The Procurement Management

4.1.3.1 Core & Supplementary Business

Company A’s core business is the generation, transmission and distribution of electricity. Besides that, company A also invests in several subsidiaries such as maintenance and repair operations (MRO) services, training services and manufacturing services. These subsidiaries are 100% owned by the company A. According to the interviewee, the generation of electricity involves major/minor overhaul of generators or turbines. The transmission of electricity involves the construction of a main intake substation and the erection of transmission lines. Distribution of electricity involves the construction of substation and the laying of the medium voltage underground cables. The supplementary business of maintenance and repair operation (MRO) services involves the engagement of expatriate for the major/minor overhaul of generators and turbines. The training services involve the outsourcing of the specialized trainer.

Transmission and Distribution services are the core business for company A. However, due to developments and expansion, these two divisions have been outsourced to the third-party expert many years ago. According to the interviewee, company A has not been able to support its great expansion plans and developments. As a result, company A has outsourced one of their main core businesses to the expert. The interviewee believes that the decision to outsource during that time is reasonable as company A lacks the resources and experts within the industry.

Similarly, the MRO services are also outsourced externally. However, due to high maintenance and repair services cost, the company has decided to manage the MRO services internally by the company’s subsidiaries. All the maintenance and repair services are considered the supplementary business for this company. Although company A has managed the MRO services internally completely, however, in several occasion, the company may outsource the specific task to the expertise. If the MRO services require specialized skills or

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has encountered unresolved problem. The company will seek the expertise from the original machinery or equipment manufacturer to handle the problem.

The interviewee further explained that throughout the years, the company has relied and depended on the original machinery or equipment manufacturer. As a result, company A has encountered a loss of expertise. Moreover, it was costly to hire expertise aboard whenever there is an issue. These have been the two major considerations for company A to maintain and manage the MRO services through its subsidiaries. Since then, company A has slowly transferred the technology and knowledge over the years. Currently, company A’s MRO services team are well trained and able to complete the basic MRO services. Occasionally, company A will invite the expert for a visit, approximately once in every five years for participate in a knowledge-sharing session with the local experts.

4.1.3.2 The Management of Procurement / Purchasing

During the 80’s the company used to manage everything internally. Due to expansion and developments, the company has outsourced its transmission, distribution and maintenance and repair services. The company has not been able to cope with development and expansion. As the company’s development is more stabilised, the organization is in the process of restoring the expertise for transmission and distributions services, as they are considered the core business for the organisation. In outsourcing terminology, an organization will only outsource services that support the business functions but not the core business.

The interviewee emphasized that the organization is lacking in procurement and supply chain knowledge. Most members of the team are from engineering background. As a result, the management team has outsourced the services completely not realizing that the services that they have outsourced were actually the core business for the company. One of the main reasons that the company intends to in-source the transmission and distribution services is to maintain its core competency and core strength within the organization. Besides realising the importance of core competency, it is believed that services providers tend to mark-up the price for the purchase of transformers in the

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transmission services. Indeed it has become very costly for the organisation. Recently, the company has decided to purchase 20 transformers. With the current management, the company stands a better chance of great savings by negotiating for a better price.

4.1.3.3 Centralized / Decentralized Procurement System

Currently the company’s purchases are fragmented. The interviewee is of the consideration to centralise the company’s procurement system. The procurement team plan to develop the procurement policy and procedures and procurement strategy to be applicable across the organization. All the departments will be required to comply with the company’s procurement policy and procedures, as they are audited based on the company’s policy and procedures, by both internal and external auditor. Some of the centralized purchases may include the company’s uniform; printing and photocopy services; stationary and equipment; documents and forms and etc. Despite the decision to centralise all the purchases, the purchasing budget for every department may differ. Each department’s purchasing decision will depend on the budget allocated. However the procurement department will consolidate the similar purchases for all departments to achieve economy of scale. In general, the procurement department develops the overall procurement procedures and policy to be followed by other departments. The procurement team plans and negotiates for contracts at a higher level for the overall operation of the company. However, the requirements, needs and budget for each department depend on individual performance and approved allowance.

4.1.3.4 Services Categorization

As stated, all services in this company are categorized based on similar purchases and are available in the Information Technology (IT) system. Some of the services are managed by different subsidiaries, for example the transmission, the distribution, the maintenance and repair services, and the management services.

4.1.3.5 Services Expenditure

Unfortunately due to confidentiality, the services expenditure is not reviewed for the whole duration of the discussion.

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