UNIVERSITY OF CENTRAL PUNJAB

FALL 2023
Course Title: BAMG 4533
Course Code: Supply Chain Sourcing

Assignment No. 2
Course Instructor: Mr. Jahanzeb Asim

Section: Program: BBA Date: 19-12, 2023

Submission Date: 28-12, 2023 Maximum Marks: 10

Program Objective: 1, Course Objective: 1,2,
Course Learning Objective: 1,2,3, 4, 5
2, 3 3, 4, 5

TO BE FILLED IN BY THE STUDENT

Student Name: Registration No:
Sr. No:

Shaherzad Muazzam L1S20BBAM0156

Ahmar Ali L1F20BBAM0863

Ali Imran L1S20BBAM0944

Instructions:
a. All the students are bound to submit the hard copy of this assignment before the class
on the said date.
b. No delays will be allowed in the submission.
c. All the steps should be followed while solving the assignment.

Assignment Topic & Details:

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Background Case Study:

AL-BAARQ Corporation, a leading organization, is facing challenges in its procurement

processes that are impacting efficiency and cost-effectiveness. In this case study, we will
identify and address specific problems using concepts from purchasing and procurement
management.

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 CONTENTS

1 Problem Identification: The procurement team lacks a clear understanding of

fundamental concepts, leading to inefficiencies in the procurement process............................1
Question 1: What are the key differences between purchasing and procurement?................1
Question 2: How do purchasing and procurement align with the overall goals of the
organization?..........................................................................................................................2
2 Problem Identification: There is a disconnect between the corporate strategy and the
purchasing strategy, hindering alignment with organizational objectives.................................3
Question 3: How should the purchasing strategy align with the overall corporate strategy? 3
Question 4: What challenges may arise from a lack of alignment between these strategies?4
3 Problem Identification: There is a lack of clarity regarding the distinction between
strategic and operational purchasing activities.Microsoft Outlook Calendar............................5
Question 5: Define and provide examples of strategic purchasing activities.........................5
Question 6: Define and provide examples of operational purchasing activities....................7
4 Problem Identification: Maverick buying is prevalent, leading to uncontrolled
procurement activities................................................................................................................8
Question 7: What is maverick buying, and why is it a concern for organizations?...............8
Question 8: What strategies can be implemented to address maverick buying?....................8
5 Problem Identification: The organization is not considering the total cost of ownership in
supplier selection and evaluation...............................................................................................9
Question 9: Explain the concept of Total Cost of Ownership (TCO)....................................9
Question 10: How does considering TCO impact supplier selection and evaluation?.........10

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1 PROBLEM IDENTIFICATION: THE PROCUREMENT TEAM
LACKS A CLEAR UNDERSTANDING OF FUNDAMENTAL
CONCEPTS, LEADING TO INEFFICIENCIES IN THE
PROCUREMENT PROCESS.

Question 1: What are the key differences between purchasing and

procurement?

Procurement: Purchasing:
Scope

A broader, strategic process encompassing A narrower, transactional function focused

the entire acquisition cycle, from identifying on placing orders, receiving goods, and
needs to managing supplier relationships processing payments.
and post-purchase activities.

Significance
Primarily concerned with short-term cost
Emphasizes long-term value creation, cost minimization and fulfilling immediate
optimization, risk management, and needs.
strategic supplier relationships.

Activities

 Defining product and service  Receiving purchase requests from

specifications. departments.
 Selecting and evaluating vendors  Obtaining and comparing quotes
based on quality, cost, and from suppliers.
sustainability.  Issuing purchase orders.
 Negotiating contracts and managing  Receiving and validating goods or
supplier relationships. services.
 Developing purchasing policies and  Processing payments to suppliers.
procedures.
 Monitoring supplier performance
and managing risks.

Planning and Strategy

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 Procurement: Purchasing:

Driven by long-term corporate goals and Typically reactive, responding to immediate

strategies. needs without strategic considerations.

Data Analysis

Utilizes data and analytics to track Often lacks data-driven insights, leading to
spending, evaluate suppliers, and optimize inefficient buying decisions.
processes.

Overall, procurement acts as an umbrella term encompassing purchasing alongside various

other activities that contribute to strategic sourcing and value creation, while purchasing is
simply the act of acquiring goods or services through transactional processes.
Question 2: How do purchasing and procurement align with the overall
goals of the organization?

