Sustainable Procurement Policy in Retail Sector Essay
The increasing complexities in supply chin networks have necessitated organizations to adopt sustainable procurement policies. Sustainable procurement policy aims at enhancing the supply chain networks interfaces, reducing supply chain costs for the organization, and enhancing reputable relationships of the organization with other stakeholders including the government. However, sustainable procurement policies must adhere to the overall corporate objectives as set out in its internal and external policies mission and vision statements (Fowler and Rauch 2006). The current paper will examine the major rivers of sustainable procurement policies in the retail sector. In this analysis, various case studies will be used to aid the analysis on the adoption of sustainable supply chain policies. The case studies will be based on specific firms that have adopted sustainable procurement policies in their operations. Based on the analysis, the paper will examine some of the challenges that firms face in their efforts to adopt sustainable procurement policies in their operations. Thus, the paper will offer alternative solutions to the problems faced by firms in the adoption of sustainable supply chain policies in their operations.
Drivers of Sustainable Procurement Policies
The major drivers of the sustainable procurement policy are the increasing competition, which has prompted firms to adopt leaner and cost effective supply chain networks. In doing so, firms consider the extrinsic relationships between price and quality of the products and services while maintaining a streamlined flow of its goods and services with supplier and consumer markets. Sustainable procurement policies help to eliminate unnecessary holding costs of major raw materials while meeting the demands of the consumer markets. These include the use of statistical and automated models to computes the optimal order quantities for a certain period of organizational operations. The other drivers include increasing complexities in government regulations on release of industrial waste. Environmental concerns over the use of non-biodegradable packaging materials as well as supply chain enabling processes has also prompted firms to seek alternative ways of their supply chain processes that are least harmful to their surroundings (Rowlinson and McDermott 2005).
Sustainable procurement policies also seek to address issues of social policy such as equality, inclusiveness, and international labor standards. For example, firms address the needs of the minorities in society, the disabled as well as immigrant laborers in their award of tenders. The increasing importance of human rights in the conduct of business has prompted firms to safeguard the reputation of their operations and management. The increasing levels of globalizations have exposed procurement officers to other countries individual’s social practices and demands on enhancing human rights (Rwelamila, Talukhaba, and Ngowi 2000). In order to address such demands, firms are seeking better and more protective procurement policies on quality products and service. To achieve this objective, many organizations are adopting competitive tendering processes for their major supplies in diverse market segments. The extent in which a firm adheres to competitive tendering processes determines how effective it handles its social concerns in the procurement systems.
Case Study Evaluation
The major firms in the manufacturing sector that will be covered in this analysis of sustainable procurement policy are CEMEX Company and Tesco. CEMEX is a company headquartered in Mexico and offers cement as the main products. The company has a global presence in several countries of the world, which has increased its international diversification and the associated risks. Tesco is a company based in the United Kingdom, but has also diversified its operations in various global markets. Tesco Corporation engages in retail business and has established centralized stores cross the world for its supply network. Its major recipe for growth is diversification into new markets and inclusion of more product lines into its operations. Thus, the synchronization of its supply chain networks across all its major stores is critical in enhancing a coordinated supply chain and operational framework. Consequently, adoption of sustainable procurement policy is necessary in enhancing its growth and competitiveness.
A critical analysis of procurement and supply chain networks at CEMEX Company and Tesco shows that they applies concepts of sustainable procurement systems. CEMEX merges its Customer Relationship Management Systems and Supply Chain Management Systems to enable the company coordinate procurement systems, respond to customer demands well, and enhance cost effective procurement of its materials. The application of Supply Chain Management Systems by CEMEX enhances order management, scheduling of resources, and maintenance of appropriate order quantities. To meet the demands of other stakeholders, CEMEX engages a supply and procurement network, which is demand driven (Hoyt and Lee 2007). The demand driven networks reduces storage costs of the materials and ensures that it meets the demands of its consumers promptly.
CEMEX has been dynamic in the application of information and technology in its procurement systems in order to reduce its excessive waste releases into the environment, which was associated with ancient procurement systems. The use of Product Lifecycle Management (PLM) systems bridges the gap between Customer Relationship Systems and supply Chain Management Systems. CEMEX suppliers and customers can access the company revenue agreements, invoices, and other important documents via a web portal. As a result, the company has greatly reduced too much paper work in its procurement processes, which have led to sustainable environmental protection (Hoyt and Lee, 2007). The Product Lifecycle Tools improve the company’s visibility through the complex processes involved in product sourcing and design. CEMEX Company also uses a logistics system based on dynamic synchronization systems. The system uses an automated process to link trucks used to deliver materials with a centralized control center. The linkage facilitates coordination of procurement and supply chain networks, which improves service delivery and reduces costs of operations through sourcing of materials.
