OPERATIONS AND INNOVATIONS MANAGEMENT ASSIGNMENT
SECTION A: Compulsory case study
QUESTION 1 - Read the case below carefully and answer the questions that follow.
SA PROCUREMENT FRAUD DOUBLE THE GLOBAL AVERAGE
A total of 59 per cent of South African respondents to the PricewaterhouseCoopers (PwC) Global Economic Crime Survey indicated that they had experienced procurement fraud, compared with the global figure of 29 per cent. PwC director Louis Strydom described as "mind-boggling" the loss South Africa suffered owing to economic crime. Of the 134 surveyed South African respondents, four reported losing more than R1-billion each through fraud, said Strydom.
In terms of financial losses below R1-million, South Africa ranks lower than global averages, but for losses between RIO-million and R1-billion and above, South Africa ranks the highest, said Strydom. Globally, governments accounted for 46 per cent of procurement fraud, followed by energy, utilities and mining (43 per cent) and engineering and construction (42 per cent).
In South Africa, vendor selection was the most targeted, said Strydom. "Just look at how many projects meant to assist the poor fail because of the misappropriation of funds." "Procurement fraud cannot happen if there are no internal players. To deal with economic crimes there must be a focus on management. If management doesn't advocate against such practices, we cannot beat it."
Fraud-risk management was the most effective means of detection, said Strydom, and South African companies were ahead of their global counterparts in this area. 'Worrying, though, is that 20 per cent of companies do not undertake risk assessments, with 18 per cent of culprits only receiving warnings, while 9 per cent of companies do nothing against perpetrators. it is encouraging that more South African companies (82 per cent) than their global counterparts (49 per cent) turn to law-enforcement agents to deal with (internal) culprits." Externally, 63 per cent of culprits in South Africa were turned over to the police, versus 61 per cent globally.
Meanwhile, as much as 77 per cent of South African respondents reported experiencing asset misappropriation (69 per cent globally), and 52 per cent bribery and corruption (27 per cent globally). Africa and Eastern Europe reported the highest prevalence of bribery and corruption (39 per cent), followed by the Middle East (35 per cent), Asia Pacific (30 per cent), Latin America (25 per cent), North America (14 per cent) and Western Europe (12 per cent), Strydom said.
Institute of Accountability director Paul Hoffman estimates that corruption has cost South Africa R700-billion over the last 20 years. Through government's tendering system, R30-billion is stolen annually through corruption. Corruption would continue until the government developed the political will to appoint an effective, independent anti-corruption entity, said Hoffman. "Currently we pursue a multi-agency approach. The problem with this in relation to corruption is that too much falls through the cracks, with no specific agency having the necessary clout to take on corruption in high places. "The Hawks are not as effective as the Scorpions; they don't have the clout," said Hoffman.
1.1. How would you describe the current situation regarding ethical behaviour in procurement?
1.2. Do you believe that requiring procurement professionals to have a licence to practice can help to combat procurement fraud? Explain your answer.
1.3. Critically evaluate the reasons why procurement fraud has spiralled out of control.
1.4. "Procurement fraud cannot happen if there are no internal players." Explain why this is true.
1.5. Discuss using examples, five (5) reasons for concern regarding ethical conduct in South African purchasing.
1.6. Describe using examples, recommendations you would make to combat the impropriety in procurement.
SECTION B:
QUESTION 2: The impact of globalisation on the procurement function has been profound. Africa has become connected with the global marketplace and this has increased the availability of goods and services otherwise not available in the domestic market. The ability to sell products globally has been improved and with this we have seen an increase in the level of competition. Our levels of trading with China are at very high levels, whilst trading between African countries remains low.
2.1. Outline the differences between International Purchasing and Global Sourcing.
2.2. In recent years we have seen Southern Africa become a net importer of goods and services from outside Africa. Why do you think the level of trading between African nations is at such low levels?
2.3. Describe five (5) main problems that purchasers must consider when sourcing from China?
QUESTION 3: Suppliers are a key part of the supply chain and are responsible for providing the organisation with goods and services to facilitate production. The management and maintenance of good supplier relations is an important function of the purchasing manager. You have recently been appointed as the purchasing manager for Khumba Trading. Management has noticed that the purchasing function has become fragmented from the rest of the organisation and that suppliers are not being managed properly. This has resulted in inconsistent quality levels and maverick purchases.
3.1. Advise management on the different contract types available, based on the closeness of the relationship with the suppliers.
3.2. Management wishes to classify suppliers in order to optimise the supplier base. Explain the different levels of supplier accreditation that you would use to classify your suppliers.
3.3. Having classified the suppliers, management now wishes to enter partnerships with the best suppliers. Provide a description of the main problems associated with supply partnerships.
3000 words
6 Harvard references.