1.0 Objectives 3

2.0 Management Summary     3

3.0 A brief overview of SABIC/B&W current position and point out risks that it is facing 4

3.1 The Current Situation       4

3.2 Risks that B&W is facing 6

4.0 How SABIC/B&W’s purchasing processes and functions can benefit from prioritization strategy        10

5.0 How people working for suppliers of B&W might view it as a potential customer         11

5.1 How the situation has been           11

5.2 How the situation can be  14

6.0 Strategies that can be used by SABIC/B&W to develop better relationships with people working for the suppliers          14

7.0 Recommendations improvements in governance and processes undertaken at B&W     16

7.1 Recommendations for improvements in governance        16

7.2 Recommendations for improvement of processes            17

8.0 How SABIC/B&W can apply costing methods to the things they make for Boz/SABIC          18

9.0 What SABIC/B&W can do in order to improve its working capital        19

10. Who SABIC/B&W can consult about how it can work with other parts of Boz/B&W 21

11.0 Conclusion          22

12.0 Recommendations for time phased actions that SABIC/B&W should take      22

13.0 References          24

1.0 Objectives

The current paper contains an integrative analysis of SABIC/B&W. The objectives of the analysis are;

To give a brief overview of B&W’s management

To give a brief overview of SABIC/B&W current position and point out risks that it is facing

To examine how SABIC/B&W can implement prioritization strategy and understand how the company’s purchasing processes and functions can benefit from the strategy

To explain how people working for suppliers of B&W might view it as a potential customer through exploring the past situation and how the situation can be in the future

To explain steps and strategies that can be used by SABIC/B&W to develop better relationships with people working for the suppliers

To recommend improvements in governance and processes undertaken at B&W

To explain how SABIC/B&W can apply costing methods to the things they make for Boz/SABIC

To explain what SABIC/B&W can do in order to improve its working capital

To explain who SABIC/B&W can consult about how it can work with other parts of Boz/B&W

The explain time phased actions that SABIC/B&W should take

2.0 Management Summary

SABIC is an international firm that deals with innovative plastic products. The main office of SABIC in Europe is in Bergen Op Zoom in Netherlands, where the company’s Global Application Technology Centre (GApT) is located. The CEO of SABIC in Europe is Boy Litjens, while the COO is Mosaed Al Ohali. Through the Bergen op Zoom (BoZ) centre, SABIC has recently taken over Barnes and Wallace Ltd (B&W), a UK-based company that has been one of the suppliers of Boz/SABIC. Prior to the take over, B&W was headed by Albert Barnes and John Wallace. However, the company was pioneered by John Wallace together with Albert’s uncle called Tom. Tom retired and left his position to Albert in 1999. John retired in 2009. Albert controlled purchasing, production and sales activities while John controlled financial and administration activities. After the take over, the company is now run by Aaban Maroun together with Lyzan Bazzi.

3.0 A brief overview of SABIC/B&W current position and point out risks that it is facing

3.1 The Current Situation

After the takeover Aaban has found out that purchasing functions and processes at B&W were not carried out formally by Albert. Instead, Albert did all purchasing processes and functions alone and did not record any of transactions conducted suppliers. Other than invoices, there are no other documents in the company that can be used as proof of purchasing transactions. This implies that during the time of acquisition, it was difficult to value B&W due to lack of records of payments made. An important observation made by Aaban is that B&W has a group of Maverick buyers who purchase items from 16,000 suppliers located in different parts of the world. The maverick buyers treat all items ought in the same manner and follow the same process that was being used by Albert. The only document that can prove the existence of those transactions is an invoice sent by suppliers. The numerous purchases were not recorded.

Secondly, B&W has been having a poor relationship with the suppliers. Albert, who was previously in charge of purchasing functions and processes, did not listen to what the suppliers wanted. Instead, he pressed them to agree and do what he wanted. He also squeezed them hard in order to get favor, although they only gave him only what he was prepared to pay. Albert also misused relationship of with the suppliers through taking advantage of them. He once stole an idea from one supplier and used it. As a result of the poor relationship, the suppliers felt that they were in a position to do more for B&W but they would not do the company any favor because of the way Albert treated them. The suppliers were annoyed with Albert to the extent that they felt quitting from supplying items to B&W. Most of the major suppliers for B&W maintained their business relationship with the company only because they had developed close relationships with people working for B&W. The workers of suppliers have developed a negative perception of B&W, probably because of how Albert has been dealing with the suppliers. They are even not willing to interact directly with leaders from B&W. When Aaban sought to meet them, they claimed that they were too busy. Another major issue with the B&W currently is that it does not have enough working capital needed to run smoothly. Apparently, the company has arrears for suppliers that are due for payment and not yet paid. At the moment, B&W faces a threat since it may be sued by suppliers for failure to make payments as agreed. One of the causes of lack of enough working capital to run smoothly is that the stock turn for the company has not been good.

