Project Risk and Procurement Management Final Assignment ...Project Risk and Procurement Management...

Project Risk and Procurement Management – Final Assignment 06/11/2015

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Student ID NO. @00439663

Module Name

Class #1652 – UoS-PRaPM – [UoS] Project Risk and Procurement Management

Assignment Title

The Foodelity Procurement and Supply Chain Management Report

Assignment deadline: 06 Nov 2015, 17:00 (Zurich Time)

Effective word count: 3187 (deviation from 3000 = 6.2%) This word count is done by excluding:

Abstract

Module names

Titles

Indexes and front-page information

Bibliography

Appendix text

I confirm I have read the University regulations on plagiarism and that this assignment is

my own work.

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1 Abstract

Foodelity is an organization specialized in assembling food supplies into products it

delivers to retailers. For Foodelity production includes a complex procurement and

supply chain collaboration with Greek food suppliers and supervisory governmental

institutions. This research investigated whether the supply chain management strategy

of Foodelity is still valid as a result of the financial crisis that threw Greece in a state of

financial, political, social and economic flux.

Before procurement and supply chain management risks could be analyzed this report

started with a literature review to place these risks in the right context. It is based on a

wide range of sources from business reports, industry research and scientific data.

The conclusion that can be drawn from this research is that the instability of Greece

based on the financial crisis, has made the contractual terms of Foodelity with Greek

organizations and governmental institutions obsolete and even dangerous for its own

existence.

This conclusion is succeeded with the obvious interpretation that Foodelity must turn the

wheel of fortune or face the facts of critical supply chain management risks if it

continues to walk on the same economic road as Greece. A natural follow-up of this

interpretation is the conclusive statement that Foodelity would act wisely if future

procurement and supply chain management strategies excluded Greek organizations

and governmental institutions.

In this study several recommendations are made about redefining the supply chain

management strategies of Foodelity within her partnership with Greece. This also

includes the need for a shift in focus towards other possible partners in different

locations around the world. There is a direct and urgent need that Foodelity creates new

global partnerships with promising sustainable supply chain management strategies

based on healthy foundations. The final conclusion described in this report is that

Greece is unable to support such a foundation.


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Contents

1 Abstract .......................................................................................................................................... 2

2 Introduction .................................................................................................................................... 4

3 Findings ......................................................................................................................................... 5

3.1 Purchasing & Procurement ................................................................................................... 5

3.1.1 Purchasing...................................................................................................................... 5

3.1.2 Procurement ................................................................................................................... 5

3.1.3 Purchasing and Change ................................................................................................ 6

3.1.4 Purchasing Relationships.............................................................................................. 6

3.1.5 Purchasing within Supply Chain Management............................................................ 7

3.1.6 Purchasing & Procurement risks for Foodelity ............................................................ 7

3.1.7 Managing purchasing & procurement risks ................................................................. 8

3.2 Sustainability .......................................................................................................................... 9

3.2.1 Sustainable Procurement .............................................................................................. 9

3.2.2 Sustainability risks for Foodelity ................................................................................. 10

3.2.3 Managing sustainability risks ...................................................................................... 10

3.3 Supply Chain Management ................................................................................................ 11

3.3.1 Supply Chain Management......................................................................................... 11

3.3.2 Sustainable Supply Chain Management.................................................................... 11

3.3.3 Supply Chain management risks for Foodelity.......................................................... 12

3.3.4 Managing supply chain risks ....................................................................................... 12

4 Strengths and Limitations ........................................................................................................... 14

5 Conclusion and recommendations ............................................................................................ 14

6 Bibliography ................................................................................................................................. 16


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2 Introduction

Foodelity is doing business with Greece on the food market. It buys its food materials

almost exclusively from Greece to be processed in their own products. The CEO of

Foodelity is worried about its purchasing, procurement and supply chain management

strategies because of the disputable economic position of Greece.

Also the sustainability of this relationship is questionable and under high pressure.