Procurement goes beyond mere purchasing; it's a strategic function encompassing the entire
lifecycle of acquiring goods and services. It plays a vital role in achieving organizational
goals by:

i. Cost Optimization:

 Negotiating competitive pricing: By seeking the best deals through strategic supplier
selection and contract management, procurement helps reduce costs and improves
financial performance.
 Optimizing inventory levels: Through effective demand forecasting and inventory
management, procurement minimizes unnecessary inventory carrying costs and frees
up capital for other needs.
 Managing risk: By identifying and mitigating potential supply chain disruptions
through supplier diversification and risk management strategies, procurement protects
the organization from financial losses and operational bottlenecks.

ii. Quality and Sustainability:

 Sourcing reliable suppliers: By focusing on quality standards and sustainability

practices during supplier selection, procurement ensures the organization receives
goods and services that meet its requirements and align with its values.

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  Continuous improvement: Implementing quality management systems and
collaborating with suppliers on improvement initiatives promotes consistent quality
and enhances customer satisfaction.
 Sustainability initiatives: Integrating sustainability considerations into purchasing
decisions, such as sourcing recycled materials or using green suppliers, allows the
organization to contribute to environmental goals and improve its brand image.

iii. Innovation and Operational Efficiency:

 Identifying innovative solutions: By collaborating with suppliers on research and

development, procurement can access cutting-edge technologies and materials that
contribute to product innovation and improve operational efficiency.
 Streamlining processes: Implementing digital procurement tools and automating
routine tasks can significantly reduce procurement lead times and improve overall
process efficiency.

Essentially, successful procurement aligns with organizational goals by:

 Driving cost savings and improving financial performance.

 Ensuring quality, reliability, and sustainability of goods and services.
 Supporting innovation and operational efficiency.

Prerequisites for alignment:

 Clear understanding of organizational goals and strategies.

 Effective communication and collaboration between procurement and other
departments.
 Implementation of robust procurement policies and procedures.

Hence, addressing the lack of understanding within the procurement team about these
underlying principles, AL-BAARQ can transform its procurement function into a strategic
asset that actively contributes to achieving its overall organizational goals.

2 PROBLEM IDENTIFICATION: THERE IS A DISCONNECT

BETWEEN THE CORPORATE STRATEGY AND THE
PURCHASING STRATEGY, HINDERING ALIGNMENT WITH
ORGANIZATIONAL OBJECTIVES.

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Question 3: How should the purchasing strategy align with the overall
corporate strategy?
AL-BAARQ Corporation can align its purchasing strategy with its overall corporate strategy
by:

i. Translate Corporate Goals into Procurement Objectives:

Clearly define how procurement can contribute to achieving corporate goals. For example, if
the corporate strategy is to expand into new markets, the procurement strategy should focus
on identifying and securing suppliers in those markets.

ii. Prioritize Based on Strategic Value:

Not all purchases are equal. Shift the focus from simply minimizing costs to considering the
strategic value of each purchase. This means prioritizing quality, reliability, and innovation
over short-term cost savings when it aligns with the corporate strategy.

iii. Collaborate and Communicate:

Foster close collaboration between procurement and other departments like marketing, sales,
and operations. This ensures that purchasing decisions are informed by the needs of the entire
organization and aligned with the overall corporate strategy.

iv. Leverage Technology:

Utilize procurement software and data analytics to gain insights into spending patterns,
supplier performance, and market trends. This data can be used to inform strategic sourcing
decisions and optimize the procurement process.

v. Build Strong Supplier Relationships:

Develop long-term partnerships with key suppliers who share AL-BAARQ's values and
strategic goals. This can lead to better collaboration, innovation, and cost savings in the long
run.
Impact of Corporate Strategy and Purchasing Strategy Alignment:
Hence, aligning the purchasing strategy with the corporate strategy is an ongoing process. It
requires continuous monitoring, evaluation, and adaptation to ensure that procurement
remains a strategic driver of organizational success.
Thus, AL-BAARQ can bridge the gap between its corporate and purchasing strategies,
improve efficiency and cost-effectiveness, and ultimately achieve its long-term objectives by
following the above elaborated points.

