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RELATIONSHIP MANAGEMENT ABBOTT
Term Report
1. M. HASSAAN AHMED KHAN(1948)2. BILAL AHMED PARACHA(2228)3. WAQAS SALEEM(2142)4. M. SAAD KHAN(2074)5. ABDUL RASHEED SONIJA (2066)
IQRA UNIVERSITY GULSHAN CAMPUS
Submitted to:
MR. SOHAIL MAJEED
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Abstract
In this report the process of supply chain management, supply chain management
structure, material flow of the Abbott laboratories Pakistan Ltd is being discussed, furthermore
supply chain relationship is also discussed in details with having context of building relationship
on long-run basis. In the lights of significance of relationship among the management and
suppliers of certain issues and remedies are also being included in this report. Distribution of
ABBOTT, import material and export of product with respect to role of indenter and benefits of
indenter which also facilitate the buyers and suppliers with mutual gain or win win respective.
Policies are also being discussed in details and recommendation is also considered in this report.
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We dedicate this report to our Faculty Mr. Sohail Majeed Iqra
University Gulshan Campus. Mr. Sohail challenged us to do work
on an organization in context of supply chain management and
successfully we collect information, gather and present the
information in professional way. With clear vision and
determination plus the support of Mr. Sohail, we able to make
report on a centralized organization namely as ABBOTT, therefore
we all group members like to dedicate this report to Mr. Sohail
Majeed.
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CONTENTS
Abstract...........................................................................................................................................2 Table of Figures..............................................................................................................................6 INTRODUCTION..........................................................................................................................7
COMPANY PROFILE.........................................................................................7 SUPPLY CHAIN MISSION ................................................................................7
ABBOTTS SUPPLY CHAIN STRUCTURE.............................................................................8 SUPPLY CHAIN PROCESS
................................................................................................9
MATERIAL MANAGEMENT DEPARTMENT .....................................................................11 APPROVED DEMAND FORECAST ..............................................................13 APPROVED SUPPLY PLAN............................................................................13 MASTER PRODUCTION SCHEDULE ..........................................................13MATERIAL MANAGEMENT PLANNING ...................................................13BID SHEET .........................................................................................................14
BID SHEET + INDENT TO IMPORT LC ......................................................14
APPLICATION FOR OPENING LC:......................................................................15 INDENT OR PERFORMA INVOICE .............................................................16 DELIVERED FORMS BY BANKER TO IMPORTER..........................................16PREPARATION OF L/C BY BANKER.................................................................16 WORKING OF MATERIAL FLOW ...............................................................17
RELATIONSHIP MANAGEMENT..........................................................................................19 DEVELOPING RELATIONSHIP WITH SUPPLIERS ................................20
Supplier performance evaluation tools .....................................................................21 ROOT CAUSE ANALYSIS...............................................................................21
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MATERIAL CLASSIFICATION .....................................................................24 LOCAL PURCHASING ....................................................................................24 IMPORT PURCHASING ..................................................................................25 INDENTER .........................................................................................................25 IMPORTED RAW MATERIALS ....................................................................25 ADVISING BANKS of ABBOT PAKISTAN...................................................26FEW SHIPPING COMPANIES THROUGH WHICH ABBOT PAKISTAN
IMPORTS RAW MATERIALS..................................................................26 EXPORT..............................................................................................................26
ABBOT DISTRIBUTION CHANNEL......................................................................................27
ABBOTT POLICY FOR SUPPLIERS ......................................................................................28
DOCUMENTATION AND INVOICING ........................................................28RESTRICTIONS ................................................................................................28
RETURN......................................................................................................................29 CONDITIONS FOR RETURNING RAW MATERIALS..............................29RETURN OF MATERIAL ORDERS (MOS) ................................................29
WASTAGE HANDLING ...................................................................................29 RETURN OF FINISHED ORDERS (FOS) ....................................................30
OBSERVATION AND RECOMMENDATION.......................................................................31 References .....................................................................................................................................33
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Table of Figures
Figure 1. Supply Chain Structure. .................................................................................................. 8
Figure 2. ....................................................................................................................................... 10
Figure 3 Supply Chain Process (cont.)......................................................................................... 10Figure 4. Material Flow. ............................................................................................................... 12Source Reportbd.com.. . ................................................................................................................ 15Source: Gartner Consulting; 2001. ............................................................................................... 20Figure 5 Abbot Distribution Channel. . ........................................................................................ 27
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INTRODUCTION
COMPANY PROFILE
Abbot Laboratories (Pakistan) Ltd, The firms main core activities are to trade in,
produce and market based pharmaceutical, dietary, indicative, medical (hospital) and consumer
products and facilitates toll-manufacturing services. It functions in two divisions Pharmaceutical
and other. Pharmaceutical division produce, trade in and markets research based pharmaceutical
products registered with the ministry of health and provides toll-manufacturing services. Other
divisions includes importing, manufacturing and marketing diagnosing equipment, testing kits,
consumer healthcare, nutritional and hospital products. The companys pharmaceutical products
include Kalaricid, Erthrocin, Hytrin, Epival, Brufen, Entamizole, protium and Forane. The other
products include Ensure, Pediasure, Pedialyte, Formance etc (Abbott Company Info, 2010).
