Essay: Procurement implementation

ACKNOWLEDGEMENT

I start with the name of Almighty ALLAH for giving me strength, potential and strong points to complete this entire significant research in a relevant manner.

I would like to thank the people who have made this work possible. My prime appreciation goes to my supervisor Dr Akif Hassan, the encouragement, motivation and support he provides me with his knowledge on the subject .He has constantly challenged me to think about the thesis in new ways, and has consistently supported me in my research endeavors. Through his guidance, I have gained invaluable experience and insight related to the field of supply chain. I could not have had a better advisor.

I would also like to pull out my facilitations to Dr. Imtiaz Subhani for his cooperation and assistance for this specific project and especially I would like to thank Mr. Ghulam Abbas for his eloquent support in statistical analysis, interpretations and inference made measurement section of my work possible.

Moreover, I would especially thankful to all the respondents who co-operated with me in filling out the questionnaire.

Finally, I would like to thank my parents. They have always encouraged me throughout all my endeavors. Their support and advice has given me the motivation to achieve my goals.

ABSTRACT

This study investigates the perceived level of awareness about procurement and its impact on the implementation. This research will bring out how the perceived importance and awareness of procurement is brought into actual implementation in an organization supported by the extensive review of pertinent literature. We use Supply chain reference model (SCOR) in this study. We took 10 pharmaceutical companies for sample and the procurement managers of these organizations were the respondents. Results obtained from statistical analysis corroborate using The Paired-Samples T Test as a statistical tool that the proposed hypothesis that organizations are not able to implement procurement procedures fully according to their perceived awareness and importance of procurement. Finally, conclusions were drawn to provide insights to professionals and practitioners to better prepare and plan to develop and implement procurement measurement systems that will assist in building supply chain integration

INTRODUCTION

A supply chain is a chain of systematic functions which involves movement and management of raw material procurement from suppliers to the transformation of this material through the manufacturing process to the distribution of the finished goods to the end customer. (Cory Billington, 1993)

Businesses depend on their supply chain for what they need to endure and succeed. In the modern business world every business body can be distinguish into single or more supply chains activities. Supply chains cover the business and their activities which are required to plan, make, distribute and utilize of a product or service (Michael Huog, 2003).

As markets are evolving spontaneously and with the advent of new and serendipitous discoveries in the business arena, compelling its members to respond to these changes have made increasingly efficient and effective supply chain as a vital part of a business strategy. And as a result, companies which practicing the best in learning, construct and contribute in strong supply chains will have a significant competitive benefit in their relevant markets. Napoleon as a great general and strategist several decades ago said “An army marches on its stomach." His remarks reflect that he clearly understood the significance of efficient supply chain. Unless the soldiers are fed the army can not survive. Similarly two decades ago Porter argued in his article that companies could significantly augment their operations by concentrating on interrelationships among business units. Theses strong bond, according to him, are substantial opportunities to decrease costs or increase differentiation in effect to any action in the value chain.

The aim of the study is two fold; one is to examine the level of awareness of procurement among members of an organization and finally its impact on procurement implementation and the overall supply chain performance. This effort has been carried out extensively in the light of relevant literature available to the best of our knowledge. Moreover, to ensure the testability and precision of the research, supply chain operational reference model has been used for empirical analysis. However there are still some areas where work would be pursued in forthcoming studies to overcome the limitations of this work. The social sciences are already well advanced technically, but they are not well advanced methodologically (Ackoff, 1953).

As far as views of Porter are concern, his emphasis that companies possibly can considerably develop their procedures and activities by focusing on interrelationships between business units. Moreover, the search of interrelationships by some competitors is convincing others to pursue risk losing their competitive position. It is significantly vital for companies to spotlight on horizontal approach, a synchronized set of objectives and strategies across dissimilar but interconnected business units. Horizontal Strategy is one of the short and snappy ways of recitation supply chain management which symbolizes the essence of corporate strategy.

When we consider the procurement, which is now becomes a most integral part in the core supply chain operations in organizations. The efficient procurement procedures lead to the cost advantage and efficiency which increases the level of profitability and gives the sustainable competitive advantage among the rivals in the industry.

In Pakistan, the Pharmaceutical Industry begins its business processes a few years after the country came into existence. At present, market scenario of the pharmaceutical industry in Pakistan:

• There are around 300 pharmaceutical companies operating in Pakistan.
• 264 are national companies
• Among national companies 210 pharmaceutical companies are licensed
• 32 companies are multinationals.
• In KSE (Karachi Stock Exchange), 15 Pharmaceutical companies are listed. These companies including other multinational companies are enjoying the domination by having approximately 70 % of total pharmaceutical sales in the country.
• 2,683 medicines has already been registered in Pakistan

Moreover, in pharmaceutical industry procurement procedures are more sensitive as compare to any other industry due to the reason that this industry is health sensitive and the quality of the raw materials (includes mostly chemicals) are highly sensitive.

In pharmaceutical industry raw material includes packaging material (caps, bottles, cartons, labels, printing etc) and the chemicals which are used to make medicines.

In Pakistan, pharmaceutical companies’ procurement of chemicals is mostly done by two different ways. Companies directly import the raw material by itself from different manufacturer sources from different origins and the second way is that companies procure the imported raw material from the local wholesale market by different traders. Largest wholesale market for the chemicals in Pakistan is located in JODIA BAZAR, Karachi. Companies make the decision of procurement on the basis of stocks availability, cost involvement, quality issues, approved sources, lead times and delivery schedules.

After discussion of the importance of the need of the study on level of procurement awareness and its implementation, this thesis explores the related literature and tried to identify variables for the research and the formulation of strategic model for the assessment of procurement performance in the selected pharmaceutical companies under study to examine the relationship between the organizations perceived importance about procurement and its implementation according to the perception.

Research Hypothesis:

The average difference of overall perceived importance of procurement and its implementation is zero. (md =0)

This primary hypothesis has been further divided into five secondary hypotheses which are as follows:

H1: Perceived awareness and importance of Inward Material Quality is not equally implemented in procurement.

H2: Perceived awareness and importance of Quantity and Timely delivery is not equally implemented in procurement.

H3: Perceived awareness importance of Procurement unit cost is not equally implemented in procurement.

H4: Perceived awareness and importance of Material inventory level is not equally implemented in procurement.

