In a business environment, where internal and external systems define how successfully a business operates, procurement function is as important as any other vital elements within the company. Many marketers view procurement as an activity that should involve only the top management. The practice is also seen as an area that does not require creativity of any kind as it involves a mere handling of procurement orders. As such, involvement of top management in the whole process has been minimal, if any, as far as important and crucial decisions about procurement has been concerned. However, with the dynamic business environment and a slowing down economy, many companies have been forced to reconsider their operations. Basic to this reconsideration is procurement because of its role in turning business into a profitable venture. Van Weele (2005, p. 7) argued that, with the business environment becoming more competitive, procurement is increasingly becoming a crucial part of the management and a key business driver. Thus, procurement has a big role to play in promoting the competitiveness of a given company. As the business environment changes, it forms a trend which is a result of big forces that have the potential of having a lasting effect on the economy. This paper explores the best procurement practices at Emirates Telecommunications Corporation, as well as how best practices in procurement have been applied at this company.
Emirates Telecommunications Corporation
Emirates Telecommunications Corporation, commonly known as ETISALAT, is a United Arab Emirates company that provides telecommunication services in over 18 countries across the world. The company is majorly operating among the Middle East, Asian, and African countries. It has a customer base of 135 million across the world, and the Forbes Middle East named it the most powerful company in the Middle East. The company’s annual returns have been on the upward trend, with a reported profit of 8.1 billion dollars and a net profit of 2 billion dollars, in 2011. As one of the two existing telecommunication service providers in United Arabs Emirates, the Emirates Telecommunications Corporation holds a special position in the provision of telecommunication services through best practices. This has enabled it to remain among the top companies in the country. The company has branded itself as the best internet hub in the Middle East that provides affordable connectivity to the rest of the companies that operate in the region. ETISALAT is also the biggest transmitter of international voice traffic that goes through Middle East and Africa. Thus, the company is the 12th largest voice carrier in the world with roaming agreements with over 186 countries across the world. The agreement has enabled ETISALAT to support Black Berry and GPRS services. Besides, ETISALAT provides the point of presence services in large cities like New York and Amsterdam. The company has invested in 4G technology within its long term evolution strategy as it seeks to establish itself as a competitive company not only in United Arabs Emirates but also across the world.
The company is one of the leading manufacturers of personal computers in the world. It has a culture described as The ETISALAT that emphasizes on the tenets of flexibility and innovation, teamwork, integrity, focus on high achievement, and respect for persons. As a telecommunication company, Emirates Telecommunications Corporation has various categories of products including traditional telecommunication services as well as non-telecommunication ones in the form of business units. Such services include provision of training and consultancy to a wide range of customers, manufacturing of smart cards, and clearing of data houses. Equally, the company runs numerous call centres, Cable TV, and facilities management. The services are provided both to small and large-scale customers. This makes the range of required facilities and equipment to vary. The customers range from individuals who purchase products for personal use to industries, governments, and corporations.
As a large international telecommunications company, Emirates Telecommunications Corporation cannot operate optimally if its procurement process is not functioning: the company relies on many suppliers of parts used in the manufacturing of the final products. The suppliers are both from United Arab Emirates and international countries. Thus, the company requires a strong management style in approaching and handling procurement matters if it is to remain its position as one the top businesses. As a dealer in telecommunications and other services, ETISALAT operates in a business environment that is interconnected both locally and internationally with other companies. To this end, procurement plays a pertinent role of ensuring the company remains competitive in a dynamic and challenging environment. It is notable that technology is fast-changing. Thus, there are circumstances under which goods, which had been ordered, can become obsolete before they arrive at the company’s premises if procurement does not assure the best set of principles and practices to keep in pace with the business needs. Obviously, it will be a loss to the company if procurement fails to function properly (Weishaar, 2013, p. 23).
How Emirates Telecommunications Corporation has incorporated Best Procurement Practices
As world leading company in telecommunications, ETISALAT maintains high quality standards of the goods that are procured, as well as services provided by the company. Being a renowned company, ETISALAT ensures that customer satisfaction starts when the goods are ordered from suppliers; something that can be very technical; therefore, proper procurement model and best approach to purchasing need to be adopted (Sollish & Semanik, 2012, p. 11). Equally, the nature of services at the company demands that time factor is carefully considered especially when it comes to planning how raw materials are delivered from the supplier to the final destination where they are turned into services for the company to sell. Based on the complexity of the processes, as well as operations at the company, ETISALAT procurement managers have to deal with various systems, both inside and outside the company, in order to ensure a smooth and affordable procurement process. This has greatly contributed to the company’s in terms of remaining on top of the business.
