Procurement Risk and Contract Management Assignment

1. Introduction

Programming is associated with arranging and perception of raw materials, machinery and equipment for supporting business product development and marketing activities. Procurement management and control processes played a significant role in determining organisational capabilities in providing standard and quality products and services to global customers. It also determined abilities for performing and competitive marketing environment and even maximum opportunities of competitive advantage by a particular company. This study is going to analyse multiple aspects and consequences associated with major risk and contract management of procurement. Understanding and exploring major functions and sourcing methods of procurement is a prime area of attention. The study is also going to address major risks faced by business organisations in maintaining their organisation or contract and procurement activities. Mark and Spencer is the selected company considered for analysing the major aspects and consequences of procurement and contract management.

2. Procurement functions and sourcing methods

2.1. Functions of procurement

Proactive approaches are provided maximum attention in procurement activities of an organisation for the elimination of problems at the initial stage before they get opportunities for appearing and creating problems. This process contributes to reducing the negative impacts of multiple issues and challenges associated with procurement in influencing business activities and market performances of Marks and Spencer. According to the view of Stentoft and Mikkelsen (2021), a proactive approach is highly adopted by multiple organisations through identifying an organisation that has reached the initial states and developing an appropriate mitigation strategy.

Marks and Spencer is the original International retailing company that operates business in European and other countries. As influenced by Perrenoud et al. (2017), management of procurement effectively by the procurement officers and managers contribute to maintaining supply and demand activities of the business for corporate survival and maintaining profits. Multiple potential functions of procurement run continuously in Marks and Spencer for maintaining marketing performances effectively without any kind of challenges and barriers. The most potential procurement activities of the company are buying products and services, establishing supplier relations, policy management, sustainability and ethics, manufacturing and merchandising.

Buying product and services: Purchasing of key components, raw materials and equipment for continuous manufacturing and service development process is a vital role played by procurement for supporting business activities of Mark and Spencer. In the words of Rahimian (2020), maintenance of legal and company policies effectively is considered a topmost priority during initiating tasks of buying products and services for supporting business activities.

Establishing supplier relation: The development of strong relationships with suppliers through management of transparency, Business ethics and payment clearance is also an important function performed by the procurement team. According to the view of Rao et al. (2017), ensuring the satisfaction and fulfilment of supplier needs and desires is a key role for business success in order to deliver quality products and services for the manufacturing of consumer goods. Maintenance of transparency terms and conditions by delivering promises to the suppliers helps in continuing business activities by receiving quality raw materials. Maintaining strong relationships with distributors in different retailing stores for channelling products directly to the customer is also an important function performed by procurement managers for supporting business.

Policy management: management of policy of business priorities and legislation implications based on the operating countries are the major role and responsibility of procurement. As per the view of Handayani (2018), following common business laws, government tax policies and trademark policies of different countries need to be followed for maintaining political and legal elements associated with the business practices of Mark and Spencer.

Sustainability and ethics: maintenance of Corporate Social responsibilities of companies by transparency management of HRM and support towards environmental protection through adopting clean supply networks is another potential responsibility of procurement. According to the view of Rana et al. (2019), sustainability and ethics management plays a significant role in determining relationships with internal and external stakeholders and reflecting on organisational brand identity in the competitive environment. Therefore, the department of the programme in management in Mark and Spencer conduct and develop innovative CSR policies to support sustainability and ethics maintenance.

Manufacturing and merchandising: development of pricing strategy and ensuring product quantity, product quality and the market price is a major function performed by procurement for supporting business activities in local and international marketplaces. As argued by Chernonog (2021), controlling multiple manufacturing and merchandising operations with resource allocations and risk mitigation are necessary areas of procurement activities for continuing business growth and development.