SUPPLY CHAIN MISSION
ABBOTTs SCM mission is to configure, coordinate and improve all the sequentially
related activities and set of operations with the idea of satisfying the entire chain of suppliers
suppliers and customers customers by providing right product, at the right time, in the right
quantity and becoming highly recognized by our employees, customers and shareholders and
abiding by Government regulations by adhering to strict ethical and moral standards.
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ABBOTTS SUPPLY CHAIN STRUCTURE
Figure 1. Supply Chain Structure.
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SUPPLY CHAIN PROCESS
Vendors
Price Sample
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Figure 2. .
Figure 3 Supply Chain Process (cont.)
Institution Distributors Export
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MATERIAL MANAGEMENT DEPARTMENT
As a group we visited the material management department and after having the
conversation with the officials of particular department we figure out that it is one of the
significant departments amongst the other departments in Abbott Laboratories. Material
managements department comprises of different sections for example: Planning, Imports,
Exports, Local purchase and Warehouse.
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Figure 4. Material Flow.
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APPROVED DEMAND FORECAST
In ABBOTT Pakistan the demand is forecasted by the Marketing department. The
Marketing department provides 24 months rolling aggregate demand forecast, which is known as
ADS (Approved Demand Statement). This statement shows individual demands for all product
lines demanded by end users to whom we are providing quality healthcare products.
APPROVED SUPPLY PLAN
This plan is made on the bases of ADS and is approved once the supply department has
made the initial supply plan. Then after the supply plan has been made it is forwarded it to the
MM (Material Management Department.)
MASTER PRODUCTION SCHEDULE
This is the inventory, which is going to arrive in bulk, and it is the job of Master
Production Scheduler to arrange the bulk. This bulk can either be for export or for the market
demand done through forecast. He also sets up when to make the required batch on which date.
MATERIAL MANAGEMENT PLANNING
ABBOTT Pakistan is using MRP II to effectively and efficiently handle the Material
issues, which is based on the informations provided by MPS, It has been adopted by ABBOTT
Pakistan due to the imposition posted by ABBOTT International, Chicago. This requirement tells
us on the system what is the quantity required according to the Master Production Schedule. All
transactions are made electronically into BPCS known as Business Planning & Control System.
If there is an additional requirement due to abnormal demand then there are some changes made
in MRP.
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BID SHEET
A bid sheet is a low cost effective sheet in which there are quotations from
different suppliers and on the bases of that low cost suppliers are selected comparing their
LANDED COST.
It includes:
Representative/Agent
Name of manufacturer and country
Vendor status
Quotation date
Foreign currency
Duty
Landed cost/kg
Local currency
Exchange rates
Cost and freight
Then after getting the bid sheet orders are finalized and there is a request for an indenter.
After the request of an indenter the bid sheet along with the approved indenter is send for
approval to the finance department.
BID SHEET + INDENT TO IMPORT LC
Import section of any bank deals with Letter of Credit opening and post import financing.