The former manager for purchasing and sales functions, Albert, has not been honest to both suppliers and customers. While he insisted on open books of records from the suppliers, he refused to open up on his side. However, may be he refused to do so because he did not maintain any records. Despite this, he was not transparent to the suppliers. When dealing with customers, it is apparent that Albert also did not engage in transparent deals and was not honest to them. Aaban found that Albert used to apply overheads twice for some of the items that B&W sold to Boz/SABIC. Also, the report produced by Aaban shows that B&W had developed new lightweight products six months ago. When the people involved in the invention for the new products in the company proposed that they be sold to Boz/SABIC, Albert refused to do so. He wanted to benefit more from the old items sold to Boz/SABIC before selling the new products to that company. Despite this, Aaban found that B&W has already patented the new lightweight products and is ready to sell them. Remarkably, the poor relationship of Albert with customers has led to dissatisfaction of some customers, some of whom have decided to quit from buying items from B&W. B&W has lost three major customers over the last one year.

The report produced by Aaban also showed that B&W does not have good governance. Firstly, the company lacks an ethical code of conduct to guide how internal stakeholders relate with each other and with external stakeholders. The report indicated that B&W has talented and motivated engineers, development experts and material scientists. In fact, they are responsible for the new innovations that have been occurring in the organization recently. However, the leadership in the organization has not been taking measures to recognize their efforts. Despite developing new lightweight plastic components, Albert refused to have them sold to customers. The workers at B&W are also not satisfied with the poor relationship that has been there between Albert and suppliers. Lastly, the analysis shows that B&W mainly relies on manual processes with little use of electronic gadgets.

3.2 Risks that B&W is facing

The analysis of the current position of B&W shows that the company is currently facing risks outlined below;

Risk of failure of purchasing functions and processes

B&W is facing ineffectiveness risk that seems to have been brought about by ineffectiveness of the current purchasing functions and processes. Purchases are not recorded and the only the only proof of purchases made by the company is an invoice. Albert has not kept any records as proof for past transactions and pending payments. Also, the presence of maverick buyers in the company means that most transactions conducted by those buyers are not recorded and there is no proof of important aspects such as price comparisons for different suppliers and frameworks of agreements. At the time of the takeover, therefore, it is thus difficult to determine what B&W has been spending to make purchases for specific items. Also, it is difficult to determine the arrears for B&W since they are not recorded. Importantly, the presence of maverick buyers implies that they can buy products of poor quality or at expensive prices. The current contracts may not be appropriate or in the supplier’s terms. There may be even contracts that do not exist. The lack of one central point for controlling purchases means that the control of inventory is also poor. This might explain why the stock turn for B&W is currently poor. Lack of prioritization has also contributed to ineffectiveness in the purchasing functions and processes at B&W. The many buyers in the company tend to treat items in the same manner, without attaching importance to the most valuable and urgent items. The ineffectiveness in the purchasing functions is a big risk for B&W since it is likely to slow down the performance of B&W or make it collapse.

Risk of lack of enough working capital to operate

The ineffectiveness of the purchasing functions and processes at B&W seems to be a major cause of the current problem of lack of enough working capital to operate that the company is facing. The problem can be attributed to the lack of prioritization of items since all items bought by the maverick buyers tend to be treated in the same manner. This means that there might be too much stock of inventory in the company, evidenced by the problem of poor stock turn out in the company. If purchasing functions and processes were left solely to an effective purchasing department, the department would maintain a smaller stock of the most urgent items and keep the rest of the money in terms of liquid cash. This would enable the company to increase its level of working capital. However, B&W is now facing the problem of inability to raise enough working capital to carry out its functions, evidenced by its inability to pay its debts in time. The risk of lack of enough working capital to operate is still prevalent unless actions to eliminate it are taken.

Risk associated with relationship with suppliers and their workers

The analysis of the current position of B&W showed that the company does not have a good relationship with the suppliers currently. Albert, who dealt with major purchasing deals, developed a poor relationship with the suppliers and hardly considered making up his relationship with their workers. Although Albert was the main cause of the poor relationship with the suppliers, the suppliers might have developed a negative perception to the B&W as a whole. In addition to being rough to the suppliers and their workers, B&W has a bad reputation of failing to make payments for arrears in time. The workers of the suppliers have also developed a negative view of B&W, evidenced by their refusal to meet Aaban when he requested to meet them. Unless an action to restore good relationship with them is taken, the suppliers are likely to quit if they continue viewing B&W as a customer that is not valuable. This means that B&W may lose valuable customers if no action is taken urgently. Also, other suppliers who get the negative image of B&W may avoid dealing with it. Thus, B&W may not be attractive to valuable suppliers currently and it may lose the existing ones unless an urgent action is taken.

