The History Of Enhancing Strategic Sourcing Business Essay

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KPC is an integrated oil and gas company. The Company provides its customers with fuel for transportation, energy for heat and light, lubricants and the petrochemicals products used to make everyday items like plastic bottles. The Company also invests in renewable energy sources. The Company operates in two business segments: Exploration and Production, and Refining and Marketing. Its Exploration and Production segment is responsible for its activities in oil and natural gas exploration, field development and production; midstream transportation, storage and processing, and the marketing and trading of natural gas, including liquefied natural gas, together with power and natural gas liquids. It's Refining and Marketing segment is responsible for the refining, manufacturing, marketing, transportation, and supply and trading of crude oil, petroleum, petrochemicals products and related services to wholesale and retail customer.

KPC has been facing challenges in their supply chain activities which led to an oil spill, out of this negative situation the issues of strategic sourcing and supplier relationship management became focal point in addressing these challenges in their supply chain. This work seeks to explain these issues in detail and recommend directions on how to improve aspects of their supply chain to be in line with their new vision and mission.

The ever-changing global economic climate has acted to hasten many organization's to institute supply chain management strategies to reduce cost and delivery cycle times while improving quality, leading to improvements in long-term competiveness and financial performance. This phenomenon has increased the focus on outsourcing, reduction of an organization's vendor base, as well as development of partnership with the company's key suppliers. These factors coupled with an organizations increased awareness of optimizing the flows of supply chain, relation management, and integration between companies, has created an overall basis for the supplier relationship management (SRM) concept. The top priorities of supplier relationships are cost reduction, quality improvements, access to new resources and enhanced sales but for an organization to achieve these it needs to recognize the role of sourcing strategically.

Strategic sourcing can be thought as managing the firm's external resources in ways that support the long- term goals of the firm. This include the make-or-buy decisions, identification and selection of suppliers, managing and improving supplier relationships and capabilities, monitoring and rewarding supplier performance, developing and managing second third-tier supplier relationships, and the use of technology to benefit sourcing activities.

Strategic sourcing goes beyond just purchasing and e-procurement, it plays a proactive role in implementing a firms overall goals and business objectives. The long-term focus is to establish cooperative supplier relationships to match a firm's competitive stance.

Supplier relationship management is the supply chain management process that provides the structure for how relationships with suppliers are developed and maintained.

Supplier relationship management represents an opportunity to build on the success of strategic sourcing and traditional procurement initiatives. It involves developing partnership relationship with key suppliers to reduce cost, innovate with new products and create value for both parties based on mutual commitment to long term collaboration and shared success.

As more organizations recognizes the strategic value of suppliers in the late 1980s, supplier relationships changed from adversarial to cooperative in the U.S, many firms realized that suppliers could enable a firms focus on core competencies and to reduce cost and product development cycle time at the same time

There are six possible supplier relationships namely vertical integration, autonomous diversification, traditional relationship, collaborative relationship and strategic alliances. From the case study of KPC four types of the above relationships can be identified and these are the vertical integration, traditional relationship, collaborative relationship and strategic alliances.

Vertical Integration

Is the degree to which a firm has decided to directly control multiple value-add stages from raw material production to the sale of product to the ultimate consumers. When a company elects to manufacture commercial products utilizing precursor agents and conducts associated services such as quality assurance, regulatory adherence, and marketing, internally it is considered to be vertically integrated.

This type of relationship is exhibited by KPC as it tries to exert some form control on its upstream, midstream and downstream activities also the acquisition of Liberation Movement Company can also be classified as vertical integration.

Traditional Relationship

Transactional relationships are the most common and the most basic type of buyer/supplier relationship. This relationship is referred to as an arm's-length relationship where neither party is concerned about the other parties well being. There is very little trust involved in this relationship and it could be a onetime transaction between the buyer and supplier. Ghacem Ltd and the 200 suppliers that KPC decided to have transactional relationship with them all come under this category of relationship.

