Dr. Marco Tieman (CEO LBB International & Adjunct Professor Universiti Tun Abdul Razak)
PASIA World Annual Conference, 19-20 November 2014
Halal Purchasing
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Agenda
Introduction
Halal
Procurement strategy
Purchasing process
Conclusion
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Introduction
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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
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Halal
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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
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“Eat of what is on earth, lawful and good…”
Qur’an, 2:168
The foundation
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“Eat of what is on earth, lawful and good…”
Qur’an, 2:168
Halal Toyyib
The foundation
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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.
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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
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Halal products & services
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As many companies today are halalcertified, the procurement professionis increasingly dealing with thecomplexity of halalrequirements in sourcing ofproducts and services.
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Halal purchasing
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Halal Policy
Procurement
Strategy
Purchasing
Process
Responsibility
Scope
Assurance
Method of assurance
Kraljic (1983)
Weele (2002)
Halal purchasing function
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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
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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
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Procurement strategy
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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
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Low High
Low
High
Supply Risk
Purchasing’s impact on financial results
Leverage products
Strategic products
Bottleneck products
Routine products
Halal sensitive product
Halal sensitive product
Source: Adapted from Kraljic (1983) and Weele (2002)
Impact of halal on purchasing portfolio matrix
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Low High
Low
High
Supply Risk
Purchasing’s impact on financial results
Leverage products
Strategic products
Bottleneck products
Routine products
Non-Muslim country
Non-Muslim country
Source: Adapted from Kraljic (1983) and Weele (2002)
Impact of halal on purchasing portfolio matrix
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Low High
Low
High
Supply Risk
Purchasing’s impact on financial results
Leverage products
Strategic products
Bottleneck products
Routine products
Halal sensitive product
Non-Muslim country
Halal sensitive product
Non-Muslim country
Source: Adapted from Kraljic (1983) and Weele (2002)
Impact of halal on purchasing portfolio matrix
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Purchasing process
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DetermineSpecification
Select Supplier
ContractingOrdering
Expeditingand
Evaluation
Follow-up and
Evaluation
The purchasing process
Source: Adopted from Weele (2002)
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• 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
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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
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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
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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
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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
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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
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Conclusion
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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
Thank you
Recommended reading:
Tieman, M., & Ghazali, M.C. (2013). Principles in halal purchasing. Journal of Islamic Marketing, Vol. 4 Iss: 3, 281-293.