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Procurement Practices in Skyrunner Company Assessment Answer

Skyrunner Ltd is a company that specialises in the manufacture of a variety of aircraft component assemblies for companies like Boeing and others. The components they manufacture include wing assemblies, tail and fuselage sections for a large cross section of current commercial passenger aircraft. With over 3,000 staff spread across three major sites in Australia, France and the USA, the company has contracts in excess of $1 billion and over 2,000 suppliers. For political reasons, the companyʼs head office is located in Washington DC and comprises the President of the Company, the CFO, other senior management but no CPO.

Approximately 60% of Skyrunner Ltdʼs contract dollar is third party spend. Therefore efficiency gains in procurement have been identified as critical to the improvement of the companyʼs bottom line.

Skyrunner Ltdʼs procurement activities include local, national and international purchases; ranging from stationery, office supplies to high grade aluminum, plant and machinery, energy; air travel and other administrative services; etc.

For a company of this size, the range of goods and services that it procures you might say, is essentially limitless in its variety.

Realising the complexities within their organisation, the cultural differences of the countries where their plants are located, and the importance of the already existing ‘in companyʼ knowledge and experience, the senior management team of Skyrunner Ltd have decided initially to seek written input from staff across the company on approaches and ways that this procurement efficiency aim might be achieved. The senior management team is determined to obtain and review the widest range of views possible from within the company before taking any further executive action.

As a current employee of Skyrunner Ltd, you have been requested to submit a report to the senior management team outlining your ideas and recommendations.

Specifically, it is an opportunity for you to apply the concepts, models or theories learnt in this course (e.g. Procurement lifecycle model, Kraljic Procurement model, e- procurement, buyer-supplier relationships, network theory, SRM etc.) to underpin the

recommendations you will be making. These recommendations should be in the form of a strategic plan on how Skyrunner Ltd could improve its procurement strategy to enhance its competitive position.

You are required to use at least TEN sources of references including at least SIX journal articles. The preferred method of referencing is the UniSA Harvard Referencing system within context.

Marking criteria and standards Marks will be awarded for:

  • relevance of your answer to the question
  • originality and creative thought
  • up-to-date research with the topic
  • clarity of expression
  • supporting documentation for arguments
  • correct documentation and use of at least TEN sources of references including SIX academic journal articles
  • logical planning and sequence
  • use of inclusive language
  • overall presentation, including correct grammar, spelling and punctuation
  • comprehensive coverage

reflecting engagement with readings, texts and other relevant materials.

Content Page (2 marks)

1-page Executive Summary (10 marks)

Introduction (8 marks) Application of theory and/or concepts learnt in the course (40 marks)

Strategic Plan recommended for Skyrunner Ltd (20 marks) English Expression (10 marks) Referencing (10 marks)

Answer

Procurement in Skyrunner Ltd.

Executive Summary

Procurment is very crucial for any organization. The improtance of procurement cant be ignored specially in those organizations that operates at global level and deals in complex industrial products. The present report is analysis of procurement practices in Skyrunner Company that deals in aviation products and requires managed and efficient procurement practices, Reprot highlights various aspects of procurement practices i.e. procurement policy, risk analysis, E-procurement. The end section of report also suggests strategic recommendations for improved performance through efficient procurement practices.

Introduction

Skyrunner is renowened compnay that deals in complex and industrial aviation products. It is located in 3 crucial sites that are France, Australia and the United States of America. It has more than 2000 suppliers network. Hence, it is crucial for Skyrunner to have efficient procurement system. The head office of the company is located in Washington DC due to political reasons which include the chief financial officer, president of the company and management authorities but excluding the chief procurement officer. The report aims to suggest efficient procurement practices for improved organizatinal performance.

Procurement Process

Identify need

- It is considered as the most crucial part, in which the company Skyrunner has to analyses its business requirements(Bower, 2013). It is also beneficial for the company to engage its stakeholders, because this will enable the company to get maximum number of Ideas from experienced people. It is also important that Skyrunner analyses their basic needs a long word for Complex leads of the business such as contractors, asset, raw materials etc. Because the overall success of the project will depend upon the correct analysis of basic requirements class Complex requirements which will be finalized during this stage. Once, the needs of the business are analyzed effectively, the company can start procurement.

Specification

The following step after analyzing the needs is the procurement step where the business has to assess the market needs by effective Research and surveying for the available options (Brown,et.al.,2011). Skyrunners also has to make sure that the budget is taken into consideration while choosing the relevant techniques off market engagement. In this stage the company will analyses the option of either buying the product or service from the outsource agency or producing in house. The overall  market engagement  has to be well established during this stage in order to you break your resources the  consideration and opinion of the stakeholders will also help in analyzing market correctly with the goal of making the project a success.