Collaborative/ Partnership Relationship

Lambert defines a partnership as "a tailored business relationship based on mutual trust, openness, shared risk and shared rewards that results in business performance greater than would be achieved by two firms working together in the absence of partnership. These relationships are most often associated with suppliers who are expected to be longer-term members of a reduced supply base. Relationships with these suppliers are often formalized through long-term contracts that lead to discussions on how to reduce cost, quality, delivery, packaging, inventory management.

KPC dealings with Alhaji Tanko Petroleum Forwarders (ATPF) and the Oil Marketing Companies are collaborative relationships in the case.

Strategic Alliances

An alliance is formed for a systematic approach to enhance communication between the two firms and involve a very limited number of suppliers that provide items or services that are essential or unique to firm's success.

It has been defined as "relatively enduring inter-firm cooperative arrangements, involving flows and linkages that use resources and/or governance structures from autonomous organizations, for the joint accomplishment of individual goals linked to the corporate mission of each sponsoring firm (Parkhe, 1993)."

Tema Oil Refinery (TOR) which provides a very essential and unique service in the form refining crude could be classified as a strategic alliance also the 50:50 joint venture between KPC and Elshadat Petroleum Supplies and Production which seeks to create a 'win-win' situation and integrate their core competencies is a strategic alliance.

Enhancing Strategic Sourcing

Categorize Suppliers

In other to enhance its strategic sourcing KPC will need to first categorize suppliers based on critical and non critical items with the kraljics matrix. This is reducing the supplier base for critical items and going ahead to evaluate and develop if necessary.

The aim will be to select suppliers who will work with KPC in ways that will generate gains and make a difference in performance and profitability.

The use of the matrix will assist the company to determine the category of suppliers and therefore the type of relationship to nurture and develop with them.

Products of suppliers should be categorized as

1. Leverage Products

2. Strategic Products

3. Non critical Products

4. Bottleneck Products

Leverage and Strategic products are products that can account for 80% of the companies turn over and small price increases could have significant impact on the cost. Suppliers of such products require special relationships.

Non critical products take 80% of the purchasing activity but provide only 20% of the turnover. There are usually many suppliers and alternative variety and therefore may not require any special relationship

Bottle neck products have few or no alternatives. These are generally items of high tech value and will also require very special relationships.

Supplier Development

Supplier development can be loosely defined as the process of working collaboratively with suppliers to improve or expand their capabilities. KPC needs to incorporate the concept of supplier development in its supplier relation management to enhance its strategic sourcing. Due to its inability to incorporate this has led to challenges with both Alhaji Tanko Petroleum Forwarders (ATPF) and the Oil Marketing Companies.

Creating a total company culture and process to best incorporate value from suppliers.

Enhancing its strategic sourcing through these relations can be achieved if it creates a platform where suppliers' value is incorporated into KPCs process. This will mean both KPC and its supplier will take a proactive joint problem solving approach in dealing with issue. This could have averted the situations like the deep water oil spill disaster.


In today's economic environment, doing what you've always done-even if you do it very well-is no longer acceptable. Under pressure to contain costs and produce results despite challenging circumstances, an organization must transform rather than simply improve their operation. That means adopting the policies that will make the organization "best in class".

Policy refer to the process of making important organizational decisions, including the identification of different alternatives such as programs or spending priorities, and choosing among them on the basis of the impact they will have. Policies can be understood as political, management, financial, and administrative mechanisms arranged to reach explicit goals. The intended effects of a policy vary widely according to the organizations and the context in which they are made. Broadly, policies are typically instituted to avoid some negative effect that has been noticed in the organization, and to seek some positive benefit

Establish a governing supply chain council.

A governing council's purpose is to give direction and help align supply chain strategy with the company's overall strategy. The council's membership should include the head of the supply chain of KPC as well as corporate executives, business unit managers, and other influential company leaders. The existence of this council will indicate that supply chain management has the endorsement and commitment of senior leadership. KPCs supply chain has been struggling for recognition because their objectives and strategies differ from their stated objectives and strategies. A governing council can prevent that from happening by providing constant, consistent validation that the supply chain strategy directly correlates with the corporate strategy.

