Halal Purchasing - PASIAworldpasia.org/2014-Presentation/Halal_Purchasing.pdf · Halal Purchasing....

Dr. Marco Tieman (CEO LBB International & Adjunct Professor Universiti Tun Abdul Razak)

PASIA World Annual Conference, 19-20 November 2014

Halal Purchasing

www.lbbinternational.com2

Agenda

Introduction

Halal

Procurement strategy

Purchasing process

Conclusion

www.lbbinternational.com

Introduction


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’

Dr. Marco Tieman


Halal


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

Muslim population


“Eat of what is on earth, lawful and good…”

Qur’an, 2:168

The foundation


“Eat of what is on earth, lawful and good…”

Qur’an, 2:168

Halal Toyyib

The foundation


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, manner and dietary laws.


Muslim

Company

Halal

Product

Halal

Supply

Chain

Halal Value

Chain

1 2 3 4

So

urc

e: T

iem

an (

20

11

)

Evolution of halal


Halal products & services


As many companies today are halalcertified, the procurement professionis increasingly dealing with thecomplexity of halalrequirements in sourcing ofproducts and services.


Halal purchasing


Halal Policy

Procurement

Strategy

Purchasing

Process

Responsibility

Scope

Assurance

Method of assurance

Kraljic (1983)

Weele (2002)

Halal purchasing function


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

Halal procurement maturity


Total Number of Suppliers

Halal Compliance (%)

0% 100%

Halal Commodity Categories (in number of suppliers)

0

Food related MRO

Raw materials

Packaging

Food Processing Equipment

Logistics

Insurance

I

II

Source: Adapted from Telgen (2004)

Halal compliance matrix


Procurement strategy


Low High

Low

High

Supply Risk

Purchasing’s impact on financial results

Leverage products

Strategic products

Bottleneck products

Routine products

Source: Adapted from Kraljic (1983) and Weele (2002)

Impact of halal on purchasing portfolio matrix


Low High

Low

High

Supply Risk


Leverage products

Strategic products

Bottleneck products

Routine products

Halal sensitive product





Low High

Low

High

Supply Risk


Leverage products

Strategic products

Bottleneck products

Routine products

Non-Muslim country

Non-Muslim country




Low High

Low

High

Supply Risk


Leverage products

Strategic products

Bottleneck products

Routine products


Non-Muslim country


Non-Muslim country




Purchasing process


DetermineSpecification

Select Supplier

ContractingOrdering

Expeditingand

Evaluation

Follow-up and

Evaluation

The purchasing process

Source: Adopted from Weele (2002)


• 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).

Determine specification


Physical halal product and its components/ingredients

Halal policy

Halal certificate

Quality & safety standard (toyyib)

Halal logistics

Islamic banking, financing and insurance

Pricing

What

How

Select supplier: halal supplier selection iceberg


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”.

Contracting


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.

Ordering


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.

Expediting 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.

Follow-up and evaluation


Conclusion


As halal is extending towards purchasing, aneffective alignment is required between thehalal policy, procurement strategy andpurchasing process.

Halal leads to stronger partnerships withsuppliers (strategic and leverage products) andadopting various strategies to securecontinuity of supply (bottleneck products).

Halal has also implications for thepurchasing process, namely for its tacticalpurchasing (normally the task of the procurementdepartment) as well as the operational purchasingprocess (often decentralised to its users).

LBB InternationalB-5-8 Plaza Mont Kiara

Mont Kiara50480 Kuala Lumpur

Malaysia

Dr. Marco TiemanChief Executive Officer

[email protected]

Thank you

Recommended reading:

Tieman, M., & Ghazali, M.C. (2013). Principles in halal purchasing. Journal of Islamic Marketing, Vol. 4 Iss: 3, 281-293.

Halal Purchasing - PASIAworldpasia.org/2014-Presentation/Halal_Purchasing.pdf · Halal Purchasing....

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