CIPS Sourcing Essentials PSE Oman
Question
Identify four sourcing approaches, and for each one, identify and explain how you apply them to a category of
spend within your organisation.
Choose one of these categories and develop a supplier appraisal check list.
Solution
Table of Contents
2.0 Selected Category of Spend and Positioning. 3
2.1 Kraljic Analysis Technique. 4
2.2 Business Hierarchy of Needs 5
4.0 Sourcing Appraisal Checklist 12
4.1 IT Area of Spend Supplier Appraisal 12
5.0 Conclusion and Recommendations 14
Appendix 1: Contract Stages in XXX Operations 19
Appendix 2: IT Categories of Spend. 20
Executive Summary
In this assessment, identifying sourcing approaches has been done to explain their application on the category of spend within XXX organisation. The selected spend category is the IT systems, specifically in the current COVID-19 pandemic where the organisation has been adopting remote working in its operations. In the evaluation in this assessment, the identified category of spend has been compared to the health and safety equipment, logistics, machinery in their onshore and offshore oil and gas processing, and vessel hire has been used. In identifying the different sourcing approaches, the tools applied included the Kraljic analysis tool, Mendelow’s analysis tool for stakeholders analysis, and the business hierarchy of needs. Also, to identify the prevailing threats and opportunities, the SWOT analysis tool has also been used. This is on top of Peter Block Grid’s use for organising the stakeholder’s interests in the sourcing approaches based on their positioning. The different sourcing approaches evaluated include single, sole, dual, and multiple.
In the supplier appraisal for the IT systems category of spend in XXX organisation, Carter’s 10Cs technique has been applied. The evaluation findings highlight the need for XXX to invest in a strategic sourcing approach to guarantee the organisation dominance in their oil and gas sector and profits acquisition. For the sourcing approaches, Multiple Sourcing includes immense suppliers being engaged with single-sourcing engaging one supplier only. Sole sourcing consists of one monopolistic supplier’s engagement in the operation market, with dual sourcing inclusive of suppliers possessing conflicting demands.
Finally, for recommendations, they can be noted to entail;
- Selecting the best sourcing approaches as informed by the spend category characteristics
- Prioritising detailed policies on procurement process while guaranteeing technology integration in the process
- Simplification of their entire procurement process and ensure all stakeholders interests are prioritised in the process
- Integrating technology in the different product life cycle practicesycle are RFQ, Rand FP, Negotiating e-Auction. The current XXX Ariba/SAP system improving information flows scope in the noted sourcing approaches
1.0 Introduction
XXX organisation is currently the leading exploration and production organisation in Sultanate of Oman. The organisation is tasked with delivering most of the country’s crude oil production and natural oil gas supply. This is for enhancing their success in excellence delivery, growth strategies, and sustainable value creation in the industry and beyond the industry. The company ownership is Government of Oman (60%), Royal Dutch Shell (34%), Total (4%), and PTTEP (2%). Also, the organisation operates in a concession area of approximately 90,000 km2 with around 250 production oil fields, 55 producing gas fields, more than 8,000 active wells, diversity of the workforce with about 8,500 employees inclusive of 70 distinct nationalities and more than 70,000 contractors. To coordinate all these operations and ensure their operations’ optimum, they operate successful and unique sourcing and procurement department. As evidenced in PDO (2021), the organisation operates through being committed to achieving an In-Country Value (ICV) strategy. This strategy ensures the organisation maximizes its procurement and local goods and services and improves the capacity and capability of the Omani people and organisations to secure sustainable commercial benefits for the Sultanate.
Based on this background information, this assessment focuses on identifying four sourcing approaches and explaining their application in the category of spend within XXX organisation. Based on the different categories selected in sourcing approaches, one category has been selected for developing a supplier appraisal checklist.
2.0 Selected Category of Spend and Positioning
In XXX organisation, 60 different IT or Technology systems are currently being procured in the organisation. The rationale of their implementation is ensuring that they are contributing to the overall efficiencies, faster and cheaper operations (Pipeline oil & gas news, 2017). To ensure that the different technology systems are procured, XXX organisation is expected to ensure they use the best sourcing approach and supplier appraisal to meet the fundamental requirements.
