Principles in halal purchasingMarco Tieman

Graduate School of Business, Universiti Tun Abdul Razak,Kuala Lumpur, Malaysia, and

Maznah Che GhazaliFaculty of Business Management, Universiti Teknologi MARA,

Shah Alam, Malaysia

Abstract

Purpose – The purpose of this conceptual article is to investigate the application of halal inpurchasing.

Design/methodology/approach – This article provides a discussion on the implications of halalfor the purchasing function, in particular the purchasing portfolio matrix of Kraljic and the purchasingprocess model of van Weele.

Findings – Halal leads to stronger partnerships with suppliers (strategic and leverage products) andadopting various strategies to secure continuity of supply (bottleneck products). Therefore, conventionalcommodity categories in certain industries can be allocated different for halal certified products andservices, resulting in possible different product and supplier strategies. Halal requirements also haveimpact on the purchasing process; its tactical and operational purchasing activities.

Research limitations/implications – This conceptual paper shows that halal has implications forthe procurement strategy and purchasing process, key components of the procurement function.However, more empirical research is needed through case study research and focus groups to betterunderstand the challenges and solutions surrounding the sourcing practices of halal certified companies.

Practical implications – For halal certified companies it is important to extend halal towardspurchasing. Effective alignment is required between the halal policy, procurement strategy andpurchasing process. A procurement organisation can progress in three stages, from viewing halalcompliance as opportunity, making its supply chains halal, to making its value chain halal.

Originality/value – Purchasing is an important marketing discipline in defining the buyer supplierrelationship. This study contributes to the understanding of the purchasing function in a halal supplychain and value chain. It is the first study investigating the application of halal in purchasing.

Keywords Halal procurement, Halal purchasing, Halal supply chain, Halal compliance,Islamic value chain, Halal, Purchasing, Islam

Paper type Conceptual paper

1. IntroductionPurchasing is an important marketing discipline in defining the buyer-supplierrelationship, also known as reverse marketing (Biemans and Brand, 1995; Leenders andBlenkhorn, 1988) or backward integration (Kraljic, 1983). A significant paradigm shift ofmodern marketing is taking place, from a consumer-centric to a value-driven era(Kotler et al., 2010). There is potential to build up an overall ethical (food) brand byintegrating Islamic values and attributes like animal welfare, health, sustainability, lesswaste, fair working conditions (Ismaeel and Blaim, 2012). Since most companies todayspend more than half of their sales turnover on purchasing products and services, themanagement of the company’s external resources becomes critical in the production of ahalal (food) product and its entire value chain (Jan, 2012; Vengadasalam, 2010;van Weele, 2002; Porter, 1985). The supply base is therefore a key part of the supply chain.

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1759-0833.htm

Received 31 January 2012Revised 26 April 2012

Accepted 28 April 2012

Journal of Islamic MarketingVol. 4 No. 3, 2013

pp. 281-293q Emerald Group Publishing Limited

1759-0833DOI 10.1108/JIMA-01-2012-0004

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Supplier capabilities can help differentiate a producer’s final product and providea competitive advantage for a brand (Carter et al., 2011; Monczka et al., 2005;Thompson, 1996).

Islamic marketing is a new social science (Arham, 2010; Sandikci and Rice, 2011; Sulaand Kartajaya, 2006; Wilson, 2012), addressing the Shariah compliance of the marketingfunction (Alserhan, 2011), marketing of Islamic brands (Alserhan, 2010) and needs ofMuslim markets (Temporal, 2011). However, the role of purchasing in the halal foodsupply chain and value chain has been largely understudied and poorly understood.

Through this paper the authors would like to discuss the halal procurement maturitystages and the halal purchasing function, in particular its key components: procurementstrategy and purchasing process. This article builds further on research conducted byTieman (2011) and Tieman et al. (2012) on the application of halal in supply chainmanagement. Tieman (2011) argues that halal goes through an evolution from a Muslimcompany, towards a halal product, halal supply chain and halal value chain. Procurementhas an important function in each phase with higher requirements along the four phases.He also argues that the foundation of halal supply chain management is based on directcontact between halal and haram, risk of contamination and perception of the Muslimconsumer. The perception, grounded in the Islamic school of thought, local fatwas andlocal customs, brings complexities to the purchasing field of study. Tieman et al. (2012)show in their halal supply chain model that for halal food supply chains, the supply chainbusiness process procurement is of importance. Furthermore, procurement is critical in ahalal food supply chain, for its role in defining and managing the upstream supply chainnetwork structure through commodity strategies; determine specification, supplierselection and integration; and ordering, expediting and evaluation of suppliers.