Additionally, best procurement practices have been a foundation when it comes to fighting the intense competition from other companies like Emirates Integrated Telecom. This competitor has for some time threatened to replace ETISALAT as a leading telecommunication service provider in the Middle East, Asia, and Africa. Definitely, other factors such as focus on objectives and mission of the company and dedicated management team have also contributed to the success of the business in more than one way. As will be evident with ETISALAT, the way the company executes its procurement processes plays a fundamental role in ensuring the ultimate success of the business (Dominick & Lunney, 2012, p. 37).
In order to meet all its procurement decisions, ETISALAT has had to look at various aspects of its procurement process including delivery and handling, as well as prices and marginal benefits. One of the elements that have defined the procurement process at the company is that most of its raw materials are scarce or, at least, the supply is lean. Thus, any decisions with regard to procurement of goods at the company are subjected to the principles of cost-utility analysis, as well as the benefits of the transaction for the company. ETISALAT is actively involved in trade shows, both in its local location and across the world. Thus, marketing team has been in contact with procurement team, which was vital to ensure that the objectives of the trade shows are achieved. Among the objectives that necessitated the collaboration between marketing and procurement departments is the need to implement brand standards, reduction and centralization of spending, and the formation of strategic relationships with vendors. In a bid to realize these objectives, the management has had to help in forming the strategic relationships with vendors, in collaboration with the company’s procurement team. However, the inclusion of the procurement department raised certain issues. Such issues included misunderstanding of the marketing strategies, which are an important part of the company’s operations, a tendency to appraise vendors based on the price, as well as general slow-down of the acquisition process in the company (Christopher, 2007, p. 103).
As a means of bringing procurement on board, the management started off by formulating an educative environment to consolidate the effort of having its marketing and procurement departments work together. Procurement department has since then been playing an important role at the company such as negotiating for prices of ordered goods and protecting the company contractually. It also enhances the essential role of vendors and suppliers. Through the collaboration of the two crucial departments at ETISALAT, the role of procurement was defined and expanded to include all tasks that had previously been side-lined. For instance, procurement department began to be actively involved in the development of specifications for goods ordered from different vendors and suppliers. This role was initially a reserve of the technical team. Therefore, it impacted on the price while ignoring the overall objectives of the company. Furthermore, procurement department started participating in researching and selecting the suppliers actively. Thus, procurement department was authorized to ensure that the company continues to deal with those suppliers that are contributing to the company’s development. In essence, procurement was included into the company’s strategy because its role became pertinent to the company’s growth (Tate & Brown, 2009, p. 63).
Being among the fortune global manufacturers of technology products, ETISALAT had to look at its procurement systems that required that its annual spending of over $60 million was prudently spent for direct and indirect procurement functions. To this end, the company adopted a non-compliant approach that emphasized on local sourcing of materials as the first priority while giving consideration to the strategic procurement activities that dwelt on global sourcing, as well as additional activities that aimed at consolidating its procurement activities. For instance, the company embarked on harmonizing its business units to avoid double procurement in those units that are located in different places. The strategy aimed at seeing that the cost of ownership was reduced while, at the same time, managing the expenditure of different units including the labour, software and hardware development, and the supply chain (Nigam, 2005, p. 4).
ETISALAT procurement department is headed by an expert named Obaid Bokisha, who is in charge of all the major agreements and contracts in all the company’s global and regional markets. In order to ensure that its procurement meets the international standards, the company had to recruit a well experienced person in the field of procurement. This is a good starting point given that the officer has a vast experience in the technology. With 18 markets in three continents, the management of the procurement procedure varies depending on a number of variables including different legal requirements. As a company with interest in a wide range of services, ETISALAT had to outline its goals in establishing a procurement model which sought to optimize the contracts that were given to vendors and outsourcing companies. It also had to enhance compliance with procurement requirements across its 18 markets. The ultimate purpose of a defined model of procurement at the company is to reduce the costs associated with procurement of goods and services, which can enable the company to optimize its resources (Gibson & Cook, 2005, p. 15).
The impression of e-procurement involves the use of technology to carry out the procurement processes. The e-procurement process involves the use of the internet to carry out procurement. This is a modern concept that is practiced by most of the organizations due to its efficiency and speed in terms of carrying out the transactions (Wynstra, 2010). ETISALAT is usually involved in the e-procurement process for the purposes of ensuring that it interacts with suppliers who carry out their businesses online. The e-procurement process is important in terms of enhancing the best practices in the procurement process because it increases the efficiency of the procurement and hence enables the company to achieve its goals and objectives of the procurement process (Emiliani, 2010, p. 29).
It is equally important to note that e-procurement eliminates most of the challenges that are usually faced by organizations. The errors that are usually witnessed in the ordinary procurement process are usually eliminated through the use of the e-procurement. The time taken to carry out the transactions is also reduced through the use of the e-procurement process and hence increasing the efficiency of the procurement process (Zhangyi, 2011, p. 45).
