Question

Case Study Eagersaver.com Eagersaver.com was established in 2005 by the CEO Colette Bevan as an online comparison site primarily focused on car insurance and related products. Since then it has grown, both organically and by acquisition of other companies into an organisation that now compares home insurance, legal insurance, pet insurance, travel insurance, life insurance and accident insurance. It has diversified into other comparison services in financial products, travel services and utilities. It has moved offline with the opening of call centre activities and a TV shopping channel. The company’s turnover is £100m. The Managing Director Dirk Bradfield now wishes to float the company on the stock exchange and following a due diligence exercise by Colette’s corporate advisors she has been advised to ‘professionalise the procurement activities throughout the group.’ The due diligence uncovered the following facts: • There are five locations within the UK, situated at Chester, Edinburgh, Sheffield, Bristol and Cardiff. They work independently and only one location has a Purchasing Manager (TV shopping channel). • The largest spend across the group is on marketing (£12m online and £8m TV). • Marketing is centrally managed by the Marketing Director. • Most other procurement is undertaken by service heads including IT and agency staff. • Numerous media companies are engaged often without competition. • The same or similar products and services are procured from different suppliers. • There is a range of prices paid for the same product or service, some ranging by ±30%. • Most contracts are under the vendor’s terms and conditions and in some cases there are verbal arrangements. • The company has outgrown many of its original supplier’s who are finding it difficult to cope with demand and there are instances where contract performance has slipped. • The Chief Executive is responsible for many of these problematic relationships based upon personal friendship at the inception of the company. Tasks You have been appointed into the new position of Group Procurement Director and have a meeting arranged with Colette to discuss the way forward. In considering your plan, how specifically would you deal with?

1. Structuring the procurement activities

2. Rationalising the product and supply chain

3. Managing the Marketing Director who states corporate expenditure is his budget and he will decide who has the last say on contract awards

4. Managing the expenditure attributed to other Service Heads.

Answer 1

1)

Types of procurement structures range from a single person with responsibility for purchasing, to a large, centralized department or decentralized organization with procurement professionals working in separate locations or business units.

The procurement process can be complicated one. Strategic procurement is an organization-wide process. It requires input from all departments and functional areas for an organization. Organizations should set up a strategic procurement team. This team sets the overall direction for procurement, aligned with the business strategy. The team will then use the data from the strategic procurement process to develop and implement a strategic procurement plan. Here are the 7 steps that lead to a successful procurement process.

Step 1: Conduct an internal needs analysis To begin, you’ll need to benchmark current performance and then identify needs and targets before developing a procurement strategy. This involves the collection of several different types of data. The purpose for collecting initial data is to benchmark current performance, resources used, costs for all the departments/functions in the organization, and current growth projections.

Step 2: Conduct an assessment of the supplier’s market In this step, the strategic procurement team identifies potential countries that are feasible sources of the required raw materials, components, finished goods or services. If there are specific requirements, it may limit the number of countries that are suitable. For instance, if one of the raw materials used by the organization can only be found in one country, then options are much narrower. For manufactured products, there will be a much wider range of potential countries from which to select. Services may be limited by the technological requirements of the organization.

Step 3: Collect supplier information It is important for a company to select suppliers carefully. A supplier’s inability to meet selection criteria can result in significant losses for the organization. The business reputation and performance of the supplier must be evaluated, and financial statements, credit reports, and references must be checked carefully. If possible, the organization should arrange to inspect the supplier’s site and talk to other customers about their experiences with the supplier. The use of agents, who are familiar with the markets and stakeholders, can also be beneficial to this process. Organizations may select more than one supplier to avoid potential supply disruptions as well as create a competitive environment. This strategy is also effective for large multinational organizations and allows for centralized control, but more regional delivery.