Now the procedure from opening LC to disbursement against LC is given below
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APPLICATION FOR OPENING LC:
At first, an importer will request banker to open LC along with the following documents.
Source Reportbd.com.. .
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INDENT OR PERFORMA INVOICE
Indent or Performa invoice is the sale contract between seller and buyer in import-export
business. There is minor difference between indent and Performa invoice. The sales contract,
which is direct communication between importer and exporter, is called Performa invoice. There
is no intermediary between them. On the other hand, there may be an agent of exporter in
importers country. In this regard, if the sale contract is occurred between the agent of exporter
and importer then it is called indent.
DELIVERED FORMS BY BANKER TO IMPORTER
After scrutinizing above-mentioned documents carefully, officer delivers the following
forms to be filled up by importer and banker should check:
Whether the goods to be imported is permissible or not. Whether the goods to be imported is demandable or not
The forms are:
1. Import merchandised Permit Form (IMP)2. LC Application Form (L/CAF)3. LC Authorization Form (L/CAF)
PREPARATION OF L/C BY BANKER
Banks officer prepares LC when above mentioned forms are to be submitted by
customer or importer. Before preparing LC SIBL officer scrutinizes the application in the
following manner.
The terms and conditions of the LC must be complied with UCPDC500 and Exchange Control & Import Trade Regulation.
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Eligibility of the goods to be imported. The L/C must not be opened in favor of the importer.
Radioactivity report in case of food item.
Survey reports or certificate in case of old machinery is required. Bank of the importer is
called LC Issuing Bank. Then issuing bank inform its corresponding bank, called Advising
Bank or Confirming Bank located in exporters country to advice and the credit forward to the
exporter and simultaneously officer makes LC opening vouchers (Import Procedure., 2004-
2010).
WORKING OF MATERIAL FLOW
The marketing department submits their forecast. The production department sends the
forecast for approval to the S&OP (Sales and Operation Planning) committee, after being
approved then it is said to be known as Approved Demand Statement (ADS). Then ADS is
entered in to BPCS (business planning and control system), a system that every department in
Abbott Labs uses. Information regarding the raw materials and packaging materials are all fed
into this system and easily viewed or accessible by the production department as well as the
material management department.
After the ADS have been entered into BPCS then it is known as MAS (master arrival
schedule), which is sent to the headquarters in Chicago where it is entered into manugistics.
MAS is available at family level in manugistics. The capacity planner performs rough-cut
capacity checks in manugistics and sets the supply plan at family level for 24 months keeping in
view seasonality shut down period and capacity constraints. After that, MPS (master production
schedule) is run by the production department, on which MRP (material requirement planning) is
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based and is run afterwards by the material planning section. Availability of raw materials and
packaging materials is checked. Inventory is checked and if there is shortage of items than they
are locally purchased. For items, which are to be imported, have a different procedure to follow.
Inquiries are sent to all the local suppliers who then forward the request to the approved and
unapproved vendors. After the quotations have been received, a bid sheet is made consisting of
all the approved vendors along with their quotations and selection is made on the basis of low
price, past record and them being approved. If the price quotation of an unapproved vendor is
more to our liking than that vendors items are to be first approved by the Quality Assurance,
which usually takes up to 5 to 6 months. After, the vendor has been approved than he is likely to
be selected if his price quotations are according to our requirement. An indent is received by the
supplier, which shows the confirmation of the orders and contains terms, which are to be
followed. The bid sheet and the indent are then sent to the imports section for letter of credit.
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RELATIONSHIP MANAGEMENT
Relationship management is a feasible tactic to the industry in terms of social,
environmental and economic feasibility and can facilitate a positive role to sustainability and
also help to satisfy customers and stakeholder likings (Blau, 1963; Darwin 1994; (Darwin, J.
Duberley, and P. Johnson, 20000;MacNeil, 1978; MacNeil, 1985; Rousseau and J. M. Parks,
1993). It provides the understanding to accomplish sustainable, continuing relationships in long
and difficult contracts by a modification process (Kumaraswamy and J. Matthews, 2000).
