2017

Project Risk and

Procurement
Management
How a UK business sourcing food materials
extensively from Greece can manage the
dangers of economic and other risks arising
from this relationship?
[Writer]
[Institute]
[Date]
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Table of Contents
1. Introduction ........................................................................................................................................... 3

2. Supplier Relationship Management and Risk Involved .................................................................... 3

2.1. Supply Chain Management and Globalisation.............................................................................. 4

2.2. Supplier Relationship Management (SRM) .................................................................................. 7

2.2.1. Case Study: Collaboration between Premier Foods and British Sugar (Erkin, 2011) .......... 9

2.3. Risk of Interruption of Supply Chain ............................................................................................ 9

2.4. Impacts of Greece’s Unstable Situation Crisis on Supply Chain ................................................ 10

3. Conclusion and Recommendations ..................................................................................................... 11

References ................................................................................................................................................... 13
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Project Risk and Procurement Management

1. Introduction

The trade partners of Greece, such as United Kingdom, are indeed worrying about the debt crisis
in the country affecting them. In and out of Greece, exports and imports have also been affecting
and those that do business with Greek companies and suppliers may have to look elsewhere. This
crisis has some significant impacts to other economies. There are many businesses that have lost
their investment due to their Greek suppliers’ incapability. In this difficult situation, it is
important for companies to have a good Supplier Relationship Management (SRM) and SCM
(Supplier Chain Management) Risk Management, which will assist them to mitigate the risks and
avoid failure. SRM is a major dependable factor for strategic procurement of a company, where
the professionals of procurement are concerned about developing good and healthy relationships
with their suppliers and negotiating favourable terms and conditions. It is expected in the future
that supply chain structures of companies will become very complex and selecting the right
supplier will be more critical and crucial. It is very interesting that stringent supplier
requirements will become a custom, and demanding purchasers will anticipate suppliers to
exhibit their essential competencies and abilities. Supply chain risk, scarcity of raw materials,
environmental, sustainable and economic issues will result in increased pressure on these buyer-
supplier relationships.

This assignment is for a UK-based food business that sources the raw materials extensively from
Greek suppliers, thus, it will discuss how the food business can manage the economic risks and
dangers, among others, arising from this relationship. A critical discussion will be presented how
the function of procurement can manage a network, often global, of vendors and suppliers that
can swiftly become inoperative because of fast growing shifts in the business environment. By
using case studies as examples, these issues will be critically discussed. It means that this
assignment will go through the supply chain interruption risks.

2. Supplier Relationship Management and Risk Involved

The risk in the supply chain could be serious especially when the suppliers of key raw materials
of a UK food business are located out of the country. If most of the suppliers are located in a
country, then natural catastrophes, such as fluid and earthquake, terrorist acts, economic and
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political problems, and others, could simply smash the flow of SCM and put the food business at
greater risk.

SRM involves considering the supplier in the purchasing decisions made by the buyer, whether it
is before the launch of the call for tenders or in the follow-up of the execution of the contract by
means of the performance measure (Lambert and Schwieterman, 2012). The main objective of
SRM is to enhance communication with its various suppliers, share a methodology and achieve
savings in transactions with suppliers (Lambert and Schwieterman, 2012). The attractiveness of
purchases, the securing of sources, the diversity of the suppliers' panel, as well as a good
understanding of the quality requirements expected by the contracting authority from its
suppliers require that particular attention be paid to maintain the quality of the relationships
(Lambert and Schwieterman, 2012). Thus, communication is the basis of a lasting relationship
between a company and its suppliers. SRM also creates the opportunity for a company to share
methodology and information with its suppliers, so that the company’s procurement process is
optimised. Hence, suppliers need to be able to better know the company’s needs and respond
accordingly.

According to Park et al. (2010), SRM helps in developing, maintaining and improving a win-win
relation between supplier and company. In the traditional move to this relationship, supplier is in
charge of its dangers and risks, but a mutual commitment is suggested by SRM (Park et al.,
2010). This approach suggests that suppliers would be supported by their buyers if major risks
arise.

As this report is going to discuss the case of dangers or risks of an imaginary UK-based food
business importing raw materials from Greek suppliers, risk management of supply chain are
very important to consider and discuss when Greece is going through major economic crisis. The
methods and procedures of regular SCM risk management recommend action plans for
identifying and mitigating the major risks. While using the principles of SRM, numerous action
plans have been recognised, such as constituting good relationships with suppliers for the long-
term, having variou0s substitute suppliers from neighbour countries and adopting circumventing
methods to overcome the issue of currency fluctuation.

