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Principles in halal purchasing


Marco Tieman

Principles
in halal
purchasing

Graduate School of Business, Universiti Tun Abdul Razak,


Kuala Lumpur, Malaysia, and

Maznah Che Ghazali


Faculty of Business Management, Universiti Teknologi MARA,
Shah Alam, Malaysia

281
Received 31 January 2012
Revised 26 April 2012
Accepted 28 April 2012

Abstract
Purpose The purpose of this conceptual article is to investigate the application of halal in
purchasing.
Design/methodology/approach This article provides a discussion on the implications of halal
for the purchasing function, in particular the purchasing portfolio matrix of Kraljic and the purchasing
process model of van Weele.
Findings Halal leads to stronger partnerships with suppliers (strategic and leverage products) and
adopting various strategies to secure continuity of supply (bottleneck products). Therefore, conventional
commodity categories in certain industries can be allocated different for halal certified products and
services, resulting in possible different product and supplier strategies. Halal requirements also have
impact on the purchasing process; its tactical and operational purchasing activities.
Research limitations/implications This conceptual paper shows that halal has implications for
the procurement strategy and purchasing process, key components of the procurement function.
However, more empirical research is needed through case study research and focus groups to better
understand the challenges and solutions surrounding the sourcing practices of halal certified companies.
Practical implications For halal certified companies it is important to extend halal towards
purchasing. Effective alignment is required between the halal policy, procurement strategy and
purchasing process. A procurement organisation can progress in three stages, from viewing halal
compliance as opportunity, making its supply chains halal, to making its value chain halal.
Originality/value Purchasing is an important marketing discipline in defining the buyer supplier
relationship. This study contributes to the understanding of the purchasing function in a halal supply
chain and value chain. It is the first study investigating the application of halal in purchasing.
Keywords Halal procurement, Halal purchasing, Halal supply chain, Halal compliance,
Islamic value chain, Halal, Purchasing, Islam
Paper type Conceptual paper

1. Introduction
Purchasing is an important marketing discipline in defining the buyer-supplier
relationship, also known as reverse marketing (Biemans and Brand, 1995; Leenders and
Blenkhorn, 1988) or backward integration (Kraljic, 1983). A significant paradigm shift of
modern marketing is taking place, from a consumer-centric to a value-driven era
(Kotler et al., 2010). There is potential to build up an overall ethical (food) brand by
integrating Islamic values and attributes like animal welfare, health, sustainability, less
waste, fair working conditions (Ismaeel and Blaim, 2012). Since most companies today
spend more than half of their sales turnover on purchasing products and services, the
management of the companys external resources becomes critical in the production of a
halal (food) product and its entire value chain (Jan, 2012; Vengadasalam, 2010;
van Weele, 2002; Porter, 1985). The supply base is therefore a key part of the supply chain.

Journal of Islamic Marketing


Vol. 4 No. 3, 2013
pp. 281-293
q Emerald Group Publishing Limited
1759-0833
DOI 10.1108/JIMA-01-2012-0004

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Supplier capabilities can help differentiate a producers final product and provide
a competitive advantage for a brand (Carter et al., 2011; Monczka et al., 2005;
Thompson, 1996).
Islamic marketing is a new social science (Arham, 2010; Sandikci and Rice, 2011; Sula
and Kartajaya, 2006; Wilson, 2012), addressing the Shariah compliance of the marketing
function (Alserhan, 2011), marketing of Islamic brands (Alserhan, 2010) and needs of
Muslim markets (Temporal, 2011). However, the role of purchasing in the halal food
supply chain and value chain has been largely understudied and poorly understood.
Through this paper the authors would like to discuss the halal procurement maturity
stages and the halal purchasing function, in particular its key components: procurement
strategy and purchasing process. This article builds further on research conducted by
Tieman (2011) and Tieman et al. (2012) on the application of halal in supply chain
management. Tieman (2011) argues that halal goes through an evolution from a Muslim
company, towards a halal product, halal supply chain and halal value chain. Procurement
has an important function in each phase with higher requirements along the four phases.
He also argues that the foundation of halal supply chain management is based on direct
contact between halal and haram, risk of contamination and perception of the Muslim
consumer. The perception, grounded in the Islamic school of thought, local fatwas and
local customs, brings complexities to the purchasing field of study. Tieman et al. (2012)
show in their halal supply chain model that for halal food supply chains, the supply chain
business process procurement is of importance. Furthermore, procurement is critical in a
halal food supply chain, for its role in defining and managing the upstream supply chain
network structure through commodity strategies; determine specification, supplier
selection and integration; and ordering, expediting and evaluation of suppliers.
2. Literature review
Porter (1979) emphasised the importance of the buyer for the competitive nature of an
industry and argued that procurement is an important supporting activity of a value chain
(Porter, 1985; Carr and Smeltzer, 1997) and therefore the halal value chain. This supporting
role were confirmed by Ellram et al. (2002) in their research on the impact of purchasing
and supply management activities on corporate success. In fact, the strategic focus of the
company (cost versus differentiation) determines its approach to the procurement function
(tactical versus strategic) (Cousins, 2005). As the procurement function can manage up to
80 per cent of the organisations costs and can be performed by a large number of
professionals other than purchasing, purchasing is facing pressure to redefine its role from
a more clerical to a strategic contribution and status (Ramsay and Croom, 2008; Ogden et al.,
2007; Rietveld, 2009; Zheng et al., 2007). An important contributor in this development is
the trend of global sourcing, where companies design their sourcing decision on the basis
of the interplay between their competitive advantages and the comparative advantages of
various sourcing locations for long-term gains (Kotabe and Murray, 2004). Monczka et al.
(2005) propose a broader term for the procurement function: supply management or
strategic sourcing, which they define as the process of identifying, evaluating, selecting,
managing, and developing suppliers to realise supply chain performance that is better than
that of competitors. Changes are not only needed to renew and improve contracts with
suppliers, but also define the terms and conditions within their own organisation,
addressing: processes (integral goods flows), organisation (competencies, responsibilities,
authorities), procedures (methods and agreements) and supporting automated

