Halal Purchasing Dr. Marco Tieman (CEO LBB International & Adjunct Professor Universiti Tun Abdul Razak) PASIA World Annual Conference, 19-20 November 2014
Agenda Introduction Halal Procurement strategy Purchasing process Conclusion 2
Introduction
Dr. Marco Tieman Founder & CEO LBB International Agri-food supply chains Industrial logistics Third party logistics Adjunct Professor Universiti Tun Abdul Razak (Malaysia) Research in halal supply chain management Teaching Purchasing & SCM
Halal
Muslim population Muslim population worldwide (2010) 1.6 billion [23.4%], growing in 2030 to 2.2 billion [26.4%] Source: Pew Research Center's Forum on Religion & Public Life Mapping the Global Muslim Population, October 2009
The foundation Eat of what is on earth, lawful and good Qur an, 2:168
The foundation Eat of what is on earth, lawful and good Halal Toyyib Qur an, 2:168
Halal = 1. Lawful for Muslims (fit for consumption) 2. Permissible under Islamic Law (Shariah) 3. Concept, for Muslims to protect man from evil and benefits mankind in all aspects of life (Al- Qaradawi, 2007) 4. All aspects such as behaviour, speech, dress, conduct, mann er and dietary laws.
Source: Tieman (2011) Evolution of halal Halal Value Chain Halal Supply Chain Halal Product Muslim Company 1 2 3 4
Halal products & services
As many companies today are halal certified, the procurement profession is increasingly dealing with the complexity of halal requirements in sourcing of products and services. 12
Halal purchasing
Halal purchasing function Halal Policy Procurement Strategy Purchasing Process Responsibility Scope Assurance Method of assurance Kraljic (1983) Weele (2002) 14
Halal procurement maturity STAGE 1 Viewing halal compliance as opportunity STAGE 2 Making supply chains halal STAGE 3 Making value chains halal CHALLENGE To ensure that pro-active halal compliance provides a competitive advantage for the company To question the halal integrity of supply chain partners To develop halal products that are less animal based (more plant based) and more sustainable COMPETENTIES Products of the company are halal certified; A Halal Committee is established; Halal Policy is defined The skills to audit suppliers; The ability to generate real support for halal supply chains; The ability to redesign halal supply chains Expertise in Islamic banking and financing; The ability to redesign products that are less animal based and more sustainable PURCHASING OPPORTUNITIES Assessing halal compliance of supplier base; Using compliance to induce its supply chain partners to obtain halal certification Audit high risk suppliers to ensure that their operations comply with the halal standard(s); Harmonisation of halal standards used in the supply chain; Implement improvements in the procurement strategy and purchasing processes Make Islamic banking and financing a requirement for trade; Replace animal-based ingredients with plant-based ingredients; ensuring the environmental sustainability of suppliers 15
Halal compliance matrix Total Number of Suppliers Halal Commodity Categories (in number of suppliers) 0 Insurance Logistics Food related MRO Packaging Raw materials I Food Processing Equipment II 0% 100% Source: Adapted from Telgen (2004) Halal Compliance (%) 16
Procurement strategy
Impact of halal on purchasing portfolio matrix High Purchasing s impact on financial results Leverage products Routine products Strategic products Bottleneck products Low Low Supply Risk High Source: Adapted from Kraljic (1983) and Weele (2002) 18
Impact of halal on purchasing portfolio matrix High Purchasing s impact on financial results Leverage products Halal sensitive product Routine products Strategic products Halal sensitive product Bottleneck products Low Low Supply Risk High Source: Adapted from Kraljic (1983) and Weele (2002) 19
Impact of halal on purchasing portfolio matrix High Purchasing s impact on financial results Low Leverage products Non-Muslim country Routine products Non-Muslim country Strategic products Bottleneck products Low Supply Risk High Source: Adapted from Kraljic (1983) and Weele (2002) 20
Impact of halal on purchasing portfolio matrix High Purchasing s impact on financial results Low Leverage products Halal sensitive product Non-Muslim country Routine products Non-Muslim country Strategic products Halal sensitive product Bottleneck products Low Supply Risk High Source: Adapted from Kraljic (1983) and Weele (2002) 21
Purchasing process
The purchasing process Determine Specification Select Supplier Contracting Ordering Expediting and Evaluation Follow-up and Evaluation Source: Adopted from Weele (2002) 23
Determine specification Halal certificates required for products (raw materials, ingredients, additives, packing materials, etc.) and services (like logistics, clean(s)ing services, insurance) purchased. For animal based products it is important to know if the animal (source) has been machine slaughtered [yes/no] and stunned [yes/no]; Storage, transportation and handling requirements for the product purchased according to a halal logistics standard (like the international halal logistics standard IHIAS 0100:2010).
Select supplier: halal supplier selection iceberg What Physical halal product and its components/ingredients How Halal policy Halal certificate Quality & safety standard (toyyib) Halal logistics Islamic banking, financing and insurance Pricing
Contracting The interest and benefits of both parties need to be protected in the purchasing contract, ensuring there is no interest (riba), excessive ambiguity (gharar) and gambling (maysir) (ISRA, 2011). Second, the contract should clearly state the following: Product quality certificates, for example: halal certificate No. MS 1500:2009 ; Terms of delivery, for example: In accordance to the International Halal Logistics Standard No. IHIAS 0100:2010.
Ordering Upon ordering, it is important that the supplier puts a Halal Supply Chain mark/code on the freight documents (both on the physical copy and the electronic version) and tertiary packaging as required under the International Halal Logistics Standard (IHI Alliance, 2010). This is crucial for the logistics players and other supply chain parties involved (like customs, inspection authorities) to recognise and communicate the halal status of a particular shipment.
Expediting and evaluation Amongst others, upon receiving (expediting) the following needs to be checked (IHI Alliance, 2010): Halal Supply Chain mark/code on freight documents; Halal Supply Chain mark/code on tertiary packaging; Copy of halal certificate with cargo; Condition of the product received. If the packaging is damaged, the halal status could be affected. This needs to be assessed through inspection and clarification in a designated area.
Follow-up and evaluation Amongst others, the following needs to be monitored for the follow-up and evaluation: Monitoring of halal issues with the deliveries from this supplier; Validity of halal certificate(s) from suppliers.
Conclusion
As halal is extending towards purchasing, an effective alignment is required between the halal policy, procurement strategy and purchasing process. Halal leads to stronger partnerships with suppliers (strategic and leverage products) and adopting various strategies to secure continuity of supply (bottleneck products). Halal has also implications for the purchasing process, namely for its tactical purchasing (normally the task of the procurement department) as well as the operational purchasing process (often decentralised to its users).
Thank you Recommended reading: Tieman, M., & Ghazali, M.C. (2013). Principles in halal purchasing. Journal of Islamic Marketing, Vol. 4 Iss: 3, 281-293. LBB International B-5-8 Plaza Mont Kiara Mont Kiara 50480 Kuala Lumpur Malaysia Dr. Marco Tieman Chief Executive Officer marco@lbbinternational.com