The integration of supply management as a strategic business functions presents dynamics benefits and challenges for an organization. The effective management of production systems, customer systems, and enterprise systems is significantly depended on the reliability of the existing supply chain management system (SCM). While the positive outcomes of integrating SCM are numerous, challenges in management of existing supply chains may present from time to time. The identification of problem areas and development of comprehensive solutions in the short-term and long-term is vital for a sustainable competitive advantage for the firm. The examination of factors that influence the functionality of supply chains is vital towards ensuring that resources are in adequate supply from the start point to endpoint in the production chain.
The acquisition of supply chains presents an organization with a significant competitive advantage. The ability of an organization to make prudent supplies to its existing and new customers is vital towards the preservation of appositive business relationship. Similarly, suppliers to the company are expected to meet demand at any given time; hence, the integration of a comprehensive supply chain management system ensures that potential problems are identified in time and managed accordingly. However, challenges in the management of relationships with suppliers may occur resulting in strained relationship. In addition, may occur impropriety behavior leading to mismanagement of available supply chain resources causing problems with suppliers and customers. The aim of this paper is to critically evaluate the current purchasing function at B&W after its acquisition by SABIC. A close examination of its business operations; particularly, the purchasing function has led to the discovery of various irregularities. The paper will also examine possible solutions to supply chain management issues that could result in enhanced efficiencies and improved relationships with employees, suppliers and customers.
Supply chain management is a critical business strategy that ensures organizational goals are realized on a timely basis through consistent and reliable supply of critical resources. Modern business models have come “to the realization that supply chain management is no longer a matter of operational and functional areas a firm but a strategic issue demanding top management attention” (Ittman 1114). Companies are increasingly identifying new business opportunities and strategies that will enhance competitive advantage and business “looking for ways to compete in the global economy” have invested adequately in supply chain management (Croson and Donohue 74). The developments in technology have made supply chain an integrative tool that informs business strategies towards enhancing organizational productivity. Dynamic information technologies and applications such as “enterprise resource planning (ERP), supply-chain management and Customer relationship management systems” have become a necessity, especially in a business environment that is experiencing constant changes (Barber 183).
The management of supply chains requires the application of efficient and reliable business practices that enhance both the customer and seller’s position. Therefore, the incorporation of “approaches that enhance supply chain competitiveness” is necessary to ensure that risks are reduced towards the realization of the set bottom line (Johnson 191). Mahyar Amouzegar observes that an “effective supply chain management integrates logistics in the context of inventory management” (144). These ensure that various factors that influence the functions of the supply chain are adequately and promptly addressed.
Wolf asserts that “supply chain management plays a central role in achieving sustainability” (221). Therefore, a comprehensive evaluation and monitoring systems is required to ensure that supply chain as a strategic business function is working according to expectations. Kleijnen and Smits concur that the integration of “multiple performance metrics via a balanced score card” should be used to evaluate supply chain systems (507). The decision to make purchases and procurement is informed through the management of inventory and procurement systems that are integrated with SCM systems (Korosec 93). The “supply chain design” has an impact on diverse organizational functions that are interlinked and interdependent within the organization (Johnson 309).
Huggins and Olsen observed that supply chain management systems ensure that demand for materials placed by “downstream facilities match with the inventory available upstream” (1154). Ensuring the availability of resources is among the roles that supply chain management system plays. SCM integrates “a worldwide network of suppliers, factories, warehouses, distribution centers and retailers” who ensure that the organization is adequately supplied with the materials and resources needed for uninterrupted operations (Gunasekaren, Macbeth and Lamming 1112). Barney observes that “the impact of different types of resources and capabilities on sustained advantages” should be carefully examined towards making appropriate supply decisions (4). Pagell and Wu concur that organizations should ensure that their strategies are “unique in regards to managing their supply chain in a sustainable manner” (37). The “coordination of the entire supply chain from raw materials to customers” (Khouja 984), is a vital aspect of the supply chain management that managers should take time to evaluate. According to Mak and Ramaprasad, the integration of SCM with “knowledge management and intellectual capital” is critical towards the establishment of reliable and effective supply chain (175).
The research methodology integrated a synthesis of existing literature on supply chain management. The resources identified included peer reviewed scholarly articles and journals obtained through selective keyword search in different databases including ProQuest, Emerald Green and JSTOR among others. The articles were examined for relevance to the research question and representation of current issues in supply chain management. The research involved qualitative analysis to examine the reliability, relevance and applicability of information and data on the identified articles to the research problem.