Establish alliances with key suppliers.

KPC must work closely with suppliers long after a deal has been signed. That is investing more in enhancing their "supplier relationship management" with suppliers by moving away from their one-way communication (telling the supplier how to do it) to a two-way communication, which requires both buyer and seller working towards a common goal.

An effective alliance management program with key suppliers will;

Provide a mechanism to ensure that the relationship stays healthy and vibrant

Create a platform for problem resolution

Develop continuous improvement goals with the objective of achieving value for both parties

Ensure that performance measurement objectives are achieved

With a sound alliance management program in place, KPC will be equipped to use the talents of their supply base to create sustained value while constantly seeking improvement to enhance their competitiveness.

Engage in collaborative strategic sourcing.

Strategic sourcing is a cornerstone of successful supply chain management. But a collaborative strategic sourcing initiative would produce even better results. Rather than considering strategic sourcing as just a matter for the purchasing department, KPC must get internal "customers" actively involved in the decision-making process. More importantly, they should solicit feedback and information regarding their objectives and strategies from those customers, which may include functional areas such as finance and accounting, engineering, operations, maintenance, safety/health/environment, and quality assurance and any internal business unit or function that will contribute to the organizations success. This approach not only ensures availability of supplies but also results in lower total cost, streamlined processes, and increased responsiveness to customers' changing needs.

Establish appropriate levels of control and minimize risk.

KPC must integrate risk-mitigation methodologies into their sourcing decision process by adopting sound methodologies that include:

Identifying all of the risk elements

Determining the probability of the risk event occurring

Assessing the dollar impact on the sourcing decision if the risk event actually takes place

Prioritizing risks for monitoring and prevention.

Monitoring of suppliers also involved in high-risk activities must be considered. Processes such as internal audits, third-party verifications, executive visits and safety performance indicators into contracts should be incorporated into their upstream activities.

Rationalize Supply Base

KPC can also enhance their competiveness by rationalizing their supply base. Rationalizing the supply chain is the activity of selecting the right number suppliers and the most suitable suppliers within that numbers. The organization has faced numerous challenges by dealing with a lot of suppliers from it upstream, mid-stream, and down stream activities. The strategic considerations in rationalizing the supply chain is that, KPC has to look and evaluate the supply chain in a tier level perspective. The suppliers should be broken down into different tiers, with the first tier providing the major components.



The hospitality industry in Ghana falls under the tourism sector. The Ghana tourist board, which has oversight responsibility of the hospitality industry, has been in existence since 1973.

Tourism has increasingly become a major revenue earner around the world and has the potential of increasing the well-being of the people in a country and generating foreign exchange for the government. The hospitality industry is continuously undergoing transformation in order to remain competitive and maintain sustainable profitability. The hospitality in Ghana is no different, and restaurant like Treet Bar & Grill located at Achimota has to grapple with the realities and strategize accordingly to ensure that their operations meet the expectations of their customers to gain competitive advantage.

Treet Bar & Grill was founded in 2010 by a local Accra based family. Located at Achimota, opposite the new lorry station in the heart of a populated upper-middle-class neighborhood, their concept is simply to create a cozy environment that is well suited to have great conversations, served quality freshly cooked meals and offer great draft beer and spirit selections. As of 2013, they have two locations and currently serve over 1,000 customers a week with a staff strength of 100 made up waiters, chefs, cooks, bar tenders, cleaners etc.

They offer a stimulating atmosphere with lots of conversation pieces on the walls and serve excellent quality, fresh cooked meals and are defined as a main stream casual dining restaurant with an integrated sports bar area that caters to the community and local businesses. They also provide friendly, attentive service in a relaxed environment by staff and owners that truly enjoy their job.