Although there are some possible benefits of relational tactics (for instance, relationship
management) have received recommendable strong likings (see (Phua, 2006 for example).
According to Gartner Consulting, Supply relationship management can be stated as a set
of methodologies and practices needed for interacting with suppliers of products and services of
varied criticality to the profitability of the enterprise. (Gartner: 2001, p.2) In context of supply
relationship management we observed and like to describe the supply relationship management
as understanding of developing mutual instant relationships with preferred strategic suppliers,
the rationale is to add certain features that could boost the relationship while business
performance can be improved as the companies employed themselves in a network atmosphere
for shared benefit and enhance the possibility of making profitable new earnings together.
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Source: Gartner Consulting; 2001.
As far as Abbott is concerned, they understand the significance and by means the
relationship between the buyer and supplier is one of the most important aspects of the activity
structure for them. Therefore, in this relationship various buyer operations entail in the course of
action with the supplier relationship with the purchasing department, R&D, logistics, after
market, finance and managerial functions. It is significant that a buyer chooses those suppliers
which provide maximum value to the industry and therefore, it is essential for a buyer to check
the compatibility issues of suppliers and assess them respectively (Megan E. Bross & Guangbin
Zhao, 2004).
DEVELOPING RELATIONSHIP WITH SUPPLIERS
Relationship is seems to be significant facets of supplier selection, especially in the
pharmaceutical market. Therefore, in this industry most of the buyers generally create different
sorts of relationships with its suppliers. The various types of buyer-supplier relationships are
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most of the time depends on mechanism, which the supplier facilitates (Megan E. Bross &
Guangbin Zhao, 2004).
Relationship is a two way process in which communication coordination entailed both
suppliers and company therefore, ABBOTT is using tools which help the firms to identify the
performance and level of coordination of the suppliers with ABBOTT.
SUPPLIER PERFORMANCE EVALUATION TOOLS
KPI (KEY PERFORMANCE INDICATOR)
KPI is a tool used to measure the performance of the suppliers and within the
organization internally. Internal organization means departments performance, how one
department is significantly performing either they meet with the organizational goal or not, from
the supplier side, KPI is use to measure the total performance of the suppliers, for instance let s
suppose, ABBOTT has decided to purchase 12 lots from the supplier for the year and ABBOTT
purchase the lot size on monthly bases (1 lot size in one month). By using KPI; ABBOTT
generates report about the supplier performance; it includes lot size fluctuation, price fluctuation,
delivery time and quality etc. on the bases of these monthly report ABBOTT published
suppliers yearly report and on the bases of this yearly report ABBOTT gives rewards and
incentives if the supplier performance is good for the year for example supplier awarded in terms
of SUPPLIER OF THE YEAR.
ROOT CAUSE ANALYSIS
Route cause analysis, generally done for inquiry of errors, that particular analysis shows
whether ABBOTT is on the error or suppliers possesses the error. If suppliers found to be on
error side then the ABBOTT uses the CAPA system for the suppliers.
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CORRECTIVE ACTIONS AND PREVENTIVE ACTIONS (CAPA)
If suppliers found to be having errors, then ABBOTT by employ CAPA and CAPA
provide feedback by which suppliers can correct the wrong actions or for any instance if
uncertainty occurs with the suppliers then ABBOTT generate a report of supplier which is
known as CAPA report and then evaluates the performances of the suppliers after tenure of 3
months. If supplier consistently do mistakes and various errors occurs in between process then
ABBOTT terminate that particular supplier from its Supplier List.