Question 4: What challenges may arise from a lack of alignment between

these strategies?
A lack of alignment between corporate strategy and purchasing strategies can lead to several
challenges for AL-BAARQ Corporation that include:

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 i. Missed Opportunities and Wasted Resources:
If the purchasing strategy doesn't support the corporate growth objectives (e.g., entering new
markets), the company might miss out on acquiring necessary resources or sourcing them at
inflated prices due to a lack of established supplier relationships.
Conversely, if the purchasing strategy focuses on cost-cutting alone while neglecting the
corporate focus on innovation, it might lead to sourcing subpar materials or neglecting
cutting-edge technologies crucial for long-term competitiveness.

ii. Inefficient Procurement and Supply Chain Disruptions:

Misaligned priorities can lead to purchasing decisions that don't consider the bigger picture.
For instance, focusing solely on the lowest price for raw materials might compromise quality,
leading to production delays and product defects. Similarly, neglecting supplier risk
assessment due to cost pressures can expose the company to disruptions caused by unreliable
suppliers or geopolitical factors.

iii. Internal Conflicts and Demotivation:

When purchasing teams are pressured to achieve cost-cutting goals that contradict the
corporate focus on quality or innovation, it can create internal conflicts and demotivation.
Employees might feel they are compromising on important values to meet unrealistic targets.
This can lead to decreased morale, reduced collaboration between departments, and
ultimately, hinder overall organizational efficiency.

iv. Reputational Damage and Competitive Disadvantage:

Inconsistent purchasing practices due to misalignment can lead to quality issues, delayed
deliveries, and ultimately, dissatisfied customers. This can damage the company's reputation
and erode customer trust.
Furthermore, if the purchasing strategy fails to secure access to critical resources or
innovative technologies, AL-BAARQ might fall behind competitors who are better aligned in
their strategic vision and procurement practices.
For Example
If AL-BAARQ aims to expand into new markets but its purchasing strategy focuses on
sourcing from local vendors only, it might struggle to find necessary materials or expertise in
new regions.
Conversely, if cost-cutting is the sole focus, it might source low-quality components for its
products, leading to customer complaints and reputational damage.
Thus, by addressing these challenges and ensuring better alignment between corporate and
purchasing strategies, AL-BAARQ can achieve greater efficiency, cost-effectiveness, and
ultimately, support its long-term success in the market.

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3 PROBLEM IDENTIFICATION: THERE IS A LACK OF CLARITY
REGARDING THE DISTINCTION BETWEEN STRATEGIC AND
OPERATIONAL PURCHASING ACTIVITIES.MICROSOFT
OUTLOOK CALENDAR

Question 5: Define and provide examples of strategic purchasing activities.

While operational purchasing keeps the day-to-day wheels turning, strategic purchasing
activities focus on the long-term, high-level decisions that directly impact the organization's
competitiveness, cost structure, and supply chain efficiency. They are like the architects
shaping the foundation of procurement, influencing operational activities in the long run.
Key Characteristics of Strategic Purchasing:

 High-level and long-term: Decisions go beyond immediate needs, considering future

growth, market trends, and strategic objectives.
 Alignment with corporate strategy: Activities directly support and enable the
achievement of broader organizational goals.
 Significant impact: Decisions have a lasting impact on cost structure, risk profile,
and competitive advantage.
 Collaboration across departments: Procurement teams work closely with other
functions like marketing, sales, and operations to gather insights and align decisions.

Examples of Strategic Purchasing Activities:

 Supplier selection and evaluation: Identifying and assessing potential suppliers

based on their capabilities, reliability, and alignment with the company's strategic
goals. This might involve in-depth analysis, site visits, and long-term contract
negotiations.
 Category management: Grouping similar purchases into categories and developing
sourcing strategies for each. This might involve consolidating suppliers,
implementing cost-reduction initiatives, or identifying innovative solutions by
properly utilizing supply chain’s concept of Horizon Granularity Hierarchy.
 Risk management: Proactively identifying and mitigating potential risks in the
supply chain, such as geopolitical instability, environmental factors, or supplier
dependencies. This involves developing contingency plans and diversifying sourcing
channels.
 Technology adoption: Implementing e-procurement systems, supply chain
management software, and data analytics tools to optimize the procurement process
and gain strategic insights. This can automate tasks, improve transparency, and drive
cost savings.
 Sustainability initiatives: Integrating sustainability considerations into the
purchasing process, such as sourcing from environmentally responsible suppliers or
using recycled materials. This aligns with long-term corporate goals and contributes
to brand reputation.

