AFRICA NAZARENE UNIVERSITY

DEPARTMENT:BUSINESS SCHOOL

UNIT NAME:PURCHASING AND SUPPLY CHAIN RISK

MANAGEMENT

UNIT CODE:PSM 309E

TRIMESTER:JAN-APRIL 2019

TASK:SUPPLY CHAIN CODE OF PRACTICE IN RISK MANAGEMENT

GROUP 5 MEMBERS

TOM MBUI 16G01APS012

PENINAH MAGIRI 16G01APS010

PETER OSIAKO 16G01APS017

SIMON MUTHAMA 16G01APS020

JUDY NYANCHAMA 16G01APS016

IAN MUHWANG’A 16G01APS004

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SUPPLY CHAIN CODE OF PRACTICE IN RISK MANAGEMENT

Introduction

The Code of Practice presents standards of conduct expected of member organisations. The code
exemplifies core professional values and behaviours underpinning the most commonly
encountered ethical considerations. Procurement practitioners on a day-to-day basis face
numerous challenges, many of which are ethical in nature. To address these, practitioners must
be firmly rooted in their profession both technically and in terms of integrity. A code of ethics is
necessary to serve as a guide for practitioners across all sectors when dealing with ethical
dilemmas and as a training tool. The code presents practitioners with clear open and transparent
statements of ethical principles that apply to a broad range of scenarios.

With an increasing importance placed on transparency, consumers look beyond company

practices to ensure organizations uphold adequate supply chain ethics. When organizations
conduct risk management, it’s important to include an evaluation of suppliers, vendors and any
other points of contact within the organizational network. To decrease the risks associated with
suppliers, examine the culture, ethics and compliance practices adopted by the candidates.

This helps companies make informed decisions to select suppliers that fit with their existing
culture and practices. Every organisation, needs a strong code of conduct to guide the behavior
of its employees. A strong code of conduct sets the tone for the ethical character of the company,
outlines the kinds of behavior the company encourages and prohibits, and give employees
guidelines to follow.

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According to Russill, 2008 Procurement risk management practices are the measures taken
including changes to behaviors, procedures and controls which remove procurement risks or
reduce them to what is considered to be an acceptable level. Effective procurement risk
management practice requires an understanding of the relationship between procurement and
organizational objectives.The following are procurement risk management practices in relation
to the supply chain code of practice:

1. Developing a Procurement Strategy Practice

Accenture (2010) defines a procurement strategy as a plan or process developed to ensure
procurement is designed to attract the strongest possible field of tenders for services,
goods and products. It sets out to identify the effective means of procuring services to
achieve commissioning requirements through developing a procurement plan, ensuring
procurement supports delivery of vision and enabling creative approaches to
procurement.
Njuguna (2013), indicated that organizations should seek to have a strategic approach to
procurement, this enhances effectiveness and efficiency in an organization‘s operations
as well as saving revenue through effective sourcing, transaction cost reductions and
standardized procurement processes. Supplier and price volatility can affect supply chain
performance metrics such as profitability, revenue and market share.

2. Sourcing and Category Management Practice

Category management is a Retailer-Supplier Process of managing categories as strategic
business units, producing enhanced business results by focusing on delivering consumer
value. It‘s a retailing and purchasing concept in which the range of products purchased
by a business organization or sold by a retailer is broken down into discrete groups of
similar or related products. Integrating risk management initiatives into the strategic
sourcing process for instance during supplier evaluation can help companies achieve
procurement mastery using practices such as category management.

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3. Supplier Relationship Management Practice
Many successful businesses are reducing their supplier base and making use of long-term
partnerships to attain the same benefits that multiple sourcing provides. Creating closer,
more collaborative relationships with key suppliers would enable organizations to
uncover and realize new value and reduce risks such as supplier quality problems.

4. Workforce and Organization Practice

One practice of procurement risk management is to see that a particular team of
procurement masters are assigned the risk management task as their sole responsibility in
order for procurement and the entire supply chain to benefit from the risk management
exercise.Accenture (2010) indicates that most companies do not assign procurement
professionals to full-time risk management work.