The creation of the strategic business units has enabled SABIC to develop products that are tailored to the unique needs of its consumers. The Innovative Plastics business unit for the company known as the Bergen op Zoom Global Application Technology Center (GApT) is critical to the development of innovative, reliable and cost effective products. The objective of this business unit is to develop solar panel products and materials that are sustainable and accessible across the globe. Since traditional raw materials such as steel, copper, aluminum and glass are becoming scarce while their costs continue to increase, the company has made an effective strategy of creating a business unit dedicated to providing alternative solutions. These have an impact of increasing the company’s competitive advantage and market share. In addition, the use of lightweight, high performance thermoplastics to replace the heavier metals has led to the development of a sustainable product in the short term and long term.
Acquisition of Barnes and Wallace
The takeover of the UK Company, Barnes and Wallace Ltd (B&W) is a strategic move that SABIC headquarters and Bergen op Zoom have made in order to enhance the company’s business position and strategy. B&W is a company that owned a critical resource that is instrumental in the realization of SABIC’s organizational goals. Particularly, the acquired company offers SABIC a unique opportunity to acquire critical suppliers while eliminating the cost of using another company to perform a critical process in its manufacturing process (Bhattacharya 216).
B&W becomes a critical resource will not lead to increase efficiencies, cost reduction and expedite material supplies. The fact that SABIC through its strategic business unit at Bergen op Zoom was buying a critical component for the production of solar panels from B&W indicates that it has a significant influence on the company’s (SABIC) profitability. However, though the acquisition presents the company with a strategic advantage against competitors, it is evident that various problems existed in the management of B&W. these issues have dissatisfaction among suppliers and has cost the company significant customers.
B&W’s Supplier Management Issues
The discovery of various problems with the relationship between suppliers and B&W presents potential risks for the company. It is evident that the relationship between the former owner, Albert Barnes and suppliers was problematic as a result of his business approach and management of suppliers. The potential risks for the company include:
Loss of suppliers as a result of poor business negotiation skills on the part of the former owner especially when dealing with suppliers. According to the suppliers, Albert squeezed them for unreasonable prices; however, since the suppliers could not comply with his demands, it is possible that they would seek more flexible buyers among the company’s competitors. This implies that the company would lose key suppliers and it would be significantly difficult to build new relationships with new suppliers given the current reputation of B&W.
The assertion that a business idea from another supplier was stolen indicates an infringement on another person’s intellectual property. The implications are numerous since the company can be sued for copyright infringement by the registered owner. Furthermore, it creates negative publicity that the company does not respect the property rights of its business partners, making it difficult for the company to develop new relationships with suppliers, financiers or creditors for fear of potential liabilities on the part of B&W (Enright 26).
The purchasing process and accounting procedures are poorly management especially the poorly kept records. The fact that only invoices are recorded while other transactional records are not kept is a gross violation of fundamental business practices and ethics (Flynn 212). The company risks being audited and reported for accounting malpractice. In addition, government agencies such as the Internal Revue Service (IRS) require full disclosure of incomes and expenditures that a company incurs. The Purchasing function is critical since it ensures that the value of materials acquired is commensurate to the payments made. These can only be ascertained through comprehensively kept records.
In addition, it has been reported that people all over the business are placing low value orders with 16000 different suppliers worldwide in order to circumvent Albert’s controlling mechanism. These places significant risk to the business since it is possible that poor quality materials will be supplied that do not meet the set standards. In addition, there is a risk of financial misappropriation since it is difficult to track the numerous suppliers for small supply orders that are made by individual employees.
Impacts of Prioritization within the Process and Function of Purchasing
The purchasing function integrates various processes that are executed according to priority and impact on the overall business strategy. It is evident that B&W neglected to take appropriate measures to ensure that choices and decision on purchases were made on a priority basis. The former chief executive, Albert made purchases from suppliers on his “list” on the basis of his perception of what was needed most. The implications were the various departments and employees making smaller acquisitions in order to execute their respective jobs. Prioritization in purchasing functions has various benefits that include, cost saving, eliminating redundancies, enhancing efficiency and productivity, and fostering ethical practices in the work place (Flynn 146).