Foodelity wants to identify the risks and possibilities to change the procurement and

supply chain management strategy with Greece. Foodelity wants to make its position

more sustainable than Greece is probably able to offer. More variety with multiple

suppliers seems to be advisable.

The goal of this report is to offer information to Foodelity about the related topics of

purchasing, procurement, supply chain management and sustainability with the risks

involved. Major risk elements that need to be considered for ensuring the success of the

procurement and supply chain management strategy of Foodelity needs to be identified

and considered. This brief study only analyzed the possible risks of the current

relationship with Greece and its relevance to the procurement and supply chain

management strategies of Foodelity, where sustainability plays an important role. Other

procurement and supply chain management issues not related to Greece are out of

scope.

During this research, two main areas were analyzed which could be beneficial for

Foodelity. These are - the possible risks that could arise and - the management of these

risks related to procurement and supply chain management strategies and

sustainability. Data for this research comes from literature review related to purchasing,

procurement, sustainability and supply chain management. Industry research and local

government reports were used to analyze the relevant economic situation of Greece

and to find possible other case studies.

There are two main sections in this report. The first section about the Findings presents

information about purchasing & procurement, sustainability and supply chain

management. These topics are - first theoretically described – and then they are linked

to the reality of Foodelity. This is done by - describing the possible risks that could arise

and - how these risks can be managed within the context of Foodelity.

The second section about the limitations, conclusion and recommendations provides

conclusive information and suggestions for the road ahead.


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3 Findings

3.1 Purchasing & Procurement

3.1.1 Purchasing

Purchasing has a mixed definition and is called different names as a business function,

like procurement and supply management. Overall it covers a wide area from buying

goods and contract negotiation to more complex social, political, economic,

technological and ethical aspects (Barrat & Whitehead, 2004).

There is a distinction to make between local and national or global purchasing and

supply management where complexity increases in all the elements (Pooler, et al.,

2004). Purchasing and supply chain management can positively contribute to the

competitive position of an organization by increasing its effectiveness and efficiency in

buying and selling (Barrat & Whitehead, 2004; Bailey, et al., 2015).

3.1.2 Procurement

There is a shift detectable from purchasing to overall procurement management where

purchasing is just one of the many elements. Overall this means that the responsibilities

of purchasing increased and that the expertise needed demands many more qualities

from staff being occupied with procurement (Marquez, 2010; Barratt & whitehead,

2004).

The transformation from purchasing to procurement changed from operational to tactical

and strategic management of resources and suppliers. Procurement is more about

change management to guide the process of purchasing, the connected activities and

the relationships within the whole supply chain (Cooper, et al., 2005; Bailey, et al.,

2015).

The evolvement of procurement can help to implement the correct organizational design

and processes to prevent having poor service levels, bad performance, fragmented

resources and insufficient skills among employees. To be able to influence these factors

it is necessary to analyze what transformation means when seen from a procurement

perspective (Burt & Pinkerton, 1996; Baily, et al., 2015)


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3.1.3 Purchasing and Change

Several drivers stood at the foundation of the evolution of purchasing. These drivers

transformed the role of purchasing dramatically and the needed changes can be found

within the definition of them (Burt & Pinkerton, 1996; Marquez, 2010). Although many

driving forces are formulated in different sources, four of them are mentioned here being

the technological, social, political and economic drivers. They turned purchasing into

strategic procurement management (Bailey, et al., 2015).

Technology made purchasing fundamentally different through the change from paper to

electronic transactions. The social interaction changed because communication could

be done with the speed of light. International economic drivers made purchasing a much

more global integrated endeavor and political changes made the borders of doing

business fluid resulting in an exploding exchange of goods and knowledge (Bailey, et

al., 2015).

Purchasing changed through these driving forces from an internal focused activity to a

strategic organizational movement where the company acts as one global business unit

(Quitt, 2010).