ABBOTT employs this tool for problem solving issues of supplier and in order to build
longer relationships. According to (CAPA / Remediation, 2010) CAPA involve in performing
the following functions in ABBOTT:
Stock of All remedial and Preventive Actions Created Internally Manage Different Types of remedial Actions Identify by Part #, Supplier, Specific NCMs, etc. Allocate Employees, Due Dates, and Approvals Customer Configurable Corrective Action text Report Types Closed Loop Corrective Action ISO 900X Compliant Corrective Action Records Revision Control of All Document Status Reversals Automatic Approval Requirements On-line Tracking and Electronic Approval Signature Capability Automated Input of Standard Text for Discrepancies or Audit Findings Code Segregation Capability by Document Type
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Unique Data Collection Capability via Customer Driven Pop-Up Screens Assure Effectiveness Through Scheduled Follow-ups
Automatic Re-generation of Failed Corrective Actions
Inventory of All Corrective and Preventive Actions Identify by Part #, Supplier, Specific NCMs, etc. Assure Effectiveness Through Scheduled Follow-ups Automatic Re-generation of Failed Corrective Actions Lessons Learned Database
ACTIVITY BASED COSTING (ABC)
There are several various supplier selection methods and a number of selection criteria
but to bring efficiency in selecting the suppliers. Therefore, importantly to understand suppliers
strength and weakness Abbott adopt the ABC Method.
The ABC method is the method which is most focused on cost. The ABC method usually
used these days to assess the direct and indirect availability of resources of firm and then
compare with the actions which are based on the consumption. In the ABC method, resource
costs are figure-out by recognizing the amount of resources, which are essential or consumed in
performing a particular activity (La Londe, 1999).
ABBOTT employs this method in terms by classifying the suppliers with reference to
availability of suppliers and relationship. Although company is not directly evolved in one-to-
one dealings with suppliers but role of indenter comes here, indenter helps ABBOTT to classify
the supplier in three categories by implying the ABC method.
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MATERIAL CLASSIFICATION
ABBOTT Pakistan classifies its materials according to the values or the cost of materials;
basically they have allotted three grades or types to their materials:
Grade A (very costly materials, e.g. erythromycin)
Grade B (moderate cost, e.g. clathromycin)
Grade C (least cost, e.g. bubble gum and artificial flavors like mint)
LOCAL PURCHASING
Local purchasing department of Abbott Laboratories Pakistan deals with local vendors
concerning:
Designing FP Plastics, Al-Ahad Plastics, Thermoplas (Korangi) > Lead Time 30Days
PrintingAmmara Commercial Printing (Memon Goth, Malir) > Lead Time 30 Days Packaging Saima Packaging (Korangi Industrial Area) > Lead Time 30 Days Slicing Aluminum foils - Muhammad Corporations, Gulshan -e- Iqbal CartonsSultan Packages (Dalmiya, Karachi) > Lead time 7 Days Cartons King Packages (Lalukhait, Karachi) > Lead Time 7 Days Cartons - Decent packages (S.I.T.E Area) > Lead time 7 Days DextroseRafhan Industries (Faisalabad) Pseudo - Alpha Chemicals(Lahore) Essential Chemicals(Lahore)
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IMPORT PURCHASING
ABBOTT Pakistan has indenters through which they place their orders to the respective
manufacturers of raw materials
Some of the Indenters of ABBOTT Pakistan are:
.Rasheedsons - KHI Munico Associates - KHI S. Aijazuddinn - KHI Arfeen - KHI
INDENTER
An indenter is a local supplier or the middle party, we also call them as an agent who
gives information to the manufacturer and tells then to arrange the material. They have link with
the manufacturer and paid commission by them.
Basically the benefits of having indenter as compared to have direct dealing with
suppliers is that
Time Saving Less risk Easy to push locally available agents Easy to find variety of manufacturers
IMPORTED RAW MATERIALS
Dy RedSencient UK Potassium chlorideMerck, Germany Sodium CitrateSanfu, Taiwan Sodium chlorideDominon salt, New Zealand Acid CitricJungvuzlaur, Austria
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Aluminum Seals and PVVaasen, Flexible Packaging Holland Artificial bubble gumIFF Holland Supplier for Sugar - Malayam Malaysics, Malayasia Sodium Sulphate Merck, Germany
ADVISING BANKS of ABBOT PAKISTAN
Detuche Bank Standard Chartered Bank ABN AMBRO HSBCThen after this process the LC is send to the concern suppliers and indenters and then
they set the raw material to be shipped, shipment is done through different shipping company
and this part is dealt by the imports department.