Applying the concept of sustainable procurement systems to Tesco Company, maintenance of appropriate customer satisfaction is important in enhancing its business. Thus, to facilitate customer fulfilment, Tesco’s procurement and supply chain are aimed at increasing the speed and quality of service delivery. It also aims to improve flexibility of supply chain and procurement systems, building loyalty and reduction of costs of sourcing. The company has highly invested in information and technology networks to enhance flexibility and response to its supply and procurement needs (Palmer 2005). In the United Kingdom, the company has a network of computing resources for tracking order movement in all its major stores. The use of computing resources also enhances environmental protection. The major technology application technology tools that the company uses include electronic point of sale terminals and electronic data interchange. Electronic data interchanges enhances sharing and collaboration of the company with its major supplies. Thus, replenishment of supplies is made promptly when demand arises. Sustainable procurement policies at Tesco Company are also practiced at Tesco through adherence to regulatory standards of other countries in which it has established its operations. The company has established a commitment in following quality standards set by regulatory bodies in other countries in its internal policies.
Supply Chain and procurement planning and control are also practiced at Tesco Company. Tesco’s supply chain and procurement systems are well documented. All the procurement and distribution centers of Tesco company focuses on enhancing efficiency and quality standards set by regulatory bodies and the company’s internal policies. The centers are highly monitored and evaluated based on their performance in enhancing a coordinated supply and procurement network. For example, the company’s departments are interlinked to facilitate a common approach in procurement and supply management processes. Tesco uses a just in time production and supply networks which reduces its overall inventory holding costs and improves the quality standards of its products. To enhance competitive advantage, the company has huge network of suppliers which enables it have regular supplies at relatively lower costs.
Issues and Challenges in Developing a sustainable Procurement Policy
There are major challenges that firms face in the application of sustainable procurement policies in their operations. The key issues that face most of the organizations include defining the real business needs of the firm while addressing the needs of the various stakeholders (Zeng, Tian and Tam, 2007). In most instances, the needs of the firm conflict with the demands of the external stakeholders. For example, a firm’s policy on reduction of operating costs through use of less costly packaging materials for its supplies may conflict with the regulatory requirements on environmental protection. Another major issue is the often conflicting goals of the various departments of an organization, which leads to suboptimal focus on maintenance of a sustainable procurement policy. For instance, an organization needs to rally all departments towards the common goal of enhancing sustainable procurement systems. In situations where effective communication is lacking, procurement chains are fragmented and weak processes characterize such operations.
Another major issue that creates a challenge in adoption of sustainable procurement policy is the relatively huge costs involved. Sustainable procurement system requires huge investments in information and technology to facilitate communication, collaboration, and processes of transactions in support of the procurement systems. Thus, small and financially unsound companies are compelled to use their traditional processes in their operations. The major systems that are required by firms in their adoption of sustainable procurement policies include Enterprise Resource Planning systems, Customer Relationship Systems and Supply Chain management systems (Walker and Rowlinson 2007). The logistics involved in the purchase and maintenance of such systems are relatively complex and requires huge business restructuring especially for organizations with low levels of skilled manpower. Clear understanding of the linkages among the supply chain and procurement systems and tools is also necessary in enhancing its application in an organization.
Other organizations fail to adopt sustainable procurement policies due to the fear of the disruption in the potential business in cases of failure of supplier networks. These include the extent in which the suppliers will continue in business and sustain the supply for the firm materials. Business impact through lost profits, negative publicity, and consequential loss of business constrains the applications of sustainable procurement systems (Venkata 2007). As a result, many firms especially small and medium enterprises prefer to use traditional supply systems. Traditional systems are less costly and can easily be adapted to changed circumstances in cases of failure.
Another challenge faced by firms includes inadequate systems of reporting, data system applications, and analytics (Rowlinson and McDermott, 2005). Procurement systems are highly complex and involve many stakeholders. Thus, many firms lack common systems of reporting as well as a centralized system of data integration due to their geographical spread. The existence of diverse geographical business opportunities, challenges, and diverse regulatory standards makes firms with an international presence to adapt their procurement systems to the local needs. As a result, the goals of the different procurement centers may conflict with each other and may lack a common focus. Consequently, many firms offer diverse product that requires their individual procurement systems and processes. The use of centralized procurement systems in such organizations may not generate the anticipated benefits since demand patterns and procurement processes for such products and services differ.
Implementation and Monitoring Issues for sustainable procurement
A major issue involved in implementation and monitoring of sustainable procurement is the level in which the firm’s internal policy on the application of sustainable procurement policy is reflected in its procurement policy. The importance of this issue in the implementation and monitoring processes is to check whether the policy framework translates into meaningful supply chain networks. It also shows the top management teams commitment towards the adoption of sustainable procurement policies. Consequently, it serves as a communication tool to all organizational members involved in the supply chain processes on their duties in enhancing a lean supply and procurement system.
