Instructions
This coursework aims to enhance your understanding of the role of Procurement and Supply
Management (PSM) and its impact on a business or an organisation. Where possible or applicable, apply or relate your evaluation and research to your (or any other) business or company. You can mask the identity of the company being discussed. At the end of your report, the reader should be able to appreciate the importance and impact of its proactive role.
To complete this assignment, you will need to complete the following minimum tasks:
- Current Business/Organization Structure. Identify where the PSM function is.
- Evaluate how the Business Strategy and Procurement and Supply Strategy are linked. Strengths & Weaknesses.
- Evaluate how PSM can contribute to competitive advantage. Application of relevant/applicable PSM theory, Concepts & Models to Overcome Weaknesses.
- Quantify the Positive Impact.
Impact of Procurement and Supply Management: TESCO
Procurement and supply function is very important for a business, or an organization and its role is crucial in the profitability and smooth operations of an organization or a business. Unlike supply chain management, the function of procurement and supply is only dedicated to purchasing activities and materials from the suppliers. The role of this function is to ensure the availability of products for the running of any business. Tesco is a well-known retailer in the UK market, and it gives much importance to this function of procurement and supply in its business. However, the link between the function and overall business strategy and competitive advantage of the company is not known, and this aspect is going to be explored in the following so that the role of procurement and supply function can be highlighted (Brian Farrington, 2016). It should be noted specifically that PSM function has a set of activities which have their clear focus and aim for the benefit of an organization.
The PSM Function:
Tesco’s organizational structure is hierarchical, and there are different departments in the organizational hierarchy. The structure can also be said to be a functional structure. The reason for using functional structure is because of the many layers involved in the organization and large size of the organization also helps this structure. The company focuses on procurement and supply function very much because it is the source of competitive advantage for the company. The PSM function in the company lies in the operations function of the company as operations of the company involves all activities including the procurement and supply activities (Procurement Helpdesk, 2016). In the following, the organizational structure of Tesco has been presented.
Tesco Current Management Structure
Linkage of Strategies:
The procurement and supply function at Tesco can be understood in light of the link between the strategies of the function and overall business strategy. The linkage of strategies would be discussed in light of the SWOT analysis.
Strengths
The business strategy of a company should be matched and linked to the procurement and supply strategy of a company. For this purpose, both strategies should be noted so that their link can be examined. The business strategy of the company is to be a cost leader in the retail market. Therefore, the company takes every step to reduce the prices of products and commodities sold in its stores in the markets where it has its operations. The motto of the company is “Every Little Helps,” and this shows the strategy of the company to give value to every activity, and this ensures that it is not wasting its resources and energy. The heart of the business strategy of Tesco is this simple aspect that the prices of commodities and products should be low for customers (Dudovskiy, 2016).
Weaknesses
So far as the weaknesses are concerned, the procurement function of Tesco is linked to supply base of the company and the procurement and supply strategy of the company is linked with GSNFR which stands for Goods and Services Not for Resale. However, the scale of this function and its strategy is directly linked with supply chain management activities of the company because it has to partner with already existing supply base of the company. Linking the procurement and supply activities only with not for sale goods cannot be an effective strategy. If only procurement function and its strategy of the company is taken, then it is found that the strategy is to support the business strategy. The role is a supporting and assisting role for the business practices and activities. There is another important aspect which is important in this regard that the company has a special team for procurement and it asks for the experience of whole Europe and bilingual language proficiency. The company needs such a strategy which can integrate the procurement function with supply function to make on comprehensive procurement and supply function. Otherwise, it would be a weakness for the company (Tesco, 2018).
Opportunities
There are plenty of opportunities for the company. The link between business strategy and procurement and supply strategy is very important and clear in Tesco where procurement and supply management covers the scale of activities from purchasing the shopping bags to trolleys and mobile phones to be used by the staff. These activities have to be performed in bulk so that economies of scale can be achieved, which is one of the basic and the most prominent element of the business strategy of the company. However, the function can be linked and aligned with the supply chain activities, and the link can be further broadened and highlighted. When the link between the two strategies has been established, it is important to note that the company demands very fewer prices of products from suppliers and sometimes, it happens when the contract is still going on. The strategy has strengths that the company can provide low prices to its customers, but it has weaknesses that suppliers are bullied by procurement and supply function of the company (Independent, 2014).
Threats
The scale of huge operations of the company has allowed it to reduce the cost of products sold by the company and the company can get and achieve economies of scale. If the company does not integrate procurement function with its functional activities, then this could be a threat to the company.
