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Public Procurement

Supply chains can be defined as a system of suppliers, retailers, manufacturers, and customers where materials normally flow down stream from suppliers to customers (Brindley, 2004). Management of the supply chain involves managing a series of activities that are concerned with planning, coordinating the movement of materials from the suppliers to the consumers. For this to be achieved, material, financial, and information flows are managed as decisions are made at strategic, tactical, and operational levels across the supply chain (Simchi-Levi et al., 2003).

This paper will discuss the implications of the article in relation to the health department in the UK. It will specifically provide a detailed analysis of the various aspects surrounding the need to identify risks within the supply chain. In addition, it will endeavor to provide an analysis of the inefficiencies associated with supply chain and how the department can work to achieve efficiency in their operations so as to achieve cost effectiveness through adoption of CSR and adoption of internet-based initiatives.

Supply chains are important in maintaining the provision of much needed goods and services to those that require them at any given time Dittman (2011). It is common knowledge that there are numerous risks that are associated with the movement of goods from one place to another, and therefore, the need to manage those risks in order to ensure the smooth movement of those good and services. Management of risks, therefore, ensures that customers or clients are protected while maintaining the reputation of the supplier. Indeed, reputational risk cannot be outsourced. According to Dittman (2011), supply chains are exposed to numerous risks and one of the biggest impediments to sustaining an effective supply chain is the lack of a proper process that identifies, manages and mitigates those risks. Supply chain risks cannot be mitigated unless they are first identified and prioritized.

The department of health must first establish a process of doing that. For instance, risks identified could be prioritized on the following sequence; First, the seriousness of the consequences, followed by the frequency of occurrence and finally the likelihood of early detection. Many firms have used this approach in supply chain issues in identifying risks that must be given the highest priority and those that would require a proper mitigation plan. This kind of framework serves as a tool to generate discussion of risks in a group setting (Brindley, 2004). However, it must be observed that this type of analysis is largely subjective and reaching a consensus is important.

Supply chains present a particular risk to organizations which are over and above those that are internal to the company. To maintain the risks in supply chains encompasses managing the risks of suppliers going out of business in times of economic downtowns, or when the an organization is facing difficulties in accessing or procuring the tight materials (Blackhurst, 2009). Most organizations do not have proper measures of evaluating their suppliers.

This means, they do not take time to evaluate the statements of intent as well as statements of practice of the suppliers. In short, they do not bother to question the systems that the suppliers have put in place to tackle corruption, or those that ease payments. In addition, they do not ensure that the suppliers are executing these measures in their own supply chain. According to Bradley (2000) this only matters in companies that are part of a consortia bid, where a company pays kickbacks in order to get work for the consortia.

It is true that the risks related to small suppliers are in addition to others that occur across the supply chain. Indeed, large suppliers also do present big challenges or even greater risks compared to small suppliers. According to Bradley (2000), the risks that are associated with small suppliers as well as the nature of these risks are an empirical question. Efficient and effective support of the risks that accompany these supply chains is essential in the delivery of services to the citizens. Therefore, it is not that the small supplier poses any greater risk than the big ones.

In order for the UK department of health the issues raised by the author, it is important to understand that any solution must provide visibility across the supply chain of potential risks. In addition, solutions should be based on pro-active initiatives that manage the risks identified. This involves the collection of detailed information on a regular basis for higher risk suppliers and auditing the most critical suppliers. It is important to note that even information from smaller suppliers must be collected and maintained, although they might be considered less critical Bradley (2000).

The Department of Health in the UK must look at ways of managing their supply chain. One of the most critical reasons pertains to cost and risks. As Bradley (2000) explains, a proper management of supply chain is critical in controlling healthcare costs. In the UK, healthcare supply chain inefficiencies cost billion of dollars annually. A study conducted in the US in 2006 found that supply chain inefficiencies contributed to $ 11 billion out of an estimated $23 billion annual cost. This report explained that healthcare supply chain “was centered on distributors, resulting in little contact between manufacturers and hospital material managers” (Vermond, 2006). Therefore it is important to manage the supply chain risks so that health care professional can focus on their core competency of delivering quality care to the patients.

One of the major concerns in the managing supply chain is the lack of information to guide managers in making decisions thought the supply chain (Donald, 2007). Some of most important components of IT in supply chain include the internet and web-based service portals and decision-support systems. These are important in solving strategic, tactical and planning problems in the supply chain. According to Nugent (2000), the move to internet-based initiatives and services has greater savings for employers, insurers, managed care organizations as well as government sponsored programs (Nugent, 2000). For instance, internet-based purchasing enables consolidation of suppliers and minimizes costs of ordering. It also ensures a common purchasing platform for all hospitals.

The department of health can participate in different ways to minimize risks in the supply chain. One way to achieve this is through supply chain integration and partnering. According to Simchi-Levi et al., (2003), one of the most effective ways of managing the supply chain is though integration. Integration combines several aspects such as sharing of information and joint operational planning with the supplier, irrespective of the supplier’s size. In the health department, it would mean, information sharing can be done through the use of software platforms such as Enterprise Resource Planning (ERP). In addition, implementation of Collaborative Planning, Forecasting and Replenishment (CPFR) can be achieved among health care provider (government), suppliers and the manufactures of health related items.