H5: Perceived awareness and importance of Vendor Development Capability is not equally implemented in procurement

REVIEW OF THE RELATED LITERATURE

Generically supply chain is considered as the flow and management of resources across the enterprise for the purpose of maintaining the business operations profitably (Sehgal, 2009). The supply chain is the set-up of organizations that are concerned, through downstream and upstream linkages, in the different procedures and activities that turn out value in the form of services and products to the ultimate customer or consumer. (Christopher, M. & Ryals, L, 1999)

Supply chain is a chain of systematic functions which involves movement and management of raw material procurement from suppliers to the transformation of this material through the manufacturing process to the distribution of the finished goods to the end customer (Cory Billington, 1993).

Few corporate functions have evolved more dramatically than procurement. As recently as the 1970s, it was generally regarded as a clerical, reactive position—a cost center. As the business environment getting fiercely competitive day by day, the vital importance of procurement is being acknowledged by producers, suppliers, customers and all other stakeholders involved in creating and delivering products from upper stream to downstream channels. Procurement is getting more acknowledged as a fundamental part of organizations. Therefore, it is considered more strategic than ever in anticipation of in recent times, procurement was a compulsory element but rarely renowned, in component of multinational corporations. Nowadays, procurement organizations within companies are playing crucial roles in the achievement of global firms in ways that old conventional purchasing managers could never have thought of that. The procurement has increased to such importance in a highly competitive global environment which makes supplies of critical raw material and products stiffen and prices increase that companies can strategize to alleviate these and other risks involved (Boston Consulting Group, 2007). The phenomenal value of the SCM philosophy can be achieved only if the cumulative performance of the entire supply chain is enhanced and it is possible when all the relations in the chain work as effective as possible all together as contrast to the consequential total performance when every entity link is independently optimized (Burke and Vakkaria 2002). The recent proliferation of papers on procurement and on adjunct topics primarily explains the inquisitive interest of researchers for this area. In addition to it, theses studies mostly striving to better understand the impact of efficient procurement activities on different supply chain components. At many companies, procurement is gaining strategic importance and considered as proactive process that contributes as much as or more than other business functions to profitability, corporate growth and competitive advantage. Even though the strategic nature of procurement has altered entirely, its core goals have changed very little. Then, as now, procurement is all about attaining premium goods and services for the lowest achievable overall cost of possession. As new techniques of procurement implementation are emerging, in order to meet its contemporary needs new strategies, insights, partnerships and technologies applied to the singular objective of acquiring low-cost, high-quality products have become essential for a business .The fact remains, however, that most companies continue to undervalue and under optimize their procurement functions. This is far more than a semantic observation. As shown in the study conducted by BCG and Warton University (2009), Lower cost and higher productivity and efficiency are the main characteristic of procurement ascendency. Accenture in its study revealed interesting insight about the art and science of procurement. Objects under study were classified into three categories after gathering inputs from dozens of procurement executives across number of industries on the basis of procurement performance and the level of awareness among individuals about procurements activities in their organizations; Low performer, mid range performer and masters. 16 percent of surveyed organizations got masters status enjoyed 30% higher productivity levels than companies attributed to lower status. In addition, masters’ procurement organizations generally cost half as much to run. The dimensions of procurement included in this study were total cost of ownership; total controllable spend; the proportion between total cost of ownership diminution and procurement operating cost; leverage in new product design introduction; and supplier management.

Accenture’s study used five procurement metrics upon which survey recipients were measured i.e. .total cost of ownership savings, percentage of spend controlled by procurement, and so on. In terms of costs saving procurement masters saved almost ten times as much as it costs them to execute procurement procedures. As compare to low performers and mid range performers it is twice of their saving because of efficient procurement system. Serkin (2009) suggests that companies make the biggest mistake by overlooking the benefits of the integrated procurement system and its three important dimensions while procuring; the product, the process, and the location. He added that firms have to make sure that the costs do not overwhelmed the savings made through procurement activities. Another consideration is of right quality process in place because businesses face severe issues regarding the quality of the product coming in. Since their brand is on that product whether it is made in house or bought from elsewhere.

There is not so much a challenge to any further extent for procurement to be acknowledged as a strategic business partner within the organization or to be acknowledged as the value added partner in the organization (Gocke, 2009). Now its gaining significant role in the strategic supply chain because of its widely acceptable role as a costs saving and productive function because of continuously surge in the contribution of materials cost and the contribution of purchased. Another difficult task faced by companies is the retention and development of key people in procurement department. Unlike most other functions, education of the purchasing manager is not the academic. It is difficult to get or search someone having education in purchasing. Only some universities around the world actually focus and specialize on purchasing as an education course by itself. Now looking at one very useful and intelligible definition of procurement that says that it is the organized procedure of making a decision starts with what, when, and how much to purchase, secondly take actions of purchasing it and the process of make certain that the quantity and quality specified what is required is received on time (Burt & Pinkerton, 1996). This clearly opens new horizon for procurement managers who confine their task to purchasing only and deem it as supporting activity. Proactive procurement requires that all members of the procurement system-whether forecasters in Marketing, designers and cost estimators in Engineering, planners and inventory managers, quality assurance personnel, the purchasing staff, and others-recognize their role in value-added procurement ( Bert & Pinkerton , 1996)

In conjunction with supply chain managements, it strategically integrates the whole procurement process, including the "classification, acquirement, access, positioning, and execution of resources" in a series of carefully considered steps, in order to attain stated objectives (Duffy, 2002). Procurement cannot operate in isolation from other elements of the business (Morash and Clinton 1997). Similarly, Froehlich and Westbrook (2001) mentioned that supply chain structure is often considered as organizational efforts by three or more firms to manage and integrate materials and related information flows in order to get closer to customers. Their meaning of supply chain structure is consistent with our concept of supply chain integration.

