Purchasing management

Purchasing management is one of the most sensitive departments of an organization that deals with the purchasing feats which is the first element that determines both the product cost as well as profitability of a company (Ward, 2016). The department is headed by a purchasing manager who usually approves the acquisition of goods and services that are needed by the company (Sutton, 2001). This essay will analyze how effective the three aspects of purchasing management i.e. supplier selection criteria, purchasing operations and management of the Felda Global Venture Holdings abbreviated as FGVH. This is a Malaysian-based world wide agri-commodities and agricultural company that produces oil palm and rubber plantation products, canola as well as soybean products (Koons & Mavin, 2012). The company also deals with oleochemicals and sugar products. FGVH is ranked as the third largest palm oil company whereby its dominance is felt in Malaysia. The company engages itself in a number of dealings including plantation activities such as cultivation, harvesting and production of fresh fruit bunches. It also does the processing of the fruit bunches to get the palm crude oil as its final product. The downstream activities comprise the refining of the unfinished oil into various products (Mavin, 2012). Despite being among the top dealers in the world, the company is aiming at becoming the leading and diversified integrated agri-business in the world. Basing on the purchasing power of FGVH Company, it has been able to purchase large tracks of land with over 850, 000 hectares of land in Malaysia. It has other smallholders who have occupied approximately 500, 000 hectares of land (Mavin, 2012). The palm upstream and downstream has been the focus of this company after which the company has invested in both marketing and trading of their products. Its main competitor is the Malaysian palm oil refiners. The survival of the FGVH Company majorly lies in the hands of purchasing management department controls all assets of the company. Being the purchasing manager of the FGVH Company, it would be wise to analyze various aspects that concern its operation (Mavin, 2012).

The company has been sustained by various inputs or raw materials which are supplied by distinct dealers. They include seeds, energy, fertilizers and mechanical as well as technical equipment. Labor both skilled and semi-skilled and contractors among other labor sources are required to saturate the company with the right inputs critical for the survival o the company. Critical services for the company include transportation, storing and marketing the products (Day, 2002). All these inputs demand the purchasing management team to carefully select the right suppliers. This is an activity that is much more than just scanning the price lists for those commodities from the suppliers catalogues. The purchasing team has therefore considered selection criteria that are highly dependent on a wide range of factors. The selection criteria used were majorly based on the priority to which different inputs required to ensure that the purchasing of the FGVH Company is streamlined (Weele, 2006).

Following a critical and strategic thinking concerning the selection of suppliers, the team was able to choose the potential ones using harsh though effective criteria. First, the team considered how effective the previous experience and performance was in the product in which the supplier was dealing with. This ensured that that none of the suppliers would do the trial and error mode of service. It also assessed the supplier’s potential from the basis of quality. These criteria filtered out the less qualified suppliers who may not be able to meet all the requirements of the mandated quality system of the FGVH Company. The qualifications ensured that every supplier meets the current requirement capacity desired by the company.

The criteria also considered the cost at which materials and services would be delivered by the different suppliers.  This included the communication costs, cost of the commodities he or she supplies and also the inventory requirements. The overall cost or summation of all the minor expenses was also put into consideration.  The criteria were best favoring those suppliers whose products and services were cheap (Day, 2002).

I would however recommend that the purchasing team should consider the willingness of the supplier to establish a long-term business relationship. This will help a guaranteed long-term supply of the various materials and services and also the establishment of a business relationship with the suppliers. Finally, I would recommend the team to consider the financial stability of the supplier. This would ensure that he or she would be able to deliver the required commodity at the right time, quantity and quality.

The team should go an extra mile during the selection process so as to gain the full knowledge of different suppliers. It should survey the suppliers at their respective depots to confirm their potentiality. The team should also seek to obtain some of their financial reports, formal quotes and their specifications (Day, 2002). I would also recommend that the team to hold discussions with some customers who had previously been served by the suppliers. The purchasing team should also use the quality confirmation strategy whereby I requested for a quality certificate system registration. Finally the team should evaluate various validations testing of some samples from different suppliers.

Shifting the discussion towards the ICT purchasing operations of the purchasing team, knowledge of these operations should be first considered (Sutton, 2001). Purchasing operations usually begin with a preliminary negotiation with the vendors whereby the sources of the products are identified, price quotations are obtained, a formal or informal selection is done and finally one places orders for them to be delivered. A follow-up of the purchased orders is usually done so as to ensure that the supplier fulfill all the purchasing agreement on delivery. All these purchase operations have been perfectly undertaken through the ICT technology in the FGVH Company (Sutton, 2001). The company has recently purchased an Unmanned Aerial Vehicles (UAV) which has reduced the transportation purchasing stress of the company. The company has also purchased a tablet-based Plantation Micro-Macro Program (PMMP) that is allowing the estate monitoring and management of the overall work of the company (Sutton, 2001). The ICT in supply and purchasing department of the organization has offered a streamlined working relationship between all the suppliers and the company.

I would however recommend the purchasing management team to improve the business-to-business and e–commerce software systems which shall facilitate communication both within and outside the company. My best recommendation would be Arriba or PeopleSoft software which provides a platform from which all the purchasing and supply operations can be managed. These systems use the database technology which makes it efficient to make purchases in an accurate and timely manner. The management should train more workers and offer them assistance in using procurement cards as well as the other purchased technical machines. ICT purchasing will ease my work as the manager in coordinating the suppliers and the company. Prompt suggestions for changes shall also be made possible whenever the team shall inquire for quality improvement of the products (Sutton, 2001). In the case when a hick-up is encountered, it will be easy to make communicate in a timely manner for either change of the products to be changed or even the cancellation of the order. This will provide a more flexible purchase operation that shall be more accurate and reliable than the past purchasing operations (Ward, 2016).