Risk associated with customer relationship

The analysis for B&W showed that it has not been doing well in enhancing its relationship with customers. The company has been inflexible in processing orders placed by the customers due to its ineffective purchasing and production functions and processes. In addition, Albert, who has been dealing directly with customers, has not been honest and transparent when dealing with customers. For instance, B&W has been dishonest in the past when dealing with Boz/SABIC since the company has been applying overheads twice on costs of the same products. Such problems have caused some customers to question the viability and reliability of B&W as their supplier. Consequently, B&W has lost three valuable customers recently. The issues noted have not been solved yet, which means that B&W may lose more customers unless strategies are undertaken to restore relationships with them immediately.

Risk associated with relationship with workers

Despite having valuable experienced engineers, development experts and material scientists, Albert has been engaging in activities that lower their morale and that do not recognize their efforts. Even after using their efforts to invent new products, Albert did not recognize that as important. The workers would have felt that they were appreciated if Albert had agreed to sell the new lightweight components that were developed six months ago to Boz/SABIC. In failing to do so, there is high probability that the workers would feel that the company is not making most of their good. The workers may feel bored. However, the workers understand that Albert is the one who caused the problems. Despite this, they are eager to see whether Aaban and Lyzan are going to change their leadership approaches. In case they carry on with similar governance practices, there is high probability that the workers will leave the company. In this regard, Aaban and Lyzan should adopted ways of recognizing, motivating and encouraging the valuable workers to remain in the company.

 

 

 

 

4.0 How SABIC/B&W’s purchasing processes and functions can benefit from prioritization strategy

The analysis of B&W showed that one of the problems that the company is facing currently is the lack of prioritization. The maverick buyers do not prioritize when purchasing items from different suppliers. Prioritization is one of the strategies that B&W should adopt to eliminate some of the problems it is facing. The company should implement prioritization through buying items that are needed urgently first and other items later. More specifically, B&W should adopt the just-in-time method of inventory management. The method involves calculating lead time form different items used in the production process and ensuring that materials are only received when needed (Portny, 2010). The method will enable the company to avoid purchasing stock of materials that are to be kept in warehouse for later use. Rather, the company should be receiving items when they are ready for use, and not before or after. The method will enable B&W to be purchasing products that are needed urgently and avoid those that are not needed urgently, hence achieve the objective of prioritization.

Prioritization in the process of purchasing materials will be beneficial to B&W in various ways. To start with, the company will avoid investing too much on inventory and hence, its working capital will increase. The amount of inventory held by the company per any given time will be smaller. This is vital since one of the major problems that B&W is facing currently is lack of enough working capital. Secondly, the overall profit of B&W will increase because the cost of managing inventory will reduce. The just-in-time method and prioritization enables an organization to keep the level of stock of inventory to the minimum. Thus, costs incurred in managing inventory such as storage cost, counting cost and cost of breakages are reduced (Northouse, 2013). In addition to improving profits, reduction in costs will still contribute in improving the working capital for B&W.

Prioritization will also help B&W to evade some of the risks that the company is facing currently. On top of eliminating the risk associated with lack of enough working capital, risk of ineffectiveness will be addressed through implementation of the strategy. Prioritization will solve the existing problem of stock turn and flexibility will increase. Thus, the risk of possible failure of the purchasing processes and functions will be partly evaded. Improvement in productivity of production will help in improving relationship with customers since their orders will be processed in time. As such, the risk of losing customers will also be partly evaded. By improving working capital, B&W will be in a position to pay its arrears to suppliers in time. Thus, the threat of being sued will be eliminated and risk of losing suppliers will reduce. Eventually, prioritization will go a long way in enabling B&W to improve its image and reputation to customers and suppliers. Consequently, its competitiveness in the market where it operates will improve.