By looking at Pharmaceutical procurement it is observed that it is a multifarious process which engages many steps, agencies, manufacturers, government rules, policies and regulations, ministries and institutional structures are regularly insufficient and sometimes obstruct on the whole efficiency in act in response to the modern pharmaceutical market (W.H.OGeneva, 1999)

There have been a series of in-depth studies about successful procurement implementation. We discovered that their perceived supply chain capabilities can primarily be grouped into four levels: technology level, transaction level, relationship level, and environment level (Bensaou and Venkatraman 1995)

As moving on to procurement implementation there is an imperative need discussing its peculiarities in the value added supply chain. The strategic procurement process consists of finding out the best sources of supply, determining the feasibility of a strong and lasting relationship with the vendor, and managing this relationship over time to mutual benefit and advantage. The “strategy” in the strategic sourcing comes from proactive trend management to ensure that projected business plans and demands can be fulfilled with adequate supplies, optimal costs, and minimalregulatory, financial, social(brand), and legal risks (Seghel , 2009).

As part of strategic sourcing, companies need to establish what they will need in the future and how much. This question is generally answered in the merchandising functions using the product portfolio analysis, profitability analysis, and other such techniques.

Once, what and how muchquestions are addressed, strategic sourcing kicks in to establish wheresuchneeds may be optimally fulfilled.The strategic sourcing processes consist of establishing guidelines forpartnerships, creation and maintenance of approved vendor lists, proceduresfor on-boarding and off-boarding, vendor performance tracking, while not necessarily used interchangeably, the terms procurement, purchasing, and sourcingall describe one of the main supply chain management processes (Blanchard, 2007). Larry Paquett in his book the sourcing solution (2004) explains the role of sourcing as to locate the one company out there that can provide needed product better than anyone else. Hugo’s , the author of Essentials of supply chain management remarked that, by tradition, the main activities of a purchasing manager are to beat up potential suppliers on price and then buy products from the lowest cost supplier that can be found.

Unfortunately, examples of low expectations (and low results) in procurement are common when companies fail to recognize the positive impact good procurement practices can have on their bottom line, it makes it that much more difficult for significant and enduring supply chain improvements to take effect (Sighel, 2009).

The Center for Advanced Purchasing Studies has studied purchasing patterns and has found that a high percentage of purchasing actually takes place outside of the purchasing department. Although it’s generally a purchasing manager assigned to the task of procuring products, whether it is components used in manufacturing a product or finished goods that are sold on retail shelves, it’s usually the domain of the logistics manager to make other important supply chain buying decisions, such as the procurement of transportation.

There are basically two types of operations in the beginning of the supply chain where raw material is concern: first one is the material receiving from the different sources and stocks in warehouses which followed by the production process in which several activities are perform to change raw material into the finished manufactured goods (Corey Belington, 1993).

Inventory is also related to the investment which is need to keep the material in warehouses so managers should determine the best inventory level which is supportable for the organization’s objective. Inventories have different shapes which have different values at different stages in the whole supply chain process of the organization. Inventories in the shape of raw material are more elastic as compare to the finished product. Managing inventory is difficult while determining the inventory level. Usually managers have the hard time in planning and analyzing the optimal economic order quantity level for stock level while considering the safety stock and order recycle time specially when there is a bullwhip effect in demand and supply. In this situation they have to consider both the cost effect and storage capacity (Corey Belington, 1993).

Efforts to decrease working labour and general operating cost , reductions in inventory level of raw material costs has a positive impact in company’s financial transactions which will improve profits and cash flows (Kemal Guven GULEN, June 2007).

JIT

(just in time) delivery is also considered as an important factor in supplier selection criteria because the use of JIT in procurement procedure as a strategy has a significant benefit to achieve quality , cost efficiency and most importantly the performance of delivery targets . By this way capabilities of suppliers is measured and developed (Ram Narasimhan and Jayanth Jayaram, 1998). Overall JIT strategy improved all the integrated activities in procurement. Manufacturing process can be improved by reducing lot sizes and lead times, cost and quality efficiency, improving planning process linked with the forecasting, inventory strategies and consistent master production schedule. JIT does not mean that it always starts with the company’s purchasing department. JIT does not mean but it always relates with zero inventories or supplier has to hold an inventory and deliver to the buyer on the hourly basis. The actual role if JIT is develop efficient and effective in house manufacturing process, schedules and strategic partnerships to reduce inventory buffer and minimize other wastage (Kemal Guven GULEN, June 2007).

Effective JIT has significant characteristics in manufacturer and supplier a relationship in which Competent Supplier can be located as closer as possible to the manufacturing plant which makes easier for the suppliers to deliver frequently in smaller and exact lot sizes as per the need of the manufacturer and constant, harmonized schedule among manufacturers and suppliers with stiff delivery casement. Due to the long term contracts, bar-coding applications and the involvement of electronic data interchange, procurement order paperwork processing is very nominal. Manufacturers and supplier personnel jointly conducted improvement programs like worth analysis, quality enhancement, and cost cutting which increases the productivity (Kemal Guven GULEN, June 2007).

The inventory level within a supply chain is nowadays a very essential feature in manufacturing units which also indicates the planning, procurement and warehouse manager’s performance (Corey Belington, 1993).

Today in manufacturing environment where there is an external and internal competition which involve in the industry, sourcing and supplier selection decisions are turn to be very crucial that is the reason the role of procurement in firms has changed from operational to strategic in order to reduce manufacturing cost, delivery schedule, increase the quality and assortment of the products (Carter & Narasimhan, 1996; Nishiguchi, 1990). Strategic procurement results in obtaining elasticity, cost, reliability, and quality return over the rivalry has been draw attention by several researchers (Burton, 1988; Dion, Branting, & Hasey, 1990).

Vendor selection has always been considered as one of the essential function in the whole procurement process for the supply chain department. For the purchasing department or for the purchasing officer, the key responsibility is that to identify the best source of raw material from the best supplier which is very important for selecting the supplier for the organization due to fact that there are various and complicated criteria which must be considered in the decision making process for supplier selection. There are different factors by which we can measure the capabilities of the supplier such as quality procedure, improved communications through different technologies, and technical capabilities. There is also another reason of considering vendor selection as an important part of procurement because most of the firms contribute 40-60% to the unit cost of the product. It can vary from industry to industry and the material purchase which includes all the service charges as well has a significant cost impact i.e. 80 % of the total product costs mostly for the high technology firms (Charles A. Weber, 1998). Vendors have a significant impact in production and cost of the service of the competitive product in terms of quality. Industries in which high technology is involved the procurement cost is approximately 80% of the total cost (Kemal Guven Gullen, June 2007).