2. Literature reviewPorter (1979) emphasised the importance of the buyer for the competitive nature of anindustry and argued that procurement is an important supporting activity of a value chain(Porter, 1985; Carr and Smeltzer, 1997) and therefore the halal value chain. This supportingrole were confirmed by Ellram et al. (2002) in their research on the impact of purchasingand supply management activities on corporate success. In fact, the strategic focus of thecompany (cost versus differentiation) determines its approach to the procurement function(tactical versus strategic) (Cousins, 2005). As the procurement function can manage up to80 per cent of the organisation’s costs and can be performed by a large number ofprofessionals other than purchasing, purchasing is facing pressure to redefine its role froma more clerical toa strategic contribution and status (Ramsay and Croom, 2008; Ogden et al.,2007; Rietveld, 2009; Zheng et al., 2007). An important contributor in this development isthe trend of global sourcing, where companies design their sourcing decision on the basisof the interplay between their competitive advantages and the comparative advantages ofvarious sourcing locations for long-term gains (Kotabe and Murray, 2004). Monczka et al.(2005) propose a broader term for the procurement function: “supply management” or“strategic sourcing”, which they define as the process of identifying, evaluating, selecting,managing, and developing suppliers to realise supply chain performance that is better thanthat of competitors. Changes are not only needed to renew and improve contracts withsuppliers, but also define the terms and conditions within their own organisation,addressing: processes (integral goods flows), organisation (competencies, responsibilities,authorities), procedures (methods and agreements) and supporting automated

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systems (Reijniers et al., 2009). Lenselink and Telgen (1998) argue that the procurementfunction is more than the purchasing process, namely consisting of the organisation policy;procurement policy; organisation and personnel; methods and procedures; informationmanagement; purchasing process; and performance indicators. In a benchmarking studyof the procurement function, Brandmeier and Rupp (2010) discovered that the use ofcross-functional teams, high hierarchical positions of the procurement function withinthe company, strong cooperation with other functions, training and development of theprocurement personnel as well as supplier integration and continuous evaluation aresignificant success factors. Supplier integration in combination with a fast supply networkstructure (supply network configuration characterised by short lead times) has a positiveeffect on the performance of supply chains (i.e. efficiency, schedule attainment andflexibility) (Danese, 2013). Shorter lead times can be realised by local sourcing, which hasseen a lot of interest recently in relation with the development of local food systems (Balazs,2012; Lehtinen, 2012; Allen, 2010), sustainability (Kumar et al., 2014; Sonnino andMcWilliam, 2011; Walker and Philips, 2006) and food aid (Garg et al., 2013; Harou et al.,2013; Lentz et al., 2012; Margolies and Hoddinott, 2012).

The procurement function plays a crucial role in the sourcing of halal certified rawmaterials, ingredients and additives, packaging materials, transportation, warehousing,etc. No empirical and theoretical research has been found that studies the application ofhalal in purchasing. A conventional halal focus towards ingredients branding (Wilsonand Liu, 2011): ensure that all ingredients are halal; is not sufficient anymore as it is beingargued in this conceptual paper. The procurement function needs to be redefined inproviding an effective alignment between halal policy, procurement strategy andpurchasing process (Figure 1).

By developing a halal compliant procurement function, this function should first of allensure the right intention (Alserhan, 2010; Laldin, 2006), responsible Islamic businessethics (Ismaeel and Blaim, 2012) and Islamic leadership (Beekun and Badawi, 1999).Therefore, halal needs commitment at top management level through a halal policy(Department of Standards Malaysia, 2010a, b), which acts as basis for the procurementorganisation. Amongst others, a halal policy addresses (Tieman et al., 2012):

. the responsibility of the organisation in protecting the halal integrity along thesupply chain;

. the scope of halal certification;

Figure 1.Components of a halal

purchasing function

ResponsibilityScopeAssurance

Weele (2002)

Halal Policy

ProcurementStrategy

PurchasingProcess

Method of assurance

Kraljic (1983)

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. the assurance to the consumer or customer (the promise); and

. the method of assurance (control mechanism; covering aspects like halalcommittee, halal compliance officer and inspections).

3. Stages of halal procurement maturityRecognising that halal goes through an evolution (Wilson, 2012; Tieman, 2011), halal hasclear implications for the purchasing function, where halal has conventionally beenaddressed by the industry as part of a product specification. A halal procurementmaturity model could provide guidance in establishing a solid procurement functionbased on Islamic values. The proposed halal procurement maturity model recognisesthree stages:

(1) viewing halal compliance as opportunity;

(2) making supply chains halal; and

(3) making value chains halal.