PSM and Competitive Advantage:
The competitive advantage of the company lies in the fact that it has a low-cost strategy and it uses its economies of scale and large scale of operations to transfer the benefits of the low cost of products procured to the end consumer. However, there is weakness as well that suppliers remain under pressure from the procurement and supply functions, and even during the tenure, the company may ask for discounts and bonuses from the supplier as it has already happened where the company demanded too much from the suppliers and they felt pressure from the dominant party in the dealing. In this context, it is important to use a model for Tesco so that the competitive advantage of the company remains protected, but at the same time, the weakness of the function by pressurizing the suppliers can be removed or eliminated (Tesco Plc, 2018).
First, it is to be highlighted that there is the benefit of procurement and supply function for the company’s competitive advantage which is low-cost leadership and using the economies of scale in the business practices. Tesco is one of the biggest retailers, and the company can get assistance and help from its procurement and supply function very much so that it can be economical and efficient regarding its operations and activities. It has been noted above that the function can be divided into two parts and both parts can play a fundamental role in the competitive advantage of Tesco. First, the practices of procurement relate to purchasing of products and services which are supporting and assisting in nature. For example, the company procures or purchases trolleys, and shopping bags and these items facilitate and assist the company. If these items are purchased and procured with fewer costs involved, then this benefit can be translated to the end consumer, and this makes the competitive advantage of Tesco stronger. Second, the supply function under PSM is related to the supplies needed for the end consumer in the stores. Proper management of supplies leads to efficient practices, and this is aligned with the competitive advantage of Tesco. These elements of PSM can further enhance the competitive advantage of Tesco, but one of the weaknesses has been highlighted in the PSM function of Tesco which is related to pressurizing the suppliers for taking prices down. This identified weakness in the business of Tesco can cause harm to its goodwill and reputation. The weakness should be removed, and for the elimination of this weakness, application of procurement and supply management model has been applied on Tesco (Leach, 2012).
CIPS Purchasing and Supply Management Model have been applied on Tesco so that weaknesses present in the PSM function of the company can be removed and eliminated. There are organization’s vision, mission, and values in the center of this model and the vision, mission, and values of Tesco revolve around the provision of products and services to the customers at low cost. The use of economies of scale to serve this purpose has been employed so that cost of practices and functions can be reduced (Mukherjee, 2016).
Then, there are external factors and impacts and the elements in the external environment revolve around different factors like economic, social, political, technological factors, and the competitive environment. There are resources on one side and stakeholders on the other side of the mission, vision, and values of an organization. The PSM strategy is based on the mission, vision, and values of the company. Other elements of strategic sourcing analysis and proactive demand management are conducted as part of the model. Pre-acquisition and post-acquisition contracts are signed at the end of the model. The model can be applied to Tesco, which has been forcing its suppliers to reduce prices, and this tendency of the company is against its stakeholders. Suppliers are a valuable stakeholder of the company, and the success of the company relies on them. Therefore, the model shows that the company has the least focus for suppliers and it wants to take maximum advantage from them. The company has to be aware of the fact that procurement and supply management function cannot be run by its employees only because it cannot make the company responsible. The company should engage its suppliers, and the provisions in the contract should be respected and abided by (CIPS, 2018).
Positive Impact of PSM:
In one of the incidents in 2014, the reports confirmed that Tesco overstated its profit by 250 million pounds. It was said as the 250 million pounds of a black hole in the profits of the company. Suppliers were not happy with the company as they said that charged very low prices for the products procured from them. Despite the company’s efforts to provide low-cost products to the customers, the company has dropped its market share by 1.7 percent since 2015, and it is not 27.4 percent.
On the other hand, some discounters have seen an increase in their market share, which is 4.8 percent, and now the discount stores have a total market share of 13.1 percent. In response to this rise in discount stores in the UK, Tesco has announced to open its discount store which is Jack’s. The procurement and supply management has been made central to this new store as only UK-made products would be offered to customers in the store (Daniel, 2018).
Although, the suggestions and improvements are going to be provided for Tesco in this paper, the example of Jack’s shows that the company has taken this step to make its growth consistent and continuous. The fundamental point of this new initiative is based on UK based products in stores. On the other hand, there is overstated profit by Tesco in which suppliers seem to be not satisfied with the company as they are asked for lowering the prices of their products very much. In this context, it is suggested that procurement and supply management should respect stakeholders in which suppliers are the most important for the procurement and supply management function. The company can earn huge profits for procuring products which are sourced from the UK and the reliance over familiar products would be more profitable because any unsold item can be a cost for the company. Moreover, the company also has not to make suppliers responsible for any unsold item. For this purpose, Tesco has to focus on its procurement and supply management very much (Atkinson, 2014).