3.1.4 Purchasing Relationships

The buyer-supplier relationship has changed dramatically over the years from traditional

to a more mutual beneficial intertwined connection. The traditional approach was often

short termed and mainly focused on price where the supplier was not seen as a closely

related business partner (Barrat & Whitehead, 2004).

Over the years this traditional view changed into a more strategic supply partnership

where transparency in communication between the connected organizations is a key

element for its success (Burt & Pinkerton, 1996).

Competitive and consistent procurement strategies are mainly focused on increasing

the bargaining power of the buyer for leveraging purchasing on a global scale as part of

the procurement management strategy (Marquez, 2010). This approach is fully in line

with the strategic supply partnership as described by Burt & Pinkerton (1996) and the

successful partnering relationships based on clearly defined and transparent contractual

terms between the related business partners (Mosey, 2009).


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3.1.5 Purchasing within Supply Chain Management

Procurement is tightly integrated in supply chain management and together with the

supplier focus it is one of its building blocks (Basu & Wright, 2008). Supply chain

management is concerned about the flow of goods and materials to support the

organization, wherein procurement management has its natural place and is focused on

purchasing within this flow (Segal, 2009).

3.1.6 Purchasing & Procurement risks for Foodelity

Because Greece was until the global financial crisis rated as an advanced economy

(Serafeim, 2015), Foodelity had formed several strategic supply partnerships with Greek

food suppliers. These partnerships were even made tighter because the Food sector

was up until 2007 one of the most important industrial sectors of Greece (Notta, et al.,

(2010) and Foodelity trusted the figures.

Through contractual terms Foodelity had decreased the amount of suppliers it had done

business with in other countries. This made the buying of Food ingredients cheaper

because they got better contracts by increasing the amount of Greek trades. The big

risk was that Foodelity made itself more dependent on the Greek economy. Before the

financial crisis this seems to be no problem.

This was false security because Greek governmental statistics were manipulated by

revising deficit numbers upwards. The economy of Greece suffered from competiveness

deficit where most sectors seemed less competitive compared to other countries

(Serafiem, 2015). This resulted in hidden costs through risks of a vulnerable supply

chain, while the initial procurement and supply chain negotiations seemed to be

profitable (Barrat & Whitehead, 2004). A direct result was a procurement and supply

chain management strategy based on false assumptions.


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3.1.7 Managing purchasing & procurement risks

There are several risk areas that must be addressed and managed by Foodelity to

increase the quality of the procurement management strategies with Greece. They are

in short and described by Baily, et al. (2015), - the risks of unreliable supply, - technical

risks of bad food that has to be reprocesses, - the reliability of the sources of supply, -

the risks that expected services are not in place, - the risks of bad responsive suppliers

in the chain and finally – the risks of bad quality of the final delivered products.

All these risks should be present in the new risk management methodology and strategy

of Foodelity and a risk register could be helpful to categorize them for better evaluation

(Barrat & Whitehead). Measurement of risks must be done to rate and predict the

probability these risks will occur and what the risks are when they occur (Baily, et al.,

2015).

Based on the outcome Foodelity must determine which risk avoidance techniques it will

implement and what the risk attitude of the organization will be. Will it be risk avoidance,

risk transfer or risk acceptance when responsibility measurements are taken into

account (Research, 1989; Taylor, 2009)? This all needs to be embedded in proper risk

response planning for supply chain management strategies when doing business with

Greece to prevent or predict future risks (Pandian, 2007).


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3.2 Sustainability

There are a lot of definitions of sustainability but three main areas are shared among

many of them. These three main areas are the environmental, social and economic

aspects. The environmental elements are concerned with the planet and being green,

where the social aspects are more concerned with the people, but in many ways they

are closely related to each other. The economic drivers are concerned with profits and

prosperity but within the boundaries of the first two (Morris & Pinto, 2007).

