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Solution
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Table of Contents
2.0 Background of Organisation and Selected Category of a Product 6
2.2 Selected Category of a Product 6
3.1 Kraljic Portfolio Matrix of the telecom networks for company assets. 8
Supplier View of Customer Account 9
3.3 Overall Cost of Ownership Analysis 11
3.4 Porter’s Five Forces for maintenance of company telecom network Category Plan. 13
3.5 SWOT Analysis in the Context of Business of the Product Procurement 13
3.6 Strategic Sourcing of the telecom networks for company assets Products Category. 14
4.0 Category Plan Implementation, Challenges and Solutions 15
4.1 Arranging Overall Organisation around the Customer 15
4.2 Building a Functional Level of Trust with Suppliers 15
4.3 Ability to Measure Success of Category Plan. 16
4.4 Category Role and Definition. 16
5.0 Conclusion and Recommendations 17
References and Bibliography. 19
Executive Summary
In this assessment, ADNOC company has been used as a case study which operate in extraction of crude oil from wells with the selected spend category being service which include support services including the telecom networks for company assets in different geographical areas where they operate in UAE.
The category planning identified for this category of spend has been used as an approach of demonstrating on how it is line with the goals and objectives of ADNOC with knowledge of their key stakeholders. This has been noted to have a direct implication on influencing the sourcing strategies and other contract management initiatives. The already developed category plan is in alignment with the customer business objectives with their strategic practice being on the value maximization, reduction of risks and effective management of the supply of goods and services.
In this analysis, the category scope of the procurement of telecom networks for company assets by ADNOC has been evaluated with the different categories highlighted. This has been done through the use of Kraljic Portfolio matrix, SWOT analysis, Porters 5 Forces and business environment analysis has been adopted to identify supplier positioning. Further, the key facts and insights on the market competition and the overall cost of ownership analysis has been conducted. Part of this analysis is the implementation plan development, different challenges faced in plan implementation and strategies for mitigation of the challenges.
Considering the identified findings, different recommendations have been offered to improve the category plan for ADNOC in the procurement of the telecom networks for company assets different geographical areas where they operate in UAE. These recommendations include an improved supplier relationship management and improvement, sourcing strategies and a continuous improvement in the overall phases of their category planning.
1.0 Introduction
Category planning can be defined as a process of development of a category plan in line with the client’s expectations, business objectives and strategic strategies used to maximize value, reduction of risks and effective management of the supply of goods and services. According to CIPS (2013) category planning needs to be in alignment with the business objectives and its development with primary customer stakeholders. Further, successful category plans are expected to have a direct influence on sourcing strategies and distinct contract management initiatives. From a broad point of view, O’brien (2019) defined the category management is a supplier process of managing different categories as strategic business units, creating enhanced business results by focusing on efficient delivery of services to customers. As illustrated in figure 1, category management involves planning, sourcing and supplier management.
Figure 1: Planning Fitness in the Category Management
Source: CIPS Materials
In majority of organisations, category planning is normally implemented by sourcing managers for rationalizing their suppliers, buying power aggregation, driving down pricing and eventually improving their supplier performance against their contract. The intention of this is production of an interactive and collaborative business process where all distributors and suppliers are operating as partners to enable creation and management of client-guided category plans. Also, in category planning, the best approach is to align customer business plans, procurement targets and customer stakeholder strategies. Before the category planning, diagnostics are used to develop the category profile and marketing the research and intelligence. After a successful category planning, the category management is implemented.
Using the identified background, this assessment creates a category plan of ADNOC telecom system consisting of two types of telecom networks namely SDH/PHD system running over fiber Optic cable and CCTV system. This would be inclusive of the implementation plan and challenges that would affect the implementation plan and strategies for their mitigation.
2.0 Background of Organisation and Selected Category of a Product
2.1 Introduction to ADNOC
Since its establishment more than 46 years ago since 1971, the company is involved in playing an instrumental role in the Abu Dhabi economic development as one of the leading energy producers globally (ADNOC, 2019). The company produces approximately 1.6 million barrels of oil and 5.6 billion cubic feet of gas daily. Through an embracement of new and innovative approaches for maximizing the value of their resources, the company leverage from pioneering of the approaches and technologies. The outcome of this is ensuring their positionality in meeting the overall demands of an ever-changing energy market and continues to have a positive implication on the Abu Dhabi economy influencing on the future generations. The company procurement division is categorized in the Corporate Services function of Company matrix structure and playing the role of tendering and procurement of services and goods essential for a business.