Once the company is able to analyses its leaves and requirement it will then have to finalize the requirement of raw materials. For this purpose, Skyrunner will have to formulate a procurement strategy with a lot of discussion and expertise involvement. In this stage the major decision will be whether to work with suppliers that are locally present in the area or working on the project at an international level. These decisions will mainly comprise of the procurement strategy which includes the market research, research, effective budgeting, procurement, etc. It is also important to review the strategy before implementing it finally.

Search for suppliers

The next step is to enter the market where the needs of the business Skyrunner along with its stakeholders will have to be considered. Skyrunner has decided to enter the market with a single objective of procuring resources and looking for competition that is already available in the market. In this stage, Assets of the Skyrunner and the sources from where the basic requirements will be met have to be analyzed. The seller which will be supplying goods to the company E has to be decided and whether the procurement will be on a bulk basis or not. This also depends on the choice of the competitor, as the company I will buy goods from the same seller.

Selection

This is the stage where the company has to select various elements such as the seller  of products and services, budgeting, expectation of the customers, time taken to  receive the final product,etc. All the qualifiers will be ranked accordingly after which the final decision of allotting the tender will be taken by the company with discussion amongst stakeholders. The party is which are selected for giving tenders will be called for the final selection which is done on the basis of the qualifying entity. Once the selection is done Skyrunner will allocate the tender to the contractor. Hence, it is extremely important that the right entity is chosen by the company.

Order/Contract

In this stage most of the negotiation will take place and the building process will happen. All the qualifiers will present their bid for selection and the right entity will be rewarded with the contract. In this part, basically the financial and Technical expertise of the contractor is taken into consideration along with the value that the contractor is providing to the business within its budget.  This step will also comprise of audits, product sampling, credit checking, trials, etc. Before allocating the project to the qualified contractor. The cost of decommissioning, disposal and removal is also taken into consideration before final allotment.

Delivery

Once the project is allotted to the contract; both the parties have to understand the requirement of each other effectively. The major focus in this step is to maintain healthy and synchronize relationship in order to make the project a success. It is also important that the success strategy for the project is discussed amongst both the parties, where they will usually agree to various decisions taken at the implementation of the strategy has to be carried out. The Expectations of the stakeholders we will also be considered before implementing this strategy for effective success of the project.

Delivery,Payment, Receiving, inventory controls and other things

in this stage the managing of arrangements has to be taken care of to achieve the project completion successfully by meeting all the goals and objectives. The duration of the project completely depends on the Purchase strategy, length of the project completion, market opportunities etc. Hence, it is important that the best possible strategy is adopted in which the project is completed in a given time frame with best possible outcome. The major goal of the Skyrunner at the stage for a long term Association is to enhance the credibility of the company by investing real value in the project and efficiently completing the project with lower risk factors.

Because of this reason, many managers who are responsible for procurement implement procuring methodologies and portfolios in order to have a demarcation for the items and extracting the most efficient procurement strategy.

Skyrunner also believes in in the methodology of buying portfolio to prepare cure the raw materials and ingredients for its requirements. They also have adopted the similar kind of approach for identifying the non-critical or non-essential elements and strategies that impact everyday procurement process for non-tangible services and commodities. This approach is also used for procuring direct and indirect items along with formulating a synergy that will be used throughout their business entity.

Renew-

The final step of procurement strategy is a renewing everything that has been discussed and decided from the beginning. This is done in order to analyses the shortcomings or areas of improvement in future. Also, the cost analysis has to be done in order to find out whether the project was completed within budget or it overboard with the view of finding out the renewing possibility. If there is any such possibility then the company has to take necessary action accordingly to achieve their goals and objectives.procurement life cycle

Data Analysis in procurment

Skyrunner should ensure the adoption of technology for efficient procurment process as it is working oin complex products and complex environment. 

The various benefits of adopting information system technology are:

Information flow

The flow of information comprises of the following factors:

It comprises of both the external and internal  information sources in a broad sense

Inwards flow of information

The information that flows from within the company to the procurement department

The information that comes from the external sources to the procurement department

Outward flow of information

The information going from the procurement department in the Skyrunner

And the information that is going from the procurement department to the external sources

It comprises of Electronics software’s that have specific systems installed which help in collecting, processing, and storing of data and information in a raw format(Croom and Johnston, 2013). Using these specific systems for improving the overall performance of the business in terms of its procurement strategies.