Centralised vs decentralized procurement

Centralised procurement is associated with the implications of a single department for the purpose of managing and controlling all the activities associated with procurement based on applicable standards and regulations of the company. In the words of Knofius et al. (2021), organisational managers are mostly a point as a single member for controlling and running procurement and sourcing activities in a particular business. Decentralized procurement is associated with providing permission to individual stakeholders for purchasing products for the departments as per the requirement and necessity. As argued by Chernonog (2021), business priorities and operating areas determine the selection of centralised or decentralized payment methods by the company. Marks and Spencer followed a centralised organisational structure and their procurement is also based on a centralised approach. In the words of Knofius et al. (2021), all the activities associated with product distributions and raw material collection is controlled by a single department of the company in order to maintain multiple retailers in the UK and global areas.

2.2. Sourcing methods

Sourcing in procurement is associated with the identification and development of appropriate channels of suppliers with low cost for supporting product development activities of an organisation. In the words of Knofius et al. (2021), Mark and Spencer use innovative sourcing channels for maintaining a stock into multiple retailing shops across the globe by focusing and supply networks management and fulfilling customer demand. For different types of products available in Marks and Spencer, the organisation uses different methods of sourcing to maintain their stocks and support product development activities. Sourcing decisions towards different products and services are determined by organisational necessity and the quality of products offered by the particle suppliers. As argued by Laghrabli et al. (2020), estimated operational cost and applicable legal implications are also considered important elements during the sourcing decision making process.

Low-cost country sourcing: Low-cost country sourcing is associated with the importance of a product by identifying a country that offers that specific product at the lowest price. According to the view of Laghrabli et al. (2020), quality of product and transportation cost for import are also considered as important areas for using appropriate sourcing strategy. For example, Columbia offers the highest quality of coffee beans in the world and international retailing stores that offer coffee packets as a product of imported coffee from Columbia at a reasonable price. As influenced by Szubarga et al. (2021), Mark and Spencer use a low-cost country sourcing strategy for collective regional products from their country of origin and distribute them to their global retailing stores.

Global sourcing: Global sourcing is associated with collecting products and services from global suppliers by considering quality, quantity and prices for maintaining organisational stocks and maintaining the demands of the customers. According to the view of Szubarga et al. (2021), Mark and Spencer sources raw materials for products like lipstick, leather bags from global suppliers. The benefit of using global sources is opportunities for product delivery in different locations and effective management of infrastructure for producing and distributing the finest materials to the customer.

2.3. Relevant theories

Resource dependence theory

Procurement Risk and Contract Management Assignment

Figure 1: Resources Dependency Theory

(Source: Özdemir and Yılmaz, 2018)

Resource dependency theory is an important theory for understanding Resource Management and the role played by resources in performing business activities by companies. This theory focuses on analysing the contribution of external resources of a business organisation in managing their relationship with customers and retailers. As argued by Raghunath and Devi, (2021), this theory simply focuses on identifying the relationship between external resources and the marketing performance of a company in order to understand the level of dependency on resources by an organisation to maintain its operational and marketing activities. According to this theory, the requirement of external resources by companies is necessary for maintaining tactical and strategic areas.

Important tactical and strategic areas include the development of products and services in order to retain customers and generate profit for establishing a strong relationship with investors for providing maximum return on investment. In the words of Özdemir and Yılmaz, (2018), resource dependency theory described an interdependent relationship between external resources, external stakeholders and procurement activities. In addition, this theory stated that management of organisational principles is necessary for maintaining powers, authority and access to different resources for supporting the manufacturing and merchandising activities. As argued by Raghunath and Devi, (2021), Consideration of this theory contributes to understanding the importance of procurement management and evaluating its associated risk.

Agency theory

  Agency Theory Procurement Risk and Contract Management Assignment

Figure 2: Agency Theory

(Source: Mufti ET AL. 2019)

Agency theory is another important theoretical framework associated with procurement management and supply networks of business organisations. This theory focuses on presenting the relationship between organisational agents and their principals. In this theory, organisational agents refer to suppliers and distributors that played a significant role in marketing performances on national and international marketplaces. According to the view of Dvas and Dubolazova, (2018), suppliers are key organisational agents that help in collecting necessary resources for product manufacturing and merchandising. It helps in maintaining product development channels of companies for maintaining their performance on a continuous basis in a competitive environment and available maximum opportunities of market competition through innovative approaches.