Table I presents an overview.In the first stage, the primary task is to get the “house in order”. This addresses thehalal

certification of the organisation, establishing a halal committee and defining andcommunicating a halal policy. Important is to create awareness in the organisation on thevalue of halal compliance (for a competitive advantage) through in-house training andinternal awareness campaigns. In this step, purchasing is assessing the current halalcompliance of all their suppliers in terms of halal certification for those commoditycategories where halal is important, such as raw materials, packaging, logistics,

Stage 1 – viewing halalcompliance as opportunity

Stage 2 – making supply chainshalal

Stage 3 – making value chainshalal

ChallengeTo ensure that pro-active halalcompliance provides acompetitive advantage for thecompany

To question the halal integrity ofsupply chain partners

To develop halal products thatare less animal based (moreplant based) and moresustainable

CompetentiesProducts of the company arehalal certified; a halal committeeis established; halal policy isdefined

The skills to audit suppliers; theability to generate real supportfor halal supply chains; theability to redesign halal supplychains

Expertise in Islamic bankingand financing; the ability toredesign products that are lessanimal based and moresustainable

Purchasing opportunitiesAssessing halal compliance ofsupplier base; using complianceto induce its supply chainpartners to obtain halalcertification

Audit high risk suppliers toensure that their operationscomply with the halalstandard(s); harmonisation ofhalal standards used in thesupply chain; implementimprovements in theprocurement strategy andpurchasing processes

Make Islamic banking andfinancing a requirement fortrade; replace animal-basedingredients with plant-basedingredients

Table I.Halal procurementmaturity

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food processing equipment, maintenance, repair and operations (MRO), andinsurance. A practical tool is the halal compliance matrix as shown in Figure 2. Thehalal compliance matrix has two axes: one for the halal commodity categories and one forhalal compliance. The commodity category axis shows the total number of suppliersinvolved in the halal commodity categories, whereas the halal compliance axis representsthe percentage of suppliers in the commodity category that are actual halal certified.The order of the commodity categories is determined by the halal compliance scores. Thetotal halal compliance of the supplier base is equal to area I/(area I þ areas II), whereas thematrix provides a quick overview where the biggest halal issues are. In the sourcing ofanimal based ingredients, special attention is paid to the specification of halal, namelymachine slaughtered (yes/no) and stunning (yes/no), which requirements depend both onthe halal certification of the factory and the requirements of the destination market(which might be more stringent).

In the second stage, a so-called halal purchasing team is being established. Thiscross-functional team is tasked to identifying, selecting and managing suppliers for halalrelevant product groups (Driedonks et al., 2010). High-risk suppliers, suppliers of animalbased products or based in a non-Muslim country, require more stringent auditing ascompared to other suppliers (see Section 4). A second important function of the halalpurchasing team is to harmonise halal standards of suppliers, through an active dialoguewith the domestic halal authority and the suppliers. Third, the halal purchasing team isresponsible to identifying and implementing changes required in the procurementstrategy and purchasing processes of the company.

In the third stage, the halal purchasing team is the key driver in reviewing contracts tomeet the Islamic banking and financing principles, like the use of Islamic banks (or Islamicwindows) and removing of interest clauses out of contracts. Second, the halal purchasingteam is an important partner in replacing animal based ingredients with plant-basedingredients. Third, the halal purchasing team, in achieving excellence (Ihsan) of itssupplier base, is responsible for ensuring the environmental sustainability of its suppliers.

4. Procurement strategyOn the procurement strategy, Kraljic’s (1983) approach to supply management providesa useful insight (Gelderman and van Weele, 2003; Caniels and Gelderman, 2005;

Figure 2.Halal compliance matrix

TotalNumber of

Suppliers

Halal Compliance (%)0% 100%

Halal CommodityCategories (in

number ofsuppliers)

0

Food related MRO

Raw materials

Packaging

Food Processing Equipment

LogisticsInsurance

I

II

Source: Adapted from Telgen (2004)

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Rietveld, 2009; Wagner and Johnson, 2004). In his approach the purchasing turnoverand the supplier base are analysed based on two variables (Kraljic, 1983; van Weele,2002): purchasing impact on the financial result (measured in costs of purchase of acertain commodity category or impact on product quality) and supply risk (measuredagainst criteria such as number of potential suppliers, availability of supply, competitivestructure in supply markets).