The various benefits of e-Procurement are listed below:

  • Saving of cost  of procurement
  • Provides an improved level of efficiency
  • Provides better controlled by  majorly reducing the purchasing Rogue
  • Helps in reducing cost and increases efficiency along with productivity
  • Provides data accessibility
  • Helps in a speedy communication
  • Various strategic issues related to procurement can be handled with greater dedication that is allowed in this technology.
  • It provides data accuracy
  • It helps in integration of the systems
  • It also provides control for monetary and financial transactions

However, Skyrunner should pay attention to following prerequsite for effective implementation of e-procurement

  • Should provide training for proper and effective implementation(Hardy and Williams, 2018).
  • There is an issue of consideration for the procurement category and the Expectations of the buyer(Jurčík, 2017).
  • Managing the diverse culture is a difficult task within the Skyrunner
  • Maintaining healthy relationship with the suppliers
  • It is only suitable for a specific type of business Skyrunner

e-procurement

Risk Analysis

Risk Analysis has strategically supply importance. The inheritance of risk in the market that is acting as a supplier related to the financial risk, Modification in pricing and modifications for advancements in technology(Kim and Shunk, 2014). Another risks which is faced by Skyrunner is probability for failure in supplying  due to interactions and delays. Reputational risk for the Skyrunner which comprises of dealing unethically, poor environmental practices and procedures, bad quality of the product or service, etc. Risk related to the contractual management and the association with the supplier in terms of procurement for goods and services are really high.


Risk

Probability

Likelihood

Impact

Mitigation Strategies

Inheritance Risk

High

High

High

Proper planning and regular review of market to observe the changes

Failure of supply

Medium

High

High

Better contract administration

Reputational risk

Medium

Low

High

Should hire brand manager who will take care of brand during crisis

Risk of contract Management

Low

Low

High

Better contract administration

Procurement Strategy

Strategic procurement is effect of procurment decisions on overall organization and not limited to department only. Skyrunner should adopt Baier et.al. Conceptual model to implement effective procurement strategy.

Business strategy- 

Skyrunner Limited does the manufacturing of various aircraft components assemblies for Boeing and other aviation industries. They make the parts of the tail, wing assemblies and sections of the fuselage for large cross-sectional of commercial passenger aircraft in the modern times. Hence, the business strategy is to make it profitable. 

Purchasing strategy

An effective procurement strategy can bring savings on essential parameters like fixed costs excluding the trading off on flexibility or customer satisfaction. The company must ensure the most effective procurement so that the organisation is aligned with the overall strategy to get the best results for the long term.

Purchasing practices-

Like other aviation industries, Skyrunner has a capital, fixed high costs and labour which falls in the revenues of the company; however consolidating in the portion of gaining synergies. The momentum is made with strategies of saving in an ambitious manner. 

Strategic alignment-

The senior authorities in the management team of Skyrunner took the decision of seeking the written input from staff across the company on approaches initially. It has been thought by them that in this way the objective in procurement efficiency can be fulfilled.

Purchasing efficicnecy-

An essential aspect of the procurement is in maintaining partnerships. It should be noted that a precise evaluation should be carried out. The advantages in flexibility, focusing on expense control, information technology, services in airport and expenditures are linked upon alliance participation. They have also determined to review and obtained the possible amount of views possible which can be sourced within the company prior to any executive action.

Financial Performance

Sourcing strategy can make the Skyrunner much efficient  on costs of energy supplying, the weather and other elements which gets out of control to remain in the competition. baier et al conceptual model

Supply Strategy- 

Skyrunner should implement MSU model of Monczka (MSU- the Michigan State University) model. 

The following VIII levels are discussed in brief below:

In Sourcing/ outsourcing—

Skyrunner Limited has sixty per cent of the contract dollar with third party.Hence gains in procurement are efficient and have been observed as important to the development of the companyʼs bottom line

Developing commodity/ or an article group strategies- 

The procurement activities of Skyrunner Limited incorporates international, national, local purchases that are from stationery, supply for official uses to aluminium machinery, air travel and administrative services.

Establishing and leveraging a world class supply structure

Skyrunner should implement e-procurement, better contract administration and strategic procurement that will esatablish a better and profound supply structure.

Developing and managing the supplier relationship-

60% suppliers are third party. Better contract administration will improve relationship with suppliers. It comprises the process of overall management for the resources, raw materials, task, contractors, obligations, limit, communication, synchronization, release, status report, progress report and the final result within the contractual agreement context. Contract administration also invloves It also includes financial management, Human Resource Management, and the formulation, decision and implementation of various documentation and processes involved in the procedure.

Integrating all the suppliers towards the development of the new product or process-

It can be done through e-procurement.