systems (Reijniers et al., 2009). Lenselink and Telgen (1998) argue that the procurement
function is more than the purchasing process, namely consisting of the organisation policy;
procurement policy; organisation and personnel; methods and procedures; information
management; purchasing process; and performance indicators. In a benchmarking study
of the procurement function, Brandmeier and Rupp (2010) discovered that the use of
cross-functional teams, high hierarchical positions of the procurement function within
the company, strong cooperation with other functions, training and development of the
procurement personnel as well as supplier integration and continuous evaluation are
significant success factors. Supplier integration in combination with a fast supply network
structure (supply network configuration characterised by short lead times) has a positive
effect on the performance of supply chains (i.e. efficiency, schedule attainment and
flexibility) (Danese, 2013). Shorter lead times can be realised by local sourcing, which has
seen a lot of interest recently in relation with the development of local food systems (Balazs,
2012; Lehtinen, 2012; Allen, 2010), sustainability (Kumar et al., 2014; Sonnino and
McWilliam, 2011; Walker and Philips, 2006) and food aid (Garg et al., 2013; Harou et al.,
2013; Lentz et al., 2012; Margolies and Hoddinott, 2012).
The procurement function plays a crucial role in the sourcing of halal certified raw
materials, ingredients and additives, packaging materials, transportation, warehousing,
etc. No empirical and theoretical research has been found that studies the application of
halal in purchasing. A conventional halal focus towards ingredients branding (Wilson
and Liu, 2011): ensure that all ingredients are halal; is not sufficient anymore as it is being
argued in this conceptual paper. The procurement function needs to be redefined in
providing an effective alignment between halal policy, procurement strategy and
purchasing process (Figure 1).
By developing a halal compliant procurement function, this function should first of all
ensure the right intention (Alserhan, 2010; Laldin, 2006), responsible Islamic business
ethics (Ismaeel and Blaim, 2012) and Islamic leadership (Beekun and Badawi, 1999).
Therefore, halal needs commitment at top management level through a halal policy
(Department of Standards Malaysia, 2010a, b), which acts as basis for the procurement
organisation. Amongst others, a halal policy addresses (Tieman et al., 2012):
.
the responsibility of the organisation in protecting the halal integrity along the
supply chain;
.
the scope of halal certification;

Halal Policy

Procurement
Strategy
Purchasing
Process

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283

Responsibility
Scope
Assurance
Method of assurance

Kraljic (1983)

Weele (2002)

Figure 1.
Components of a halal
purchasing function

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.
.

the assurance to the consumer or customer (the promise); and


the method of assurance (control mechanism; covering aspects like halal
committee, halal compliance officer and inspections).