The implication of halal for the purchasing portfolio matrix and the supplymanagement strategy has two possible effects. First halal has impact on the financialresult for producers of halal sensitive products, namely: “Is the product animal based?”(yes/no). Examples of animal based products are raw meat, processed meat,ingredients/additives derived from animals (like gelatine) and processed products thatcontain these items. If the product is animal based it would move a traditional routineproduct to leverage or a bottleneck product to strategic. Second, halal has impact on thesupply risk: “Is the supply chain partner based in a non-Muslim country?” (yes/no).Partners in non-Muslim countries that offer halal compliant products and services haveinvested in halal certification/compliance, are specialised and are often not well controlledand supported by its government in terms of its halal compliance. This requires a moreintensive relationship with these suppliers, which moves a traditional routine product tobottleneck or a leverage product to strategic for non-Muslim countries. The implication ofhalal on the purchasing portfolio matrix is summarised in Figure 3.

As can be deducted from the strategies for each quadrant as described by Kraljic(1983), halal leads to stronger partnerships with suppliers (strategic and leverageproducts) and adopting various strategies to secure continuity of supply (bottleneckproducts). This would position a halal procurement strategy as “relational integration”(Paulraj et al., 2006), where long-term win-win relationships are maintained with alimited number of suppliers.

Figure 3.Impact of halalon purchasingportfolio matrix

Low High

Low

High

Supply Risk

Purchasing’simpact on

financialresults

Leverage products Strategic products

Bottleneckproducts

Routine products

Halalsensitiveproduct

Halalsensitiveproduct

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

Non-Muslimcountry

Non-Muslimcountry

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5. Purchasing process5.1 IntroductionFor the purchasing process, the classification of van Weele (2002) is often used.According to van Weele (2002), the purchasing process consists of six steps:

(1) determine specifications;

(2) select supplier;

(3) contract;

(4) order;

(5) expedite and evaluate; and

(6) follow-up and evaluate.

The first three steps (1)-(3) are also called tactical purchasing. This is the traditional roleof the purchasing department, where in direct collaboration with the internal customerthe product or service specifications are clearly formulated, suppliers are searched andselected; and the supplier is contracted. In operational purchasing (steps (4)-(6)), theproducts or services are ordered and delivered to the company. In here the internalcustomer normally plays a key role; and purchasing and finance more an administrativefunction. How does halal impact these purchasing process steps? This will be discussedin the text below.

5.2 Determine specificationsAmongst others, the purchase order specifications should clearly address:

. 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 ifthe animal (source) has been machine slaughtered (yes/no) and stunned (yes/no).

. Storage, transportation and handling requirements for the product purchasedaccording to a halal logistics standard (like the international halal logisticsstandard IHIAS, 0100:2010).

5.3 Select supplierAccording to Chen et al. (2006), the supplier selection problem is the most important issuein implementing a successful supply chain system. This therefore justifies particularattention for the halal purchasing process. Conventional supplier selection criteria addressaspects such as (Monczka et al., 2005): price/cost competitiveness, product quality, deliveryperformance, financial condition, technical competence, management capabilities, andinnovation. With the purchase of halal products and services, specific halal aspects need tobe addressed of the supplier beyond the physical halal products and its ingredients,covering both the what (physical product) and who (the process) (Al-Qaradawi, 2007;Wilson and Liu, 2010). Figure 4 shows these supplier selection criteria.

First, the physical halal product and its components/ingredients should be halal. Thiscan be sometimes complex as there are different interpretations on for example halalslaughtering requirements, animal based enzymes and allowed parts of the animal to beused for human consumption. Second, the supplier should have halal commitment fromtop management through a halal policy. Third, the company should have a halal

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certificate from a trusted halal authority, which provides assurance that the product andproduction process is verified by an independent Islamic authority to meet Shariahrequirements. Fourth, the product should meet the highest quality and safety standards,also called toyyib. Fifth, the supplier should address the logistics of a halal product(preferably through certification), to ensure that the halal integrity is protected duringthe distribution up to the point of consumer purchase (Tieman, 2013). Shariah prohibitsinterest (riba), excessive ambiguity (gharar) and gambling (maysir), which hasimplications for the banking, financing and insurance based on Shariah principles forthe execution of contracts (Ahmed, 2006; ISRA, 2011). In Islamic countries andincreasingly also in non-Islamic countries, Islamic banking, finance and takafulinsurance are available through Islamic banks and Islamic windows of conventionalbanks. In order to address the present flaws of the interest-based monetary system,which is incompatible with the objectives ofShariah, the idea of reverting to Islamic golddinar has surfaced in recent years among Muslim scholars (Lee, 2011). The State ofKelantan in Malaysia has started with a gold dinar project, where payments can be madein the gold dinar and silver dirham (Vadillo, 2008). Although there could be advantagesfor international trade among cluster of organisation of Islamic cooperation (OIC)countries (Meera and Larbani, 2004; Lee, 2011), its viability is questioned (Ibrahim, 2006;Cizakca, 2011). Finally, pricing is an important aspect of supplier selection. Pricingshould be free from interest (riba), excessive ambiguity (gharar) and gambling (maysir)(ISRA, 2011) and should not lead to unnecessary high prices (Laldin, 2006), effecting thecompetitive position in the market and access to halal products. Therefore, it could beargued that for suppliers in Muslim countries all components of the halal supplierselection iceberg should be in place, whereas for non-Muslim countries less stringentrequirements could be followed in areas such as halal policy, banking, finance, insuranceand logistics.