Monitoring and implementation should also state how the firm shall address the challenges of its procurement systems (Walker and Hampson, 2008). The major issues and challenges involved include inadequate monitoring tools associated with performance measurement of procurement systems. Procurement systems lack a key performance criterial as a basis of establishing how the goals of the organization are met. The major questions to be addressed include the extent to which the system reduces the overall organization costs or improves the firm’s output. As a result, the procurement and supply chain departments cannot be objectively evaluate on their current performance as a basis for bonus and reward schemes (Walker and Rowlinson, 2007). Inadequate motivation of the staff may reduce their operational performance and output. For example, a sustainable procurement system that fosters good relations with the firm suppliers may not generally produce additional output for the organization. However, such relations are important in the long-term sustainability of the firm operations. Thus, it may be difficult to assess the extent in which sustainable procurement policies improve business growth and competitiveness.
Creation of an enabling organization structure that supports sustainable procurement is also challenging. The implementation of a sustainable procurement policy will require the existing processes, human resources and other technical support systems to be created in order to facilitate monitoring and control (Rwelamila, Talukhaba and Ngowi, 2000). The restructuring process should consider the internal policies of the organizations and works towards reinforcing them. The implementation and monitoring process is also faced by the increasing procurement risks of e-commerce. In the implementation of the policy, the firm must address security issues by establishing a system of internal controls that guard against security violations.
Monitoring of sustainable procurement systems also suffer from the dynamic nature of regulatory and technological environment. Laws and regulatory standards evolve and thus the firm must be flexible to adapt to such changes. The need to regularly update the procurement guidelines as set by regulatory agencies increases the firm’s supply chain and procurement processes. Also, technology is highly dynamic and the firm must change its technological applications frequently to remain relevant in the market. Thus, monitoring processes must seek to understand the current regulatory and technological environments and respond appropriately.
There are various sustainable procurement techniques that can be applied by firms to address their procurement needs. Firstly, a firm that needs to develop a sustainable procurement system should list its total goods and services that it offers in various market segments. These should be accompanied by adequate research on the demands of such markets and the regulatory constraints. The firm should then develop policies that address such demands and constraints without conflicting the overall firm’s mission and objectives. Adequate resources should be allocated to all major processes and their cost-benefit justification. The resources include financial, human and technical support in realization of sustainable procurement systems. The firm must structure the procurement processes to the business need, culture and stakeholder demands to facilitate effective collaboration.
Another recommendation includes continued upgrade of existing technologies. Firms should seek to adopt technology at all levels of its procurement management. These include the processes of requisition of materials from suppliers, payments and determination of the optimal supply levels. Technology also helps to increase supply chain visibility. Supply chain optimization tools should be adopted to utilize the technological applications adopted. These include the kind of products to be made and the sources for the materials (Venkata, 2007). The alignment of the procurement optimization tools with the strategic goals of a firm helps to eradicate any conflicts of interest and ensure that inventory management does not compromise quality of customer service and operations.
Firms should seek to adhere to regulatory and quality demands through competitive tendering processes for its source materials. These include selection of reputable vendors with well-established partnerships with the company. Firms should offer tenders to suppliers on a question and answer criteria to screen suppliers and identify the most viable supplier. This ensures that the supplies are secure and compatible with the company’s objective. The selection of reputable supplies enables the firm to maintain legal relationships with the suppliers and consequently ensure its sustainability in instances of lawsuits. Also, it enables the firm avoid impacts of failed supplier relationships through arrangement of favorable third party insurance covers. The firm should review its procurement processes regularly to identify new opportunities, weaknesses and threats. The changed circumstances will help the firm to identify the most optimal supply and procurement strategy that meets the demands of its external stakeholders.
Also, the firm should seek to understand its current position in relation to the best industrial practices through customer survey feedbacks. Training should be embarked as a preliminary strategy to enhance the skills of the employees in the performance of their duties in the supply chain network (Pushpen, 2008). Benchmarking against the acceptable industrial standards is one of the ways in which firms can enhance a sustainable procurement system. The benchmarking process should seek to establish fitness checks which can be used in the monitoring process. Various tools that can be used for benchmarking include the Procurement Excellence Model which maps out internal processes based on their effectiveness against a base statistic. The model acts as an action plan in the implementation of change in the procurement process and the attainment of the overall firm objectives.
In summary, the adoption of sustainable procurement and supply chain policies generates substantial benefits to an organization. These include reduction of procurement costs and improvement of product and service quality. In view of the analysis, the major drivers of sustainable procurement policy are the increasing environmental and regulatory concerns. Also, the increasing competition has prompted firms to adopt sustainable procurement policies through better responses to customer demands and establishment of useful supplier networks. A critical examination procurement and supply chain policy at CEMEX and Tesco companies has shown that both firms have relatively applied sustainable procurement policies in their material sourcing. Both firms have adopted information and technology networks to facilitate collaboration with their external stakeholders as well as maintenance of the competitive advantage. Firms face various challenges in the adoption of sustainable procurement policies. These include the often conflicting procurement policies with the external stakeholder demands such as regulations. Other firms face financial constraints to embark on huge infrastructural demands that are needed in maintenance of sustainable procurement systems. The monitoring issues include lack of an effective measurement system for the output of procurement systems and dynamic nature of technological and regulatory environments. Thus, organizations must establish communication channels, training and frequent upgrade of technology to enhance sustainable procurement systems.