Effective Procurement Practices in the Marine Offshore & Shipbuilding Industry

Written by Mork Choo, MSIPMM

by Mork Choo, MSIPMM

Effective Procurement Practices in the Marine Offshore & Shipbuilding Industry

Written by Mork Choo, MSIPMM

by Mork Choo, MSIPMM

by Mork Choo, MSIPMM

Supply chain management has established that procurement and adding purchasing practices within its purview is effective to run a business smoothly. It helps in keeping operational costs down and can be strategic for a business to be able to optimally utilize its resources.

Within the Marine Offshore and Shipbuilding industry, procurement costs can be huge owning to the size of the business itself. Even slight changes can show a significant difference in the operating costs. I shall discuss the specific types of procurements, the principles and methods of creating a supply chain excellence in this industry.

Direct Procurement and Industry Challenges

Companies that buy goods for resale are those that indulge in direct procurement. The purchased goods are processed, packed or branded to be sold further (Cook, 2014). This is called direct procurement. It works best for industries such as bakeries, pharmaceuticals, food items, clothes manufacturing where the raw materials are processed to various degrees and sold in the market.

In the marine offshore and shipbuilding industry the goods that are categorized as direct procurement are CNC machines, welding machines and the material used for the purpose of building a ship. Innovation requirements and market volatility of being able to switch between products create market risks. Thus, controlling the supply tiers as well as the complexity and the technological aspects of the goods are important in practice. Additionally the buying and selling companies have to follow several market compliances.

Indirect Procurement and Industry Challenges

Indirect procurement, on the other hand, deals with purchasing of goods for the sustainability of the organization itself. The examples for indirect procurement in the shipbuilding industry are purchase of stationary, consumables, office equipment, utilities, hiring agencies for human resource recruitment, etc. This type of procurement helps the organization to be able to perform its main activities smoothly (Cook, 2014).

The challenges in this industry are specific knowledge requirement, and high turnover of products requires continuous low cost transactions. The fact that the positions for indirect procurement are not key to the organization, makes it difficult for procurement personnel to act as an advisor for the stakeholders.

The Concept of Procurement in Practice

The concept of Procurement in Practice can be best depicted in the diagram below. The concept of Transaction Cost Economics (TCE) focus the reasons for transactions to be carried out inter-firms rather than in the open market. It speaks about procurement from the viewpoint of individual transactions that are based on rational but opportunistic mindset of the parties involved. These include specifications of the required product, uncertainty of availability and the frequency of the requirement, which causes the market to fail.

The concept of Partner Selection for procurement speaks about the criteria’s based on which a firm selects a vendor, who in turn becomes a key partner for the organization. This is limited to organizations that do not have a hybrid or multiple vendor system. The Stakeholder concept speaks about various interest groups and the involved planning to attain not just procurement but also to be aligned to the requirements of the groups. The need analysis of these groups in combination to achieving procurement goals ensures a process structure for the achievement of the organizational goals.

Partner Selection concept

The Trends for Maritime Procurement

The demography, economy as well and resources with regards to the marine and shipbuilding industry are on a rise. While India, China and the other developing Asian countries are growing massively in terms of all of the above three, there is also a constant growth of this industry within the developed countries also. Internationally the demand and hence trade within the industry is increasing which puts an added pressure on the supply chain and especially the procurement functions to be effective and utilize the vendor relationships to the best advantage (Meehan & Bryde, 2011).

How Marine Industry Create Supply Chain Excellence

The marine and shipbuilding industry can accommodate a supply chain council that help to align the procurement strategies with the company’s. Similarly, the staff within the procurement department can be aligned to achieve the set strategies. Value can be created from not just the staff alignment but establishing technology as well as maintaining relationships with key vendors. This will promote collaborative sourcing in which the vendors can help with further processing, innovation and effective utilization of the procured resources.

The shipbuilding and marine industry can benefit significantly through the Total Cost Ownership model rather than focusing on singular priced items to be able to establish a responsive and streamlines procurement as well as supply chain process. Bringing contractual obligations within the purview of the supply chain council and the optimization of inventory along with stringent quality control measures and risk management will lead to supply chain excellence (Sollish & Semanik, 2012).

Companies opting for green and sustainable supply chain management over and above this benefit even further by the way of long term cost reduction. There are new methods of procurement include big data, decentralized buying, agile management, increased emphasis on transparency and sustainability. The activity classification within the marine and shipbuilding industry for procurement includes product specification, checking the vendor qualification, evaluation of the various bids received, manage the supplier contracts, check the material quality, ensure adequate status reports, controls and schedule the expenses to make the process of procurement more efficient (Walker & Rowlinson, 2008).

Lastly, sustainable procurement practices have certain market risks such as being able to identify the correct sources, suppliers, controlling prices and geographical risks but ensures that the industry on the whole saves cost, has minimum impact on the environment, build resilience, increases health and labour security together with taking care of multiple Corporate Social Responsibility (CSR) goals.

Conclusion

Marine and shipbuilding companies can improve their procurement performance through various strategies such as: development of sourcing strategies, negotiating the best price for products, establishing a volume control, enhancing supplier relationships, deploying process improvements and aligning the product specifications through the way of a supply chain council. The standard objectives of the council should be to ensure that the required material is available as needed with the correct type and quality. It should also be able to look at the market and forecast the optimum storage and transportation plans for the resources along with quality control and product categorization. Sustainable procurement practices can create more benefits for the organization in the long run.


References:

Cook, T.A. (2014) “Mastering the business of global trade: negotiating competitive advantage contractual best practices, Incoterms®, and leveraging supply chain options”, CRC Press, Boca Raton, FL.

Meehan, J. & Bryde, D. (2011) “Sustainable Procurement Practice, Business Strategy and the Environment”, Vol. 20, No. 2, pp. 94-106.

Sollish, F. & Semanik, J. (2012) “The Procurement and Supply Manager’s Desk Reference”, Wiley, Hoboken, NJ.

Walker, D.H.T. & Rowlinson, S.M. 2008, Procurement systems: a cross-industry project management perspective, Taylor & Francis, New York.

About the Author: Mork Choo has substantive years of experience in the Marine Offshore & Shipbuilding industry. His key responsibilities and experiences include strategy, communication skills, negotiation skills and understanding business requirements.

Mork is a qualified member of the Singapore Institute of Purchasing and Materials Management (MSIPMM). He is currently completing the course on Diploma in Purchasing and Materials Management (DPMM) at SIPMM Academy.

Top