The importance of purchasing and supply in the sustainability efforts organizations

undertake will grow in the future and includes suppliers. Today the environment

demands continuous improvements in procurement costs and quality. These

sustainability improvements must be reflected in the whole supply chain (Hoeven, 2009;

Monczka, et al., 2009).

3.2.1 Sustainable Procurement

While often the short term benefits prevail, it is important to integrate sustainability in

procurement and supply chain management strategies. Sustainability does hit two sides

of the coin in this context. It is about sustainability related to future generations and

being careful with environmental aspects, but it can also be related to the sustainability

of the relationship between business partners and customers in the supply chain and

procurement process (Kotzab, et al., 2005; Ross, 2011).

To increase the sustainability of these two sides partners needs to closely work together

in the startup phases of a project (Mosey, 2009). This kind of procurement and supply

chain management is about shared processes and co-development from where

partners grow towards a linked competitive vision.

Combined strategies must be created with mutual beneficial marketplace development,

contract transparency and risk management; where sustainability is increased through

the use of highly integrated and complex green environmental savvy technologies

(Kotzab, et al., 2005; Ross, 2011).


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3.2.2 Sustainability risks for Foodelity

The sustainability risks for Foodelity can mainly be found in the exogenous or external

areas and it is highly advisable that a risk analysis methodology like PESTLE or BPEST

is used with an emphasis on the PES (Political, Economic, and Social) elements (Alarm,

et al., 2002). This should be done because the Greek government and many

organizations with her showed severe weaknesses that triggers many concerns for

Foodelity.

From the beginning of the crisis it became clear that Greece was characterized by weak

institutions compared to other countries and that the government showed poor

governance practices. Severe risks could be found in high corruption levels and wide

tax evasions combined with substandard functioning courts and suspicious government

behavior (Serafeim, 2015).

This lurching unstable sustainability on the PES elements and specifically the

untrustworthiness of governmental institutions and organizations within Greece

(Serafeim, 2015) made green sustainability for future generations unbelievable and

uncertain for Foodelity. It becomes very difficult to control the quality of the food from

suppliers. Ethical elements urge the need for Foodelity to re-evaluate the tightly

integrated procurement and supply chain management strategy with Greece.

3.2.3 Managing sustainability risks

Sustainable partnership is only possible when all its members are trustworthy about

what is being done in the procurement and supply chain management strategies (Burt &

Pinkerton, 1996). Foodelity must redefine the ethical standards it demands from Greek

food suppliers.

These ethical standards must be described, approved and executed related to contract

terms and sustainability aspects in the supply chain with Greek food suppliers and

related governmental institutions. The same is true for environmental aspects, which

must be made safe for future generations (Barrat & Whitehead, 2004).

Foodelity must again make objective observations of the current state of Greek

organizations and her food supply chain management strategies and let emotional bias

not cloud their judgment when analyzing risky contracts. They must change their

organizational attitude towards these risks to move Foodelity into the safe green zone

again (McManus, 2004; Raftery, 1994).


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3.3 Supply Chain Management

It can help to visualize the concept of supply chain as a group of organizations linked

together in purchasing and procurement collaboration (Barrat & Whitehead, 2004). The

supply chain characteristics changed dramatically over the last decades from traditional

buyer, seller contract negotiations towards a more strategic partnership where

sustainability in the relation as well as towards environmental elements became more

important and experienced as valuable elements (Burt & Pinkerton, 1996).

3.3.1 Supply Chain Management

In the current global market it is better to think about value-supply chain management

with a focus on the suppliers and customers to increase the value by leveraging and

optimizing its elements. The goal of value-supply chain management is to create an

overall view of all the links in the chain to minimize the time and maximize the quality of

the strategic supply chain partnership. This is done for optimal production and transfer

from raw materials to the final products and consumption (Chang, et al., 2004; Burt &

Pinkerton, 1996).

There is a trend towards service on all levels of this value added supply chain.

Especially in the global market place it is imperative that the value-supply chain includes

the services and manufacturing as an integrated system (Basu & Wright, 2008).