FEW SHIPPING COMPANIES THROUGH WHICH ABBOT PAKISTAN
IMPORTS RAW MATERIALS
P&O NEDLLOYD MAERSK SEALAND HOPAG LLOYD
EXPORT
ABBOTT Pakistan fulfills the demand of countries like:
South Africa
Sri Lanka
Thailand
Bangladesh
Malaysia
Indonesia
Syria
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ABBOT DISTRIBUTION CHANNEL
Figure 5 Abbot Distribution Channel. .
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ABBOTT POLICY FOR SUPPLIERS
DOCUMENTATION AND INVOICINGThere are some legal formalities that need to be fulfilled before making a contract with
distributors.
Delivery Chalaan
Customer Invoice
Merchandise Receiving Report (MRR)
o Product Nameo Quantityo Delivered byo Received byo Condition (sound or spoiled)o Date of receiving
RESTRICTIONS
There are few rules and regulations that are very important for the company and
distributors to abide by them in order to avoid any mishap or confusion.
Distributors cant go out of their area for sale. Discount policy should be followed according to companys instructions. Distributors should carry 6 weeks inventory at their side.
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RETURN
There are two types of returns, one associated with Finished Orders and the other
associated with Material Orders.
CONDITIONS FOR RETURNING RAW MATERIALS
Raw Materials are returned either at the time when they are being unloaded or after they
have been tested by the QA and found to be defective.
RETURN OF MATERIAL ORDERS (MOS)
This can occur if the batch size is found to be wrong i.e. ABBOTT suppliers mistakenly
supplied the wrong quantity of materials or the materials were of incorrect specifications or the
product is found contaminated. In either case, the material is not allowed to be kept in the
warehouse and is returned immediately.
Another type of Source Return takes place after disapproval from the Quality Assurance
Department. The inferior material along with the entire batch with which it was delivered at
ABBOTT is sent to the Rejection Room which is located in a separate building located far away
from the manufacturing plant. ABBOTT also has an approved policy of disposing these materials
which is in accordance with the EPA ACT 2003.
WASTAGE HANDLING
There is only one dumping side in Karachi, Surjani town which is owned by the
Government of Pakistan but it is not up to the standards set by the Parent Company (Abbott Int)
that is why ABBOTT Pakistan does the dumping through a Private organization name
ABASEEN (Pvt) Ltd which is a more costly as compare to the traditional process (Rs 30/= per
Kilogram)
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RETURN OF FINISHED ORDERS (FOS)
Finished Orders are returned due to excess supply or supply of incorrectlyspecified products.
Another condition for returning finished orders occurs when the product isjust 90 days away from its expiration date. In this case, ABBOTT grants a full
refund to customers and donates all those drugs to hospitals that the drugs are
used as soon as possible before its expiry date.
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RECOMMENDATION
There are no bar code sensors or any computerized system to count the Materialarrival from consignment, all the counting is done manually by the supervisors. They
should adopt any computerized customized software to do the counting procedure so
it will save the time and there will far less chances of
error.
Contract among the suppliers and ABBOTT shouldbe based on mutual consensus having flexibility with
context of fixed pricing and no change in quantity.
VMI (Vendor Manage Inventory) is an information system which help in managinginventory therefore, by employing this system ABBOTT can benefited with this
system as if they lack inventory in urgency of demand then via this information
system supplier can fulfill or satisfied the need of ABBOTT. Supplier can evaluate
the inventory level periodically with the help of this information system.
Reward System should base on half yearly basis. This will motivate the suppliers andhelps in building stronger relation among suppliers and ABBOTT.
Vendor Conference meeting should be held and so that they can share their problemson quarterly basis.
Exchange of information In the stage of the new product development single info should be shared with
suppliers.
Provide ownership to the suppliers in terms developing new products.
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Finally, Abbott needs to implement e-purchasing system to improve the performanceof the Supply chain. By implement the e-purchasing system Abbott will able to save
the material cost up to 10% and improves efficiency by enabling the suppliers online.
And as the world is moving fast toward globalization, Abbott should try to implement
online selling.
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Blau, P. M. (1963). The Dynamics of Bureaucracy. Chicago: University of Chicago Press.
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