Solution
Executive Summary
This assessment report focuses on evaluation of the different sourcing approaches and the extent in which they are potentially used in diverse spend categories in an organisation. The findings sourced from this report informs that the sourcing strategies are critical to harness market dominance of an organisation and profitability with fundamental desire for critical sourcing decision being critical. In this regard, the different sourcing approaches that have been evaluated include multiple, single, dual and partnership sourcing. For the multiple sourcing approach, this adopts the use of a single supplier by the purchaser with the single sourcing focusing on one supplier only. This is contrary to the dual sourcing which is evidenced by a situation where there are conflicting needs of different suppliers involved in solving the different challenges accrued from either the use of the single or multiple sourcing. Additionally, the partnership sourcing has been identified as being charactrerised by existence of competitive bidding leading to price wars impacting on the supplier in terms of their costs and profits. The company of focus in the current assessment is the Etihad Airways which is an Aviation company with its operation in both UAE and the Middle East. The different areas of spend of the company which include IT, fuel, housing infrastructure and equipments have been categorized into strategic, leverage, bottleneck and non-critical items. To establish an appropriate sourcing approach, the areas of spend have further been divided into profit impact and risks of supply. In the recommendation section, these were further established as including leverga, non-critical items, stratefuc and bottleneck items. Ultimately, a sourcing appraisal for the fuel area of spend has been elaborated in depth and relevant reccomendations provided.
Table of Contents
2.0 Categories of Spend and Positioning. 4
2.1 Portfolio Kraljic Analysis. 5
2.2 Strategic Positioning of the Area of Spend. 6
2.3 Business Hierarchy of Needs. 7
4.1 Fuel as an Area of Spend Supplier Appraisal 11
4.1.1 Commercial factor Appraisal 11
4.1.3 Environment Health and Safety. 11
1.0 Introduction
The establishment of Etihad Airways can be traced back in July 2003 when there was Royal (Emirati) Decree. As evidenced by Etihad Airways (2017), the company is fully fledged and owned by the Government of Abu Dhabi with a core mission of operating a safe, commercially viable and profitable entity. In this context, the company procurement approach is founded on the provision of excellent procurement services through a focus on the capitalization of value creation and company growth support. Also, the company tends to adopt an industry best-in-class practices acting as local content (In-country value content) advocate and operating ethically. The rationale to integrate the procurement division in the verge of the provision of sourcing strategies is associated with the fact that modern organization operates in an environment that has different economic and political disruptions impacting both their suppliers of different areas of spend. This can be supported by Awudu and Zhang (2012) study that observed that supply market is characterized by multiple uncertainties with a negative implication of hindering organizations sustainability in innovation and best practices.
Taking into account the above background, this assessment identifies sourcing strategies and the level in which they can successfully be integrated at Etihad Airways in a specific area of spend. Also, a supplier appraisal checklist for the identified area of spending has been provided. For the purpose of developing an ideal sourcing plan for the identified category spend, a strategic position through a reference to a Portfolio commonly identified as Kralij analysis and business hierarchy of needs CIPS 5 rights) have been used as a reference.
2.0 Categories of Spend and Positioning
In a general perspective, purchasing department of any entity is characterized by a strategic sourcing approach which is often fundamental for company survival and overall growth. This is in line with Walker and Preuss (2008) who noted that the importance of a sourcing approach in an organisation is attributed to the fact that the products and services outsourced from diverse sources determine client satisfaction as opposed to in-house facilities in terms of profitability and overall dominance in the market. In this case, the sourcing approaches are characterized by increased interests by academicians and researchers and specifically the buyer-seller alliances and involved stakeholders. In the context of Etihad Airways, for the sake of identifying the most appropriate sourcing strategy, it is relevant to suggest different categories of spend in a distinct structure of necessity, demand and their supply in their value chain. This can possibly be accomplished by a reference to Kraljic analysis, spend strategic positioning and overall business hierarchy of needs.
2.1 Portfolio Kraljic Analysis
In contemporary business operations, this tool is used as guidance in purchasing process as it delves on areas of supply security and mitigating any unplanned costs with leverage on the overall purchasing power. Taking this into account, in the context of Etihad Airways, this tool can be used to inform on the need of altering procurement strategies from transactional oriented to more strategic activities as evidenced in figure 1 below;
Figure 1: Kraljic Analysis Tool
Taking into account of the Etihad Airways which the researcher is actively involved in running mainly in the procurement department, the Kraljic analysis tool can be used in identifying the influence elicited by specific products and services to the overall earnings of a company. This is relevant as it harnesses the process of guiding an organisation in making decisions to develop the most appropriate appraisal approach. For instance, Zhu et al. (2010) noted that a company could only leverage to high profitability in the event that an item of spend positively adds value to the entire output of that organisation. Also, the tool is applicable in the process of identification of vulnerability of the supply process. The applicability of this concept in Etihad Airways can be informed by the fact that the company is characterized by high supply risk since their items are rare in terms of availability of raw materials and in-time access to the materials. This is a situation evidenced by their existence being congruently influenced by the issues of political instability, calamities, logistical challenges, disruptions and a low number of suppliers. This is particularly manifested in the significant areas of spending by the company which includes fuel, IT, logistics and uniforms.
2.2 Strategic Positioning of the Area of Spend
The primary area of spending by the company running to the tunes of billions of dollars is fuel. This is particularly in the Airplanes and jet fuel. In UAE and the Middle East, there is a large pool of suppliers owing to the proximity of the fuel wells in the country as a major importer of fuel globally. However, in Etihad Airways, the dominant type of fuel that is of immense interest to them is gasoline/AVGAS and turbine-engine fuel. Hence, due to the market dynamics, the factors that are essential for prioritization while seeking to establish the supplier to be engaged in the fuel supplies revolves around several factors. The factors that are typically taken into account include the company purchasing power, substitution of the product and suppliers and the need to place high volume orders informed by the nature of the fuel products.
The second major area of spend by Etihad Airways is Information Technology (IT). This is informed by the changes scope of technology with a paradigm shift in the aviation industry from their traditional practices to a more modernized approach integrating the use of technology. The company engages global suppliers such as IBM, Google, and Apple in their modernization of the IT system. Nevertheless, the issues influencing their engagement with their suppliers include the best approach to create long-term supply relationships, risk management, contingency planning and in-house arrangements in the delivery of services.
The third area of spend on Etihad Airways is the logistics and staff uniforms. In this case, one of the most common areas of spend in the logistics is the Ground Handling services which are commonly in existence in their significant outlets. In terms of staff uniforms, these are readily available in the market with limited issues affecting the scope of their operations. This is since they are readily available in demand and as at the time the purchasing department in need to need basis. However, due to the nature of the logistics area of spend, over-ordering, lacking the items, and unreliability are identified as the primary challenges influencing the success of this area of spend. The easier availability of uniforms in the UAE market makes it be grouped as low-profit implications and supply risks.
Taking into account the above analysis of Etihad different areas of spend, the following table can be used in their categorization;
Figure 2: Etihad Airways Areas of Spend Strategic Positioning
2.3 Business Hierarchy of Needs
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