Through the implementation of an e-procurement system, ETISALAT, first of all, had to separate its services and gain a clear distinction between its core business and non-core business activities. This ensured that the system allowed all heads of departments to make a request to their top management stationed at a central point of reference and hence increase efficiency. The e-procurement system at the company has been instrumental in the achievement of accountability in procurement. Apart from ensuring that only verified and important procurement requests are approved, it enabled future references to be made on the requests.
In his book, Davis et al. (2008, p. 22) defines procurement operations as “a function concerned with the search, selection, purchase, receipt, storage and final use of a commodity in accordance with the catering policy of the establishment.” The activity is arguably important, with cycles that enable the management of the business to have a control of both the costs associated with running the business and the profits expected. In essence, procurement as a management activity in telecommunications is aimed at minimizing the costs of doing business; thus, maximizing the business profitability.
In terms of its management function, ETISALAT procurement department is concerned with the selection of suppliers that suit the needs and specifications of the business and procuring and acquiring of stock. This includes every product and material used in the course of the production of final goods. It also carries out the analysis of the performance of the existing suppliers, with a view of evaluating whether the suppliers meet the specifications as required. This helps the company to ensure that all the materials ordered comply with the specifications. As such, Davis et al. (2008, p. 23) observes that procurement as a function of management is a continuous process that has to be given great attention from the concerned manager. It cannot be taken for granted having impeccably trained staff at the counter while the products supplied do not meet the minimum customer satisfaction levels.
Moreover, the procurement process at ETISALAT follows the outlined laws in the Laws of Contracts of Government Departments in Dubai of 1997 (Bovis, 2012, p. 19.) The company has diversified into a strategic outsourcing of some of the procurement functions to third party companies. This form of procurement outsourcing is not done in isolation; therefore, external procurement service is allowed to perform strategic sourcing at the company on a regular basis, in order to help cut down management cost more efficiently. This form of procurement is not sustained in the company for long because of the understanding that its benefits are short-termed, especially in cases where there is no sound management capability (Houlihan, 1998, p. 24).
Nevertheless, the approach is advantageous to the company as it contributes to acquisition of skills and procurement knowledge which might necessarily be available in different markets. ETISALAT has managed to engage in this form of the procurement process occasionally as highlighted in the law, without having to have a change in management. However, the requirement that vendors are challenged to drive up the procurement process in circumstances that the procurement department is in control of the procurement operation means that procurement is micro-managed. For that case, the outsourced procurement services not only discharges the procurement system of a lot of functions but also helps in bring in fees and services that exceed the cost of bringing the expertise in the house (Stank & Daugherty, 2008, p. 71).
As a company that is dealing with a dynamic environment, ETISALAT has been advocating for a strategic form of procurement across its markets. This approach involves the application of right sourcing strategies for each element in a sourcing group. ETISALAT and many other telecommunications companies have four identified sourcing groups. They include sales and marketing, network, information technology, and general administration. In order to achieve the objective of procurement in the four categories, the company has had to develop a long-term strategy. This strategy involves the buy-in from other telecommunication companies together with the development of analytical capabilities, as well as negotiation skills for employees in the procurement department. Thus, the important aspect of this approach is the development of the right sourcing strategy and the rightful skills to translate them into efficient procurement process.
As such, ETISALAT do not have a straightforward approach to sourcing strategy because most of what is applied in the telecommunication market is confined to that market. Hence, the procurement manager at the company has always stressed careful account for potential sourcing approaches as the most important element where operators cooperate, and commercial strategies are considered. Other elements, which define the sourcing approach and which are equally important in enhancing the productivity of the company, include the financial relevance and strategic importance of the goods and services that are being procured. Equally, the supplying market also influences the way strategic procurement is done at the company (Stefansson, 2006, p. 10).
Similarly, Johnston, Clark and Shalver (2012, p. 32) observes that procurement plays a crucial role in the outbound logistics as it determines the mix of products and quantity of stock delivered to the customer. Ultimately, the order for particular services and products from the business come in through procurement. Thus, the department’s management should ensure that the right quantity and quality of the ordered products are aligned to the specifications from the customer (Fitzsimmons & Fitzsimmons, 2010, p. 14). Through proper dissemination of the ordered products, the business will be able to build relationships and networks with its external customers and, therefore, remain on the top position in the competitive market. For instance, a telecommunication industry may be contracted to supply telecommunication services to a large number of people in an event like an international conference. In this case, the estimated number of visitors may be determined by the client who is ordering. However, the business needs to take care of the overflows and charge the client later in case the number is higher than estimated.