The restaurant serves and sells pizza, grilled chicken, ice cream, drinks, burgers, local dishes and continental dishes in the community. The globalization of the Ghanaian economy has brought in its wake many advantages like better quality in service and different types of food apart from the indigenous local dishes. Competition for the customers in this industry has increased also due to the influx of foreign companies which has led to many companies strategizing to place themselves over their competitors.

Gaining competitive advantage has become more increasing with many restaurants in the industry focusing on how to make their operations lean, offering higher quality service and products which consumers are willing to pay for.

The aim of this paper is carefully analyze how the application of lean management or thinking could lead to competitive advantage over Treet Bar & Grill's competitors.


The changing environment such as the recent global recession, along with technological changes has indeed contributed to the continual implementations of lean management systems in most organizations today. Lean manufacturing, lean enterprise, or lean production, often simply, "Lean," is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. Working from the perspective of the customer who consumes a product or service, "value" is defined as any action or process that a customer would be willing to pay for.

It is renowned for its focus on reduction of the original Toyota seven wastes in order to improve overall customer value. Lean manufacturing is a variation on the theme of efficiency based on optimizing flow; it is a present-day instance of the recurring theme in human history toward increasing efficiency, decreasing waste, and using empirical methods to decide what matters, rather than uncritically accepting pre-existing ideas.

According to CIPS there are five key principles when applying lean thinking to a firm;

Specify what creates value as seen from the customer's perspective

Identify all steps across the value stream

Make those actions that create that value flow

Only make what is pulled by the customer just in time

Strive for perfection by continually removing successive layers of waste.

Lean implementation is therefore focused on getting the right things to the right place at the right time in the right quantity to achieve perfect work flow, while minimizing waste and being flexible and able to change.

The elimination of waste is the goal of Lean, and Toyota defined three broad types of waste: muda, muri and mura;. Waste elimination is one of the most effective ways to increase the profitability of any business. Processes either add value or waste to the production of a good or service. To eliminate waste, it is important to understand exactly what waste is and where it exists. All activities undertaken by an organization can be categorized under

Non-Value Adding- activities that do not directly contribute to the satisfaction of customers.

Necessary Non-Value Adding- activities that have to be done.

While products significantly differ between factories, the typical wastes found in manufacturing environments are quite similar to those found in the service sector such as the hospitality industry. For each waste, there is a strategy to reduce or eliminate its effect on a company, thereby improving overall performance and quality.

The original seven wastes identified under lean are:

Transport (moving products that are not actually required to perform the processing)

Inventory (all components, work in process and finished product not being processed)

Motion (people or equipment moving or walking more than is required to perform the processing)

Waiting (waiting for the next production step)

Overproduction (production ahead of demand)

Over Processing (resulting from poor tool or product design creating activity)

Defects (the effort involved in inspecting for and fixing defects)

Later an eighth waste was defined by Womack et al. (2003); it was described as manufacturing goods or services that do not meet customer demand or specifications. Many others have added the "waste of unused human talent" to the original seven wastes. These wastes were not originally a part of the seven deadly wastes defined by Taiichi Ohno in TPS, but were found to be useful additions in practice.

Lean production is an approach to production that seeks to minimize waste and inefficiency. In short, it means doing more with less. A lean company will make the very most of its resources. Lean production is based on the principle that any use of resources that does not create value for the consumer is 'waste which could lead to competitive advantage.

A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Lean management has become an important operating philosophy that is central to the success of supply chain management, which seeks to achieve these strategic initiatives to enable firms stay in a more competitive advantage to other firms they are competing with.

For a restaurant like Treet Bar and Grill to gain competitive advantage over its competitors it needs to apply the philosophies of lean management which emphasizes on reduced inventory cost, reduced lead time, continual improvement, value-added activity, and respect for people. Lean principles focus on streamlining the flow of production material throughout the entire enterprise.