Impact of Strategic Purchasing on AL-BAARQ's Success

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If the company's strategy involves expanding into new markets, a strategic purchasing
activity might be identifying and establishing preferred suppliers in those regions.
Alternatively, if cost reduction is a priority, strategic purchasing might involve implementing
category management initiatives to optimize spending on critical materials. Therefore, by
clearly differentiating and prioritizing strategic purchasing activities, AL-BAARQ can ensure
their procurement function drives long-term value and supports the organization's success.

Question 6: Define and provide examples of operational purchasing

activities.
Operational Purchasing Activities:
Operational purchasing activities are the lubricant and fuel that keep the organizational
engine running smoothly. They encompass the day-to-day, transactional tasks that ensure the
right supplies are available when and where they're needed, at the right price. These activities
are routine, repetitive, and focused on efficiency and accuracy, forming the backbone of the
procurement process.

Key characteristics of operational purchasing activities:

 Short-term focus: They are driven by immediate needs and replenishment cycles,
ensuring uninterrupted operations.
 Transactional: They involve managing the flow of documents and data associated
with purchase orders, invoices, and inventory records.
 Standardized: They follow established procedures and protocols to ensure accuracy
and consistency.
 Routine and repetitive: They involve similar tasks performed regularly to maintain
operational efficiency.

Examples of operational purchasing activities:

 Requisition processing: Receiving and verifying purchase requests from different

departments, ensuring they comply with company policies and budgets.
 Order placement: Communicating requirements to suppliers, negotiating prices and
terms, and issuing purchase orders.
 Invoice processing: Verifying invoices for accuracy, matching orders and receipts,
and initiating payments.
 Inventory management: Tracking inventory levels, forecasting future needs, and
triggering reorders to maintain optimal stock.
 Goods receipt and inspection: Checking deliveries for quality and quantity, ensuring
they match purchase orders.
 Returns and claims processing: Handling defective or incorrect deliveries, initiating
returns and claims with suppliers.

Examples of Operational Activities for AL-BAARQ:

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  A lack of clarity regarding the distinction between operational and strategic
purchasing might lead to valuable resources and time being spent on routine tasks
instead of focusing on long-term strategic initiatives that can drive cost savings and
competitive advantage.
 Streamlining operational purchasing activities through automation and standardized
procedures can free up resources and expertise to be channeled towards strategic
initiatives.

Thus, clearly differentiating and optimizing operational purchasing activities, AL-BAARQ

can ensure a smooth and efficient supply chain, freeing up resources and expertise to focus on
strategic initiatives that drive long-term success.

4 PROBLEM IDENTIFICATION: MAVERICK BUYING IS

PREVALENT, LEADING TO UNCONTROLLED PROCUREMENT
ACTIVITIES.

Question 7: What is maverick buying, and why is it a concern for

organizations?

Maverick buying refers to unauthorized purchases made outside of established procurement

processes and approved suppliers. It often involves employees circumventing official
channels to acquire goods or services, sometimes using their own funds. While seemingly
harmless for small, infrequent purchases, it poses significant challenges for organizations:

 Cost inefficiencies: Maverick buying bypasses negotiated discounts and bulk

pricing, leading to higher costs per unit. Increased transaction volume also adds
administrative burdens.
 Compliance risks: Purchases may not adhere to quality standards, legal
requirements, or ethical sourcing practices, exposing the organization to potential
liability.
 Supply chain disruptions: Uncoordinated purchasing can disrupt inventory
management, leading to stockouts or overstocking, impacting production and
customer service.
 Lack of visibility: Unmonitored spending makes it difficult to track and analyze
expenses, hindering strategic decision-making and cost optimization efforts.
 Erosion of trust: Maverick buying undermines established procurement protocols
and weakens overall governance, potentially leading to fraud and corruption.

Question 8: What strategies can be implemented to address maverick

buying?

Preventative Measures:

 Streamline approval processes: Simplify purchase requests and reduce approval

turnaround times to discourage employees from going rogue.
 Empower employees: Train staff on procurement policies and procedures and
provide them with access to readily available approved suppliers and products.