5.4 ContractThe interest and benefits of both parties need to be protected in the purchasingcontract, ensuring there is no interest (riba), excessive ambiguity (gharar) andgambling (maysir) (ISRA, 2011). Second, the contract should clearly state the following:

Figure 4.Halal supplierselection iceberg

Physical halal product and itscomponents/ingredients

Halal policy

Halal certificate

Quality & safety standard (toyyib)

Halal logistics

Islamic banking, financing and insurance

Pricing

What

How

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. product quality certificates, for example: “halal certificate no. MS 1500:2009”; and

. terms of delivery, for example: “In accordance to the international halal logisticsstandard no. IHIAS 0100:2010”.

5.5 OrderUpon ordering, it is important that the supplier puts a “halal supply chain” mark/codeon the freight documents (both on the physical copy and the electronic version) andtertiary packaging as required under the international halal logistics standard(IHI Alliance, 2010). This is crucial for the logistics players and other supply chainparties involved (like customs, inspection authorities) to recognise and communicatethe halal status of a particular shipment.

5.6 Expedite and evaluateAmongst 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; and

. condition of the product received. If the packaging is damaged, the halal statuscould be affected. This needs to be assessed through inspection and clarificationin a designated area.

5.7 Follow-up and evaluateAmongst others, the following needs to be monitored for the follow-up and evaluation:

. monitoring of halal issues with the deliveries from this supplier; and

. validity of halal certificate(s) from suppliers.

6. ConclusionPurchasing is an important marketing discipline in defining the buyer-supplierrelationship. As many companies today are halal certified, the procurement professionis increasingly dealing with the complexity of halal requirements in sourcing of productsand services. As halal is extending towards purchasing, an effective alignmentis required between the halal policy, procurement strategy and purchasing process. Thisconceptual paper proposes a halal procurement maturity model for the development ofthe halal procurement function within an organisation, consisting of the following threestages:

(1) viewing halal compliance as opportunity;

(2) making supply chains halal; and

(3) making value chains halal.

Halal leads to stronger partnerships with suppliers (strategic and leverage products) andadopting various strategies to secure continuity of supply (bottleneck products). Halalhas also implications for the purchasing process, namely for its tactical purchasing(normally the task of the procurement department) as well as the operational purchasingprocess (often decentralised to its users).

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Although this conceptual paper provides a better understanding of the purchasingfunction in a halal supply chain and value chain, more empirical research is needed inhalal purchasing to better understand the challenges and solutions surrounding thesourcing practices of halal certified companies. Case study research (Eisenhardt, 1989;Woodside and Wilson, 2003; Yin, 1984) and focus groups (de Ruyter, 1996; Hines, 2000;Stokes and Bergin, 2006) can be an effective instrument for this.

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About the authorsDr ir. Marco Tieman is Adjunct Professor with Universiti Tun Abdul Razak (Malaysia),responsible for research in halal supply chain management. He obtained his Masters degree inindustrial engineering with the University of Twente (The Netherlands) in 1997 and his PhD inbusiness management with Universiti Teknologi MARA (Malaysia) in 2013. He is currently theCEO of LBB International, an international logistics consultancy and research firm specialised inagri-food supply chains. He chaired the development of the international halal logistics standard(IHIAS, 0100:2010) under the ICCI-IHI Alliance. Marco Tieman is the corresponding author andcan be contacted at: marco@lbbinternational.com

Maznah Che Ghazali is Associate Professor at the Faculty of Business Management, Departmentof Marketing with Universiti Teknologi MARA (Malaysia). She has published articles in TotalQuality Assurance and Business Management and has a case study published in INSEAD-MPC.

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