2.1. Supply Chain Management and Globalisation

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In recent past, the notions of procurement and SCM have been transformed. Although the
procurement concept was simply an administrative task five decades ago, it is now involved in
tactical and strategic decision making process of the modern-day successful business
organisations (Shahzad et al., 2016). Procurement, between 1950 and 1980, had the approach of
administration, but during the era of 1980s it turned to a tactical tendency (Baily, 2005). During
1990s, SCM included the strategic approach in its principles (Baily, 2005). SCM has been
defined by Li (2007) as management of every single relationship constituted between suppliers
and companies for importing raw material for products, data, financial assistance and final
product. Purchasing involves six main steps including the following (Bryan, 2015; Weele, 2017).

Fig1: Stages of Supply Chain (Bryan, 2015; Weele, 2017)

Globalisation has been established as one of the significant specifications of the contemporary
business world, which was took place during the era of 1990s. This phenomenon had
considerable impacts to the global world of business, mainly to SCM. The SCM’s globalised
approach creates the chance of using lower cost and even high quality products establish
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foreigner markets, making investment in the new marketplaces and making trade partnership
with other organisations worldwide.

There are some major specifications of global purchasing, which include enhanced purchasing
scope and risk, decreased purchasing price, the need for possessing a systematic principle of
choosing the supplier and steady purchasing channels (Monczka, 2016). Some reasons have been
listed by Cagliano and Spina (2011) why companies have a tendency to make the global
sourcing: lacking of the domestic market about material, availability of the technology and
inadequate quality and products’ price in the local market.

It is the fact that due to globalisation, there is an extensive range of sources possessed by
companies for purchasing than before and these could be a strategic benefit for them. In contrast,
the belief of Dooley (2016) is that adopting a strategy of global procurement could have
endangerments in terms of more supply risk, differences with respect to cultural pattern and
language, depending too much on companies with less experience, relatively long duration lead
times for the procurement packages, having more total cost, trading with divers currencies and
resistance against changeful developments. The global sourcing risks have been categorised by
Monczka (2016) as a variety of risks associated with security, quality, cost and intellectual
property (IP). Security risks mean the insecurity with respect to political or economic factors in
the supplying region, such as the supplying channel could be interrupted by the political
problems in some of the developing nations (Monczka, 2016).

The reason behind difference in the companies’ supply chain is difference and variation in their
strategy about purchasing. Because the corporate strategy is the basis of purchasing strategy, it is
associated with the organisational goal, vision, mission and strategy. On the basis of the
strategies Make or Buy decision will be taken by company. It is also a fact that it is clarified by a
company what business part or area they should acquire by purchasing and to which level should
make (Weele, 2017). After that companies will take a decision regarding the purchasing role and
type, including centralised, decentralised and a fusion of both (hybrid). In the centralised
purchasing, the company’s headquarter is responsible for purchasing the total company, and in
the decentralised approach, branches of the company get together for buying their own needs
(Weele, 2017). Moreover, the company has more control over the products in centralised
purchasing, leading to decrease in personnel costs and increase in transportation costs. However,
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both the risks and transportation cost are lower in decentralised purchasing but there is lower
efficiency as well. Hybrid purchasing is a mixture of both, centralised and decentralised, thus
some products are purchased by a company in centralised and some in decentralised manner
(Weele, 2017).

2.2. Supplier Relationship Management (SRM)

Through SRM, the buyer-supplier relationship is managed. At times, it could be highly complex
in nature and complicated, as each side of this strive for amplifying its own advantages. The
companies do not understand and recognise SRM very well, whether the companies are in the
UK or in other parts of the world. It is reported in the by Carter and Rogers (2008) that the
reasons behind companies’ unawareness of the value of SRM are unclear definitions of SRM
programme and methodologies, and lack of case studies. Companies frequently make hard work
on the stage of strategic sourcing with the aim of locating the finest supply option, and then SRM
is the next immediate phase (Carter and Rogers, 2008). This step is about making collaboration
between the company and supplier, in which the supply flow is insured, supply risks are
mitigated, and continues enhancement is reached. The three basic possible scenarios have been
found through which suppliers are managed, including overlooking the supplier, performing a
level of supplier performance management over the suppliers and collaborating with supplier
(Carter and Rogers, 2008). The goal and objective of SRM are along the lines of the third
scenario. Following figure reveals the SRM position in purchasing (Park et al., 2010).
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Fig2: Place of Collaboration in the Purchasing Process (Park et al., 2010)

