The document introduces a policy for procuring supplies for a vehicle rental company. It notes issues like high vehicle downtime, lost customers, and suppliers dictating terms. The policy aims to address strategic goals like growth and market leadership. Impacts on stakeholders like retaining customers and negotiating better supplier terms are discussed. The absence of a procurement system and benefits of the policy in areas like customer satisfaction, reduced costs, and savings from vendor evaluation are presented. In conclusion, the benefits of introducing the procurement policy are said to outweigh the costs.

1. INTRODUCING A POLICY FOR PROCUREMENT OF SUPPLIES
Presented
by
Tuan Nilam Hallaldeen
Colombo, Sri Lanka

2. Contents
1. Introduction 1
2. Issues 2
3. Strategic goals & objectives 3
4. Impact on stakeholders 3
5. Absence of systems regulation 4
6. Resource Availability 4
7. Alternative Applications 5
8. Costs & Benefits 5
9. Conclusion 6
INTRODUCING A POLICY FOR PROCUREMENT OF SUPPLIES

3. 1. Introduction
Customers are important because they determine the organisations success. Our customer
responsiveness leaves lot to be desired. We have turned down25% of customer requests for not
having enough transport vehicles to be given on hire. A staggering 15% of the time, orders placed
for vehicles by customers, have not been fulfilled. On average 10% of vehicles were not provided
at the time and date these were expected to be delivered. On all these occasions, out of a fleet of
140 transport vehicles an average of 25% of the vehicles (table 1) were not in working condition
and could not be given out on hire.
2. Issues
Statistics show that we have lost business to competitors and our revenue has droppedinstead of
increasing in a steadily growing market.This indicates that our sales in terms of volume are
declining. The biggest worry is that we have lost 5% of our market share to our main competitor,
Big Truck (Pvt) Ltd, and to the new entrants to the transport vehicle hiring market. One of our
main customers, for the first time after being business partners, has signed a high valued, long
term contract with Big Truck (Pvt) Ltd.
There are various negative signals emanating from within the organisation and external
environment. Suppliers dictate terms. Instead of our company having the bargaining power,
prices and terms are imposed on us by the limited number of suppliers who charge prices as they
wish. Delayed delivery of inventory items - spare parts, lubricants &oil, consumables & tools has
lead to frequent stock out situations and rush unplanned orders. A vehicle brought for repairs
staying in the engineering workshop for two weeks is treated as normal as there are no stocks to
carry out the repairs & services.
3. Strategic Goals & Objectives

4. Our mission statement emphasises our long term objective of becoming the most dependable
player in the market and sustaining the market leadership nationally and to be a competitive
player in the markets in the South Asian Region. We have been able to defend the position of
market leader up to last year but serious doubts have been raised as to the ability to continue in
the same wane in the future sans any strategy. Our major strategic goals of year on year constant
growth of at least 15% in Profit, 25% returns to shareholders in form of dividends, and organic
growth through investment of surplus funds for capacity expansion are, at the moment, are non-
congruent with the mission statement.
4. Impact on the Stakeholders
4.1 Customers
Long term contracts with customers are at risk for failure of delivery of satisfactory level of
services. Some of customers’ operations are totally dependent on our vehicles and they too have
indicated that they might have to look for better service providers due to the risk of running their
businesses less efficiently and affecting their revenues & profits. The decision to introduce a
comprehensive Procurement policy would initially retain the existing loyal customers while
goodwill created by being in the business for a long period would bring back others who have
become competitors’ customers.
4.2 Suppliers
Reduced importance of our company in the eyes of our main suppliers due to increased customer
baseand increased demand for their productsis a major cause for concern. No effort has been
taken to find new suppliers for spares and increase the supplier base in order reap the benefits of
competitiveness. The purchasing policy will give priority to manufacturers & local agents for
spares while also paying attention to standard original spares from other suppliers which are of
same quality and much lower in price during the vendor selection process.
4.3 Shareholders
A corrective course of action not taken immediately.Risk of Returns eroding.Pull out their
investments. A properly implemented procurement policy would go through the main activities of
obtaining competitive quotations, evaluating, negotiating for better terms & conditions etc with
monitoring and tracking systems for compliance.

