The ability of a firm to achieve success in the current competitive business environment depends on the effectiveness of its procurement and supplier relationship strategies. According to Willoughby and Gore (2018), companies are under pressure to cut the overall cost of operation as a way of improving their profit margins, and one of the ways of achieving this goal is to maintain a close relationship with suppliers.
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Successful companies have learnt to create close relationships with their major suppliers to help them ensure that they have the needed materials at the right time and in the right quality consistently. Such a smooth supply chain helps in ensuring that there is no interruption in production process of a company. Thakur (2017) argues that in the food sector where most of the products are perishable, time and reliability are of great importance.
Customers demand for fresh products in convenient locations on a regular basis. When these products have to be sourced across the border, a company would not only need a close working relationship with the suppliers but also an effective supply chain system that would speed up the transportation of the product from one location to the next. In this paper, the researcher seeks to conduct a critical evaluation of the significance of strategic procurement and supplier relationship management from the perspective of Tesco sourcing extensive food materials from Greece.
The concepts of procurement and supplier relationship management have attracted many scholars over the past few decades. Poluha (2016) explains that in the past when a few large corporations dominated the market, procurement and supplier relations were foreign concepts. Some of these companies controlled the production chain from the raw materials to delivery of products in the market (Mangan & Lalwani 2016). Others were the only buyers of these raw materials and as such, suppliers did not have other alternatives. However, that has changed over the recent years as competition become stiff.
Suppliers have the liberty to dictate terms of trade in the market because of the options they have. In such a scenario, it forces companies to embrace effective ways of creating and maintaining a close relationship with suppliers in the market. Tesco, one of the leading supermarkets in the United Kingdom, imports a wide range of food products such as vegetables, fruits, seafood, dairy products, and olive oil from Greece. The company needs to understand risks associated with its procurement practices to help eliminate negative forces in the market. In this section of the paper, it is necessary to review relevant theories and models that this company may need to use in its operations within the market.
Theory and Practice of Project Risk and Procurement Management
Sourcing for food materials from a foreign country require an elaborate strategy that would help a company to address the numerous challenges associated with such an undertaking. One of the theories that can help Tesco to deal with this problem is the game theory. The theory is a critical decision making tool that enables a firm to outsmart its competitors in the market. It is used in circumstances where results depend on actions taken by two or more players (Mangan & Lalwani 2016).
Each player has the liberty of making its personal strategic decisions with the aim of winning the game. The player that comes up with the most effective plan gets a payoff (a direct benefit over other rivals in the game) by the end of the game. The players are often provided with a set of information that enables them to make decisions when playing this game. However, each player has the liberty of making an extra effort to gain access to more information that would help guide the process of making strategic decisions. Such efforts help in ensuring that at equilibrium (the point at which players has made their decision), the best player comes on top of others.
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In practice, this theory can help Tesco to outsmart its rivals in the market and eliminate challenges associated with acquiring raw materials from Greece. The management of this supermarket should understand that it is in a game where the winner takes the best out of the market. Each player (the rival firms seeking the same food materials from Greece) has the same platform and access to the relevant knowledge related to sourcing the food materials.
It is upon this company to make the extra effort that would enable it to outperform its rivals. According to Thakur (2017), when dealing with food products, one of the main issues that a firm should be ready to address is the loss of a trusted suppler to a competitor. Using this theory, the management of Tesco would need to gather relevant information about these important suppliers and develop close working relationship with them.
The goal is to ensure that they remain loyal to the firm so that rival companies do not easily sway them. The theory can also help Tesco to develop effective strategies that would enhance the procurement system to ensure that products can move from the supplier to its stores in the United Kingdom within the shortest time possible to address the problem of perishability. The company can only maintain customer loyalty if it consistently provides high quality products consistently and in convenient locations.
Models of Project Risk and Procurement Management
The management of Tesco would need to embrace understand models of project risk and procurement management that can enable it to plan its management strategies in its strategic procurement management. Figure one below shows risk-impact model that is popular in evaluating risks to understand their significance in an organizational context. The model is used to classify risks based on their likelihood of occurrence and impact that they may have in case they occur. In the first quadrant are risks that are likely to occur and have high impact. The management of Tesco should give top priority to these risks.
Effective risk management measures should be put in place to protect the company in case they occur. Poluha (2016) explains that it is often advisable to have insurance cover for such risks, especially in cases where the company has no control over their occurrence.
The second quadrant is risk with low impact but high likelihood of occurrence. In such cases, the occurrence of these risks may not have devastating consequences on the normal operations of Tesco. However, they are still undesirable because they may hurt the profitability of the supermarkets. In such cases, Mangan and Lalwani (2016) argue that having effective response management system may be the way to deal with them.
The third quadrant is a class of high impact risks, which are less likely to occur. Although these risks are less common, their occurrence may have devastating consequences on this supermarket. The management of Tesco should consider having an insurance cover to such dangerous risks. The last class of risks is those with low impact and is less likely to occur. The management may not even realize when they occur. They require little attention and investment, but Christopher (2016) warns that a firm should not ignore them.
The stiff competition that Tesco faces in the local market makes it necessary for it to develop effective strategies of operation. Belvedere and Grando (2017,) explain that one of the major concerns that have emerged over the recent past in relation to supplier-retailer engagement is delayed payments. Some suppliers have voiced their concerns about the inability of some of the local supermarkets to pay for the products in time, creating inconvenience on the part of the suppliers. Other issues also emerge that often strain the relationship between suppliers and supermarkets such as Tesco. It is important to analyze these issues and develop strategies that this company can use to overcome them in its effort to create a functional relationship with its suppliers in Greece.