The purchasing function serves the various production departments in the company through ensuring raw materials and other supplies are available where and when needed. Since B&W lacked a structured purchasing function and supply requisitions were made by Albert against the advice and recommendations of the company’s engineers and production managers. Since Albert bought materials without taking into consideration he needs of the various departments, the company suffered significant losses in reduced production capacity, prolonged waiting times and uncoordinated production timelines. The impacts of prioritization in the purchasing functions lead to purchases being made according to their urgency and cost impact on the overall production process. For instance, B&W should make purchases according to their urgency in the production of solar panels (Van Weele 115).
Elimination of Redundancies
Prioritization ensures that all employees at the various production units are occupied with work. The time that is wasted waiting for the suppliers to deliver the materials requisitioned is eliminated since prioritization ensures that materials are delivered in time. In addition, the suppliers are given adequate time to deliver the supplies. The B&W case illustrates that prioritization is not integrated as a fundamental practice in purchasing. Therefore, the company continues to face instances where employees have work but they cannot complete it since suppliers have not delivered the needed materials (Flynn 77).
Enhancing Efficiency and Productivity
The primary objective of the purchasing function is to ensure that the various production units have the needed materials. However, the availability of such materials can be compromised in the event that prioritization is not considered as a key factor in making materials order decisions. If the materials required for various processes are provided in time, the efficiency in the production processes will increase. Furthermore, employees in engineering and production units of the company will be more productive since materials will be available when needed. Prioritization ensures that employees remain motivated since they morale is enhances in situations where everything they need to do their jobs is available when and where it is needed.
Foster Ethical Practices
The potential for unethical purchasing practices in the event that prioritization is not considered as a core component of the purchasing processes is high. Ethical practices in business require that each organizational function should be managed in a transparent and prudent manner with a view of the immediate needs for the organization (Flynn 146). A strategically managed purchasing process adheres to prioritized requisitions according to urgency and impact on the organization. However, the B&W case indicates that purchases were not prioritized which is an indication that other lapses exist in various aspects of the business. The delay in paying the suppliers is among the issues that have potential to injure the company’s reputation other suppliers, regulatory bodies and customers. Additionally, the employee may be tempted to misappropriate funds since prioritization is not considered; delays in delivery can be tolerated making the problem escalate further. It is through prioritization that employees can act ethically especially purchasing employees.
Prioritization is based in decisions made after evaluating the impact that a decision to requisition which product and at what time, will have on the organization’s goals. The purchasing decision should be subjected to vetting processes that determines whether a purchase order is urgent or whether it will have significant impacts on the company’s performance in the short or the long term. Purchases orders are ranked accordingly with the most needed items being given high priority. Since suppliers may take time in delivering the requisitioned products, comprehensive planning is needed to ensure that orders are placed in time in order to ensure that suppliers deliver goods without delays.
Developing Positive Relationships with People at B&W’s Suppliers
The previous management at B&W failed to consider suppliers as a critical resource for the company’s production processes. Thought he previous owner, Albert was considered as an aggressive negotiator and businessman, it is evidence that he failed in developing business relationships with customers and suppliers equally. The attainment of organizational goals requires careful assessment and management of available resources especially suppliers since they are the company’s bloodline in the production process. In order to establish positive relationships with the suppliers, B&W will be required to develop a comprehensive supplier management strategy that includes, timely payments, development of relationships with supplier, provide support and share information accordingly.
It is evident that previously, suppliers have not been paid in time which has resulted in three key suppliers threatening to sue the company for breach of contract. In addition, the unreasonable demands for concessions in pricing that the suppliers could not meet caused suppliers to stop doing business with the company. Therefore, among the first things that the company should do include recognizing the suppliers as business entities that must be respected and payments made in time.
B&W expects its customers to pay for their purchases; similarly, the company should make similar commitments to its supplies by ensuring that contractual terms are met especially regarding payments. In the event that the company expects delays in payment, such delays should be communicated prior to the signing of the contract and the expected payment dates indicated in the contract. If unexpected events occur, B&W should notify the suppliers of such events or changes that may affect their payment. It is prudent to ensure that suppliers are appraised of the situation before they begin making follow ups regarding their delayed payments.
Develop a Relationship with Suppliers
Among the failures of the previous management at B&W was the poor relationship between the company and its suppliers. Though the former owner was largely responsible for the poor relationships between the company and its suppliers, the consequences affected the entire company’s production process. It is critical that the new management develop positive relationship with the suppliers through getting to know the suppliers business and individuals managing the supply companies. Though electronic communications such as emails are considered as the official communication methods, it is necessary to ensure that B&W’s management meets the suppliers in a face-to-face meeting. This will aid in the development of a person-centered relationship where the people running these businesses get to know each other on a professional and personal level. These meetings can take the form of luncheons, where personalized rapport between the purchasing function and the suppliers is encouraged.
