Question:
Question 1: 100% of the total marks
You are required to select an area of expenditure on a product, service or works. This task requires you to
develop a document that creates a sourcing plan for future requirements. In the sourcing plan, you should
explain:
(1) The roles of procurement and supply in managing this area of expenditure underlining the inputs that
may be made by its stakeholders
(2) Techniques that can be applied to the area of expenditure to improve added value
(3) Inclusions that should be made in contracts formed in the future
(4) Measures that can be taken to select effective suppliers
(5) Any aspects of the purchase/supply that may require negotiation
Solution:
Executive Summary
The purpose of this report was exploring and studying the different procurement and supply aspects of one of the areas of expenditure that ADNOC company is currently involved in. The selected area of spending is the school transportation services.
The initial part of this report is inclusive of an evaluation of the role of procurement and supply in managing the area of expenditure in the context of the market size, scope of operation and competition levels. Also, part of the evaluation includes the stakeholder’s engagement and the demand and supply factors affecting this market as discussed through the use of STEEPLE Analysis tool.
Additionally, the techniques used to improve the added value of procurement in the selected area of spend has equally been discussed in detail. This was followed by details on the inclusion of distinct clauses essential for the contract implementation for the identified area of expenditure.
The last part of this report is inclusive of a discussion of distinct components linked to the negotiation of the selected area of expenditure with the section being included and the current pricing mechanism of this market from both prospective of purchasers and suppliers is highlighted with the factors affecting those mechanisms highlighted.
For the sake of enhancing the value of procurement function in ADNOC in the school transportation and maximising the benefits accrued from this market services, different actions are recommended including;
- Automating the full process of the function using the latest technology for increasing efficiency and reduction of errors, cost of operations and lead time of the tendering process
- Increasing the level of engagement with the stakeholders early prior initiating the process and during the process through holding regular meetings and awareness campaigns
- Forming a taskforce from Procurement & Supply Unit and Legal Unit and introducing new clauses in the Terms and Condition of the contract related to the unethical issues and critical personnel for ensuring high quality of services
- Specifying the pricing bills in specific to evidence all elements of the cost and void any hidden cost quoted by different suppliers
Table of Contents
2.4 Stakeholders Engagement in the Procurement Process. 8
2.5 The Demand and Supply Factors that Impact School Transportation. 9
3.0 Techniques Applied to the Area of Expenditure to Improve Added Value. 10
4.0 Inclusions that should be made in Contracts formed in the Future. 13
4.3 Extension of Time (Lead time). 14
4.4 Other Clauses that would be Included. 15
5.0 Measures that can be taken to Select Effective Suppliers. 15
6.0 Aspects of the Purchase/Supply that may Require Negotiation. 17
6.1 Current Pricing Mechanism Applied to School Transportation. 17
6.2 Factors Impacting on the Pricing of School Transportation Services. 18
6.3 Aspects of Negotiation. 18
7.0 Conclusion and Recommendations. 19
Appendix 1: ADNOC’s Quality Assurance and Quality Control Requirements. 23
Appendix 2: ADNOC Prequalification Criteria. 29
1.0 Introduction
Abu Dhabi National Oil Company (ADNOC) is a mother company of 17 subsidiaries responsible for the oil of the Emirates of Abu Dhabi. Due to its size and the scope of its operations, the company procurement function plays an instrumental role in driving the company value.
The contracts departments which are the unit under the Procurement and Supply Division is tasked with handling distinct types of tenders and contracts linked to the different services/works for ADNOC and all their subsidiaries. The entire tendering cycle is actively handled within the department and inclusive of interaction with different bidders.
Since the oil is the primary economic factor affecting the economy in Abu Dhabi and ADNOC plays an instrumental role in the attainment of this factor. This is since the company is involved in the management of the expenditures effectively to maximize the benefits gained. One of the market categories that ADNOC tend to focus on is school transportation as it possessed and involved in the operations of the ADNOC Schools in the Abu Dhabi Emirate (ADNOC, 2018).