Reduced Inventory Costs

A lean organization maintains just enough stock to complete orders. Customer orders trigger purchases of materials to meet the requirements of the order. Large inventories of materials and supplies ties up funds that a company could use to grow and drive itself forward. Treet Bar & Grill should develop a just-in-time (JIT) approach to store management by only holding the stock that it needs. Stock in this industry is expensive due to their perishable nature. The company should therefore only buy the stock required at any given time. When stock levels are reduced an organizations working capital is improved.

In other words, Treet Bar & Grill is not tying up too much investment in stock that is then going to be held for a long period of time before it is sold to generate income. From the moment stock arrives at Treet Bar & Grill store everything is focused on reducing the cost of holding and managing the stock.

Reduced Lead Time

Lean organizations use a pull method to move materials and products through the production process. A pull system requires the next step in a production process to pull the product through only when it is prepared. The ideal in lean manufacturing is a single-piece process with one product moving through the production line at a time. This eliminates bottlenecks in the process and reduces lead-time. A reduction in lead-time improves customer service, which can give a company a competitive advantage in the market.

Quality Improvements

Quality management has a big impact on the entire organization in every competitive business environment. Lean manufacturing systems focus on making small quality improvements in company processes to improve the overall quality of the product. Improving the quality of the product and the process improves reliability and customer satisfaction. In a lean manufacturing system, employees have the power to make improvements at any stage in the process.

The Japanese use the term zero defects to describe this philosophy and this cannot be obtained overnight but to offer high quality goods, a firm must offer more than the usual service and products to gain competitive advantage.

Responsibility is an important aspect of all areas of the business, from training and developing employees to drive the business forward as part of continuous improvement, to taking an active role in its supply chain to ensure continuous improvement.

Value Added Activities

The of lean to eliminate the steps that the customer is not willing to pay for, and at the same time can be eliminated from the process without affecting the end product or service.

Lean accomplishes this by determining if steps in a process are value add, non-value add, or customer value-add. The value-add and customer value add are steps that cannot be eliminated from a process. Costs savings in lean are realized by eliminating the non-value adding activities.

A preferred tool for identifying the non-value adding activities is by way of the value stream map. Value stream maps are a visual lay out of a process step by step.

They are usually done in a group setting with those familiar with the process analyzed. Once wasteful non value added steps are identified and eliminated, the organization is more apt to concentrate on delivering a more customer value added product (Ocak, 2011).

Improving the flow of material through new ideal system layouts at the customer's required rate would reduce waste in material movement and inventory.

Employee Involvement and Morale

Employee Empowerment is defined as "Enlarging employee jobs so that the added responsibility and authority is moved to the lowest level possible in the organization. Empowerment allows the employee to assume both managerial and staff responsibilities. Initiating employee empowerment is going to help in creating a healthy work environment where employee motivation can be developed. Therefore, employees are able to make more decisions beneficial to organizations.

Communication between management and employees is one of the identical signs of employee empowerment. It is significantly important to recognize that there is a relationship between satisfying internal customers (employees) and meeting external customers' needs. When organizations cannot treat their employees correctly, they cannot be expected to treat external customers with loyalty.


Lean can be applied to all aspects of organizations operations and should be if the maximum benefits within the organization are to be sustainably realized. The two biggest problems with the application of lean to business processes are the perceived lack of tangible benefits and the view that many business processes are already efficient.

There are many tangible benefits associated with lean business processes are

Reduced cycle times

The ability to deliver every time at the same cost to the business

Predictable throughput times from better labor utilization

Improved working capital positions from reduced inventory

Lower warranty and customer service costs from improved quality

A lean business process will be faster, e.g. the speed of response to a request for the business process will be faster, and as most business processes are linked to organizational supply chains, then this can deliver significant financial benefits to a company.

Treet Bar & Grill must develop a distinctive approach to it operations. Its operations should focus on providing its customers with quality products that are value for money and can achieve this by ensuring that its operations are as efficient as possible whilst also adhering to its core values. Through adopting a variety of lean approaches Treet bar & Grill will be able to offer its customers the highest quality products (food) and service at the lowest possible price.