2.2 Selected Category of a Product
The selected spend category is maintenance support services including telecom networks for Company assets in different geographical fields distributed among the owned assets by ADNOC. In ADNOC, the products are identified with their capability to guide data gathering from the wells and later transferring them to the control room and then to the company main tower in Abu Dhabi. The sourced data is later displayed on the screens for the need to monitor them and other requirements. The essence of this is harnessing the functionality of the systems with a zero tolerance of the system failure being expected. The services could be grouped into category description, core products and non-core products. The core products include maintenance of emergency systems, spare parts for SDH/PHD systems with the non-core products including the spare parts for CCTV systems and spare parts for fiber optic. However, the non-core products are optional subcategories which include the alternative supply agreements in place in different locations. The product category tree is as evidenced in figure 2;
Figure 2: Category Tree of the Selected Category
2.3 Scope of the Report
This assessment has been narrowed from the broad focus on the procurement and supply chain management to category planning of the telecom networks for company assets by ADNOC in their headquarters in Abu Dhabi. The category strategy has been established to be instrumental in ensuring promotion of their supplier agreement to be able to leverage on spend and increase their B2B automation for the telecom networks for company assets in different geographical areas where they operate in UAE. From this point of view, this assessment delves on category planning as a strategic area in the broad section of procurement and supply process. This can be achieved through an evaluation of the course contents and techniques that can be accessed easily and relevant procurement and supply process. This evaluation is inclusive of identification of challenges in plan implementation and mitigating potential challenges.
3.0 Category Plan
The category plans need to be established using the key stakeholders and alignment with the customer business objectives, influencing scope of category sourcing and set strategies. This is affirmed by Knoppen and Sáenz (2015) that has noted that category planning ought to be generating strategic progress of contract management practices and effective category strategy communication process.
3.1 Kraljic Portfolio Matrix of the telecom networks for company assets
For the purpose of positioning the maintenance of the company telecom network, in the category plan to be developed, Kraljic Matrix tool could be appropriately used. This is affirmed by Padhi et al. (2012), who note that the Kraljic matrix guides the establishment of a purchasing strategy for products and services used in an organisation. This is implemented by eliminating the supply vulnerability as much it is possible for maximization of the potential buying power as shown in figure 3;
Figure 3: Kraljic Matrix Supplier Positioning
Supply Positioning
Owing to the fact that the maintenance support services for telecom networks for company assets previously ranked as routine items since the profit impact are low and the supply risk. This was guided by the low value of transactions and multiple sources of alternative products being sourced. Hence, the best practice was to move items to the leverage category which is characterized by high expenditure, multiple alternatives and qualified supply sources. For achieving this objective, category planning must be inclusive of enhancing the purchasing power to standardize and establish purchase requirements. In ADNOC, the procurement plays this critical role.
Supplier View of Customer Account
The primary objectives of suppliers of the maintenance of Company telecom systems and network in ADNOC are inclusive of active engagement of clients identified as a low value but attractive. This also solves the issues of managing inventory level of stock for 344 spare parts of two telecom systems by different OEMs, contract estimated agreements, supplier manpower, supply chain risks, code of conduct and signing agreement with single service offered. Besides, supplier ought to progressively nurture their customers, expanding their business and sourcing for new opportunities available in their markets. For example, the supplier could demonstrate intentions of enrolling to new projects by ADNOC which is increasing their on-shoring activities in Abu Dhabi. For improving this relationship, the supplier could raise mutual dependency and offer an improved level of inducements.
Supplier Classification
The supplier can be grouped as sharing short to medium-term vision and objectives as a positive factor for routine grouped products in transitioning to leverage category.
3.2 Market Structure
As evidenced in Kraljic analysis, telecom networks for company assets are routine category. Hence, the best approach is to source products through engaging local suppliers in Abu Dhabi. The market structure is shown in figure 4;
Figure 4: Market Structure of telecom networks for company assets
Importantly, maintenance of company telecom network have higher operating margins with efforts prioritized to diversify the offerings to increase entire revenues. Hence, for the maintenance of company telecom network, distinct facts and insights are sourced. They include;
- Existing independent maintenance of company telecom network dealers including Earthlink telecommunication, Viafone technologies, DuTelecoms, Etisalat-UAE, Workz group and Smartworld targeting the business sector through their online offerings.
- A common trend in UAE and ADNOC holding off purchases of the non-essential products evidenced by the existence of an increased global economic downturn. Further, the entity makes considerations on sourcing services offered at cheaper prices in the market level.
