion of projects. The strategy of introducing effective communication amongst individuals and the organisation makes provisions for no ambiguity in the process of procurement.
Overcoming procurement issues and challenges(Nirali)
Even though there are certain challenges associated with the process of procurement, the complexities may be overcome using different methods and techniques. Overcoming the procurement challenges and issues at an early stage ensures the organisation’s capability to carry out the procurement process without any risks or issues (Farrell and Sunindijo, 2022). The following discusses different methods of overcoming procurement challenges and issues.
- Planning and preparation- One of the first steps of overcoming the issues associated with the process of procurement is creating definite plans for procurement. According to Ayeleet al., (2021), the plans created for procurement allow the organisation to analyse the various issues that may arise and create solutions to overcome those issues. Further, early preparation increases the resilience of the organisation to deal with any unprecedented issues as they have been preparing.
- Using modern techniques- Burke et al., (2019) believe that technology and its advancements have made a great contribution to several organisations in terms of procurement and development. Using new methods of procurement such as e-procurement will help organisations that are present in the construction industry to overcome issues related to the procurement process and will also contribute to increasing the efficiency of the overall process as e-procurement is considered to be cost and time efficient.
- Defining specifics and focusing on early engagement- All members of the workforce who are to be associated with the construction process and project must be kept in the loop at all times. Engaging the workforce at the early stages ensures a uniform workforce which contributes to the success of the project even when there are certain issues (Chicot and Matt, 2018).
Case study analysis- The impact of the Covid 19 pandemic on the procurement of the retail industry (Group)
Procurement is considered to be an important attribute for all organisations and enterprises. However, it was noticed that due to the introduction of the unprecedented covid-19 pandemic, the procurement practices and capabilities of several organisations and enterprises were changed drastically due to the lockdown that was imposed as part of the safety protocols across the world. With a worldwide issued lockdown, several organisations were forced to adopt and plan for new ways of procurement. The following case study discusses the procurement issues introduced by the Covid-19 pandemic for the construction industry.
Background
The construction industry and the organisations that are present within it have a substantial impact on the process of procurement. For all organisations that are present in the construction industry, procurement is considered to be the baseline activity. However, with lockdowns being issued the procurement process for nearly all construction companies in the UK and in India was suspended. This created a major issue for several organisations including the Morgan Sindall Group. Being one of the largest construction companies in the UK, the Morgan Sindall Group and all its business activities including procurement practices came to a standstill due to the presence of the Covid-19 pandemic. This forced the organisation to rethink and adopt new approaches.
Procurement approaches
- Collaborating with Southern Construction Framework (SCF) is the first approach towards managing overall business setup with Morgan Sindall Group in London. Ingenuity, collaboration and innovation are the key partners to continuing construction works sustainability in the business environment (Morgansindallconstruction, 2020).
- Restructuring the procurement practices, the company has initiated to create 240 new places to facilitate their suppliers and regaining more profitability with procuring major building works.
Impact
Morgan Sindall Group faced heavy losses of approximately 60% during the Covid-19 pandemic and pre-tax turnover down 4% to £1.4bn at the end of the fiscal year (Building, 2020). In terms of addressing the issues of losses and recovering the reduced profit margin of £88.6m from their targeted environment the company has initiated collaborating with SCF. alongside, the collaboration is also effective in introducing new innovative project plans and procurement operations improvement functions to sustain the new approaches towards functional procedures.
E-procurement and it’s challenges (Renuka, Rajan)
Electronic procurement, also known as e-procurement or supplier exchange,is the process of requisitioning ,ordering and purchasing goods and services online.
Different risk issues are situated for the application of procurement factors in the operational area of the organisations in their functional area. Organisations in the construction industry faced a maximum range of challenges in managing procurement strategies to imposing different operational factors in the competitive environment (Mohungooet al. 2020). In the area of the e-procurement segment, organisations are used to implementing different systematic procedures to intend the operational approaches in a better way (Hamma-adama and Ahmad, 2021). In terms of developing the factors, different challenging issues are witnessed as increased which are effective to impact the e-procurement strategies of a company to develop their technological implementation in their competitive environment.
High cost
Albinkhalil and Razzaque (2021) have stated that high segmented costs such as the total TCO of an organisation to manage their operational area, are the main issues to increasing costs of procurement strategy. Increasing the cost of operation impacted the basic form of operational application of an organisation and managing the functional process of procurement. As per the view of Cardoso and Biazzin (2020), the high cost of different e-commercial procurement strategies intends the overall operational segment of any construction company to execute difficulties in their functional base in a better way.
Risk of system hacked by hackers
According to Khalfanet al. (2022), designing different technological systems to intend the functional applications of an organisation creates the risk of hacking the process by hackers. In the digitalised segment every software application is controlled by different cyber security branches and by the implication of software applications organisations are also treated to share secret business information by the procedures. Accordingly, Salman and Survanto (2019) have mentioned that the risk of system hacking by hackers is the most common issue in the construction business environment as they share their construction plans and procedures with their members through software applications, which creates the issues of hacking information.
Complex operational system
Poor knowledge about operating different e-procurement applications and implementing them in the operational area of management intend the functional practices of an organisation to promote their business procedures in the targeted area (Chibaniet al. 2018). Usage of traditional applications of business development creates the issue of managing new operational functions properly. Following the application of traditional EDI impacted the operational base and created more complex systems to manage systematic formats of developing procurement approaches and management functions in a better way.