Step 4: Develop a sourcing/outsourcing strategy Based on the information gathered in the first three steps, an organization can develop a sourcing/outsourcing strategy. The following are examples of sourcing strategies: Direct purchase: Sending a Request for Proposal (RFP) or a Request for Quote (RFQ) to select suppliers. Acquisition: Purchasing from a desirable supplier. Strategic partnership: Entering into an agreement with a selected supplier. Determining the right strategy for you will depend on the competitiveness of the supplier marketplace and the sourcing/outsourcing organization’s risk tolerance, overall business strategy and motivation for outsourcing

Step 5: Implement the sourcing strategy Sourcing strategies that involve acquisition or strategic partnerships are major undertakings. In these cases, suppliers are likely to have the following characteristics: Involvement in activities core to the buyer, e.g. supply limited raw material for core product, access to highly confidential proprietary knowledge One of a limited number of available suppliers with specific equipment/ technology and skilled labour pool Part of the broader business strategy For a direct purchase, organizations may begin with an Expression of Interest (EOI), prepare an RFP or RFQ, and solicit bids from identified potential suppliers as part of a competitive bidding process. The RFP should include: detailed material product or service specifications delivery and service requirements evaluation criteria pricing structure; and financial terms.

Step 6: Negotiate with suppliers and select the winning bid The strategic procurement team must evaluate responses from suppliers and apply its evaluation criteria. Bidding suppliers might request additional information in order to make the most realistic bid, and the organization should supply this information to all bidders and enable them to respond to the new information before making a final decision. The strategic procurement team will then evaluate the received proposals, quotes, or bids, and use the selection criteria and a process to either shortlist bidders to provide more detailed proposals (if reviewing EOIs) or select a first and second successful bidder (if reviewing RFPs or RFQs). After the evaluation process is complete, the strategic procurement team will enter contract negotiations with the first selected bidder.

Step 7: Implement a transition plan or contractual supply chain improvements Winning suppliers should be invited to participate in implementing improvements. A communication plan must be developed and a system for measuring and evaluating performance will need to be devised using measurable Key Performance Indicators (KPIs). This is especially true in the early stages of using a new supplier. Transition plans are especially important when switching suppliers. Contractual Supply Chain Improvements When bringing on new suppliers, it is necessary to transfer information and establish linkages to logistics and communication systems, provide training and even specific physical assets, if required. The implementation of these transfers takes time and expertise to set and start up. Expectations during this time frame should be agreed upon during contract negotiations with time frames for full operations and deliveries. Transition Plans The transition from in-house provision of services to an outsourced service provider can be one of the riskier aspects of global outsourcing of services. How the transition to the outsourced service is handled and how it is perceived by staff and the public are very important. Transparency and preparation are key to this aspect of the sourcing strategy. These simple steps will help you and your team develop and implement a strategic procurement plan.

2)

Rationalising the supply chain is the activity of selecting the right number of suppliers and the most suitable suppliers within that numbers. Therefore the strategic consideration in rationalising the supply chain is that, the company has to look and evaluate the supply chain in a tier level perspective. The suppliers can be broken into several different tiers, with the first tier providing the major component to the company. By rationalizing the supply base, the company only needs to handle a few suppliers in delivering a complex product. This can be seen in the automotive industry and also aerospace industry.

However minimizing the number of suppliers does not necessarily translate the action into an effective supply chain. The effectiveness is highly dependent on which suppliers the company chooses and the commitment it have for long term growth and contracts. Rationalisation of the supply base is closely related to the strategy of the company for long term growth. By limiting the company’s network, it can affect the flexibility of the company to move forward. This action can only be mitigated by the means of stringent selection criteria and choosing the best suppliers to become a part of the company.

you need to make the decision process centralize and consolidate the vendors across the company

3) We need to make marketing director understand that how the increased cost is hurting the Profit and loss statement of the company. We need to explain the ways by which he can reduces the cost of the company and increased the profitablility which is required to improve the brand image of the company before listing it on the market.

By consolidation of the vendors we can make the marketing more effective and more cost efficient

4) here to manage the cost of service head, we need to understand what all the services which can be managed centrally and which can be managed at different offices. We need to consolidate those vendors and services which are common across the offices and reduces the cost. And need to introduce the competative process to reduce the cost