3. Major risk faced by organizations in the recruitment and contract management

3.1. Risks associated with procurement of goods and services

As procurement activities of the company determined its ability for maintaining customer demands and avail opportunities of market competition. As argued by Dvas and Dubolazova, (2018) identification and analysis of potential risk associated with organisational program and management of Marks and Spencer is necessary for avoiding any sort of problem in maintaining relationships with customers and investors by interrupting daily activities. The most potential risks associated with the procurement that have higher possibilities of occurrence are price instability, supply chain description, project complexity, the possibility of fraud, the transformation of organisational work environment, poor performance of suppliers, unethical sourcing, overspeeding, inaccurate supplies chain forecast, and errors in the manual procurement process.

Price Instability: Possibilities of fluctuation of the price of the product over time is highly possible and it is a major risk in procurement management due to interference in operational cost and project of the company. In the words of Vijayakumar and Arun (2018), increasing demand of suppliers increased their power of bargain and resulted in the development of cost increment.

Supply Chain Disruption: Possibilities of political unrest, economical changes, the emergence of new technologies and natural disasters are potential risk factors that can become a barrier in the management of smooth supply networks for supporting organisational business activities. As argued by Thai, (2017), supply chain disruption is a potential threat that negatively affects marketing performances to a great extent.

Project Complexity: project complexity is associated with the interference of multiple elements in decision making and communication between internal and external stakeholders for finalising supplying deals. According to the view of Vijayakumar and Arun (2018), language problems and conflict of interest are possible factors that generate project complexity issues in procurement management.

Possibility Of Fraud: The emergence of digital platforms has provided organisations with to access data and communicate with groups from worldwide. The possibility of fraud after receiving the advance payment and providing inappropriate supplies is high due to macro-environmental factors and increasing rapid market competition (Trammell et al. 2020).

Transformation Of Organisational Work Environment: Changing the organisational working environment for internal and external stakeholders are associated with centralised procurement management is a potential threat that can create problems for the successful flow of material from sourcing.

Poor Performance Of Suppliers: Poor performance of the suppliers is a major threat in the procurement activities of Marks and Spencer. Receiving poor quality goods can result in financial loss due to the refusal of customers to pursue defective products.

Unethical Sourcing: engagement of suppliers in unethical activities such as supplying products from the black market and avoiding regulations and laws of product transportation is a potential threat for maintaining transparency and effectiveness in marketing activities of Marks and Spencer. As argued by Vijayakumar and Arun (2018), unethical sourcing can result from legal problems and damages of brand images in-market competitors.

Overspeeding: Overspeeding is associated with over suppliers of products and services without understanding current demand in the marketplace. It causes risks of financial loss due to the absence of an adequate budget and the ability to invest for a longer period. According to the view of Gupta (2019), overspeeding results as coping of expansive spaces in the warehouse and limited business participation by the company and result in increased debt.

Inaccurate Supplies Chain Forecast: The possibility of going out of the plan due to interference of macro-environmental factors such as political, social and environmental elements in the supply system of raw materials is a possible risk in procurement.

Errors In the Manual Procurement Process: the possibility of manner mistakes by organisational staff in the entry of ledger and quantities of products is high and it can be considered as a potential risk. In addition, manual procurement reduces possibilities of maintaining transfer and effectively different business activities.

