CONTEXTS OF PROCUREMENT AND SUPPLY CIPS DIPLOMA LEVEL NOVEMBER EXAMINATIONS 2017

Transcription

1 CONTEXTS OF PROCUREMENT AND SUPPLY CIPS DIPLOMA LEVEL NOVEMBER EXAMINATIONS 2017 Lean Procurement 2017

2 Assessment criteria 4.3 Analyse the impact of the private sector on procurement or supply chain roles a) Objectives of private sector organisations; profitability, market share, etc b) Regulations that impact on procurement and supply operations c) The importance and role of branding 4.4 Analyse the impact of the not for profit or third sector on procurement/ SC roles a) Objectives of the not for profit sector b) Regulations impacting on charities c) Need for regulated procurement exercises

3 1. Private sector organisations As in Chapter 11, can be classified into the following:- Ownership and control Basis of size What the business activity the organisation carries out Constitutions Can be formed in various ways:- Sole trader Individual business Partnership Group of individuals held together by a legal agreement Company Can be a very large number of people by legal incorporation as a company Sole tradership No legal distinction between person and business entity Individual puts in all the capital and is liable for all the debts

4 1. Private sector organisations ADVANTAGES OF SOLE TRADER Few costs or legal requirements to establish the business No public accountability (though financial records are required for tax purposes) The proprietor controls all decisions for the business and enjoys all the profits DISADVANTAGES OF SOLE TRADER The proprietor is personally liable for the business s debts It may be difficult to get finance for the business (eg a loan by personal guarantee) Resources are limited to what the proprietor can personally generate

5 1. Private sector organisations Partnership Potential to contribute more capital and expertise to the business Has to be at least two to a maximum 20 partners for a commercial partnership Does not have separate legal identity from its members, means:- Partners jointly own the assets of the partnership and liable for its debts Partners are entitled to manage and act as agents Change of partners terminates the old firm and begins a new one

6 1. Private sector organisations Partnership ADVANTAGES Partners contribute capital and expertise Partners share managerial and financial responsibilities and liability With greater asset backing, it is often easier to raise loans than for a sole trader Suits professions, as members are prohibited from practising as limited companies DISADVANTAGES Decision-making has to be shared/negotiated Profits have to be shared among the partners Partners are generally personally liable without limit for the partnership s debts

7 1. Private sector organisations Limited company A separate legal entity from individual owners:- Company can own assets and enter into contracts/ liabilities in own name Company payment of debt will come from the assets owned by the company Company owners are shareholders who pay for shares in the company ADVANTAGES Limited liability protects owners from personal liability for contracts and debts Shares are a stable source of finance: the amount of capital is unaffected by trading, and is not subject (like loans) to finance costs Directors provide the expertise the business needs, without diluting ownership DISADVANTAGES Expense and red tape of incorporation, and the constraint of a written constitution Subject to regulation eg re public disclosure (in financial reports and accounts etc) Share trading can result in unwanted change of ownership

8 1. Private sector organisations Limited company A separate legal entity from individual owners:- Company can own assets and enter into contracts/ liabilities in own name Company payment of debt will come from the assets owned by the company Company owners are shareholders who pay for shares in the company Differences between a public limited company (PLC) and private limited company (Ltd):- Plc can offer shares to the general public, Ltd cannot Plc must have minimum authorised share capital of 50,000 along with at least two members and two directors Plc is subject to detailed company law requirements regarding shares, directors, AGM s, accounting etc. much less bureaucratic for Ltd

9 1. Private sector organisations Small and medium enterprises Micro enterprise Less than 10 employees, less than 2 Million Euro turnover Small enterprise employees, less than 10 million Euro turnover Medium sized enterprise employees, less than 50 million Euro turnover Large scale enterprise more than 250 employees, turnover more than 50 Mill Euro Around 99% of enterprises are in this area and provide around 65 million jobs All require financial guidance to assist them where they lack financial strength Becoming more important due to:- Shift from manufacturing to service industry Increased consumer demand for more specialised and customised products Growth of outsourcing Job and cost cutting creating downsized organisations Government policy to promote SME s More accessible technology