Evaluation and Analysis:
Tesco is a retailer, and it is like other retailers in the industry, but some unique attributes of the company have made it stand different among competitors. It always has been open for innovations and new ideas which ensure its growth and success in the market. The reliance on the procurement is fundamental for the company and according to the company’s website; the procurement function is there for the goods which are not for resale. It means that the supporting and assisting items are procured which help the business running. They include the items which are present in the store for handling the products to be sold to customers, and they might be mobile phones used by employees. However, the main thing is that these products are not for resale. Low-cost procurement and efficient practices can help these products to be less costly and expensive. It can help the company to ensure its price low for the customer, and it would be due to procurement management (Tidy et al., 2016).
Supply management involves important as well, which suppliers and some supply chain activities. It has been noted that the company has been very demanding from its suppliers and this trend has affected suppliers very much. They remain under pressure from this behavior of the company. It has been suggested that the company should consider the interests of all of its stakeholders and suppliers are important stakeholders among them. Moreover, the UK sourced items are popular in the UK and the company should focus on UK source items so that they are sold in continuous manner and retailer can be profitable. These benefits and profitability opportunities are directly related to procurement and supply management, and it is very important for the company to consider procurement and supply management. The paper finds that low-cost procurement and supply management activities would also help the company to be aligned with its business strategy of cost leadership. Therefore, the company should focus on its procurement management and supply management and collectively it is called PSM, i.e. procurement and supply management (Maon & Sen, 2016).
Conclusion:
The paper concludes that any company cannot be successful if it does not focus on procurement and supply management. The impact of procurement and supply management is everywhere in an organization, and it varies from industry to industry. Retail industry can get benefits from PSM as the case of Tesco has been taken for this purpose. The company has taken benefits from PSM, but it is found that it has demanding behavior for its suppliers and it is suggested taking care of suppliers so that the company can take broader assisting and helping behavior for all of its stakeholders. The purchasing and supply model of CIPS has been implemented on Tesco. Benefits of PSM are very much, and any organization can only be successful if it gives importance to its PSM function. Tesco has started its new chain of stores, and UK based sourcing has been emphasized in new stores. These instances show the high impact of PSM function in any company.
References
Atkinson, D., 2014. Tesco procurement practices exposed and it’s not pretty. [Online] Available at: http://4pillars.org/tesco-procurement-practices-exposed-and-its-not-pretty/ [Accessed 19 December 2018].
Brian Farrington, 2016. Tesco’s Procurement Mistakes: Thoughts on the GCA Investigation. [Online] Available at: https://www.brianfarrington.co.uk/2016/02/tescos-procurement-mistakes/ [Accessed 19 December 2018].
CIPS, 2018. CIPS Purchasing & Supply Management (P&SM) Model. [Online] Available at: https://www.cips.org/documents/resources/psmmodelv1.pdf [Accessed 19 December 2018].
Daniel, A., 2018. Tesco launches discount chain focused on local sourcing. [Online] Available at: https://www.cips.org/en/supply-management/news/2018/september/tesco-launches-discount-chain-focusing-on-home-grown-products/ [Accessed 19 December 2018].
Dudovskiy, J., 2016. Tesco Business Strategy and Competitive Advantage. [Online] Available at: https://research-methodology.net/tesco-business-strategy-and-competitive-advantage/ [Accessed 19 December 2018].
Independent, 2014. Tesco crisis: ‘They say every little helps, but supermarket’s demands are never little’. [Online] Available at: https://www.independent.co.uk/news/business/analysis-and-features/tesco-crisis-they-say-every-little-helps-but-supermarket-s-demands-are-never-little-9752106.html [Accessed 19 December 2018].
Leach, A., 2012. Retailer Tesco wants to expand its procurement team to maximise the buying power of its operations across Europe. [Online] Available at: https://www.cips.org/en/supply-management/news/2012/january/tesco-expands-procurement-team-to-boost-buying-power/ [Accessed 19 December 2018].
Maon, F. & Sen, S., 2016. Sustainable Value Chain Management: A Research Anthology. Routledge.
Mukherjee, K., 2016. An integrated approach of sustainable procurement and procurement postponement for the multi product, assemble-to-order (ATO) production system. Production, 26(2), pp.249-60.
Procurement Helpdesk, 2016. Role of Procurement Function. [Online] Available at: https://rosdev.atlassian.net/wiki/spaces/PROC/pages/20250749/1.1+Role+of+Procurement+Function [Accessed 19 December 2018].
Tesco Plc, 2018. Serving shoppers a little better every day. [Online] Available at: https://www.tescoplc.com/media/474794/tesco_2018_strategic_report.pdf [Accessed 19 December 2018].
Tesco, 2018. Procurement. [Online] Available at: https://www.tesco-careers.com/office/professional-services/procurement/ [Accessed 19 December 2018].
Tidy, M., Wang, X. & Hall, M., 2016. The role of Supplier Relationship Management in reducing Greenhouse Gas emissions from food supply chains: supplier engagement in the UK supermarket sector. Journal of Cleaner Production, 112(4), pp.3294-305.
+447462439809