The different schools that are operated by ADNOC range from all the grades starting from the Kindergarten to the high schools where both the male and female students are involved in the identified study areas. This spend area is actively governed by the regulations set by the Department of Transport (DOT) and the Abu Dhabi Education Council (ADEC). Through this focus, different aspects have been prioritized for focus in the current study.
2.0 Roles of Procurement and Supply in Managing this Area of Expenditure Underpinning the Inputs that may be made by its Stakeholders
The procurement and supply role has changed significantly from a mere function of buying the organization requirements of an organization which is involved in the procurement and supply into a more strategic role (Bob, 2014). In this section of assessment, the different aspects of procurement and supply and their role in managing the school’s transportation market has been evaluated.
2.1 Size of the Market
There exist distinct market types with the school transportation services being categorised as a follower market where different suppliers engage in an active competition to offer similar services. The market offer services in the entire society in distinct demographic regions of the Emirate of Abu Dhabi such as Ruwais and Ghayathi. It is directly affected by distinct operating variables such as the new rules and regulations of the transportation authorities. Taking into account the school transportation services in the context of their product life cycle, they can be grouped in the maturity stage where different companies fight in maintaining their market share.
2.2 Scope
The identified category of spend focuses on a large scope and inclusive of the company, suppliers, overseas manufacturers, students, families and the entire society. The company operations are inclusive of all the employees who normally request for the services and the individuals involved in working on it to receive it in the appropriate time. The suppliers and overseas manufacturers are directly connected particularly in the initial phase of the contract where the new buses are requested to mobilize actively so that the suppliers leverage from an ardent opportunity of communicating with the manufacturers for ensuring appropriate delivery at the right time. Additionally, the students and their families are categorized as the individuals benefitting from the different services and as such any form in the services would ultimately lead to society issues in the context of the safety and security of their children.
2.3 Extent of Competition
The competition level in the identified category of spend can be categorized as being imperfect competition with multiple suppliers being available in their market of operations. In ADNOC’s context, the prices are anchored on competition and limited market power for their suppliers in such a competition environment; the different suppliers engage in an active competition strongly with each other to be able to win the ADNOC’s tenders as they tend to cover a large scope. According to Porter (1989), the PORTERs five forces analysis as shown in figure 1 below can be used in analyzing the level of competition within the industry and business strategy development,
Figure 1: ADNOC PORTER’s Five Forces Framework
Based on the identified PORTER’s five forces framework, it is evident that the school transportation services are influenced by the power of the buyer and substitution threats. This is since multiple suppliers are existence in the market with the buyer having the selection power. Since the school transportation services are suppliers are supposed to be in compliance with the Department of Transport and Abu Dhabi Education Council (ADEC) regulations with any form of change in the specifications or regulations leading to a significant change in the costs.
Figure 2: Kraljic Matrix
Source: CIPS Materials (2018a)
The school’s transportation services for the ADNOC include leverage on the items in accordance to the Kraljic Matrix with the company spending on the services being very high, but the risk of having suppliers for the services is low due to having multiple suppliers in the market.
Figure 3: Supplier Preferencing Matrix (Adopted from; Chen et al., 2016)
On the other hand, and from the supplier’s context, the school’s transportation services of ADNOC is viewed as a core business in accordance with the preferencing supplier matrix. This is a phenomenon where the scope is large, and the expenditure level is equally high. Also, since the oil is the backbone in the Abu Dhabi economy, the ADNOC company and their subsidiaries represent the only entity in Abu Dhabi involved in the management of oil of this Emirate, suppliers looking to have the experience with ADNOC in their profile which in this case offer them with a positive reputation and exposing them to their business operations.
2.4 Stakeholders Engagement in the Procurement Process
According to CIPS Materials (2018b), stakeholders…………………………………………………………………………………………………………………………Please contact our team to receive this assessment in full based on your organisation background, selected area of spend and overall level of expectation
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