Procurement Management Assignment: Q&A Based On Business Environment
Impact of Covid-19 on the construction industry is a risk that the supply chain disruption may not be re-established in the short term – such as the suppliers of key building materials, equipment rentals and imported items. These statistics and predicaments alone would suggest the construction industry would indeed need more than a helping hand from the government. In the context of your organization’s industry, by analyzing key procurement-related processes you will gain a complete picture of what’s Movement Control Order (MCO) have affected to your industry. Therefore, discuss the statement based on:
(a) Analysis of the market and business environment of the industry of your organization after MCO.
(b) Identification of the industry opportunities and threats.
(d) Conclusion. (Suggested number of words: not less than 1,000)
Based on your experience, in a descriptive essay format, discuss in detail on the evaluation of supplier’s performance which has/have been used so far by your current organization. Your answer should include:
(a) Introduction about your organization and the selected rating factors.
(b) Discussion on the factors that influence the evaluation.
(c) Discussion on the challenges of evaluating.
a.) According to the research on procurement management assignment, it is stated the Business Market Environment in the construction industry has been greatly impacted due to restrictions of movements in the region. Initially, procurement planning failed as new suppliers were contacted that operate locally. To reduce the spread of the virus, the governments banned the export-import while also limited regional movements. Due to this, our organization could not procure materials from the existing suppliers, since the quality of products at the same price was not procured, procurement planning was disrupted. The construction market was also down as the production and distribution of products could not be done due to several lockdowns in the country. Hence, the same or inferior materials were supplied at higher prices resulting in increased costs of procurement.
The series of locks down restricted long-distance movements thus local suppliers were selected and ratings were had to change. In situations before COVID -19, supply ratings were based on the weighted Point Plan in which quality was given 60% weight while price and delivery were at 20% each. In the restricted environment, the same index cannot be applied to the local suppliers as they are unable to supply the same quality, price, and on-time delivery. Earlier the supplier contracts were terminated and new contracts were made according to the domestic and local suppliers. The contract with local suppliers was made for 6 months defining the quality and prices of the products. The supply chain performance evaluation was also disrupted. In this view, the perfect order index was high that is the high rate of error in the initial months as the suppliers were new, they delivered wrong quality materials (Davis, 2012). This issue occurred as the workers under the suppliers were also new, many of the workers were detected from COVID- 119 and were sent home.
The restrictions in the regions implied that only half of the workforce was available for work also due to which error rates were increased.
Besides, the cash to cash cycle was delayed as the suppliers received the cash late and a similar situation occurred when they received cash from the customers. This occurred as the market was not operating on full capacities, hence buyers, vendors, and customers have issues in transferring cash payments on time. The supply chain cycle time is considered to be a metric through which the efficiencies of the supply chain is measured (Davis, 2012). Tracking the time of the supply chain was difficult as the majority of the existing suppliers of the organization. Procurement and Supply management influences the operational and financial performance outcomes. The cross-functional PSM activities of the organization led to an inadequate collection of the data and measuring the performance (Davis, 2012). The restrictions on internal travel and import and exports of commercial materials were highly limited. As mentioned in the procurement management assignment, the exporting countries like China and others reduced their international trade for using the logistics for supplying emergencies and medicines. Thus, logistics management was poor as the company could not use its existing supply chain for procuring products and continue operations. Since the suppliers are new, hence the supplier relationship was weak. The company incurred high costs of operations as the collaboration was designed from scratch and it will take time for building efficient supply chains with new local suppliers.
b.) In this view, the initial days pandemic crisis, 94% of the company experienced supply chain disruptions. BCG has estimated that the global trade will drop by $3 trillion that is ($15 trillion in 2020) (Russell&Warrington, 2020). In the Australian Regions, trading patterns will shift thus driving the declination of products in different sectors. It can be said that the impact of COVID- 19 will influence the operational patterns in the construction industry as this sector is embarked by high consumption of resources which are in deficits in the current scenarios. In this view, my organization might face supply chain shocks from shortages in supply and production stoppages.
The company is heavily dependent on the imports for the construction products thus the import reliance that is combined with the low production visibility, shipping has shocked every step of the supply chains (Hugos, 2018). In this view, several opportunities have prevailed due to the restrictions in MOC in this crisis. Hence, domestic supply chains domestically can be strengthened. Local supply relations can be made thus procuring alternate options as well as reducing the reliance on imports. The organization can redesign the contract and structure of supply chains by procuring the products from local vendors (Uyarraet al, 2014).
c.) In this view, the company is expected to quote new suppliers and strengthen its supply chains. The supplies from the existing suppliers that are international based should be limited and the domestic suppliers should bebriefed about the quality and prices of the products that have to be procured as per organizational requirements. In this crisis, the situation is very essential for the organization to evaluate its procurement and supply performance and supply chain performance, this will further in reducing additions dead costs. The company is also suggested to improve its procurement planning and efficiently analyze the market for obtaining appropriate information about the market trends and relative costs of production. The company shall also diversify in different lines of business like repairing and amending. Since the business is suffering, the individuals have low spending capacities thus they would prefer repairing their home essentials rather than buying anew one. Thus, the company is suggested is alternative lines of business for generating and income.