  Risk Criteria Low Medium High
1 Price instability      
2 Supply chain disruption      
3 Project complexity      
4 Possibilities of fraud      
5 Changes in the working environment      
6 Poor performance of suppliers      
7 Unethical sourcing      
8 Overspeeding      
9 Inaccurate supply chain forecast      
10 Error in manual procurement      

Table 1: Risk Matrix

(Source: Gupta 2019)

3.2. Theoretical implications and its practices

Stakeholder theory

  Stakeholder theory Procurement risk and contract management

Figure 3: Stakeholder theory

(Source: Dvas and Dubolazova, 2018)

Stakeholder theory is highly relevant to the risk management of procurement through controlling relationships with internal and external stakeholders. According to this theory, implementation of Business ethics and transparency with suppliers and distributors is necessary for maintaining strong relationships and providing satisfaction. In the words of Gupta (2019), regulations are implemented effectively for dealing with business entities including local communities, suppliers and distributors that contribute to business development. According to this theory, management of transparency with suppliers of marks and Spencer is necessary for reducing possible threats in procurement that can negatively affect business performance.

4. Conclusion and recommendations

Recommendation

Budget for unexpected expenses: maintenance of price instability issues is necessary for procurement activities for a continuing supplier of raw material for manufacturing of goods and services. Development of an unexpected expenses budget for dealing with unexpected circumstances is highly suggested to Marks and Spencer for avoiding any kind of shortcomings in the marketing performances. It can contribute to the improvement of their operational plans effectively and the establishment of strong relationships with vendors by offering competitive market prices. As influenced by Trammell et al. (2020), creating a proper budget plan is necessary for reducing unexpected expenses and increasing organizational profit margin. Therefore, the study suggests the maintenance of a proper budget plan for reducing costs and increasing profit to reach organizational objectives.

Clear communication strategy for dealing with suppliers: Effective and clear communication are the fundamental priorities to deal with different business suppliers and to make the business process smooth. The study strongly recommends fostering clear communication with Marks and Spencer to establish clear measurements and simplify doubts. This further assists in reducing risks, misunderstanding issues and their long-term impacts and creating a business value across all suppliers. As influenced by Mufti et al. (2019), effective communication between this leading organization and suppliers support long-term goals through a trusting and strong relationship. This powerful strategy considers different situations for introducing several major campaigns and assists in sharing valuable information. In this critical business environment, an effective communication strategy is suggested for clarifying issues and creating a strong bond with suppliers. This strategy is most-effective for better collaboration with different suppliers and organizations that are able to improve their business performance.

Development of e-procurement solution to avoid manual errors:  E-procurement solution is another strategy through electronic data that supports operational, strategic and tactical operations. Development of e-procurement solutions is suggested for avoiding manual errors and improving efficiency in overall business practices. This further eliminates dark purchasing, removes approval bottlenecks and avoids delays with speeding up poor supplier performance. This cost-efficient process is beneficial for reducing errors and making the business process smoother. Implementation of e-procurement solutions through advanced technology and electronic data provides the utmost advantage to the leading organization, Marks and Spencer. This powerful strategy provides potential business benefits through time-saving and strengthening relationships with different suppliers. E-procurement technique is the powerful solution for reducing manual errors with reducing cost and this allows the organizations to earn more revenue through better business performance.

Adaptation of supply chain management software: Mark and Spencer can adopt software for supply chain management in order to forecast accurately and develop an effective budget plan for the management of procurement activities. Adaptation of supply chain software can also contribute to avoiding manual errors and help the organization in improving its marketing performances.

Conclusion

Based on the above discussion and analysis, it can be concluded that identification of major risks associated with procurement and development of an appropriate strategy for it is necessary for business survival. This study contributes to understanding important functions of procurement and sourcing approaches. During the discussion, using centralised approaches of procurement and Sourcing by Marks and Spencer is identified. The identified risks associated with procurement management of Marks and Spencer that can contribute to interfering organisational effective performance are price fluctuation, disruption of the supply chain, project complexity, the poor performance of suppliers and changing of working structure. Development of an unexpected budget, efforts on understanding supply natures and interest and establishment of clear communication between suppliers and procurement manager are considered recommendations for improvement of procurement and contract management activities in Marks and Spencer. Implementation of an innovative strategy for solving problems through risk analysis and mitigation strategy can contribute to the Business expansion and availing maximum opportunities of competitive advantage by the company. It can also help in improving their stock performances through fulfilling customer demands by availing products in a respective marketplace.

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