Hence, for XXX, identifying the best sourcing approach for different spend categories would mean they control the overall supply and procurement strategies in an appropriate structure (CIPS, 2019). This is guided by needs, demand, and supply evidence in the organisation value chain. Kraljic analysis and Business Hierarchy of needs are applicable. Further, for determining sourcing approaches influencing the XXX stakeholders, Mendelow’s Stakeholder Analysis Matrix can be applied.
2.1 Kraljic Analysis Technique
Kraljic matrix is identified as a tool used for determining the risk of the supply of materials from suppliers integrated with the supply chain (CIPS, 2019). This is used to establish the best sourcing approach to build the right form of relationships and ensuring mitigation of supply risks in such an organisation.
| Low |
| High |
| Risk Impact |
| Cost Impact |
Figure 1: A summary of Kraljic Analysis
Source: CIPS (2019)
A summary of explanation of figure 1 in the context of XXX selection of sourcing approaches include;
Leverage– For these suppliers, multiple suppliers are identified as representative of end product costs and lowered supply risks. Information technology (IT) procurement in XXX organisation best fits in this category. XXX as a buyer can capitalise on quality negotiations with cost savings evident with high-level used in procurement. Multiple sourcing strategies could be used in this category of spend to ensure XXX continues leveraging on buyer power in the relationship. XXX would capitalise on this by bidding on the most negligible costs of procurement and shipping. The IT area of spending, particularly in the current COVID-19 pandemic and in the future, has a high impact on profits and low-level supply risks (Harvard Business Review, 2018).
Strategic Items– An appropriate example of this category is the machinery in XXX onshore and offshore oil and gas processing and vessel hiring. These are identified as having a high supply risk. Therefore, a single supplier is engaged contrary to sole or dual sourcing. Confidentiality in terms of supplier relationship management in XXX would be essential in this category in locked-in sole or dual sourcing. The intention of this is to ensure minimum supply risk evident (Forbes, 2017).
Bottleneck Items– This includes the health and safety category of spend which has a moderate profit impact on the success of XXX operations despite high risk in their supply chain. Suppliers hence dominate their power position for their different products and services. As evidenced in Zhou and Wan (2017), the most appropriate sourcing strategy in this category would reduce negative implications due to inappropriate position. For mitigating issues faced in the spend category, the procurement department entails a reference on multiple suppliers for transitioning to non-critical factors.
Non-critical items– This category includes the products and services available abundantly with multiple suppliers evident and ready alternatives (Jensen, 2017). However, technical and commercial factors are of influence and, as such, a necessity for standardisation. In XXX operations, for different items in this category, a single-sourcing approach is most appropriately used. For solving the likely complexity of standards at this level, modernisation of procurement by using either ARIBA or SAP can be used. This through successful facilitation of E-Tendering such as E-RFQs (Electronic Requests for Quotation) and specifications provided online or emailed to potential suppliers (CIPS Notes, 2021).
2.2 Business Hierarchy of Needs
Based on the highlighted spend categories’ strategic positioning, it is essential to use the business hierarchy of needs model (CIPS, 2020). The IT products and machinery are defined by high-level competitiveness and incurring costs as the initial sourcing approach selection requirement. The Business Hierarchy of Needs (B2B International, 2020) used is informed by Maslow’s Hierarchy of Needs (figure 2) (Stewart et al., 2018);
Figure 2: Maslow Hierarchy of Needs and XXX
In XXX sourcing strategy, it is essential to ensure they meet the different needs identified in figure 2 based on prioritisation. For instance, in IT sourcing, its quality must be prioritised, and the scope of contributing to business needs and minimising risks of XXX operations is put into account. In the Kraljic analysis, IT has been categorised as being sourced from multiple suppliers who would require to be engaged in-depth, time problems mitigated, and prioritise financial incurring approaches directed by buyer needs evaluation. As evidenced in Asamoah et al. (2011), a high buying power is exploited fully since they lead to secured costs and achievement of long-term contracts from varying engaged suppliers.
Further, obvious supply risks can be managed by solving the scope of engagement with existing alternative suppliers for bottleneck items. A case example is XXX’s engagement with local supports contrary to international suppliers. Also, contractors and vendors in different spending categories harness an increased service collaboration with Oman Government departments.
2.3 Stakeholders Management
To recognise the implication of sourcing approaches to different involved stakeholders can be analysed by applying Mendelow Stakeholder’s Analysis Matrix (CIPS, 2018). This is as shown in figure 3;
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