Selecting and managing the right supplier is always plays an essential role in the procurement process in attaining the necessary level of technical support, quality assurance, and timely delivery of raw material at the best price. Good suppliers are the assets for any organization because they are contributing in an organization’s overall objective and achievement. The relationship between the buyer and supplier is vital to get the desirable outputs in terms of the performance, value added services, payment schedules especially in the product development stage to contribute in different procedures and processes. For the better procurement and supply chain management process during product development is mainly based on the strong relationship between buyer and supplier which leads to achieve the long term goal and objective of an organization (Shen-Tsu Wang, Chih-Ming Liu and Ming-Hao Yeh, February 2008).

There are several elements while selecting the supplier such as involvement of supplier in the beginning stage, Number of suppliers, financial stability and procuring the material from the defined source locally, nationally or import. (Shen-Tsu Wang, Chih-Ming Liu and Ming-Hao Yeh, February 2008).

Experts have an intense significance in determining supplier performance for the reason that it has a straight impact on the overall performance of the manufacturing organization. This has been observed that whenever relationship between the supplier and the purchaser of the manufacturing have a good joint relationship then the organization produce better performance and results. Connecting with suppliers in product development allows an organization to decrease its workload. Procurement department can easily focus on the main objective and targets which consist of their core activities. Involvement of suppliers have the positive impact on organization due to the skilled competency and knowledge and this is the perception of many of the organization that involving suppliers in the early stage of the product development specially when there is a designing process of product leads to cost minimization and time saving which gives the energy and the prospective which supplier‘s commitment involves in product development. Supplier’s plays an important part by giving the suggestions to the manufacturer about preliminary product designing, technology, lead times, quality issues and resource allocation (Quesada, Giaconda; Syamil, Ahmad; Doll, William J. 2006).

Supply chain management is the major element which makes the performance efficient by exclusion of devastate and the optimal use of supplier’s ability and potential which enhance the company’s performance. (Paulraj, Antony, Chen, Injazz J, 2007)

Long term relationship of buyer-supplier is the key to get the significant drive by working with each other in planning and implementation the procurement activities in order to meet the customer demand. (Paulraj, Antony, Chen, Injazz J.2007).

With the passage of time companies are more focusing on the limited number of suppliers. The reason behind this is that buyers can have a close look to supplier which increases loyalty and trust on the both end. Cooperation and continuous contact is easy with the less number of suppliers but selecting the right and the trustworthy supplier is very important to make a strong relationship between buyer and supplier. There are lot of benefits of fewer and strong bond between supplier and buyer such as order lead time and order fulfillment time is better even in the short notice, reliability increases, suppliers are more loyal to the organization and provide better value added service to the buyer, Information sharing regarding quality performance, pricing strategy which is best suitable to the company, discuss and share technical and technological assistance if needed. It is recommended that long terms are contract are made when placing the larger quantity of material. Due to the long term relationship, supplier become an important character in the overall supply chain and will have a permanent achievement in an entire supply chain of the organization. (Paulraj, Antony, Chen, Injazz J, 2007).

In most of the organization, the success of supplier selection is predicted on the selection of suitable technology vendor. Whenever we talk about technology capabilities of the suppliers there are some factors which has to be considered like there should be a suitable budget level to execute the product development successfully execute because it involves financial risk as well. There should be proper availability of the staff to entail a noteworthy investment of time. Second important point which is concerned with technological capabilities is that staff involves in many different stages during product development process like information gathering, testing, training , negotiation , relationship with vendor and allocation of the resources which is correlate with the product development. Third point is that there should be maintenance of the procedures and the technology by hiring a specialized manager. Return on investment should also be considered during product development. There can be significant advantage by the external environment factors with the vendors such as financial and technical support, research and experiences which take into contemplation that collective be more important than the cost of selecting a less good vendor (N Power Network, 2001).

Appraising the capabilities of suppliers has a significant role in that shared task for the accomplishment of corporate targets is highlighted rather than inner performance measures which change a trend from a conventional evaluation of suppliers (Anscornbe, 1994).

Involving suppliers into different multi activities during product development and assessing them enhanced the capabilities of suppliers in designing, packaging, defect-free quality and delivery, technology, reliability, communication and lead time, and cost efficiency (Burt, 1989).

Decisions should be examine on the basis of firm’s core strategy like locality of suppliers, long term/ short term contracts with the suppliers, No of vendors to be engaged for the implication in highly competitive environment (Charles A. Weber, John R. Current and W.C. Benton, 1998).

The evaluation of Supplier capability is mainly based on cost efficiency, quality of a material, and reliability (Lascelles & Dale, 1990; Waller, 1993). Lead times and without flaw in products indicates the better quality implementation which shows the supply department efficiency (Ram Narasimhan and Jayanth Jayaram ,1998) purchaser manufacturing flexibility can also be improved by suppliers like by designing such type of systems and machines that lower the manufacturing cost and enhance the flexibility (Leenders and Fearon , 1993).

Right strategy only is not enough for the company but the most important is to implement the right strategy to achieve an objective of making a strategy to achieve a competitive edge in the industry (Ram Narasimhan and Jayanth Jayaram, 1998).

Manufacturing companies consider quality of material and services as an important factor in making the final decision when the concern department involve in a procurement process after the consideration of the price. Buyer concerns about quality issues in his procurement process when the supplier even complete for a single procurement contract (John Asker and Estelle Cantillon, 2008).

In procurement, product involves in different stages and quality differs from product to product. We can consider the example of basic stationary for the office. For the procurement of the pencil for any organization, price would only be the one factor involve in this procurement rather than quality which might not be an important issue. According to the buyer and his procurement procedures, quality is an agreement with the supplier which involves different chronological and systematic procedures having a less marginal cost of quality by which efficiency can be attain in accomplishing the strategic goals (John Asker and Estelle Cantillon, 2008)

Performance of the procurement procedures is evaluated on the basis of productivity and output derived from input. It is measured on the basis of the level of service quality providing by the supplier. It is always difficult to measure the quality in services comparing to the quality measurement in merchandise because the outcome of the service can only the way of evaluating the service quality. Supplier or a seller should know the customer need to meet the expectations of the Customer (Martin I. Kestenbaum and Ronald L. Straight, 1995).