5. 5. Absence of Systems Regulation
A definite & critical indication of system failure points towards the procurement of supplies,
specifically, availability of transport vehicle sparesin right quantities to carry out the repairs &
services. The impact of this system irregularity is evident throughout the organisation in the form
of lower revenue & Profits , idle labour& equipment, duplication of tasks & processes, and
wastage of resources, unproductive activities, Constant stock out situations, frequent customer
complaints and so on.
6. Resource Availability
Our strength has always been the experienced labour force, mainly, drivers & engineering staff.
Most of them account for long years of service with the company. Our fully equipped engineering
workshop supplements adequately any repair or service carried out by our technically skilled
staff. The workshop manager, mechanical engineer & electrical engineer who are professionally
qualified in their fields, have proven their ability many a times.
The software application used for maintenance activities suits our requirements and provided
necessary information for decision making. In fact, most of the information this report present are
based on the information processed by the maintenance application. It correctly prompts the next
services due with the resource requirements, provide information on Inventory requirements,
provide important statistics on the maintenance activities and so on.
What we would need to implement & strengthen our procurement policy is a person who could
coordinate the activities of inventory & purchasing efficiently and effectively.A suitably qualified
supply chain manager with exposure to an engineering environment working within the
framework of the policy to be implemented will help us achieve anticipated objectives our
exercise.
7. Alternative Applications
Deployment of vehicle with staff to minimise delays in delivery seems to be one option within the
existing system. This would bring positive results only if the suppliers are ready to fulfil their share

6. of responsibility. Unreliable suppliers are an external factor the company may not be able to
influence in the current context.
Another option is to enter in to long term contracts with customers as these come with the
benefits of assured revenue for a fixed period. However our dependency with few selected
suppliers have already provided this comfort to them and there is no incentive for them to sign
long term contracts.
It is clear that our procurement process needs to be streamlined. A comprehensive policy that
covers all aspects of purchasing would definitely provide a systematic approach to how we
procuresupplies & maintain inventory. This, in turn, would increase the vehicle availability and
increase our responsiveness.
8. Benefits and Costs
In terms of costs, the major areas in which the expenses will be incurred is human resources.
Benefits will derive from the areas of customer satisfaction, reduced procurement costs, and
savings through vendor selection.
8.1 Costs
8.1.1 External consultant
Hiring a reputed external consultant with proven knowledge to formulate the policy would
require an investment which would be worthwhile. A multi level, cross functional team from
Stores, Purchasing, finance, Human resource, Engineering, and operations departments need to
be made available to work with the consultant.
8.1.2 Supply Chain Manager
Recruitment of a supply chain manager at initial stages would help the potential recruit
understand our strategic goals and objectives and his role in achieving it. Selection of a right
candidate for a price above the market rate can expect to provide the expected results. The
recruitment process too would incur costs.
8.2 Benefits

7. 8.2.1 Customer Satisfaction
Most important group that will benefit are customers. A satisfied customer will bring more
business to the organisation. Our revenue will grow, profits will increase and we would be able to
move towards our mission & achieve our strategic goals concerning market share, profit & organic
growth.
8.2.2 Reduced procurement costs
A definite positive outcome of introducing the new policy is the reduced procurement cost. Lesser
number of orders placed would reduce the ordering costs, stock holding costs.Further positive
results are possible as the as the maintenance computer system too is strong & supportive of the
environment and the inventory policy. Freight, insurance, clearing charges etc to would decline as
a result system improvements through the policy, specially, the reduced number of orders.
8.2.3 Savings through Vendor Selection & evaluation
Vendor selection process would pay equal attention to price, quality & delivery among other
selection criterion. The risk of dependency on one supplier can be avoided while at the same we
would be enjoying the comfort of a broader supplier base. The savings from this exercise alone
will be enormous considering the fact that this has not been tried in the past even in a smaller
scale.
By Introduction of the procurement policy of supplies, the benefit clearly outweighs the costs
involved.
9. Conclusion