5.0 How people working for suppliers of B&W might view it as a potential customer

5.1 How the situation has been

People working for B&W have developed a negative perception of the former manager and B&W as well. When Aaban talked to a managing director of one of the supplying firms, the director said that Albert used to squeeze them very hard so that he could get favor from them. However, they refused to grant them any favor related to the purchasing deals. The director stated that they were ready to do more for B&W but they declined because of the poor relationship with Albert. Also, suppliers viewed B&W as not being transparent to them. Albert insisted to view the book of accounts of the suppliers but he refused them to asses his transactions, although he did not have written records. The director also mentioned that Albert did not listen to them, yet he compelled them follow what he said. Also, the suppliers had a negative perception of B&W because of Albert’s act of stealing an idea from one of them and using it. The negative reputation increased because of the failure of B&W to make payments to suppliers in time. These issues led to negative perception of B&W, not just to the managers working for the supplying companies, but to the workers of those companies as well. The negative attitude of the workers is likely to have contributed to their refusal to meet Aaban. However, some of the key suppliers continued working with B&W despite the poor relationship with Albert. They continued having good relationship with engineers, development experts and material scientists working for B&W. The implication of this is that the suppliers still perceived B&W as being a potential customer for them. They recognized the potential that the workers of B&W and probably understood that Albert was the major problem.

The perception of suppliers to B&W can be explained further using the supplier poisoning model. The model helps in determining how suppliers value customers and the level of attractiveness of customers to suppliers.

The model is explained using the following supplier positioning matrix:

 

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Supplier Positioning Matrix

Adapted from Brinkman, Navarro & Harper (2014)

The above matrix consists of four quadrants. The nuisance quadrant represents the customers that suppliers perceive as having low value. The exploitable quadrant represents customers who have valuable procurements but the overall business with them is not good. The suppliers have a higher power over such suppliers and may decide to exploit the customers through, for instance, increasing prices (Brinkman et al., 2014). The development quadrant represents the customers who are valuable and attractive, but the current value of those customers is low. Despite the low value, the suppliers still perceive such customers as potential valuable customers. The core quadrant represents customers who are highly valuable and attractive to suppliers and who are currently working with the suppliers. The supplier positioning model indicates the position of B&W is in the development quadrant. The suppliers perceive B&W as being attractive and valuable, despite having a low value currently (Brinkman et al., 2014).

5.2 How the situation can be

The position of B&W in the supplier positioning model implies that the company can move to the core quadrant. Specifically, B&W can easily become a highly attractive and valuable customer to suppliers. In that situation, B&W will have to build good relationships with the suppliers and make up for past errors. If that goal is achieved, the suppliers would be collaborating with B&W to produce quality goods. People working for the suppliers would be having interest in meeting quality standards when producing items for B&W. They would also be contributing innovation ideas that might be valuable to B&W. The suppliers would be more willing to help B&W, unlike before when they were not willing to provide assistance. For instance, B&W would be allowed to purchase items on credit and would be in a good position to get discounts. The interests of suppliers and B&W would be addressed throughout.

6.0 Strategies that can be used by SABIC/B&W to develop better relationships with people working for the suppliers

Suppliers are important to all organizations since they provide materials needed for the purpose of production. Having a bad relationship with suppliers implies that an organization has not secured source of materials since the suppliers may decide to avoid the firm and supply to other firms. Also, a bad relationship with suppliers means that an organization can hardly negotiate for benefits such as credit purchases and discounts (Bowerman & Wart, 2011). B&W will need to take several important actions in order build better relationships with the suppliers. To start with, B&W should asses and pay money that is owed to the suppliers. By making the payments, the company will avoid the threat of being sued. In addition, B&W should continue making payments in time for the succeeding purchases. Paying on time will help in improving the reputation and image of B&W and its credibility as an organization that adheres to terms and conditions of agreements. Secondly, leaders at B&W will need to approach the suppliers and inform them that the company has a new management and would like to build a good relationship with them. The leaders can request to form a joint project team that would comprise of representatives from B&W and the supplying organizations to look at the existing issues that have led to the current poor relationship. After looking at the issues, they can then come up with solutions to those issues and agree on how they should implement the solutions.

In order to build good relationship with suppliers, the leaders of B&W should focus on learning the interests of the managers and workers in the supplying companies and let them know the interests of B&W. They should have a common understanding of interests of each other. Beyond that, they should all understand and agree on how to meet the interests of customers. For instance, they should agree on how to meet the quality that is desired by customers. The leaders of B&W should respect the interests of the suppliers that do not have a negative impact on B&W. This will help in eliminating conflict of interest between them. Further, leaders for B&W can build better relationships with suppliers and their workers through establishing supplier development activities. One of the activities is to interact frequently with people working for suppliers in their working places and also in other informal settings. For instance, they can be visiting the workers and have brief conversations in their working places. They can also be communicating with them through social sites in the internet. When communicating with the people working for suppliers, the leaders for B&W should always let them know about any development at B&W that may concern them or in which they may contribute. B&W can be planning annual general meeting and other meetings and invite the suppliers to participate. In those meetings, the suppliers should be allowed to present their interests, which should be assessed and given consideration.