d.) Conclusion- It is concluded from the overall discussion on procurement management assignment that the organization’s supply chain disruptions were discussed through the key procurement related process. In this view, this construction company heavily relied on the import products for procuring supplies for building complexes and other structures. The domestic suppliers were contracted but the supply chain was inefficient due to the high cost of products and transportations. Hence the company is suggested to research market analysis for obtaining insights about the contraction trends and revenue growths. The company should also diversify its operations for earning revenues and sustaining crises.
a.) The organization is named as Company A that operates in the construction industry of Australia. The company was successful in undertaking partial and full construction projects in different regions of the country. The company undertakes small projects on repairing of houses and other essentials in the rural and suburban areas. The company is heavily dependent on imported constructionproducts like white wood, TMT bars, and others. A situation of the crisis has arisen due to movement restrictions imposed by the government for reducing the spread of COVID-19. The company has been procuring essentialconstruction items from the local suppliers while the costs while also operating on a smaller number of workforces. In the construction industry, supplier evaluation criteria or ratings are calculated that are dependent on the quality, cost, and delivery. Hence, Company A evaluated its criteria on QCD and have developed long- term relationships with potential suppliers. The long-term relations are for the suppliers on which high spending of Company A is done (Winter&Lasch, 2016). In this view both, the suppliers and Company A shared mutual goals for establishing metrics for resolve the issues and conflicts that arise over time. In recent times, since the company is procuring supplies from local suppliers thus, the metrics have to alter (Emmett, 2020). In the initial stages of the pandemic, overseas contractors delayed the imported building materials by 4-12 weeks, and the most impacted the materials was for aluminum, glazing, fixtures (plumbing), carpets, tiling, lifts, and others (AON Plc, 2020). The products were mostlyprocured from China as materials procured are highly efficient and low costs. Procuring many of the products locally has increased the costs of production. Some important supplies were also imported from other regions but it could only be procured on inflated costs. The company needs to check and verify the financial stability of the suppliers thus containing the credit report. The credit report will help in gaining information about the experience’smanagement, current facilities of the potential suppliers. The purchasing officer of Company A shall obtain detailed information through conducting ratio analysis on the balance sheets and income statements of the old and new suppliers. This will help in gaining information about operational efficiencies, pricing policies, and financial stability. In pre- COVID-19 situations, the international supplier criteria of the firm also included the quality certifications that enabled the company to ensure the capabilities of the supplier. The certification was done through evaluation gaining information about the equipment of the supplier, record-keeping methods, verification of quality (by the supplier), and others.
b.) The factors that influence the supplier evaluation is dependent on the material quality, reliance on delivery, and costs. In the COVID- 19 situations where the procurements options are limited, the Company should consider the quality level of the supplier. Since the finished product is residential apartments and concrete structures, the importance of quality raw material is high. The company should focus on other characteristics such as the delivery time. Thus, totalownership should be considered for the supplier evaluation as it includes unit prices, terms of payments, cash discounts, maintenance costs, and others (Omurca, 2013).
Valuable suppliers should have opted as selected various goods and services were chosen based on the delivery abilities that will help in reducing cost and wastages associated with inventories, storage, and transferring materials several times. In this crisis, Just- In- Time Inventories process shall be adapted for reducing the waste costs (Rajesh&Malliga, 2013). Local suppliers can perform excellent delivery capabilities as they provide additional value thereby reducing the risk related materials run out thereby saving the transportation, storage, and inventory costs.
c.) It is evident in the procurement management assignment that the pandemics scenarios have greatly impacted the construction project since the industry work on huge investments on a long-term basis. Company A has stopped its operations of a large project and currently focusing on smaller projects and repairments. In recent times, the factories have reopened in China but the productions are not running in their full capacities. It is said that the delays in the production process will continue for more than 6 months. The suppliers are facing the loss of productivity as social distancing is being followed for reducing the spread of pandemics. In this view, supplier evaluation is highly influenced as many trades and sub-contractors are suffering huge losses (Guo et al, 2017). Hence many of the big projects of Company A is on hold. This greatly impacts the business of Company A as the suppliers might lose their business license due to bankruptcies. In this view, it can be said that available domestic suppliers are less and they do notsupply materials as required by Company A. Also, various metrics and evaluation techniques cannot be applied to some of the domestic suppliers. The rising cost of industry costs has adversely impacted the evaluation metrics of the suppliers (Emmett, 2020). The supply chains stills pertain disruptions due to the weak Australian Dollar and increase of input prices by 15- 20%. The supplier rating index has to be modified to each supplier operating domestically and overseas as the capacities, prices, quality are differed due to pandemics.
d.) Company A operates in the Australian regions in the construction industry. Due to the pandemic crisis, the company has fallen short of supplies as many domestic suppliers have lost their business, and restrictions on movement still prevail while importing the products from China and other countries. Even if the production of construction products has started in Chinese factories, the weakness in the Australian Dollars has increased product procurement costs. Supplier ratings were previously done through QCD which is quality, cost, and delivery. However, it is also clear on this procurement management assignment that new supplier matrix has been created that will majorly focus ondeliveries and qualities. Lack of sufficient suppliers in the domestic fronts has delayed the process of construction, Hence the company will diversify its business and expand its operations on small projects for sustaining the crisis.
AON Plc. (2020). Construction Industry Not Out of the Woods: future impacts will bite.https://aoninsights.com.au/construction-industry-future-impact/ (Retrieved 18 Sep 2020).
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