Competitive and Cooperative have been found as two basic types of purchasing strategies that
could be adopted by companies. Competitive approach means the competition which the
company or buyer is involved in with the aim of getting the best product by paying the least from
supplier. In contrast, through a cooperative strategy a win-win business is driven and long term
relationships are established on the basis of the collaboration between parties (Park et al., 2010).
On one hand a modern way of business is provided by cooperative strategy, but on the other side
it does assure the profit for companies. A model called the portfolio purchasing model is
proposed by Kraljik (1983) (cited in Mangan and Lalwani, 2016). On the basis of the supply risk
and profit impact, he grouped the products into four diverse categories, which are Strategic,
Leverage, Bottle Neck and Non-Critical products (Mangan and Lalwani, 2016). Typically, if
there is a high risk of supply, companies are recommended to go with cooperative strategy when
dealing with suppliers and if there is low risk of supply, companies are recommended to adopt
competitive strategies to exploit the opportunity in order to reduce the cost. In-depth market
analysis is also proposed by Kraljik (1983) (cited in Mangan and Lalwani, 2016) so that action
plans are defined. The two factors of company and market strengths are the basis of in-depth
market analysis. Three types of action plans have been found that a company could go with in a
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variety of circumstances, which are Exploit, Balance and Diversified (Mangan and Lalwani,
2016).

2.2.1. Case Study: Collaboration between Premier Foods and British Sugar (Erkin, 2011)

Premier Foods, due to finding a new market in 2006, determined that having a strategic and win-
win rapport with a major supplier is inevitable for it, and then they chose British Sugar as the
right and secure source of supply. Both the company and supplier wanted to change the
conventional relationship and came to an agreement that a new form of relationship is inevitable
for them. Thus, a new SRM method based on collaboration was offered by Premier Foods to
British Sugar. The ultimate result just after two years was amazing. £5.7 million was saved by
Premier Foods, while a bigger business and 10% revenue growth were made possible by British
Sugar. Both companies exploited positively the core benefits of exchanging knowledge along
more competent logistic, and both gained the UK Best SRM Award in 2010. (Erkin, 2011)

2.3. Risk of Interruption of Supply Chain

It is shown by a survey report that it is believed by over 60% of the companies that they lack the
control over interruption of their supply chain. And following any SCM interruption, averagely
63 days will be consumed by it to regain the normal situation. Natural tragedies including fluid,
earthquake, unfortunate misshapes including fire and explosion, terrorist activities, products’
expiry, political crisis and economic recession. Avert crucial factor to remember is that the
reason behind happening of interruption is logistic failure. Typically, up to 70% of the
companies’ cost is for the supply chain, and disturbance in SCM could result in decreased sale,
increased cost, lose of market share, paying the amount of fines and losing the brand image.
However, the main question is why companies lack the awareness of SCM interruption risks.
The reasons behind unawareness of this risk are inadequate or lack of forecasting the upcoming
events and their aftershocks, depending too much on one single supply source devoid of
featuring a contingency plan, breakdown to expand the supply chain to the tier 2 and 3. (Chopra,
Reinhardt and Mohan, 2007)

When SCM risks including disruption risks are recognised and analysed by a company,
responding to them is close to other risks in the workplace. To be precise, having mitigation and
transfer programmes is important for a company so that these risks are controlled and reduced.
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As an example, the possible insurance solutions are Business Interruption (BI) and Contingent
Business Interruption (CBI) (Roberts, 2016), through which the risk is transferred. A best
response to mitigate risk for a company could be having long-term agreements with its suppliers.

For SCM risk management, the UK-based food company needs to take the decision both at the
strategic and operational levels. Usually, many companies think only to the direct cost, which is s
an unforeseen, unexpected and surprising difficulty and a drawback. Choosing a supplier from a
certain country could help in minimising the direct cost but the SCM risk is increased by it
simultaneously. The UK-based food company also needs to take the risk of single source
supplier into consideration. Management of a single supplier is cost-effective compared with
having more than one, but in contrast with more than one source from diverse areas will help in
minimising this risk, as suppliers from same area almost certainly will go through same factors
of risk.