How the Procurement Function at Tesco Can Manage a Global Network of Vendors
The rapid shifts in the business environment can easily render suppliers inoperative within a short period, especially in the food business. Issues such as changing tastes and preferences, perishability, government policies, and emerging health concerns all make the food industry highly sensitive (Ibrahim & Hamid 2014). Supermarkets such as Tesco can easily switch from one product to another depending on the prevailing market forces.
However, suppliers may not survive such forces. Thakur (2017) argues that some successful companies have learned how to create a close working relationship with suppliers in the market, which is mutually beneficial. In such a scenario, the two entities view each other as business partners. Each party would want its partner to be successful because their existence depends on each other. The primary principle in such a relationship is to protect each other whenever new destructive forces emerge in the market.
Tesco would need to redefine its procurement function to go beyond obtaining the needed food products from the vendors and suppliers in Greece. Instead, it would have a system that allows it to communicate with them on the changing trends in the market. Whenever customers want a change in tastes of their product, Tesco would need to work with its current vendors and suppliers in Greece on how to redefine their products. Belvedere and Grando (2017) note that instead of looking for new suppliers whenever such changes occur, the firm would focus on how to work with them to shift from what they currently deliver to something new.
A good example is the emerging concern about health risks of dairy products. Some health experts have associated high fat and cholesterol in dairy products with increasing cases of coronary diseases. It means that as the number of health-conscious consumers increase, the demand for such products may drop. Tesco can work with its current dairy products suppliers to find alternative products considered healthy to help address the expected drop in demand.
The goal is to ensure that these vendors and suppliers are protected from collapse in cases of shifting trends in the market. According to Zhao (2014), such strategies may not cost the company a lot of time and resources, but they would develop a close relationship with these vendors for years. The suppliers would be reminded that Tesco is not just interested in making profits by having access to the food materials they need at the right time and in the right quality and quantity.
They will realize that the company values their existence and relationship, and would be interested in helping them at times of distress. Rival firms cannot easily break such close bonds even if they come with deals that are more lucrative. It is always less costly to work with the current suppliers than to look for new vendors (Poluha 2016). Protecting the existing vendors from the changing market forces would eliminate the need for Tesco to look for alternative business partners in Greece.
Managing Supply Chain Risk and Scarcity of Raw Materials
The management of Tesco needs to understand that sustainable and economic issues in the business environment can lead to increased pressure on the buyer-supplier relationships. Each party may have the desire to increase its profitability in the market to enable them achieve growth. The problem with such an approach is that the supplier and the buyer would have conflicting interests (Zhao 2014).
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For example, when Tesco focuses to cut cost related to procurement, it can easily shift its focus from purchasing raw materials from one company to another that offers a better deal. On the other hand, the supplier can also shift its loyalty from Tesco to another rival supermarket that can offer higher prices. The problem with such a strategy is that it would offer short-term solution. However, both parties would lose the benefit of having a loyal business partner that may be of health during challenging times.
Strategic procurement of food products requires an effective approach of handling the perishable products. Vegetables, fruits, and dairy products have a short lifespan the moment they are harvested. Companies have developed elaborate technology-based strategies of lengthening their lifespan. However, Spikin (2013) explains that these strategies do not eliminate the risk of perishability.
Moreover, a section of customers in the market prefers having products without preservatives because of health reasons. As such, when Tesco is sourcing for these food products from Greece, it should find ways of ensuring that they reach the market within the shortest period possible. Customers would want an assurance that these products are fresh from the farm.
The management of Tesco should develop effective strategies of managing supply chain risks. One of the main risks that may have devastating consequences on the firm’s operation is the scarcity of the raw materials. Some of the farm products such as fruits are seasonal. When they are off-season, it may be difficult for Tesco to have them on its stores. It is necessary to have a system that would enable the company to have a wide strategy of sourcing for these materials. According to Christopher (2016), some of the clients may want a regular supply of food products such as avocado throughout the year. However, this product is seasonal in Greece. In such cases, it may be necessary to consider sourcing for the product from other parts of the world at different times of the year to ensure there is consistency.
Environmentalists have also come out to fight the problem of environmental pollution caused by local companies. They encourage buyers to consider the carbon footprint for every product they purchase (Sanderson et al. 2015). They discourage local customers from purchasing products transported from other parts of the world to the country because of the massive pollution caused by transportation vessels. The problem is that it may not be possible for this company to source for all the products within the local market. In such cases, it may need to address this risk by engaging its customers through various platforms. Facebook, YouTube, Twitter, and Instagram are some of the platforms that it can use to explain to its customers why it has to purchase these products from foreign countries to meet the local demand.
Strategic procurement and supplier relationship management are critical concepts in the current competitive business environment. The study has evaluated how Tesco can use these concepts when sourcing for extensive food materials from Greece. It is evident that the ability of this firm to achieve success in the market depends on the relationship it creates with these suppliers. In a market where many buyers are seeking the same food suppliers from the same market, it helps to have loyal business partners. The study recommends having a mutually beneficial relationship between Tesco and its suppliers.
Although it is desirable to have low prices for the product, it should not come at a cost the vendors in Greece. The study also shows that it is important for this company to be keen on emerging trends in the market. Increasing incidences of health problems such as cancer, heart diseases, diabetes, and high blood pressure have made many people to be sensitive about what they eat. As such, some food products that were previously popular are losing their appeal because of the health problems associated with them.
The study recommends that Tesco should work closely with its suppliers to enable them understand these changing market forces so that they can adjust their product portfolio accordingly. Sources used in this study are reliable and addresses the problem in an effective way. The researcher made an effort to avoid being biased when collecting sources in this research as a way of enhancing independence of thought.
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