3.3.2 Sustainable Supply Chain Management

Sustainability in supply chain management increased through the shift from just having

a supply chain focus towards the value-added supply chain management strategy

where services in all the layers towards suppliers, buyers, customers and environmental

factors are taken into consideration (Chang, et al., 2004; Burt & Pinkerton, 1996; Basu

& Wright, 2008).

When doing so it is easier to detect and remove or avoid risks because supply chain

risk management is related to multi-dimensional problem analysis between limited

resources. Adequate planning, quality of services from suppliers and transparent

contract negotiations are necessary elements to make this kind of analysis work

properly (Wu & Blackhurst, 2009).


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Ethical behavior and trustworthiness are key elements that should be in place or else

risks are more difficult to detect and measurements will be too late and insufficient.

Without these elements green sustainability and responsibility for environmental factors

and future generations are difficult to control within supply chain management strategies

(Moncka, et al., 2009).

3.3.3 Supply Chain management risks for Foodelity

The risks for Foodelity are mainly concerned with the irresponsible behavior of Greek

organizations and governmental institutes. It is fuzzy where food supplies come from

down the chain and how the quality is secured for both the products as well as the

environmental protection.

Because partners in Greece do not monitor each other properly and insufficiently

enforce certain behavior in the supply chain, the risks of having unethical standards or

no standards at all is overly present, although not always visible which is a major risk on

its own (Barrat & Whitehead).

Today there are several initiative to lower these risks within the supply chain by defining

regulations that suppliers needs to adhere to. While a good overview is given of

environmental laws in the United Kingdom by Stubbs (1998), some are more broadly

known like the CSR (Corporate Social Responsibility) and ISO 14001 standards for

example.

3.3.4 Managing supply chain risks

While figures are manipulated or plainly disappear, Foodelity must demand that certain

known, accepted and respected regulations are implemented within the supply chain

management strategies of Greece, like the ISO 14001 or the CSR for example (Morris &

Pinto, 2007; Barrat & Whitehead).

ISO 14001 formulates environmental standards that should be embedded in safe,

trustworthy and sustainable supply chain management. It is mainly focused on the

support of environmental protection (Kotzab, et al., 2005; Basu & Wright) where CSR is

more concerned with the social aspects of the supply chain to both the environment as

well as towards the members of a partner relationship (Bailey, et al., 2015). Both

standards should be integrated in future supply chain management strategies of

Foodelity.


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Foodelity must act more responsible and should also include HAZOP (Hazard and

Operability) and IEC 62198 (Project Risk Management) in their solution analysis

(Cooper, et al., 2005) but probably others need closer attention also. The supply chain

management strategies of Foodelity must be reviewed and redefined and Greek

organizations should be analyzed more closely to determine if they are sustainable

enough to do business with in the future.


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4 Strengths and Limitations

This research was mainly focused on giving a short description of the main topics

purchasing, procurement, sustainability and supply chain management. Based on these

topics the status of Foodelity within the procurement and supply chain collaboration with

Greek organizations and governmental institutions was analyzed.

This narrow focus is the strength of the study but also its weakness. Its strength is

expressed through the clear and obvious risks that exist in the relationship between

Foodelity and Greece where workable conclusions and recommendations could be

based upon. With these basic descriptions of the risks and recommendations Foodelity

is able to alter its course and get herself out of the major risk zones.

The weakness of this research is its simplicity and again narrow focus. Just the tip of

the iceberg could be analyzed and much is left to be discovered. The conclusions and

recommendations are based on this high level and abstract simplicity and its

interpretation and applicability must take this simplification into account.

5 Conclusion and recommendations

Foodelity needs to show more fidelity towards its own sustainability in procurement and

supply chain management. Primarily ethical reasons are the source of the current

problems Foodelity undergoes. Her business partners express huge disinterest in a

sustainable co-development towards a more trustworthy integrated supply chain

(Kotzab, et al., 2005; Ross, 2011) which is stable enough to enter the future.