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  Increase policy awareness: Regularly communicate the importance of compliant
purchasing through clear guidelines, campaigns, and incentives.
 Technology solutions: Implement e-procurement platforms that automate ordering
and approvals, track spending, and enforce compliance.

Monitoring and Control:

 Spend analytics: Analyze purchasing data to identify maverick spending patterns and
track progress towards improvement.
 Supplier audits: Regularly audit contracted vendors to ensure adherence to quality
and ethical sourcing standards.
 Risk management: Develop risk assessment processes for potential maverick buying
vulnerabilities and implement targeted controls.

Addressing Root Causes:

 Review purchase policies: Ensure policies are relevant, user-friendly, and address
employee needs for agility and efficiency.
 Improve supplier relationships: Build strong partnerships with preferred suppliers
to offer competitive pricing, reliable service, and product diversity.
 Internal communication: Foster open communication between procurement and
other departments to understand their needs and address purchasing challenges
collaboratively.

Leveraging Supply Chain Sourcing Concepts:

 TCO analysis: Evaluate purchase decisions based on overall costs, considering not
just purchase price but also acquisition, usage, and disposal costs. This can help
identify hidden advantages of approved suppliers over seemingly cheaper maverick
options.
 Supplier selection criteria: Clearly define evaluation criteria based on
quality, reliability, sustainability, and pricing, and utilize tools like AHP to
objectively select reliable partners who align with organizational values.
 Supplier quality management: Encourage adoption of Deming's 14 Points by
suppliers to promote continuous improvement in their quality systems and ensure
reliable product consistency.

Impact of supply chain sourcing concepts utilization:

Hence, implementing a multi-pronged approach that combines preventative

measures, monitoring, and addressing root causes, AL-BAARQ can minimize maverick
buying and achieve efficient, cost-effective procurement. Thus, success depends on
effectively tailoring these strategies to AL-BAARQ's specific needs and challenges through
comprehensive analysis and collaboration between procurement, other departments, and
relevant stakeholders.

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5 PROBLEM IDENTIFICATION: THE ORGANIZATION IS NOT
CONSIDERING THE TOTAL COST OF OWNERSHIP IN
SUPPLIER SELECTION AND EVALUATION.

Question 9: Explain the concept of Total Cost of Ownership (TCO).

TCO is a holistic approach to evaluating the complete financial impact of a product, service,
or capital equipment over its entire lifecycle. It goes beyond the standard purchase price and
considers all associated costs, from acquisition and usage to end-of-life disposal. This deeper
understanding helps businesses make informed decisions about supplier selection and
procurement strategies.
Components of TCO:

 Purchase price: The initial cost paid to the supplier.

 Acquisition costs: Costs associated with bringing the product/service to your
location, like sourcing, administration, and transportation.
 Usage costs: Costs related to using the product/service, like inventory management,
conversion, warranty, and maintenance.
 Salvage costs: Costs incurred when the product/service reaches its end, like disposal,
clean-up, and potential salvage value.

Question 10: How does considering TCO impact supplier selection and
evaluation?

By utilizing TCO, firms like AL-BAARQ can shift the focus from simply the lowest price to
long-term value impacts supplier selection and evaluation in several ways such as:

 Improved decision-making: TCO helps identify hidden costs and potential risks
associated with suppliers. This allows you to make informed decisions based on the
actual cost of ownership, not just the initial price tag.
 Prioritizing quality and reliability: TCO encourages selecting suppliers who offer
high-quality products/services with minimal downtime and warranty claims. This
reduces future usage costs and improves overall efficiency.
 Enhancing supplier partnerships: By considering TCO, you can collaborate with
suppliers to identify and mitigate cost drivers. This fosters a more strategic and
mutually beneficial relationship.
 Building long-term value: TCO helps you choose suppliers who align with your
sustainability goals and future needs. This creates a foundation for long-term value
creation and competitive advantage.

Examples of TCO in Action:

 Choosing a reliable supplier for machinery might cost slightly more upfront, but it
saves long-term costs through reduced maintenance and downtime.
 Opting for recycled materials might seem expensive initially, but it can lead to cost
savings in disposal fees and enhance your brand's sustainability image.

Overall, TCO is a powerful tool for making informed supplier decisions. By considering all

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costs associated with a product/service over its lifecycle, AL-BAARQ can optimize its
procurement processes, build stronger supplier relationships, and ultimately, drive long-term
success for your organization.

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