3. Stages of halal procurement maturity


Recognising that halal goes through an evolution (Wilson, 2012; Tieman, 2011), halal has
clear implications for the purchasing function, where halal has conventionally been
addressed by the industry as part of a product specification. A halal procurement
maturity model could provide guidance in establishing a solid procurement function
based on Islamic values. The proposed halal procurement maturity model recognises
three stages:
(1) viewing halal compliance as opportunity;
(2) making supply chains halal; and
(3) making value chains halal.
Table I presents an overview.
In the first stage, the primary task is to get the house in order. This addresses the halal
certification of the organisation, establishing a halal committee and defining and
communicating a halal policy. Important is to create awareness in the organisation on the
value of halal compliance (for a competitive advantage) through in-house training and
internal awareness campaigns. In this step, purchasing is assessing the current halal
compliance of all their suppliers in terms of halal certification for those commodity
categories where halal is important, such as raw materials, packaging, logistics,

Stage 1 viewing halal


compliance as opportunity
Challenge
To ensure that pro-active halal
compliance provides a
competitive advantage for the
company
Competenties
Products of the company are
halal certified; a halal committee
is established; halal policy is
defined
Purchasing opportunities
Assessing halal compliance of
supplier base; using compliance
to induce its supply chain
partners to obtain halal
certification
Table I.
Halal procurement
maturity

Stage 2 making supply chains Stage 3 making value chains


halal
halal
To question the halal integrity of To develop halal products that
supply chain partners
are less animal based (more
plant based) and more
sustainable
The skills to audit suppliers; the
ability to generate real support
for halal supply chains; the
ability to redesign halal supply
chains

Expertise in Islamic banking


and financing; the ability to
redesign products that are less
animal based and more
sustainable

Audit high risk suppliers to


ensure that their operations
comply with the halal
standard(s); harmonisation of
halal standards used in the
supply chain; implement
improvements in the
procurement strategy and
purchasing processes

Make Islamic banking and


financing a requirement for
trade; replace animal-based
ingredients with plant-based
ingredients

food processing equipment, maintenance, repair and operations (MRO), and


insurance. A practical tool is the halal compliance matrix as shown in Figure 2. The
halal compliance matrix has two axes: one for the halal commodity categories and one for
halal compliance. The commodity category axis shows the total number of suppliers
involved in the halal commodity categories, whereas the halal compliance axis represents
the percentage of suppliers in the commodity category that are actual halal certified.
The order of the commodity categories is determined by the halal compliance scores. The
total halal compliance of the supplier base is equal to area I/(area I areas II), whereas the
matrix provides a quick overview where the biggest halal issues are. In the sourcing of
animal based ingredients, special attention is paid to the specification of halal, namely
machine slaughtered (yes/no) and stunning (yes/no), which requirements depend both on
the halal certification of the factory and the requirements of the destination market
(which might be more stringent).
In the second stage, a so-called halal purchasing team is being established. This
cross-functional team is tasked to identifying, selecting and managing suppliers for halal
relevant product groups (Driedonks et al., 2010). High-risk suppliers, suppliers of animal
based products or based in a non-Muslim country, require more stringent auditing as
compared to other suppliers (see Section 4). A second important function of the halal
purchasing team is to harmonise halal standards of suppliers, through an active dialogue
with the domestic halal authority and the suppliers. Third, the halal purchasing team is
responsible to identifying and implementing changes required in the procurement
strategy and purchasing processes of the company.
In the third stage, the halal purchasing team is the key driver in reviewing contracts to
meet the Islamic banking and financing principles, like the use of Islamic banks (or Islamic
windows) and removing of interest clauses out of contracts. Second, the halal purchasing
team is an important partner in replacing animal based ingredients with plant-based
ingredients. Third, the halal purchasing team, in achieving excellence (Ihsan) of its
supplier base, is responsible for ensuring the environmental sustainability of its suppliers.

Principles
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285

4. Procurement strategy
On the procurement strategy, Kraljics (1983) approach to supply management provides
a useful insight (Gelderman and van Weele, 2003; Caniels and Gelderman, 2005;
Total
Number of
Suppliers

Insurance
Logistics

Halal Commodity
Categories (in
number of
suppliers)

II

Food related MRO


Food Processing Equipment

Packaging
Raw materials
0

0%

Source: Adapted from Telgen (2004)

Halal Compliance (%)