10 1. Private sector organisations Small and medium enterprises SME s can have the advantage by getting into the cracks of markets bigger players won t bother with Where they struggle is raising loan and share capital, managing cash-flow etc Large organisations benefit from economies of scale:- Technical economies Production processes, larger machinery etc Commercial economies Bulk discounts Financial economies Obtaining loan finance at better interest rates UK government support has focused on this problem, initiatives created to:- Encourage on-time payment of bills by companies Relax rules and regulations applicable to SME s Reduce the fax burden on small business Provision of grants, information, advise and support

11 1. Private sector organisations Small and medium enterprises Being a buyer in a SME will face the following challenges:- Having to work within a limited expenditure budget and tight cost controls Management of cashflow Create a supply chain that is responsive to innovation, small quantities, and fast turnaround Buyer purchasing from a SME will need to take into account:- Limited capacities Potential financial instability Cashflow issues Sources of finance in the public sector Initial capital investment by the owners Share capital Retained profits Loan finance Government grants

12 2 Objectives of private sector organisations (4.3a) Profitability Why the need to make a profit? Profit ensures that all costs are covered, important for long term Profit belongs to the owners or shareholders of the business Profits not paid to the shareholders are available for reinvestment of the business Procurement staff could be given objectives to achieve the lowest possible cost Often this isn t good for the short and long term Better for buyers to take a more broader look at value across the organisation Any profits made by procurement go straight onto the bottom line Market share Increase market share by winning more better quality customers of higher value Do this by competitive advantage by doing things better than anyone else Competitive advantage achieved by matching company strengths to markets needs Can be measured by increase in revenue, customers etc Very much a key indicator of performance

13 2 Objectives of private sector organisations (4.3a) Stakeholder value Profitability to create a return on the value of shareholder investment by:- Dividends Growth in the capital or equity value of shareholders investment:- Retained profits Maintaining or bettering company shares or assets Corporate Social Responsibility (CSR) Largely driven by the public, media and consumer pressure Potentially high risk of reputational damage Social responsibility of business is profit maximisation; Spending on objectives not directly related to profit is irresponsible to shareholders Public interest as state received taxes on profits

14 2 Objectives of private sector organisations (4.3a) Corporate Social Responsibility (CSR) How does CSR serve the interest of the firm? Law, regulation and Codes of Practice impose CSR obligations on organisations Voluntary measures may increase the corporate image Above statutory provisions can be used to attract better employees,suppliers and customers Increased CSR creates a market demand (or threat of boycott) Helps create a climate that the company can succeed in the long term

15 3. The regulation of private sector procurement (4.3b) The influence of government Four main areas:- Governments influence the operation of organisations; what they can or can t make Governments influence the costs and revenues incurred by organisations Governments influence organisations by the actions they take in long term decisions Governments influence the values and norms that are regarded as acceptable within the national culture (e.g. banks) All governments state that some regulations of the private sector is required QQ What would happen if there was absolutely no regulation? Why? Governments want to keep a balance between consumers and firms Governments with to promote competition Governments want to assist firms to prosper Governments want to protect national interests

16 3. The regulation of private sector procurement (4.3b) Law and regulation Can be broken down into three sources:- Regulations and directives from the EU Statute Laws Case Law Also voluntary codes of practice Important for procurement because:- The organisation does not have a choice in the matter and compliance is a must Requirements are constantly changing

17 3. The regulation of private sector procurement (4.3b) Law and regulation In the past there have been attempts to increase competition by deregulation However, they still exist to a very large scale and can effect decisions by:- Restricting practices that tend to stifle competition Protecting the rights of minority groups Protecting the rights of employees in the workplace Protecting the rights and safety of consumers Enforcing environmental protection standards and commitments Restricting the type of products that firms can supplier