Another critical area that the department of health can greatly benefit is by creating supply contracts within the supply chain. This involves creating or setting up relationships between suppliers and buyers in the supply chain though contracts that set prices, rebates and discounts among other pricing concerns (Zsidisin, 2008). This differs from traditional approach since its main focus is on reducing the effect of decision made, not only in one level of the supply chain, but to all the players concerned. The department of health can set these contracts with a distributor or directly with the manufacturer.

One of the most effective measures of reducing small supplier risks is through the incorporation of CSR principles in organizations operations. Various studies show that companies that have embraced corporate social responsibility into their core business practices have been able to reduce the risks associated with them. A key factor associated with this trend is that they work within a framework of the government that translates to lesser problems from the government and fewer chances of going out of business. In addition, companies that have embraced CSR have good working environments that attract and retain the best talents available.

The management of the health organization is nowadays most concerned with the risk associated with labor, cost of raw materials, regulatory climate and political effect, export/import restrictions, and the risk that are associated with the movement of the product from one country to the other (Brindley, 2004). It is critical, though, to ignore the risks associated with small suppliers in the enterprise; of consequent is the pricing risk. It may seem immaterial but currently companies are awakening to realize that the prices from the ‘small’ supplier’s countries are lower implying that the pricing risks will be mitigated. Pricing concern has been deemed a common phenomenon in the industry and it has led to purchasing costs skyrocketing but also ensured labor unrest, political instability, trading partner insolvency, regulatory actions among others. Most of the trading countries are shifting their attention to the ‘small suppliers’ countries like Thailand, Malaysia, and Vietnam unlike the case of China which is among the ‘big-wigs’ in the economy (Zsidisin, 2008).   

Although the small chain supply may combat price inflation, but it has been noted that they are experiencing the strongest inflationary pressures and most of them have been seen to increase the level of occurrence of natural hazards, failures in logistics infrastructure, political unrests and the challenge imposed by product integrity. In an attempt to protect one against the impending pricing risks, the company should not only divert to the small chain suppliers but focus on the reassessing of the logistics and sourcing strategies and the inherent risk management policies. As such, the company should vividly assess and monitor both the small chain suppliers and the main suppliers for their available credit lines and financial solvency in order to ensure that they possess adequate cash that enhance their production requirements and raw material provision. Already most of the companies are reporting lower quality material from the suppliers in addition to experiencing delays due to the issues of cash flow that exacerbated by credit crunch that was felt globally (Donald, 2007).

The company needs to strategize on the effectiveness of addressing and assessing these risks despite the incumbent rising concern and awareness concerning the vulnerabilities in the supply chain. As such, the supply chain risk management of the company is perceived to be informal, inconsistent, ad hoc, and piecemeal. Though the managers of the small supply chain are always responsible for the causal functional risks, the danger of knock-on impacts and interdependencies will be more likely to be missed in case of disruption ripples imminent in the small chain supply. The risk managers of this public sector faces challenges in quantifying the impacts associated with this sector and the prioritization of the various supply chain risks that may arise (Donald, 2007). The task of the risk manager is made daunting especially due to the availability of the external factors like regulatory changes, supplier interdependencies, security and safety of the supply chains globally.

Corporate Social responsibility has become an important topic in many organizations. Changes in CSR are being influenced by several factors as well as actors such as consumers, Governments, Civil Society and NGOs. CSR initiatives might have an effect on small suppliers if the firms take on the duties of the subcontractors down the supply chain. In addition, there might be a conflict as a firm might want to do something different from what CSR requires. In procurement, the government has the biggest responsibility since it is the single largest consumer.  Various public sector organizations have instituted a risk management strategy to mitigate risks across their departments, for instance, the department of health on behalf of the many contracting organizations within the health sector (Zsidisin, 2008).

The government provides funds for the purchase of medical supplies through the department of Health, and therefore, it has a big part to play as a consumer. For example the UK Public Sector spends more than £220 billion annually with third party suppliers of goods and services to support government’s obligations. This means, if required to make purchases of environment friendly products, the governments’ purchasing power can force the supplier to embrace CSR. If the supplier does not comply, the government can seek another supplier who is willing to meet the set requirements.

Consequently, supply chain risks may be perceived to be challenging especially to risk managers but its mitigation must be achieved for the company to perform its duties effectively and realize the strategic goals and objectives. In order for it to succeed the risk manager should be able to impose a strategic role when mobilizing the entire organization against the impending uninsurable and insurable supply chain risks. Implementation of the processes that enhance supply chain risk management should be adhered to across the sector in order to achieve consistency (Blackhurst, 2009). It should incorporate the direct suppliers, logistics partners among others. In addition, the risk manager should embed risk mitigation techniques and responsibilities into the existing process of supply chain. This includes using management business objectives (MBO) in the entity.

In conclusion, organizations cannot transfer organizational risks as highlighted above. This means, if things go wrong, customers will definitely blame the department of health and not any of its suppliers. Therefore, it is upon the company concerned to manage the risks associated with the supply chain.  Risk management is of utmost importance when dealing with suppliers for their capacity or capability. The organization concerned must risks are inherent that might prevent the organization from delivering the required good, services or works. It is also important to determine the collective risks, for example, those that affect other sectors.

Therefore, there is always a need for an effective approach of information gathering, monitoring and action in order to manage risks. This means, proper management and governance are essential in achieving this objective. It must be clearly understood that effective management of risks does not necessarily imply eliminating risks, rather, it is an important tool in providing time to access, plan and react to dynamic environments. Thus, effective management is needed to mitigate inherent risks in the department of health supply chain.