100%

Figure 2.
Halal compliance matrix

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Rietveld, 2009; Wagner and Johnson, 2004). In his approach the purchasing turnover
and the supplier base are analysed based on two variables (Kraljic, 1983; van Weele,
2002): purchasing impact on the financial result (measured in costs of purchase of a
certain commodity category or impact on product quality) and supply risk (measured
against criteria such as number of potential suppliers, availability of supply, competitive
structure in supply markets).
The implication of halal for the purchasing portfolio matrix and the supply
management strategy has two possible effects. First halal has impact on the financial
result for producers of halal sensitive products, namely: Is the product animal based?
(yes/no). Examples of animal based products are raw meat, processed meat,
ingredients/additives derived from animals (like gelatine) and processed products that
contain these items. If the product is animal based it would move a traditional routine
product to leverage or a bottleneck product to strategic. Second, halal has impact on the
supply risk: Is the supply chain partner based in a non-Muslim country? (yes/no).
Partners in non-Muslim countries that offer halal compliant products and services have
invested in halal certification/compliance, are specialised and are often not well controlled
and supported by its government in terms of its halal compliance. This requires a more
intensive relationship with these suppliers, which moves a traditional routine product to
bottleneck or a leverage product to strategic for non-Muslim countries. The implication of
halal on the purchasing portfolio matrix is summarised in Figure 3.
As can be deducted from the strategies for each quadrant as described by Kraljic
(1983), halal leads to stronger partnerships with suppliers (strategic and leverage
products) and adopting various strategies to secure continuity of supply (bottleneck
products). This would position a halal procurement strategy as relational integration
(Paulraj et al., 2006), where long-term win-win relationships are maintained with a
limited number of suppliers.

High
Leverage products

Strategic products

Non-Muslim
country
Purchasings
impact on
financial
results

Halal
sensitive
product

Halal
sensitive
product

Routine products
Non-Muslim
country

Figure 3.
Impact of halal
on purchasing
portfolio matrix

Bottleneck
products

Low
Low

Supply Risk

Source: Adapted from Kraljic (1983) and Weele (2002)

High

5. Purchasing process
5.1 Introduction
For the purchasing process, the classification of van Weele (2002) is often used.
According to van Weele (2002), the purchasing process consists of six steps:
(1) determine specifications;
(2) select supplier;
(3) contract;
(4) order;
(5) expedite and evaluate; and
(6) follow-up and evaluate.
The first three steps (1)-(3) are also called tactical purchasing. This is the traditional role
of the purchasing department, where in direct collaboration with the internal customer
the product or service specifications are clearly formulated, suppliers are searched and
selected; and the supplier is contracted. In operational purchasing (steps (4)-(6)), the
products or services are ordered and delivered to the company. In here the internal
customer normally plays a key role; and purchasing and finance more an administrative
function. How does halal impact these purchasing process steps? This will be discussed
in the text below.
5.2 Determine specifications
Amongst others, the purchase order specifications should clearly address:
.
Halal certificates required for products (raw materials, ingredients, additives,
packing materials, etc.) and services (like logistics, clean(s)ing services,
insurance) purchased. For animal based products it is important to know if
the animal (source) has been machine slaughtered (yes/no) and stunned (yes/no).
.
Storage, transportation and handling requirements for the product purchased
according to a halal logistics standard (like the international halal logistics
standard IHIAS, 0100:2010).
5.3 Select supplier
According to Chen et al. (2006), the supplier selection problem is the most important issue
in implementing a successful supply chain system. This therefore justifies particular
attention for the halal purchasing process. Conventional supplier selection criteria address
aspects such as (Monczka et al., 2005): price/cost competitiveness, product quality, delivery
performance, financial condition, technical competence, management capabilities, and
innovation. With the purchase of halal products and services, specific halal aspects need to
be addressed of the supplier beyond the physical halal products and its ingredients,
covering both the what (physical product) and who (the process) (Al-Qaradawi, 2007;
Wilson and Liu, 2010). Figure 4 shows these supplier selection criteria.
First, the physical halal product and its components/ingredients should be halal. This
can be sometimes complex as there are different interpretations on for example halal
slaughtering requirements, animal based enzymes and allowed parts of the animal to be
used for human consumption. Second, the supplier should have halal commitment from
top management through a halal policy. Third, the company should have a halal

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How

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Physical halal product and its


components/ingredients
Halal policy
Halal certificate
Quality & safety standard (toyyib)
Halal logistics
Islamic banking, financing and insurance