- Existing limited projected growth in UAE telecom industry
- Suppliers largely venturing in non-core products and factoring on issues of legal, HSE and administrative management
The core products sales are as shown in figure 5;
Figure 5: Sales of maintenance of company telecom network Core Products
In UAE, the market has fragments ranging from multinational high volume distributors, retailers and local telcom services. In regard to the local suppliers, they are found occupying approximately 60% of the overall UAE market informed by already set strategies for promotion of in-country value concept. The UAE market as such has low switching costs for their buyers, low product differentiation and poor market growth.
3.3 Overall Cost of Ownership Analysis
In the ADNOC procurement of telecom networks for company assets in UAE, category planning is inclusive of the overall cost of ownership. As noted by Zachariassen and Stentoft Arlbjørn (2011), total cost of ownership identifies overall costs directly and indirectly incurred in the entire life cycle of an asset. In telecom networks for company assets procurement by ADNOC, it is appropriate to point out that 70% of their incurred costs are directly linked to item with remaining 30% concerned about fulfilment and administration. Cost drivers in this context involve the product specification and range, frequency and location delivery, value of order and overall lead time.
The entire cost of ownership of telecom networks for company assets is grouped to suppliers and clients. All the incurred costs need to be prioritized and compared with the decision of not to procurement them for identifying best decision. The cost breakdown in context of ADNOC is as shown in figure 6;
Figure 6: Supplier of telecom networks for company assets
Figure 7: Customers Incurred Costs in the Category Plan
The cost analysis in figure 6 and 7 represent indicators of the view that investment of telecom networks for company assets is an appropriate decision. This is informed by the view that incurred costs in products procurement are lower compared to gains leveraged in usage. These improvements would end up reducing costs in distinct categories.
3.4 Porter’s Five Forces for maintenance of company telecom network Category Plan
In category planning, Porters is used to informing on competitiveness. According to NC State University (2013), the tool involves forces of substitution, industry rivalry and new potential market entrants. In ADNOC context, the telecom networks for company assets, this tool can be used to question the realistic nature of planned strategies and extent of success due to prevailing conditions in global market place. This is equally instrumental to drive strategic planning for effective future practices. Porter’s five forces are as shown in figure 8;
Figure 8: PORTERS 5 Forces Analysis of the maintenance of company telecom maintenance network Procurement
3.5 SWOT Analysis in the Context of Business of the Product Procurement
In category planning, the effectiveness of SWOT analysis is applicable to identify all internal factors influencing the procurement process. This identifies the internal and external factors within and beyond an organisation all instrumental and harmful to the set business objective of the category planning (CIPS Materials, 2018).
Figure 9: SWOT Analysis
3.6 Strategic Sourcing of the telecom networks for company assets Products Category
The strategic sourcing is defined as focused, technical, tool-driven supply chain activities occurring in a specific strategic decision frame. In regard to the selected product category, strategic sourcing includes assessment of user needs and develop standard specification for all sub-categories of telecom networks and to set service levels and a rational specification anchored on appropriateness of maintenance, spare parts for SDH/PHD Systems, CCTV and Fiber optic. In this case, the focus areas include total cost management, purchase demand management and supply base management.
For the total cost management, overall supply chain costs would be optimized, reduce the entire life cycle and elimination of any prevailing transactions. The outcome of this would be assurance that telecom networks for company assets socking and delivery are in optimum, consolidation of safety supplies and to negotiate pricing with suppliers to reduce markets existing. Further, a prompt inventory analysis would be implemented to ensure that timing of orders is appropriately and values are optimizing reduction of costs.
In regard to supply base management, potential strategies include relationship and supply base restructuring and completion increase. To restructure the relationships, contracts would be implemented with less preferred suppliers to development activities and consistent improvements being implemented. Further, contract would be flexible and volume based on spends area and guaranteeing the process. The overall competition is harnessed by a continued analysis of price, benchmarking of performance and bid-oriented negotiations. In the end, the supply base structuring, this would be inclusive of a transition from a single supplier for particular period of time and to leverage discounts from distinct suppliers.
4.0 Category Plan Implementation, Challenges and Solutions
Any successful category plan that is not implemented cannot be able to deliver a sustainable competitive advantage besides the source of the issue in category planning activities. In all the implementation phases, distinct challenges are incurred which could be mitigated effectively.
4.1 Arranging Overall Organisation around the Customer
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