Provide Needed Support
In order for the suppliers to meet their obligations in making supplies as expected, the company should provide them with the needed support. For instance, the company may be developing a new product line that requires additional or new materials. Therefore, providing the supplier with this information and lead time to enable them to deliver the new supplies is necessary. In addition, B&W should develop a communication line between the suppliers and the company with the aim of facilitating smooth flow of information. Making the supplier’s job simple and easy is necessary especially if changes in the supply order are required. Last minute demands and changes in the supply order can inconvenience both the company and the supplier. Supply orders should be made clearly and in a reasonable time frame. In the event that there are various choices of materials to be made, including the supplier in the decision making process can be helpful in make the right decision in accordance with the company’s needs and goals.
Sharing information regarding the business and operations of the company is necessary in developing a mutually beneficial relationship with suppliers. B&W should ensure that the suppliers are informed on a timely basis in the event that significant changes occur in the company’s operations or management. For instance, the recruitment of a new purchasing manager should be communicated to all suppliers immediately the appointment is made. This prevents breaking the line of communication between the supplier and B&W. New branches, production units, product lines or promotions should be communicated to suppliers. Sharing information enables suppliers to adjust their suppliers accordingly while integrating the new information in the supply orders. Changes in production volumes should be communicated; hence suppliers are prepared to make the necessary changes or providing additional services that may be required.
Recommendation for Improvements to Process and Governance within B&W
The implications of B&W’s management on its organizational goals are detrimental given that the relationship with suppliers has deteriorated and the purchasing records are poorly kept. Meanwhile, the employees are disregarded when it comes to making decisions that impact their respective departments and the company’s overall goals. A comprehensive change through improved processes and governance within B&W is required; hence, the following recommendations should be implemented:
The purchasing manager should ensure that complete records are made and integrated into the company’s books of account. The fact that the previous management did not keep any records of purchasing transactions including payments to suppliers is highly irregular, unethical and against prudent business practices. Particularly, records should be kept according to pre-defined accounting standards; hence all purchasing transaction be recorded according the category they fall under and not treated in the same manner across the board.
B&W should be transparent regarding its financial position and ability to meet financial obligations to suppliers. Therefore, the company should allow suppliers to inspect their books as a gesture of transparency and goodwill. This will reassure the suppliers that B&W is capable of paying them once supply deliveries are made.
The purchasing function should be restricted to ensure that purchasing decisions are made on the basis of the requisition for materials made by the various production departments. Therefore, purchases will integrate prioritization criteria, where the most urgent materials are ordered and paid for first.
The purchasing manager should not make purchasing decisions without consultation with the respective department heads, finance managers and key employees capable of making reliable predictions on material needs in the production process.
The overhead costs applied to various processes should be verified to ensure that accurate figures are recorded. This will prevent inflation of overhead with the aim of hiding unexplained costs.
The purchasing function should be centralized and all production units required to present material requisitions to the purchasing function (Van Weele 70). The material requisitions should be made within given time frames to give suppliers ample time to make deliveries. This will prevent the numerous suppliers engaged by various employees or departments since the purchasing function is failing. Centralization of the purchasing function will ensure that the suppliers are vetted through competitive process that guarantees the quality of materials supplied.
B&W should restructure its customer relations and support strategy. This aims at ensuring that customers provided with qualitative products and support services. It is highly likely that satisfied customers will return and inform others as well. Hence the company will retain its current customers and acquire new ones.
B&W should encourage and reward innovation among employees. It is evident that better production methods and technologies continue to be developed; therefore, the company should integrate such changes through innovation and integration of new production techniques (Griffin and Moorhead 103). For instance, the people in engineering and production at B&W have developed a new range of lightweight components to replace existing designs. These innovative developments should be rewarded and integrated in the company’s processes immediately to save costs and enhance efficiencies in the production processes.
The purchasing function including the stores and warehouses should integrate stock control systems that ensure re-order levels are established across the board to prevent stock outs or overstocking. A stock management system aids in identifying critical stock levels and ensuring re-ordering is made when the re-order level is met (Muller 132).
The suppliers should be paid promptly to ensure that there are no delays in future delivery of stocks and legal actions for breach of contract are prevented.