Figure 4.
Halal supplier
selection iceberg

Pricing

certificate from a trusted halal authority, which provides assurance that the product and
production process is verified by an independent Islamic authority to meet Shariah
requirements. Fourth, the product should meet the highest quality and safety standards,
also called toyyib. Fifth, the supplier should address the logistics of a halal product
(preferably through certification), to ensure that the halal integrity is protected during
the distribution up to the point of consumer purchase (Tieman, 2013). Shariah prohibits
interest (riba), excessive ambiguity (gharar) and gambling (maysir), which has
implications for the banking, financing and insurance based on Shariah principles for
the execution of contracts (Ahmed, 2006; ISRA, 2011). In Islamic countries and
increasingly also in non-Islamic countries, Islamic banking, finance and takaful
insurance are available through Islamic banks and Islamic windows of conventional
banks. In order to address the present flaws of the interest-based monetary system,
which is incompatible with the objectives of Shariah, the idea of reverting to Islamic gold
dinar has surfaced in recent years among Muslim scholars (Lee, 2011). The State of
Kelantan in Malaysia has started with a gold dinar project, where payments can be made
in the gold dinar and silver dirham (Vadillo, 2008). Although there could be advantages
for international trade among cluster of organisation of Islamic cooperation (OIC)
countries (Meera and Larbani, 2004; Lee, 2011), its viability is questioned (Ibrahim, 2006;
Cizakca, 2011). Finally, pricing is an important aspect of supplier selection. Pricing
should be free from interest (riba), excessive ambiguity (gharar) and gambling (maysir)
(ISRA, 2011) and should not lead to unnecessary high prices (Laldin, 2006), effecting the
competitive position in the market and access to halal products. Therefore, it could be
argued that for suppliers in Muslim countries all components of the halal supplier
selection iceberg should be in place, whereas for non-Muslim countries less stringent
requirements could be followed in areas such as halal policy, banking, finance, insurance
and logistics.
5.4 Contract
The interest and benefits of both parties need to be protected in the purchasing
contract, ensuring there is no interest (riba), excessive ambiguity (gharar) and
gambling (maysir) (ISRA, 2011). Second, the contract should clearly state the following:

.
.

product quality certificates, for example: halal certificate no. MS 1500:2009; and
terms of delivery, for example: In accordance to the international halal logistics
standard no. IHIAS 0100:2010.

5.5 Order
Upon ordering, it is important that the supplier puts a halal supply chain mark/code
on the freight documents (both on the physical copy and the electronic version) and
tertiary packaging as required under the international halal logistics standard
(IHI Alliance, 2010). This is crucial for the logistics players and other supply chain
parties involved (like customs, inspection authorities) to recognise and communicate
the halal status of a particular shipment.
5.6 Expedite and evaluate
Amongst others, upon receiving (expediting) the following needs to be checked
(IHI Alliance, 2010):
.
halal supply chain mark/code on freight documents;
.
halal supply chain mark/code on tertiary packaging;
.
copy of halal certificate with cargo; and
.
condition of the product received. If the packaging is damaged, the halal status
could be affected. This needs to be assessed through inspection and clarification
in a designated area.
5.7 Follow-up and evaluate
Amongst others, the following needs to be monitored for the follow-up and evaluation:
.
monitoring of halal issues with the deliveries from this supplier; and
.
validity of halal certificate(s) from suppliers.
6. Conclusion
Purchasing is an important marketing discipline in defining the buyer-supplier
relationship. As many companies today are halal certified, the procurement profession
is increasingly dealing with the complexity of halal requirements in sourcing of products
and services. As halal is extending towards purchasing, an effective alignment
is required between the halal policy, procurement strategy and purchasing process. This
conceptual paper proposes a halal procurement maturity model for the development of
the halal procurement function within an organisation, consisting of the following three
stages:
(1) viewing halal compliance as opportunity;
(2) making supply chains halal; and
(3) making value chains halal.
Halal leads to stronger partnerships with suppliers (strategic and leverage products) and
adopting various strategies to secure continuity of supply (bottleneck products). Halal
has also implications for the purchasing process, namely for its tactical purchasing
(normally the task of the procurement department) as well as the operational purchasing
process (often decentralised to its users).

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Although this conceptual paper provides a better understanding of the purchasing


function in a halal supply chain and value chain, more empirical research is needed in
halal purchasing to better understand the challenges and solutions surrounding the
sourcing practices of halal certified companies. Case study research (Eisenhardt, 1989;
Woodside and Wilson, 2003; Yin, 1984) and focus groups (de Ruyter, 1996; Hines, 2000;
Stokes and Bergin, 2006) can be an effective instrument for this.

290
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About the authors
Dr ir. Marco Tieman is Adjunct Professor with Universiti Tun Abdul Razak (Malaysia),
responsible for research in halal supply chain management. He obtained his Masters degree in
industrial engineering with the University of Twente (The Netherlands) in 1997 and his PhD in
business management with Universiti Teknologi MARA (Malaysia) in 2013. He is currently the
CEO of LBB International, an international logistics consultancy and research firm specialised in
agri-food supply chains. He chaired the development of the international halal logistics standard
(IHIAS, 0100:2010) under the ICCI-IHI Alliance. Marco Tieman is the corresponding author and
can be contacted at: marco@lbbinternational.com
Maznah Che Ghazali is Associate Professor at the Faculty of Business Management, Department
of Marketing with Universiti Teknologi MARA (Malaysia). She has published articles in Total
Quality Assurance and Business Management and has a case study published in INSEAD-MPC.
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