The main advantage of the multiple vendors in an organization is that the competition is increased between the vendors on price quoting, better supply delivery, service quality and the product quality is better plus they provide insurance against late deliveries which results in better relationship between the buyer and the supplier put a stop from understanding the economies of scale and a larger share of the manufacturer’s business. Many organizations use competitive bidding strategy get the best lowest unit prices. Suppliers have the competition between each other on improving their quality and cost reduction efforts both in short term and long term. Quality of the products is tested by employing sampling methods by the quality control department and certificate of analysis has to be considered for the specification of the material. Contracts give an enticement for investment in new equipment to trim down the costs and to get better quality (Kemal Guven GULEN, June 2007).

Research model

As Hugo’s (2003) indicated that measuring performance is a process of selecting a handful of meaningful indicators and using them to track company performance. Supply chain reference model (SCM) has been used to assess the performance of procurement activities of the selected organization in pharmaceutical sector. A various evaluation techniques which are have been used to measure the performance of supply chain (Lapide 1999). One of them is the Supply Chain Council’s SCOR Model.

Figure: 1 SCOR flow diagram

Source: Supply chain council

This model integrates business Process re-engineering, benchmarking and process measurement into cross functional framework.

The primary use of SCOR: To describe, measure and evaluate supply chain configuration .SCOR contains the management processes standards which gives the outline the relationship between them which evaluate the process performance and sets the best practice

SCOR enables the companies to:

1. Appraise and compare their performances with other companies successfully.
2. Identify and pursue specific competitive advantages.
3. Identify software paraphernalia best matched to their precise process requirements.

Academics and practitioners are increasingly acknowledging that the implementation of strategies across an organization’s supply chain functions systems can significantly impact upon its performance (e.g. Christopher and Ryals, 1999, Keah-Choonetal, 1999). Managing supply-chain operations is critical to any company’s ability to compete effectively (Stewart, 1997). The challenge companies face is to identify the range of supply strategies that could be pursued in a global market and how best to evaluate their potential.

Figure: 2 SCOR functions and expected benefits according to the levels

Supply Chain Operations Reference model (SCOR) is a widely used process reference model introduced by Global management-consulting firm, Advanced Manufacturing Research (AMR) and Pittiglio Rabin Todd & McGrath (PRTM) in Cambridge, Massachusetts and acknowledged by Supply chain council (SCM). The aim of SCOR is to enable effective communication among the supply chain partners, by using standard terminology to better communicate and learn the supply chain issues and to compare and measure their performance through standard metrics (Poluha, 2007). The model consists of three levels and each level is associated with the respected broad functions i.e. process modeling, performance measurements and best Practices (Bolstorff & Rosenbaum, 2003).

SCOR is now finally implemented to develop the measurement framework, and its components are discussed in great in this chapter. The model has been positioned by the SCC to become the industry standard for describing and improving operational process effectiveness (Stewart1997). The key benefit the SCOR framework provides is that it brings order to the diverse activities that make up the supply chain, and provides common terminology and standard process descriptions (Stewart 1997). SCOR’s core processes that are directly involved in the execution of a supply strategy could be made up of planning processes and a combination of source, make, deliver and return. It is flexible and configurable to the specific needs of an organization as the processes that are used to describe an organization is dependant upon the role conducted in the network. The model spans all customer exchanges which includes purchase order entry to paid invoice, transactions of all physical material from the supplier’s supplier to the customer’s customer, including field service logistics, and all market interactions, from the understanding of aggregate demand to the fulfillment of each order. SCOR is designed to enable companies to communicate, compare and develop new or improved supply-chain practices from companies both within and outside of their industry segment. Its key components include standard descriptions of the process elements that make up complex management processes, benchmark metrics used to compare process performance to objective, external points of reference and the description of best-in-class management practices (Stewart 1997; Supply Chain Council 2005).

In a supply chain management context, strategic data consists of current actual, as well as plan and historical numbers that show the company’s standing in the four performance categories: customer service; internal efficiency; demand flexibility; and product development. In the Supply- Chain Council SCOR model, data of this type is referred to as “Level 1” data. This data is summarized by major business units and for the company as a whole. Strategic data also consists of data from outside the company such as market sizes and growth rates, demographics, and economic indicators such as GNP, inflation rates, and interest rates. There should also be benchmark data from industry trade associations and studies that show the operating standards and financial performance levels that are standard for companies in the markets being served.

Tactical data consists of actual, plan, and historical numbers in the four performance categories displayed at the branch office level of detail. This data also includes the performance metrics labeled “Level 2” in the SCOR model. These metrics monitor the plan, source, make, and deliver operations that every company in a supply chain must perform.

Operational data consists of the measures labeled “Level 3” in the SCOR model. These measurements help people who are charged with getting a job done to understand what is happening and to find ways to make improvements where needed to meet the performance targets that have been set. The SCOR model refers to these measurements as diagnostic measures.

Now managers are flooded with data. It is important to present it in such a way that it is useful. If people are overwhelmed with data they cannot use it. By organizing data into these three levels, people can quickly access what they need to do their jobs. Upper management uses strategic level data to assess market conditions and set business performance objectives. They can drill down to the tactical level or even the operational levels when necessary. Middle managers use tactical data to do planning and resource allocation to achieve the performance objectives set by upper management. Line managers and their staffs use operational data to solve problems and get things done. SCOR can provide structural frame work for developing assessment systems for procurement functions and can ensure that they are compatible with overall company strategy and render useful insight processes and sub processes and activities, and can measure how changes will affect the existing supply chain operations. Processes, sub processes, and activities are three levels of detail that SCOR model can provide. Level 1 aligns business processes with high level business structure and supply chain partners and can yield more concrete supply chain’s strategic objectives.plan, source, make, deliver, and return are five highly important level 1 supply chain processes and can establish benchmark for business unitspartners and refine their supply chain’s strategic objectives—the business priorities that your supply chain must support. Level 1 focuses on the five major supply chain processes (plan, source, make, deliver, and return). Using these processes, the alignment between process and organizational domains can be established to describe where processes must be standardized across entities. Choices at level 1 drive information systems costs because different processes across business units typically involve multiple applications and the associated implementation and maintenance costs. In addition, level 1 decision also will determine whether an organization will be able to implement certain business practices. For example, does the source process need to be standardized between two business units or are differences justified? If the goal is to consolidate volume across multiple business units to gain leverage with suppliers, standardization of a good part of the source process will be needed. Once business processes and organizational domains are aligned, setting performance targets for these key process areas is an important next step. The SCOR model provides a supply chain scorecard for setting and managing supply chain performance targets across the organization.