Integrating all the suppliers towards the fulfillment of the process in order

It can be done through e-procurement.

Development of the supplier and its quality management

There should be inspection and quality check. Apart from this, Skyrunner should make it mandatory to work with that supplier only who attains ISO certificates.

Managing the cost of the overall project completion strategically, throughout the supply chain

According to the Council of supply chain management professionals “  logistics management is that part of supply chain management, that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet the requirements of the customers”.

In other words, logistics refers to the management of the overall requirement of goods and services in an inward or outward flow in order to meet the goals and objectives of the Skyrunner by providing customer satisfaction. The products and services are produced in the Skyrunner by the manufacturers and the producers, which are then required to be transported and delivered to the final customer and is done with the help of Logistical arrangements, Strategies and policies adopted by the company.msu model of monczka

Procurement Policy

The basic policy cycle consists of six major steps that have been listed below:

Identification stage-  

This stage comprises of the basic requirements of the policy as per the business needs. As Skyrunners works at global level and industrial project with 60% outsource supply. It should have clear procurement policy for each step.

Analysis state- 

This stage comprises analyzing the needs and steps to fulfill them.

Designing stage-  

This stage comprises of the designing part for the policy, which is specific to a product or service(Geroski, 2017). It will include each and every aspects of procurement like who, where, how and why.

Approval stage-   

This stage comprises of approval for procurement of raw materials, strategies to be adopted, budgeting, etc. 

The implementation stage- 

This stage mainly consists of implementing the policy of the plan, which has been formulated by experts(Eftekhar,et.al.,2014).

Reviewing stage – 

This is considered to be the last step in which reviewing of the overall project success is taken into consideration to find out any further opportunities of improvement or  loopholes that could have been well managed(Espina,et.al.,2018).basic policy cycle

Decision Making in procurement Strategy

Two primary options that are available largely have been discussed below:

Centralized:

This is the option in which the responsibility and authorities for most of the functions that are related to supply feature have to be assigned to one single Central Skyrunner.

Decentralized:  

In this kind of option both the authority and responsibility for the functions that are related to the supply elements are spread across the Skyrunner at each level. In this kind of a setup, the autonomy and procurement control is given to the business units that have the power of taking decisions based on these two sectors(Gordhan, 2011).

Purchasing measurement system

  • Measuring the need to design a purchasing measurement system
  • The measurement system should be able to address the financial outcomes, the performance of the suppliers, Information Technology systems and the internal policies and practices of the Skyrunner
  • It should be able to change frequently
  • Most of the time trend analysis is beneficial
  • The measurement should not be exaggerated or underutilized.
  • Measures are tools of measurement only
  • Benchmarking is considered the source of new ideology in measurement
  • The senior management must be able to analyses the value the provided by the purchasing measures that are being used in the measurement system
  • The measures should be able to showcase the purchasing effectiveness and identification of all those areas that require improvement
  • It should also ensure the credibility of the measuring system
  • The improvement in purchasing continuously depends upon the measurement.

Strategic Recommendations

  • Skyrunner should adopt hybrid decision-making. It will comprise both centralized and decentralized. There are about thirty thousand employees who are located in 3 crucial sites in France, Australia and the United States of America, Skyrunner Company has contracts more than one billion dollars with suppliers of over two thousand. The head office of the company is located in Washington DC due to political reasons which include the chief financial officer, president of the company and management authorities but excluding the chief procurement officer.
  • The supply management team has to address various requirements such as the supplier and buyer relationship which is tackled in such a way that both the parties benefits out of it. Various strategies have to be adopted to combat the challenges that both the parties come across by respecting each other’s decision, as it may drastically defer at times.
  • Based on above analysis, Skyrunner has different departments from where infromation will come. These departments are Accounting, purchasing, technical, sales, manufacturing, sales and suppliers. The complex and constant flow of information makes procurement complex process that increase the chances of errors. Hence, application of E-procurement in Skyrunner will be very very helpful and will make procurement transparent(Davila,et.al.,2013).
  • Skyrunner should implement MSU model. This model given by the Michigan State University referred to as the model of Monczka comprises of eight levels. All these stages are an integrated, aligned and a global process.
  • There should be risk management, performance evaluations and tranparent procurement policy.

Conclusion

It can be concluded that company has enormous size, which contains lists of services, and goods that have been set to procurement where the procurement is almost limitless in terms of its variation. The area of marketing has been concentrated where outsourcing of some of the costs to partner airports made the gain in terms of saving. The complexities have been identified and realised in the organisation along with the differences in culture of many countries where their industrial plants are sited. Its significance already exists in the company’s experience.

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