The credit control clerk and any employees dealing with the company’s finances should be employed full time. The current credit control clerk is employed on a part time basis which makes it difficult to manage and meet the company’s financial obligations especially when the credit control clerk is not working. A full time credit control clerk will be able to manage the company’s credit effectively while taking the required measures when and where needed.
The company should develop and integrate comprehensive electronic processes that include information technology systems. Modern production and business management systems have adopted electronic process that are managed, controlled and monitored through integrated information technologies (Griffin and Moorhead 103). In addition, business functions should use electronic processes since they enhance productivity; reduce the incidence of errors and loss of critical data.
Time Phased Plan for Action at B&W
The examination of B&W has identified various issues that must be addressed before the company can be designated as an ideal semi-autonomous or autonomous subsidiary of SABIC. Therefore, a time phased plan for action is needed to ensure that B&W can turn around its business to become a profit making center for SABIC. The action plan will include early actions, intermediate actions and long term actions.
Intermediate Actions: These will include:
Determining the amount of cash injection that SABIC will inject into B&W in order to pay off the unpaid suppliers and secure new contracts for supplies.
Execute supply positioning and engage key suppliers with the aim of establishing a reliable and trusted supply chain.
Define and implement credit control measures that include hiring a full time credit control staff.
Develop and implement comprehensive policies, rules and regulation regarding expenditure.
Inform suppliers and customers of the major changes in management, new expenditure policies, rules and regulations.
Recruit qualified personnel for the purchasing function and establish a competent team under the leadership of the new purchasing manager.
Liaising with SABIC’s purchasing function with the aim of streamlining B&W’s purchasing function.
Identify the customers who left the company and other key customers with aim of engaging with the in the hope of securing them.
Intermediate Actions: These will include:
Development and launching of new product lines.
Establish an aggressive sales campaign the will include product promotions and advertising.
Implement the new electronic system that captures transactions, records and process them accordingly.
Create and present customer and supplier presentations towards informing them about the new products, pricing and benefits accruing to them.
Manage and control working capital including budget and cash flows forecasting.
Develop and implement a performance measurement system geared towards rewarding and motivating performance among the employees.
Compensate BoZ the overcharge that was made by Albert in a fraudulent manner.
Implement electronic processes in production, monitoring and management of various organizational functions.
Long Term Actions: These will include:
Develop an integrated computer system with BoZ and SABIC.
Increase production capacity to cover a wider market
Consider relocating to a more strategic area or region.
Establish new product lines especially outside the current product portfolio as a diversification strategy.
Integrate Just-In-Time and lean production processes.
B&W faces numerous challenges towards turning around the business into an acceptable and reliable business partner in the face of its customers and suppliers. The fact that Albert exercised an autocratic management style and failed to include other people in decision making process has placed the company in a difficult position with the suppliers. The overcharging of overheads to BoZ constitutes fraud and financial impropriety that can have detrimental implications on B&W. in addition; this action breaches the established trust between the two companies and impairs the potential for future business engagements with BoZ. The inflexibility in negotiation tactics and demands made by the previous management has pitted the company against its suppliers leading to the loss of most of them while others threaten legal action for non-payment of contractual monies. B&W should re-evaluate its business strategy and develop new approach towards dealing with its suppliers and customers including the management of company resources.
Research on comprehensive overhaul of organizational structure should be undertaken to ensure that the new management does not incorporate the practices of the previous management. The new purchasing function should be centralized and all production units required to present material requisitions to the purchasing function. The material requisitions should be made within given time frames to give suppliers ample time to make deliveries. This will prevent the numerous suppliers engaged by various employees or departments since the purchasing function is failing. Centralization of the purchasing function will ensure that the suppliers are vetted through competitive process that guarantees the quality of materials supplied.
Research into integration of stock management systems with organizational functions should be carried out. A stock management system should be implemented to ensure that duties are adequately defined in as far as stock ordering process and key tasks in the purchasing function are concerned. This will ensure that controls have been implemented that prevent people from placing orders without consulting department heads or the purchasing manager.
Further research in integration of information systems into supply chain management systems in needed. This will inform decisions such as whether B&W should implement a comprehensive information technology system that will enhance resource management and increase productivity in the company. This will ensure that purchase records and financial statements are updated accordingly. In addition, the new management should engage the employees in decision making and motivate employees through development of an integrated performance and reward system. The different functions should not be allowed to perform the duties of other functions in order to prevent misappropriations and fraud in the company.