Legislations used for procurement in the UK and India(Ilyas )
Legislations used for procurement in the UK
In the region, various procurement legislations are followed by different organisations to manage their external operational conflicts with proper efficiency. In the UK different procurement policies are maintained by organisations for promoting proper ethical values and core disciplines to manage different factors of operational services are to be maintained in the operational area (Gotham et al. 2021). For the previous few years the guidelines of ‘Public Procurement (Amendments, Repeals and Revocations) Regulations 2016’ has been imposed by the UK government to emphasise the operational marketing segments of organisations in their targeted market (Gov, 2022). The main principles of the guidelines in the UK are incorporating different management functions based on which the overall business functional practices of organisations are managed. ‘Section 217 of the Constitution requires maintaining business values and obtaining the opportunity of evolving business marketing segments. Along with the legislation ‘Public Services (Social Value), Act 2012′ has also been imposed by the government to generate more business value creation ability of organisations based on which they can be able to formulate their further growth applications in a better way (Gov, 2022). Depending on the above-mentioned legislations, the overall functional practices of the UK organisations are managed.
Legislations used for procurement in India
There is no specific procurement legislation in India, by which the overall marketing segments of organisations are managed. However, the ‘Electricity Act 2003‘ is maintained by different organisations to determine the traffic to bidding distribution licences to empower procurement procedures (Taxguru, 2022). The main objective of the legislation is to provide the ability to the organisations to manage their procurement strategic approaches based on which they can be able to formulate business operational procedures with legal practices. Apart from that, ‘General Financial Rules (GFRs) – 2017’, ‘Manual for Procurement of Goods, 2017’ and ‘Public Procurement Bill 2012‘ are other procurement strategies which are effective in maintaining strict regulations in the operational environment of organisations (Taxguru, 2022). Through the guidelines and applications of the procurement strategic policies, the Indian government has imposed different operational legislations.
Responsible factors of procurement challenges (Mukkaram)
In the context of the UK as well as India, procurement challenges intend the overall functional base of organisations based on which they are operating their operational segment in a better way. Through analysing the overall marketing segment of an organisation, different factors are responsible for impacting the procurement procedures in the operational environment of an organisation which are going to analyse in the section below.
Poor supply chain management
Shareefet al. (2020) have amplified that poor supply chain management impacts an organisation’s ability to manage their regulated operational applications and provide proper productional services to their customers within a specific time frame. Poor supply chain management intended the internal business process of missed deadlines, and service redundancy which impacted the operational segmentation area of an organisation in a variant way. On the other hand, Muchaendepiet al. (2019) have contradicted that poor supply chain management process creates the issues of mismanaged implications of proper raw materials supplying process that affected the operational applications managing ability of organisations. Poor supply chain management increases the operational costs of organisations and significant costs of managing productional departments of organisations as well.
Insufficient contract management strategy
In construction organisations, insufficient contract management strategies impacted the overall process of managing supplies and external business environmental factors of organisations in their operational area. Insufficient contract management strategy affected the basic operational management services to develop the further growth applications of firms in their competitive environment (Demirelet al. 2019).
Ineffective technological implication
Lack of technological knowledge and ineffective technological infrastructure to manage overall functional elements of an organisation in their operational area (Attaran, 2020). In terms of meeting current market requirements and procurement strategic procedures to maintain a sustainable technological challenge, ineffective technological implications due to lack of proper technical procedures and knowledge impacted the overall organisation’s operations management factors in a better way. Effective technological implementation procedures are impacted the external business functions and developing ability of an organisation based on which further growth opportunities are also impacted (Brownsword, 2019).
Recommendations (Akshay)
Preparation and planning
Preparation and planning are the strategic approaches to accessing the values of the current operational market based on which an organisation can be able to formulate its further growth applications in a better way. The main objective of the strategic approach is to manage business functions and operational abilities to improve the internal business functions of construction organisations in their target environment. Preparing and planning are the processes of intending tenders and construction departments handling opportunities for organisations to develop their functional applications based on their operational environment.
Risk allocations
Risk allocation and identification of risk factors are the way to improve current challenging situations of organisations to manage their procurement procedures. Risk allocation is one of the most reliable functions for understanding the further growth ability of organisations’ procurement strategic approaches that are helpful to developing further organisational factors. Alongside, the process is also effective in measuring future growth risks which may impact the overall business functional base of organisations in a better way.
Implementing modern methods
Implementation of modern methods in the operational environment of different organisations helps to develop their technological implications and evolve the marketing strategies with digital methods. Modern methods are reliable to improve operational practices of an organisation to evolve their technological base equipment management ability in manufacturing segment and supply related opportunities managing applications to developing further marketing challenges minimisation capability.
Conclusion
The above report discusses the different types of challenges that the construction industry faces in terms of procurement. A lot of changes have been made in the construction industry in the modern era. The techniques in the industry have become more refined to make the works more efficient and durable than earlier. New legal standards and systematic problems have also emerged along with these new techniques. However, the discussion shows that there is one area that needs to be considered by the construction industry and that is the procurement process. The report represents that the industry is going through massive changes due to the stakeholders choosing different procurement routes as per the needs of their business. Therefore, many different challenges emerge as per the requirement of the procurement routes. Some legislation is used by different construction industries in different countries for procurement. The report has described those in the context of the UK and Indian construction industries. The study sheds light on the fact that there are several factors that impose different procurement challenges and hence, discuss those. The discussion also highlighted the challenges related to e-procurement and ultimately, provided recommendations to improve the challenge mitigation procedures.
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