Moreover, Fitzsimmons and Fitzsimmons (2010, p. 17) noted that procurement also plays a crucial role because it is through their good client etiquette and relations that the business will be able to retain a good number of its customers. For instance, through its proper presentation of specifications and services, ETISALAT Company has been able to attract more customers and remain competitive and profitable as was discussed above in this paper. This has enabled its own services to serve as a marketing opportunity for it to sell its services to other potential customers who might be at the event. Even though the company does not do it openly, the way the company provides services to the visitors will cause someone to want to contract the management, whenever there is an event like this. ETISALAT’s proper execution of agreed services has seen its clients recommending it to other potential customers who may need their services (Johnston, Clark & Shalver, 2012, p. 32). However, this normally depends on the way a business management handles the available opportunities at their exposure. It is through proper service delivery that any business will be able to attract more clients in the future.
Evidently, ETISALAT’s procurement department has the responsibility of overseeing the quality of services and products that the business gives to the external customers. Whenever the company’s external customer is not satisfied, the company has been willing to change the way it is doing its business and adapts to new mechanisms of doing business. The sum of its activities to maintainproduct performance after the product is sold is also under the control of its procurement department. Equally, the company has noted the fact that service delivery is also important in helping the business to stand out among the many businesses that are providing the same services (Heizer & Render, 2008, p. 20).
Van Weele (2006, p. 15) argues that different areas highlight the role of procurement in telecommunication industries and how it influences the manner in which business is done. As such, procurement aims at optimising the supply chain management practices and programs that are put in place in the business. Through supplies and procurement, the telecommunication industry is able to provide high cost services and products at lower prices. This is because the supply chain and procurement help in identifying the customers who can supply stock at affordable prices. It also helps identify the clients who are willing to purchase the final products at a given price. Ultimately, Greasley (2009, p. 6) notes that this is important because, without proper management in the procurement chain, a business will get raw material expensively because of its failure to do a proper shopping. Equally, this will not allow the company to sell the final product to the client easily because it will be too expensive to purchase.
Consequently, it is the duty of supplies and procurement to ensure that the stock is acquired at a reasonable cost and the final products that the business is producing is also sold at a reasonable price to the consumer (Greasley, 2009, p. 5). This is what has made the activities of ETISALAT continue running, even if the marketing conditions are not favourable to the industry like during the periods when the demand is low. Concerning the need to optimize the quality of customer service through building of relationship with customers and staff, the company’s procurement management has helped ensure that the business is strategically positioned to establish linkages with suppliers and clients of the business. Through this approach, there has also been an improvement in the customer satisfaction because the company has been able to provide personalised and tailor made customer services to both the staff and clients.
Most important principle of best procurement practice is ensuring that every business stakeholder is satisfied with the business services and products. In addition, there is the need for improving performance through efficiency and effectiveness by selectively choosing the suppliers who deliver products to the business (Heizer & Render, 2008, p. 20). According to Johnston, Clark and Shalver (2012, p. 22), procurement also plays an important role in the effective and efficient management of telecommunication industries. The other roles played by procurement include the provision of support activities like procurement of all materials that are used in the business. This is evident in ETISALAT where the procurement team helps outline the process and channels through which the business is going to acquire resources for its operations. The procurement manager is in charge of outsourcing and negotiating supply of different materials with suppliers, in order to ensure that the business gets the best deal in the market.
Further, it is in the best practice of procurement, when it liaises with the human resource department, in order to ensure that the staff members have the relevant equipment that is needed in their daily routine (Johnston, Clark & Shalver, 2012, p. 22). An illustration is when the business recruits a new employee. In such a scenario, it is the procurement department that ensures that the new staff member gets the required equipment. Furthermore, with the shift of the society to a more advanced technological world, ETISALAT’s procurement team have had to step up to foresee the company’s acquisition of new technology tools and equipment, which the company needs to acquire to help serve their customers well.
Following the above analysis, it is evident that procurement function is important within the control cycle efficient management that can lead to lesser costs and more profits. For instance, the study of Emirates Telecommunications Corporation has revealed that procurement is important in the selection of the supplier, the procurement of the stock, as well as in the evaluation of the performance of suppliers. All these functions are geared toward making business more competitive and enabling it becomes competitive, although it is subjected to a difficult economic situation. Therefore, the inculcation of procurement principles in the management of business operations in telecommunication industries is something that managers in the industry need consider thoroughly. The above analysis indicates that procurement plays a crucial role in telecommunication industries as it ensures that the business’ operations are executed well. The difficult business environment is also contributing a lot to the increased need of business manager to adapt better policies and programs in procurement. This will help ensure that businesses cut down on costs which can be avoided through better management of procurement. Also, businesses need to establish relationships and networks to ensure that the suppliers and customers are consolidated in one database. It enables them to be reached easily with promotional services in case the company is facing difficult times in its operations.