SCOR level 2 also known as configuration level helps in selecting pertinent sub processes in terms of supply chain strategy. However, five underpinning pillars of this model i.e. plan, source, make, deliver, and return are taken into account while the desired sub processes. This selection process provides foundation for developing required design for level 3. Once the process categories are chosen, they are used to describe existing supply chain configurations. This typically takes the form of a geographic map showing where your customers, suppliers, warehouses, factories, and order desks are and using the process categories to describe the major physical and informational flows. In essence, this is like taking an inventory of the processes in use today and where they occur. Once the current configurations, one can develop and test the model. However, SCOR level 2 analyses can show areas optimization is not possible because of existing limitations, such as excessive transportation costs.

SCOR level 3 also known as process-element level; this is where you supply chain architecture is accomplished by adding operational detail to SCOR level 2 design. Within SCOR level 3 it is easy to find specific business practices, associated metrics, and guidance about the information systems needed to support the process—in terms of both functionality and supporting data. The tools you’ll need to do this work have been assembled for you already. You will develop “as is” maps illustrating the alignment between processes, locations, and organizations. These maps typically will show where inventory is located, the lead times between process elements, and the alignment between process elements and supply chain information systems.

A core element of SCOR is modeling of the supply chain but it should be noted that the approach used is to create static models of the business processes involved in a way that is analogous to flowchart diagrams (Albores1, Love1, Weaver1, Stone2, Benton, 1995).

In a pool of measures where variety of options at the disposal it is obviously a cumbersome task for the procurement manager to select the right approach. However, most performance measurement systems are functionally focused (lapide, 2000). Moreover, SCOR model is a typical function based supply chain performance measure, often lead to functional silos and conflicting functional goals. Barnard (2000) suggests that a balanced supply chain measurement system should cover function based, process based, cross enterprise and alignment of executives to management level measures. Measuring performance in a department as though it operates in a vacuum can have a negative effect on other departments—and on the bottom line. While almost all manufacturing related measures are theoretically measurable by a manufacturer, only selected measures are possible in customer service, logistics and sales related parameters. It is of pertinent importance to understand the secrecy and confidentiality issues perceived by every typical manufacturer working as CMT supplier or supplier to any high street retailer (Jana, Narag & Knox, 2007). The objective was to develop easy and simple metrics to measure such organization’s supply chain efficiency. After a thorough investigation of all measures SCORE model was selected for final adaptation. Last, but not the least the measurement parameters are chosen based on the functional link between upstream and down stream players in the supply chain and not merely in house functions of a pharmaceutical company. Key performance indicators after careful literature review were selected for the study and displayed on the following page. The purpose of performance indicators is, on the one hand, to give pieces of information about the satisfaction of the assigned objectives and on the other hand to link the current measures to the improvement actions to launch (Berrah & Mauris, 2002) (Bitton, 1990) (Fortuin, 1988). In this sense, so-called Performance Measurement Systems (PMS’s) are the instruments to support decision-making (Bititci, 1995) (Ghalayini et al., 1997) (Globerson, 1985) (Kaplan & Norton 1992) (Neely, 1999) (Clivillé, 2004) in continuous improvement processes.

Table: 3Lists of Selected variables

Operation domain	Variables
Source	1) Inward Material Quality
	2) Quantity and Timely Delivery
	3) Procurement Unit Cost
	4) Material Inventory Level
	5) Vendor Development Capability

Material inward quality

is the first variable that is aimed at the observance of quality standards of material received from vendors to the specified that quality level agreed between supplier and the company is delivered as per the standards. So we have to examine the level of implementation of procurement procedures in terms of inward material quality received from vendors after screening in organizations are up to their perceived importance and awareness of material quality.

Quantity and Timely Delivery

is the second variables which look for the quantity ordered to the suppliers are delivered on time or not. It includes all the material which is required for manufacturing. The time is the important factor that is considered as a percentage of the lead time of the raw material. So we have to examine the level of implementation of procurement procedures in terms of quantity and timely delivery from vendors in organizations are up to their perceived importance and awareness of timely delivery of the material required.

Procurements unit cost

is the third variable which includes all those cost that incurs in the procurement process such as correspondence (e-mail, fax, courier, telephone etc.), conveyance (transportation cost of personnel involved in procurement), bills (official’s salary, electricity bills) etc. These costs are usually a variable cost and included in the total cost of the procurement of the material. Procurement unit cost is measured as a ratio between the procurement costs incurred per material to the cost of the material procures. So we have to examine the importance of this cost and to measure this cost while implementation.

Material inventory level

is the fourth variable relates to the inventory level of the companies that facilitate in determining the stocked inventory level of the companies. Higher inventory level indicates the increasing trend in capital investment and also attains more physical space while on the other hand lower inventory level shows the better sourcing efficiency and effectiveness. It is measured by the average inventory turnover of the daily production per day and efficiency is measured by the procurement scheduling through technology. We have to examine what level of efficient implementation of material inventory level in organization is up to their perceived importance and awareness of material quality.

Vendor Development Capability

is the fifth and the last variable that was used to appraise the potential of Sourcing Department and capability and potential to assist vendor during the order processing and product development. Technological Assistance, Financial Assistance and Timeliness of information between the vendor and the company are the three types of the parameters according to the SCOR model that are need to be verify during the product development or order processing.

Superiority over other models

There are a range of benefits that SCOR has over more conventional simulators when modeling supply chains. It provides benefits in using standardized processes and metrics that can be easily communicated. SCOR allows the creation of supply chain models with considerable network scope. It also allows one part of a supply chain/company to be modeled in much more detail than the rest of the system so that a model can show the impact on the whole supply network of detailed changes made in one part of one enterprise. The system is also rich in terms of its attributes: the range of inputs and outputs of the problems it can address.

