Purchasing contracts play a vital role in purchasing and supply chain management and this because they prevent disagreements With the rising costs of raw materials, Tenex went ahead to pass on the higher price to the client as opposed to the contractual agreements. There is no doubt that the contract between the parties was a firm-fixed-price contract, which states that the purchase price stated on agreement does not change, notwithstanding the fluctuations in overall economic conditions, market prices, environmental damages, or industry competition.
If the management team at Tenex could go back in time, it should have been best for them to sign a cost-sharing contract with the other party. This type of contract dictates that allowable costs are to be shared between the parties involved, and this occurs on a predetermined percentage basis. Besides, it paves the way for both sides to spell out the contractual expectations in details to avoid possible misunderstanding or confusion. Essentially, the cost-sharing contract provides guidelines on how the parties involved can best share the increasing input cost expenses. In this case, with this type of contract, Tenex would have involved the other party in sharing the increase in input cost expenses in the form of increased raw material costs without being in violation of contractual terms.
Evaluation and measurement of supplier performance help organizations make informed decisions on issues relating to organizational operations. Besides, it helps organizations to identify what and how their resources are utilized, paving the way for their efficient utilization. For the purchaser of a restaurant business tasked with evaluating the performance of meat and produce (fruits and vegetable) suppliers, the most appropriate measures for the meat and produce suppliers would be price performance measures such as the comparison of actual price and planned purchase price, comparison of actual purchase price to a marketing index, and comparison of actual purchase prices with the achieved target prices. Also, time or delivery or responsive measures would be appropriate for both meat and produce suppliers, as the primary objective of the restaurant would be to see a reduction in the amount of time taken to achieve break-even investment. Moreover, quality measures would also be appropriate as it would ensure that meat and produce such as fruits and vegetables supplied are of high quality, which would result in the attraction of more customers and achievement of profitability in the long run.
Notably, for a purchaser for a restaurant business dealing with meat and produce such as fruits and vegetables, there would be no difference from a performance perspective in what would be looked for in meat and produce suppliers. As seen above, supplier performance of both meat and produce would be evaluated and measured in terms of the time they respond or deliver services. Besides, supplier performance for both meat and produce would be measured in terms of the purchase prices and whether the restaurant business would achieve profitability with the same. Most importantly, the performance of both suppliers would be measured in terms of the quality of product and service delivery, as quality is one of the perspectives that lead to profitability.
In organizational contexts, a policy refers to the set of principles as well as associated guidelines whose formulation and enforcement help organizational governing bodies to direct and come up with organizational actions or activities with the achievement of long-term goals in mind. In other words, a policy can be defined as the set of principles, purposes, as well as rules of action that give guidance to an organization. There are various advantages and disadvantages of using policies in the field of procurement. Regarding the drawbacks, the use of policies provides an opportunity to clarify and define top management perspectives, which include the means through which organizational executives can communicate leadership views and beliefs. Besides, using policies is advantageous to the procurement field as it provides a framework or platform for consistent decision-making and actions. It should also be noted that the use of policies in the procurement field is advantageous as the rules and procedures for every stakeholder involved is defined. However, when utilized in the procurement field, policies are a disadvantage as they make communication difficult. Also, through the use of policies, the restriction of employee innovation and flexibility is restricted, and this could jeopardize the procurement process. Moreover, the fact that policies act as substitutes for effective management is always a disadvantage to procurement. Policy must be action-oriented, relevant, concise, timely and current, must guide problem-solving and behavior, and must be well-understood to be considered effective.
Purchasing policies can be divided into different categories, those that define the role of purchasing, those that define the conduct of purchasing personnel, and those that define operational issues. The category with policies that define the role of purchasing focuses on purchasing authority, objectives of the purchasing function, and responsibilities of various buying levels. The category that defines the conduct of purchasing personnel focuses on ethics, reciprocity, contacts and visits to suppliers, and reporting of irregular business dealings with suppliers. On the other hand, purchase policies that define operational issues focus on hazardous materials, supply responsibility for defective materials, as well as purchased item comparisons. The aforementioned categories of policies are equally important as the purchasing process in organizations would not be effective without any of them.
Supplier relationship management is without a doubt a critical component of supply management integration, and these relationships are categorized into those that result in internal linkages and those that result in external linkages. Collaborative supplier relationships are of benefit because they pave the way for joint efforts in the resolution of disputes and improvement of supplier performance, allow the open exchange of information, and enables commitment to work together even during difficult times. Having good supplier relationships is advantageous as it enhances trust and also ensures long-term contracts.
However, there are obstacles to having close supplier relationships, and these include lack of confidentiality, limited interests by suppliers, resistance to change, and legal barriers. Firms ensure effective relationships with suppliers when they reexamine how they interact with themselves and when they resolve internal conflicts between stakeholders. Also, firms can achieve effective relationships with suppliers by having relationship managers and key performance indicators.
Worldwide sourcing activities involve the proactive integration and coordination of common materials and items, designs, processes, technologies, as well as supplier throughout global engineering, operating, and purchasing locations. An undeniable fact is that these activities are not easy to start or manage, and this is because of the existence of several barriers that may limit the same. One of the barriers that may limit worldwide sourcing activities is the lack of knowledge and skills, which concern worldwide sourcing. This is an insinuation that individuals may lack the knowledge or skills of identifying potential sources of supply in the global perspective. Besides, global sourcing requires movement across the globe, and thus people may not have the knowledge to deal or handle documentation issues that may arise such as letters of credit, dock receipts, import licenses, certificates of origin, certificates of insurance, commercial invoices, and packing lists. Another barrier to worldwide sourcing activities is resistance to change, which is triggered by the existence of already established and routine sourcing patterns, the difficulty in shifting from longstanding suppliers, and domestic market nationalism. Longer lead times might also serve as barriers limiting worldwide sourcing activities, and these might be evident in extended material pipelines, forecasting over longer time horizons, possibility of transit and customs delays, need to manage closely delivery dates, as well as greater logistical, financial, and political risks. Irrefutably, cultural issues might affect worldwide sourcing activities, and these include different or diverse business practices, language, culture, different meeting and negotiation styles, as well as the need to manage more closely delivery and engineering changes. Another critical barrier that might jeopardize worldwide sourcing activities is constant currency fluctuation. With this, people might be forced to have an understanding of highly complicated financial options and how to price purchases.
However, firms can overcome such barriers and develop a successful worldwide sourcing program in various ways. First, provision of education and training on worldwide outsourcing-related issues would play an integral role in overcoming such barriers. Second, through publicizing success stories, more people would be encouraged and motivated to embrace worldwide sourcing. Third, given that worldwide sourcing requires effective international communication, putting in place globally linked information systems would help overcome barriers such as those mentioned above. Other ways of overcoming barriers that might compromise worldwide sourcing activities include the establishment of measurement and reward systems and use of third-party intermediaries when embracing global sourcing.