18 3. The regulation of private sector procurement (4.3b) Regulation of privatised firms Firms that used to be under government ownership now in private hands Need to protect consumer against price increases, hence regulation Publicity an important factor as so many people are effected Other powers include:- Issuing and renewing licenses for firms wanted to operate within the market Setting standards of good practice Monitoring the activities of firms operating in the market Communication and promotion of market activities Making reports to the government

19 4. Key features of private sector procurement The importance and role of branding (4.3c) Branding develops perceptions of quality and value Brand positioning how the brand wants to be perceived by customers Procurement should attempt to support the brand For example:- Procurement decisions supporting quality values If brand is seen as low price then procurements should also be aligned If brand is high in CSR the procurements should also be aligned Alignment with suppliers Relationships along the chain have been promoted and working together Traditional adversarial relationships are becoming less (although still needed) SCM look at activities such as:- Supplier development Collaborative waste and cost reductions Collaborative process and quality improvements Collaborative efforts to improve labour and environmental standards Creating synergies

20 4. Key features of private sector procurement Innovative supply chain approaches Includes:- Early involvement of procurement Early involvement of suppliers The use of electronic procurement Pro-active contract management Flexibility in the use of competition

21 5. Third sector organisations The not for profit (NFP) sector Organisations not controlled by the government and not for profit Created for an objective other than for profit Funding comes from voluntary donations, legacies, sponsorships and grants Can be owned by their members or by a trust The voluntary and subscription sectors Sector can be divided further into:- Voluntary sector Churches, charities, interest groups Subscription paid sector Clubs, trade unions and professional bodies Objectives of third sector organisations (4.4a) Can consist of:- Raising public awareness of a cause or issues Political lobbying of a cause Raising funds Provide material aid and services

22 5. Third sector organisations Objectives of third sector organisations Key characteristics of the third sector Objectives and expectations May be multiple service objectives and expectations Expectations of funding bodies are usually very influential May be subject to political lobbying Multiple influences on policy: complicates strategic planning Consultation and consensus-seeking becomes a major activity Decision-making can be slow Market and users Beneficiaries of services are not necessarily contributors of revenue or resources Multiple stakeholders and customers Service satisfaction is not measured readily in financial terms Resources Multiple sources of funding High proportion from sponsors and donors Resources received in advance of service delivery, often with attached expectations Tends towards strategic emphasis on financial or resources efficiency rather than service effectiveness Strategies and communications may be addressed as much towards sponsors and donors as clients

23 6. Key features of third sector procurement The need for regulated procurement exercises (4.4c) Can be seen that procurement provides a stewardship function Funds can be received from parties that don t receive a benefit from the donator Can also be seen that focus is on waste rather than satisfying the customers needs Regulations impacting on charities (4.4b) Subject to the same laws and regulations as private and public sectors The Charities Commission is the body for charities in England and Wales, set up to:- Register charities Ensure charities meet the legal requirements Check that charities are run for the public benefit Ensure that charities are independent Detect and serious mismanagement Their actions include:- Gathering and maintaining information about charities Offering advise and guidance Auditing Investigating complaints

24 6. Key features of third sector procurement What do third sector organisations buy? Includes:- Services (can be same as public and private) Retail materials (can be same as public and private) Similar operating requirements Specific requirements relating to activities Key drivers for third sector procurement policy Includes:- The values of internal and external stakeholders The need to align procurement policies and procedures with core values Management of reputation and reputational risk Need to source inputs for a wide range of activities Need to act as retail or merchandise buyers More on Page 238

25 Homework Describe FIVE possible drivers or influencing factors of procurement activities in third sector organisations (25) Additional Reading Misplaced supplier loyalty in the third sector Procurement at Marie Curie Part time procurement roles in the Third Sector March_13.pdf

26 Oil Co Exercise Number 12 The CEO wants verification that the company is compliant in all aspects of the business. Given the nature of the company s operations and global scope this is a large exercise. To begin with he has requested the areas that are most at risk for non-compliance and an indication of the laws and regulations that the company will need to be compliant to. What areas would you think would be highlighted in the response to the CEO?