5. Multiple Sourcing Practice

Treleven (1987) defines Multiple sourcing as purchasing from two or more vendors
an identical good or service.Multiple sourcing is often cited as a possible solution to
protect against disruption in supply. Single Sourcing could limit the cost of goods and
services in the organizations and reduce dependency on the suppliers. Some of the
benefits from multiple sourcing include: Protecting the buyer during times of
shortages or other emergencies, provide a backup source, maintain competition, keep
a market feeling, avoiding complacency on the part of a single supplier and meeting
customer‘s volume requirements.
6. The Practice of Regular Negotiation with Suppliers
Regularly negotiating transactions can lead to satisfaction or dissatisfaction with the
relationship on the part of the supplier and the business buyer. Suppliers can excise a
great deal of bargaining power in an industry by threatening to raise prices or
reducing the quality of products. This power in turn squeezes profitability out of an
industry if it is unable to recover these cost increases from its pricing. Regular
negotiation would enable the organizations manage their costs, maintain profitability
and guard against effects of currency fluctuation and obsolescence.

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7. Value Engineering Practice
McGinnis (2005) indicates that Value engineering is value analysis conducted at the
design engineering stage of the product development process. Procurement can
encourage suppliers to work closely with engineers on developing alternative bills of
materials. Some of the challenges that have greatly affected the delivery of service to
the customer include the inability to develop products that meet specific customer
needs as well as competitive service delivery from competitors. Value
analysis/engineering helps enhance products, production processes, services, and
administrative processes of the mobile phone service providers. This would cultivate
customer loyalty as well as a growing market share.

8. Supply Chain Financing Practice

Supply chain finance allows a supplier to sell its invoices to a bank at a discount as
soon as they are approved by the buyer. That allows the buyer to pay later and the
supplier to secure his/her money earlier. Instead of relying on the creditworthiness of
the supplier, the bank deals with the buyer usually a less risky prospect. . CIPS (2013)
indicates that Supply chain finance is seen by many chain experts and managers as the
great hope for easing problems with such high cost supplies. It is a risk management
strategy that would allow both the buyer and the supplier to improve their working
capital.

9. Supply Chain Performance

The supply chain performance measure is the process of qualifying the

efficiency and effectiveness of the supply chain. Many firms look to continuously
improve their operations to enhance core competitiveness using supply chain
measurement. The key to successfully improving supply chain performance is to focus
on those areas that are not only under-performing but, also, those that are aligned with
the overall supply chain strategy.

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CONCLUSION

Supply chains have become increasingly complex in today’s business environment. Continuous
downward cost pressures and higher customer demands for quality, speed of delivery and overall
performance require companies to continually identify opportunities to remain competitive.
Organizations looking to improve business performance must address these supply chain
challenges by designing and implementing capabilities that improve processes, reduce risk and
optimize working capital.

By adhering to the Supply Chain Code of Practice this helps organizations address growing
challenges and complexities by working closely with stakeholders to integrate industry best
practices and tailor business solutions to meet the organization’s needs.The Supply Chain Code
of Practice is uniquely structured to allow individualized approaches and tools to deliver
sustainable supply chain practices and infrastructure regardless of company size, type or
industry.

Organizations should develop products that meet different needs of the different customer
segments to avoid the risk of financial loss, having insurance arrangements with an insurance
company where insurance premiums are paid regularly, insuring all goods in transit and
undertaking insurance cover against unpredictable and unavoidable natural disruptions.

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REFERENCES

Accenture (2010). ―High performance in Procurement Risk Management‖: Research and

insights developed in collaboration with Massachusetts Institute of Technology

McGinnis, M. A. (2005) Strategic Value Analysis and Value Engineering: Basics for

Purchasing Professionals. 90th Annual International Supply Management

Trevelen, M. (1987). ―A Management Tool for the Quality Supplier.‖Journal of

Purchasing and Materials Management, 26 (4): 2-7

Russill, R. (2008).‖Procurement and Risk – The Big picture‖: A Short guide to

Procurement Risk. Retrieved March 05, 2014 from Gower Publishing:

https://www.ashgate.com/pdf/SamplePages/Short_Guide_to_Procurement_Risk_

Pochard, S. (2003) Managing Risks of Supply-Chain Disruptions: Dual Sourcing as a

Real Option. An MSC research paper submitted to Massachusetts Institute of

Technology