This report shows that the main reason for the current failing sustainable supply chain

management strategies of Foodelity is a result of an inadequate implementation of

ethical, social and environmental standards where business partners must adhere to. It

is obvious that the current supply chain in Greece is unstable, untrustworthy, show little

respect for ethical behavior and has fuzzy suppliers delivering questionable materials

for Foodelity.

When this situation is not drastically changed and Foodelity does not alter its business

relationship with current Greek suppliers and governmental institutions, then Foodelity

will no longer have the right to exist. Foodelity must show more interest and

responsibility towards its own sustainable supply chain management strategies where

business partners, employees and environmental elements can thrive and be safe

again.


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Therefore it is recommended that Foodelity should search for other suppliers from

different countries and markets. It is also highly recommended that Foodelity will only

choose business partners that have a verifiable track record of ethical behavior and

purchase from trustworthy partners themselves.

Furthermore it is advisable that current contracts are changed and aligned with other

needs that adhere to a sustainable transparent supply chain partnership fundamentally

different than the contracts that have led to this downfall. Foodelity must repel the

‘barbarians’ in the future to become a healthy company again. Towards a future where

its leaders show fidelity to Foodelity because that is what this organization needs.


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6 Bibliography Alarm, Airmic & IRM, 2002. A Risk MAnagement Standard, London; Deven: Alarm; Airmic; IRM.

Bailey, P. et al., 2015. Procurement Principles & Management. 11 ed. Edinburgh Gate: Pearson.

Barrat, C. & Whitehead, M., 2004. Buying For Business Insights in purchasing ans supply management. 1

ed. Chichester: Wiley.

Basu, R. & Wright, J. N., 2008. Total Supply Chain Management. 1 ed. Burlington: Elsevier.

Burt, D. & Pinkerton, R. L., 1996. Strategic Proactive Procurement. 1 ed. New York: American

Management Association.

Chang, Y. S., Makatsoris, H. C. & Richards, H. D., 2004. Evolution Of Supply Chain Management. 1 ed.

New York: Kluwer Academic Plusblishers.

Cooper, D., Grey, S., Raymond, G. & Walker, P., 2005. Managing Risks in Large Projects and Complex

Procurements. 1 ed. West Sussex: John Wiley & Sons.

Hoeven, H., 2009. Sourcing and Procurement as Driving Forces for Sustainable Business, Utrecht: IDH.

Kotzab, H., Seuring, S., Muller, M. & Reiner, G., 2005. Research Methodologies in Supply Chain

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Marquez, A. c., 2010. Dynamic Modeling for Supply Chain Management. 1 ed. New York: Springer.

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Management. 4 ed. Mason: South Western.

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Mosey, D., 2009. Early Contrator Involvement in Building Procurement. 1 ed. Iowa: Wiley-Blackwell.

Notta, O., Vlachvei, A. & Samathrakis, V., 2010. Competitiveness - the case of Greek food manufacturing

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Pooler, V. H., Pooler, D. J. & Farney, S. D., 2004. Global purchasing and Supply Management. 2 ed. New

York: Kluwer Academic Publishers.

Quitt, A., 2010. Measuring Supply Management's Budget Effects. 1 ed. Wiesbaden: Gabler.

Ross, D. F., 2011. Introduction to Supply Chain Management Techniques. 2 ed. Boca Raton: CRC Press.

Seghal, V., 2009. Enterprise Supply chain management. 1 ed. New Jersey: John Wiley & Sons.

Serafeim, G., 2015. Greece's Debt: Sustainable?, Boston: Harvard Business School.


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Stubbs, A., 1998. Environmental law for the construction industry. 1 ed. London: Thonas Telford.

Wu, T. & Blackhurts, J., 2009. Managing Supply Chain Risk and Vulnerability. 1 ed. New York: springer.

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