Limitations of the model

The evaluation of supply strategies is complex as it involves the implementation of strategies by each organization based on integration across interfaces between business functions and companies (Hoek, 1998). SCOR is not an unmixed blessing; it has its own demerits. As the model does not use ‘standard’ terminology that makes Communications with users is more difficult (Arbores, Love, Weaver, Stone & Benton, 2005). One of the main elements of the SCOR model, P1 (Plan Supply Chain) is not implemented as standard In terms of transport, there are some logistics limitations, e.g., inability to define the capacity of transportation entities, no resources in warehouse or transport; any other non-manufacturing business functions (Arbores, Love, Weaver, Stone & Benton, 2005).In Witness, the time to define all data attributes and finance/cost model rules can be substantial. It does not have predefined financial model entities or specialized financial attributes. Process on the other hand has some financial metrics, but these are based on a simple cost model rather than simulating actual financial transactions. SCOR is by far the most advanced in this category although many of the metrics are based on cost model roll-ups. No system provides Profit and Loss (P&L) or Balance Sheet functionality. The granularity of Witness means that it needs a lot of entities to build large models. This makes verification and validation more difficult. SCOR does not have animation of resources like trucks, machines or people, nor resource state indicators. They also lack debugging functions such as variable/entity watch or evaluation (Manzoni, Ricardo, F., Emilio, G., Mauro, P., Alessandro, R. & Alberto, 2005).

Finally, it is worth while to mention that SCOR does not attempt to describe every business process or activity, including: Sales and marketing, research and technology development.

RESEARCH METHODOLOGY

This study tries to find out the relationship of the organization’s perceived awareness and importance with its implementation. How organization perceived about procurement and when they come to the implementation, are they able to implement as per the organization’s perceived awareness.

1)Instrument:

Questionnaires were used as an instrument for data collection. Questionnaire consists of two parts.

i) First part is related to perceived importance and awareness of procurement and

ii) Second and the last part are based on the implementation of the procurement which measures the level of implementation of procurement procedures in the particular organizations.

The instrument is in the form of

closed endedquestionnaire

Answers were recorded in the Likert five point scales.

Strongly agreed = 5 Agree= 4 Neutral= 3 Disagree= 2 strongly disagree= 1 (for perception part)

100%= 5 75%-99 % = 4 50%-74% = 3 25%-49% = 2 Less than 25 % =1 (for implementation part)

Dimensions in this questionnaire are as follows:

i) Size of the organization in terms of employees.

ii) Sales turnover of the organization per year is (in Rs).

iii) Years of existence of the organization.

2) Pre-Testing

The instrument was pre-tested where 4 to 5 sample questionnaire were filled to identify if there are any issues with the instrument and whether it was easy to understand and comprehend the questions or not. Through pretesting it was found that all respondents felt comfortable in responding and found the instrument interesting as well.

Reliability test.

Reliability analysis allows studying the properties of measurement scales and the items that make them up. The Reliability Analysis procedure calculates a number of commonly used measures of scale reliability and also provides information about the relationships between individual items in the scale. Intraclass correlation coefficients can be used to compute interrater reliability estimates (Tutorial, SPSS 17 version).

Reliability Statistics

Cronbach’s Alpha	N of Items
.700	21

Cronbach’s Alpha is the model of internal consistency, based on the average inter-item correlation. Here the value of Cronbach’s Alpha is 0.7 which indicates that the data is consistent (Multivariate data analysis, sixth edition Joseph F. Hair).

3)Sampling technique and Sample size:

Sample size used for the study was 10 Pharmaceutical Companies that included both Multinational and national companies on the basis of their market share and the companies where proper supply chain departments exist. The sampling technique used in this study is convenience sampling method. We include both national and multinational in order to get a better result in terms of procurement procedure in pharmaceutical industry.

4)Respondents:

The data used in this research was collected from the pharmaceutical companies (both national and multinational) operating in Pakistan. Respondents are the head/managers/Directors of the Procurement/supply chain department of the selected organizations.

5) Procedure:

Questionnaire are used as an instrument to collect a data and data is collected by two ways i) Personal meeting by taking an appointment with the respondents and ii) By emailing the questionnaire to the respondents. Respondents filled the questionnaire and then email back.

Statistical tool used:

In this research we used paired sample T-test. The Paired-Samples T Test procedure compares the means of two variables that represent the same group at different times i.e. before and after an event and If the confidence interval for the mean difference does not contain zero, this also indicates that the difference is significant (Multivariate data analysis, sixth edition Joseph F. Hair).

In this research we have the perceived awareness and importance of procurement as our before and implementation is after an event because we want to check that whether the organizations implement the procurement procedures according to their perceived importance or not.

RESULTS

Hypotheses testing

To test the hypothesis, we have applied the concept of paired observation, i.e. average of difference of perceived awareness and importance of procurement and implementation of the procurement procedures has been tested.

Null hypothesis: The average difference of overall perceived importance of procurement and its implementation is zero. (md =0)

TABLE: 1

Difference of overall perceived awareness and importance of procurement and overall implementation of procurement

	Mean	S.D	95% Confidence Interval of the Difference	Sig. Value
Perception	4.23	0.11	1.06 ≤ md ≤ 9.96	0.000
Implementation	3.36	0.30

Interpretation of table 1

The significant value is less than 0.05 which indicates that null hypothesis is rejected with the 5% level of significant. This means that what have been perceived has not been implemented. A low significance value for the t test (typically less than 0.05) indicates that there is a significant difference between the two variables. The confidence interval shows that the overall perception is more than the overall average implementation. The brief summary of the result is presented above in Table: 1.

Moreover table 1 illustrates that the respondents have the strong perception regarding the importance and awareness of procurement (i.e. overall mean is 4.23) which is on the stronger side that shows that procurement is a vital element in the whole supply chain process and also an important factor to attain the better efficiency according to the perception of the organizations. While on the other hand when we look at the implementation part (i.e. overall mean is3.36) shows that the implementation is on the better side but not as good as it should be according to perceived importance. In short, companies are unable to fully implement the procurement procedures according to their perceived importance and awareness of the procurement.

If the confidence interval for the mean difference does not contain zero, this also indicates that the difference is significant (Multivariate data analysis, sixth edition Joseph F. Hair).

Similarly we have applied the same technique to test the secondary hypothesis and results reveal that all average perceived awareness and importance of each KPI is greater than the average implementation of procurement in organizations. The brief summary of the result with the implementation are presented below about the difference of each KPI of perceived importance and its implementation from

Table: 2.1-2.5

H1: Perceived awareness and importance of Inward Material Quality is not equally implemented in procurement.