Another important issue is that leaders for B&W should focus on enhancing transparency and honesty with people working for suppliers. The leaders for B&W should start making good records for purchases and other deals with people working for the suppliers or hire experts to do so. As they seek for open books from the suppliers, they should also open their records to them. They should not focus simply on open book costing. Rather, they should also focus on cost transparency. They should avoid issues such as recording wrong values for costs. Lastly, B&W should focus on better supplier involvement in what they do. The company can connect with people working for the suppliers and let them know about their processes and objectives.

7.0 Recommendations improvements in governance and processes undertaken at B&W

7.1 Recommendations for improvements in governance

The effectiveness of an organization’s governance has a direct implication on performance. Governance plays a major role since it touches on all facets of an organization’s practices and activities. IT acts as a helm that guides the direction of an organization. Governance practices at B&W have been very poor in the past (Henry, 2008). The new leaders can solve the problem in various ways. Firstly, the existing maverick buyers should be eliminated and purchases should be made by the purchasing department only. In order to achieve this, the company should build a strong purchasing department with experts who understand how to conduct purchasing functions. If need be, the same people working in the purchasing department should be assigned the role of managing inventory and production and sales activities. The manager and workers assigned those roles should have proper knowledge and skills that will be needed to enhance prioritization strategy and carry out inventory management activities well. The company should have a competitive, knowledgeable and active human resource manager who should be checking how workers carry out their job. Currently, the clerk for B&W works part time, yet he/she should be working full time. The human resource manager should also establish ways of motivating the workers and avoid de-motivating them. Albert was de-motivating the workers since he did not appreciate their efforts. Ways of appreciating the efforts of the workers should be embraced, such as recognizing their contribution, giving rewards for good performance, awarding them bonuses and giving them time-off.

The human resource manager should also make sure that the workers are treated well, without harassment. Relationship between managers and workers and among workers should be enhanced. Also, strategies for enhancing discipline should be implemented. In order to achieve this, the company should have a code of ethics that should be well understood by all people within the organization. All people should be made to understand the actions that can be taken against them for not adhering to the ethical standards. The company’s governance should also focus on enhancing its customer management through adopting the strategies explained in section 6.0. Also, the governance at B&W should be improved through enhancing customer relationship management. If need be, customer relationship strategies, such as communicating with them frequently, understanding their interests and concerns and letting them know the plans of B&W should be adopted.

7.2 Recommendations for improvement of processes

The manner in which an organization conducts its processes and practices has a direct impact on its performance. The purchasing, production and sales processes should be flexible enough to enable organization meet the desired quality of products and services by customers (Haslet, 2010). The analysis of B&W showed that the company has rigid and ineffective processes, which have been annoying customers. The company should focus on enhancing the processes in various ways. To start with, the company should implement prioritization strategy, as explained in section 4.0. Secondly, there should be separation of roles in the organization. The same people should not be assigned different roles such as purchasing and sales. Rather, different roles should be assigned to different departments. For instance, sales activities should be conducted by sales department and should not be given to people who are in charge of purchasing as Albert used to do. Also, the role of purchasing should be moved away from the production department. Elimination of Maverick buyers will also help in improving the purchasing processes in the organization. The new leaders should establish procedures to be followed when purchasing products from suppliers. Further, processes at B&W should be improved through the use of electronic systems. For instance, the company should install a computer system that will automate some processes such as accounting activities and making of payments. In addition, different workers should be allowed to carry out their specialist roles. For instance, the engineers, development experts and material scientists should focus on their specialist roles and should not have limited involvement in purchasing processes. Importantly, records should be kept for all activities and transactions done at B&W. For instance, what is spent on purchasing items from different suppliers should be recorded. Cost flow forecasting is also essential for the organization in order to estimate costs or expenses that would be involved in adopting certain strategies.

8.0 How SABIC/B&W can apply costing methods to the things they make for Boz/SABIC

B&W has an option to adopt one of the available different costing methods when making things for Boz/SABIC. To start with, B&W can apply activity-based costing (ABC) method. ABC method involves identifying all activities that are carried out within an organization and assigning the cost incurred in carrying out each activity to products and services in accordance to the consumption of each (Muñoz & Encinar, 2012). Secondly, B&W can apply marginal costing, which involves assigning variable costs to the units produced and writing off fixed costs that have been incurred within a given period of time. Marginal costing re