Once the ICT purchasing recommendations are made, the company and the purchasing management department will realize significant impacts as far as success in e-purchasing is concerned. First, a successful installation of the e-purchasing systems would reduce the purchasing costs (Koons & Mavin, 2012). This is because ICT helps in improving the supplier performance and reduces external expenditure. The reduced costs shall result from the elimination of paper work and common errors that cost the operation (Weele, 2006).

The e-purchasing operation will also allow the visibility of spending. Visibility shall be made possible due to the fact that ICT centralizes all the operations and hence the flow of orders in to the company will be easily tracked. The other important benefit of the operation is control. ICT shall allow the purchasing team to embrace the standardized approval operations and formal workflows. This shall ensure a high level of authorization by limiting access of the operational dealings only to the authorized personnel in the company (Russell, 2013).

One of the key growth targets of the FGVH Company is to become the largest sugar hub in ASEAN with a production of approximately 3.25 million tons of sugar per annum. This target is based on the vision 2025 of the FGVH Company. The purchasing team is actively seeking sources that will expand its opportunities that will focus on cost reduction initiatives in order to realize the 2025 growth target (Mavin, 2012). The purchasing team has also worked tirelessly to ensure that the company fully utilizes the existing assets to the optimum. The FGVH Company is also aiming at implementing the already improved technologies in all the sectors of its operation from the sourcing, production logistics up to the distribution process. The company is also aiming at embarking on an insistent replanting initiative that will help it to achieve the 60% target in the yields production. This program will provide the raw materials that would have been costly to purchase and therefore the strategic plan of 2025 would be best achieve using the replanting program (Mavin, 2012).

As a purchasing manager, I would recommend that the FGVH Company should employ the purchasing cost reduction strategies that will positively affect the company’s profitability. The purchasing team should begin the process by conducting a thorough analysis of the purchase that are currently made and how the materials purchased consume cash (Ward, 2016). I would therefore recommend that the purchasing team should look for substitute raw materials where possible. This is possible because the different suppliers usually have a variety of similar products especially in the farming industry. Even though the team has been negotiating for the materials, they should improve it by asking discounts every time they make a purchase. In addition, they should seek for favorable financial terms such as prepaid or any other freebies.

The purchasing team in the FGVH Company should also consider the leveraging suppliers. This shall lead them to identify alternative suppliers who may offer the same delivery at a better cost. The team should also narrow their purchase depending on the need for the product rather than potential. The management team should also acquire an unprecedented control and visibility over the entire production (Russell, 2013).  This will enable the purchasing management department to lay and implement the various recommendations that I have suggested for the purpose of analyzing the purchasing cost reduction.

Conclusion

The purchasing department in the FGVH Company has already done recommendable work in ensuring that the suppliers are delivering materials in the most reliable way (Mavin, 2012). Having emerged as one of the leading agri-commodities companies in the world, the purchasing department must have played a good job. Concerning the 2025 goal of excellence of the FGVH Company, I would however emphasis or stress on various recommendations that the purchasing team need to put into account (Q3, 2015). The team should tighten the supplier selection criteria to ensure the reliability and timeliness of the suppliers. The purchasing team should therefore consider the financial stability of the supplier, the cost of purchases as well as the quality of the raw materials each supplier has (Mavin, 2012). In the purchasing operations, I would recommend the team to stabilize the purchasing operations using the Arriba software system which is able to centralize all the purchasing operations that the company shall engage in. the purchase management team need also to improve on the purchase cost reduction strategies that will ensure that the cost of production from the upstream to the downstream is favorable. Finally, the purchasing management should consider supplier leveraging so that services from different suppliers can be weighed (Mavin, 2012).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reference

Koons, C., & Mavin, D. (2012, June 27). Felda Plants Seed of Discontent. Wall Street Journal - Eastern Edition. p. C14.

Mavin, D. (2012, July 3). Why Felda Global Ventures' IPO Is a Winner Over Facebook. Wall Street Journal - Eastern Edition. p. C12

 Day, M. (2002). Gower handbook of purchasing management. Aldershot [u.a.: Gower.

Pooler, V. H., & Pooler, D. J. (1997). Purchasing and Supply Management: Creating the Vision. Boston, MA: Springer US.

 Q3 2015 Felda Global Ventures Holdings Bhd Earnings Call - Final. (n.d). Fair Disclosure Wire (Quarterly Earnings Reports), Bottom of Form

 Sutton, K. (2001). Agribusiness on a Grand Scale – Felda's Sahabat Complex in East Malaysia. Singapore Journal Of Tropical Geography, 22(1),

Ward G., (2016) The Project Manager's Guide to Purchasing: Contracting for Goods and Services CRC Press,

Weele, A. J. (2010). Purchasing & supply chain management: Analysis, strategy, planning and practice. Andover: Cengage Learning.

Russell T., (2013) Teaching and Using ICT in Secondary Schools Routledge

Weele, A. J. (2006). Purchasing & supply chain management: Analysis, strategy, planning and practice. London: Thomson Learning.