2.4. Impacts of Greece’s Unstable Situation Crisis on Supply Chain

In Greece, the unstable situation and crisis debt to the outsider creditors is now in the sixth year.
The Greek economy, between 2001 and 2008, has seen a dazzling growth and enhanced the
people’s living standard (Economou et al., 2013). Then the country has received a large amount
of Euro (in billions) from many international creditors, and EU Bank is on top of the list, with
the aim of investing in its projects associated with the country’s infrastructure (Economou et al.,
2013). However, the Greek government failed in returning money they received and even the
global financial/economic recession in 2008 had huge harmful impacts to the country’s overall
economic health. Since 2009, Greece has been going through a variety of negative facts, which
are 25% declining in GDP, 25% unemployment rate and too much political and economic
volatility. In July 2015, Greece’s total debt touched €320 billion (Branas et al., 2015).

The Greek government, because of deficits, failed in paying one of its instalments to
International Monetary Fund (IMF) and following that it was decided by the government to take
some strong actions so that the country’s capital is controlled. In doing so, the government
closed the banks and exchange stock for the time being and set out limits for ATMs’ payments
(Branas et al., 2015). However, these were highly negative events and had quite negative impacts
to Greek economy and its reputation, supply chain and even to the global economy, e.g.,
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decreasing the Euro’s value and loss in the stock exchanges worldwide. However, one of the
major concerns is a question how Greek supply chain or suppliers and companies in other
countries sourcing them will be impacted by the country’s unstable situation? Following are
major subjects interrupting SCM in this state of affairs:

 Increasing the products’ final price;

 Suppliers’ bankruptcy;
 Suppliers’ incapability of timely delivery and maintaining quality;
 Limitations in financial transactions;
 Risk of currencies of different countries;
 Likelihood of delay as troubles in custom duties for imports;
 Deficiency of fuel could disrupt logistic;
 Losing the function as transportation hub in the region.

3. Conclusion and Recommendations

Like the overall economy of Britain and its banking organisations, there is quite low level of
exposure of the British food industry to the Greek economy. Almost 1% of the total export value
of British food and drink reached £118 million two years ago, which are bound for Greece, 50%
of which is due to the alcoholic spirits. And very interestingly, less than 1% of the import total
value of UK food and beverage are from Greece, which was more than £200 million in 2016,
around fourth part of which is based on dairy items and approximately 50% is processed, fresh
fruit and vegetables.

The direct and instantaneous impact to food companies in the UK, whatsoever situation opens
for Greece, is hence unlikely to be very crucial to the British food industry.

Thus, the UK-based food business and other businesses need to review their policies, strategies
and practices associated procurement by taking competitive strategy variables into consideration,
hence allocating new roles to procurement professionals with the aim of strengthening the
business and its various areas of commercial strength is important. This report has established
that inadequate corporate governance due to Greek crisis is still the major challenging issue for
the British food companies. Thus, the business should go with collaborative approach with their
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suppliers in order to foster professionalism amongst procurement professionals, so that effective

international purchasing is promoted. Such collaborative approaches could go a long way in
suggesting the best possible solutions to pragmatic challenges experiencing the procurement line
of work.

The food company needs to be prepared and equipped to spend on developing and training their
procurement staff so that they are equipped with all the required technical knowledge and skills
about international purchasing, especially from Greek suppliers that are working in the critical
situation of the country. The company needs to outsource managerial personnel to recognise the
business goals and objectives.

As the development of suppliers is inevitable for effective purchasing, it is recommended that the
UK food company should channel their hard and strong endeavours and part of their resources
into developing its suppliers pertaining to foods’ raw materials. The company’s procurement
personnel also need to develop a strong and long-term relationship with their Greek suppliers,
while avoiding a situation in which they only get in touch with suppliers when the needs arise.
The buyer-supplier relations need to be environmentally and socially responsible. Thus, the
procurement professionals of the British food company needs to identify better approaches of
establishing long-term and good relationships with suppliers. The company also needs to remain
with those suppliers who are reliable, responsive and competitive or otherwise recognise new
sources that have the strong potential for outstanding performance.
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Chopra, S., Reinhardt, G. and Mohan, U. (2007). The importance of decoupling recurrent and
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Dooley, K. (2016). Using manifest content analysis in purchasing and supply management
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