To test the above hypotheses by using the same paired sample T Test statistical technique this explains by the following table

Table 2.1

Inward material quality:

	Mean	S.D	95% Confidence Interval of the Difference	Sig. Value
Perceived importance of Inward Material Quality	5.00	0.00	1.06 ≤ md ≤ 9.96	0
Implementation of Inward Material Quality	4.50	0.53

Result:

Significant value is zero and difference of mean is not equal to zero.

Interpretation

The above table shows that in pharmaceutical industry quality standards are the most important element in procurement. Considering this table, we can come to the conclusion that the perceived importance of inward material quality (i.e. mean value of 5.00) and the implementation of quality standards of material (i.e. mean value 4.50) are not exactly same but on the very stronger side. Significance value (i.e. 0.00) shows that the companies are not fully implemented the perceived importance of material inward quality. Hence H1 is accepted that perceived importance of Inward Material Quality is strongly related to its implementation.

H2: Perceived awareness and importance of Quantity and Timely delivery is not equally implemented in procurement.

By using the statistical tool, we find the following result.

Table 2.2

Quantity and timely delivery

	Mean	S.D	95% Confidence Interval of the Difference	Sig. Value
Perceived importance of Quantity and Timely Delivery.	4.55	0.50	1.06 ≤ md ≤ 9.96	0
Implementation of Quantity and Timely Delivery.	3.95	0.16

Result:

Significant value is zero and difference of mean is not equal to zero.

Interpretation

The above table shows that perceived importance of the right quality delivery at the right is on a very stronger side (i.e. mean value of 4.55) which also indicates that the perception in an organization agrees with the fact that the timely delivery of quantity ordered is always on time with the right quantity ordered received but organizations have not that stronger implementation (i.e. mean value of 3.95) of getting deliveries on time. The significant value is less than 0.05 which indicates what have been perceived has not been implemented. Hence H2 is accepted that the perceived importance of quantity and timely delivery is not equally implemented in procurement process.

H3: Perceived awareness importance of Procurement unit cost is not equally implemented in procurement.

By using the statistical tool, we get the following result

Table 2.3

Procurement Unit Cost

	Mean	S.D	95% Confidence Interval of the Difference	Sig. Value
Perceived importance of Procurement Unit Cost.	3.30	0.67	1.06 ≤ md ≤ 9.96	0
Implementation of Procurement Unit Cost.	1.00	0.00

Result:

Significant value is zero and difference of mean is not equal to zero.

Interpretation

This table shows that according to the perception of the pharmaceutical companies, procurement unit cost have the average perceived importance in procurement (i.e. mean value of 3.30) so while implementing of procurement procedures, managers do not consider procurement unit cost as an important factor as this cost have the value less than 25% of the total cost of the procurement (i.e.1.00) which is very less. The significant value is less than 0.05 which Indicates what have been perceived has not been implemented. Hence H3 is accepted that the perceived importance of procurement unit cost is not equally implemented in procurement process. H4: Perceived awareness and importance of Material inventory level is not equally implemented in procurement. Table 2.4 Material inventory level
	Mean	S.D	95% Confidence Interval of the Difference	Sig. Value
Perceived importance of Material Inventory Level	4.15	0.41	1.06 ≤ md≤ 9.96	0
Implementation of Material Inventory Level	2.70	0.59

Result & Interpretation

The above table shows that perceived importance of material inventory is on a very stronger side (i.e. mean value of 4.15) which also indicates that the perception in an organization agrees with the fact that higher inventory level indicates the increasing trend in capital investment and also attains more physical space while on the other hand lower inventory level shows the better sourcing efficiency and effectiveness but organizations have the average implementation (i.e. mean value of 2.70) of setting proper material level and the lack of technology use in scheduling comparing to their perceived importance of material inventory level. The significant value is less than 0.05 which indicates what have been perceived has not been implemented. Hence H4 is accepted that the perceived importance of Material inventory level is not equally implemented in procurement.

H5: Perceived awareness and importance of Vendor Development Capability is not equally implemented in procurement.

Table 2.5

Vendor development capabilities

	Mean	S.D	95% Confidence Interval of the Difference	Sig. Value
Perceived importance of Vendor Development Capabilities	4.15	0.21	1.06 ≤  ≤ 9.96	0
Implementation of Vendor Development Capabilities	3.64	0.46

Result & Interpretation

The above table indicates that according to perception of organization regarding vendor capabilities during product development in terms of financial assistance, technical assistance and timely flow of information is very strong and on the higher side and considered as an important factor (i.e. mean value: 4.15) but implementation side is bit low , still on the stronger side (i.e. 3.64) that indicates organizations are not fully implemented according to the perceived importance of vendor development capability. The significant value is less than 0.05 which indicates what have been perceived has not been implemented. Hence H5 is accepted that the perceived importance of vendor development capability is not equally implemented in procurement.

CONCLUSION

This study has done to examine the level of awareness of procurement among members of an organization and finally its impact on procurement implementation and the overall supply chain performance. We had to find out the whether perceived awareness and importance of procurement is equally implemented in procurement or not.It has been carried out extensively in the light of relevant literature available to the best of our knowledge. Businesses depend on their supply chain for what they need to endure and succeed. In the modern business world every business body can be distinguish into single or more supply chains activities. Supply chains cover the business and their activities which are required to plan, make, distribute and utilize of a product or service

Moreover, to ensure the testability and precision of the research, supply chain operational reference model has been used for empirical analysis. We used the source part of SCOR model in which we had five variables. We collected the data by using questionnaire as an instrument targeting to the procurement of pharmaceutical industry of Pakistan with the sample size of ten pharmaceutical companies including both multinational and national companies.

We conclude that procurement is considered as an important element in the whole supply chain process and it plays a key role in the organizations performance and profitability especially in pharmaceutical industry. Procurement has a significant impact on the final product due to the nature of the product. After the statistical work and interpretations, we can say that what have perceived by the companies about the awareness and importance of procurement has not been implemented. Companies are unable to fully implement the procurement procedures according to their perceived importance and awareness of the procurement.

However there are still some areas where work would be pursued in forthcoming studies to overcome the limitations of this work.

Recommendations

It is recommended for the future research that to develop or design a model for a procurement procedures and policies for organizations to attain the maximum implementation of the perceived importance of procurement in order to get the competitive advantage over the rivals