39797840 purchasing and procurement activities under 2003
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- Vihang Naik
Elements of Purchasing / Procurement Cycle
Buyer Supplier Relationship
Self Certified Vendors / Suppliers
Method of Buying – under certainty , under risk ,
under uncertainty
Recognition of the need
Description of specification and requirements
Purchase Requisition
Check specifications /prices /suppliers
Determination of price and availability of materials
Purchase Records
Preparation and issue of purchase order
Price and terms finalization after negotiation
Select the supplierEnquiry , tender,import
Supplier’s Record
Specification File
Contd..
Supplier’s acceptance of purchase order ( order acknowledgement)
Delivery of material by supplier
Receiving and inspection of materials
Checking the invoice and authorizing payment of bills
Follow-up of supplier
Invoice checked with purchase orders and stores
receipt noteStorage and Record keeping
Closing the order
Introduction
Three Types of the Buyer Seller Relationship
1. Traditional or Transactional Relation
2. Collaborative Relation
3. Alliance Type Relation
Traditional or Transactional Relation Features1. Focus on price
2. Lack of sharing of data and information
3. Absence of concern
4. Market forces fix prices
5. E-procurement
6. Absence of basis for collaboration
Merits of Transactional relationships
1. Inspection of incoming material
2. Requirement of lower skilled personnel
3. Market forces of demand and supply
4. Less purchasing time and effort
Demerits of Transactional relationships
1. Transactional Relation cannot provide flexibility
2. Minimum after sales service
3. Quality with transactional relation will be just acceptable level
4. More Delivery Problems
5. High investment in expansion and monitoring
6. Buyers expect less effective performance
Collaborative and Alliance Relation
Features
1. Long term agreement allows suppliers an opportunity to show performance and reduce their costs
2. Suppliers are more likely to take initiative to reduce costs through standardization , variety reduction , value engineering , value analysis
3. Procurement of non-commodity items and service
4. Replace market forces with controlled competition ,
benchmarking , and advanced supply management pricing practices.
Three most important factors in a successful buyer-supplier relationship
(a) Two-way communication
(b) The supplier’s responsiveness to supply managements needs
(c) Clear product specification
Alliance Type Relation
Features
1. Improved quality - design of experiments and supplier certification
2. Reduced time to market
3. Improved technology flows from suppliers
4. Improved continuity of supply
5. Lowest total costs
Merits of Alliance Type Relation
1. Focus – Continuous improvements
2. Controlled through formal and informal connections , information systems and internal infrastructure
3. Existence of co-operation
4. High level of interdependence and commitment
5. Openness exist in all areas of relationships
6. Adaptability to changing conditions
Demerits of Alliance Type Relation
1. Instability
2. Capability limitation
3. Dependency
4. Concentration of benefits
5. Likelihood of conflicts in purchasing terms of contract
Choice of type of Relationship
Traditional relationship is favoured when:
i) There is a large no. of supplier who are equally good and the buyer has a wide range of choices
ii) Well-off suppliers willing to help a few chosen customers
Collaborative relationship is favoured when:
i) Both the parties have potential benefits
ii) Both the parties are flexible
Alliance type relationship is favoured when:
i) If a potent supplier is willing to join hands with a firm and wishes to take risks
ii) If a supplier who makes all semi-finished and finished components is located adjacent to a firm
iii) Customers those in the need of fast supply chain
(Institutional)
(Interpersonal)
(Little)
Transactional Collaborative Alliance
Time
Trust
Changes in Buyer-seller relations with time
Supplier’s Point of view
Globalization
A gradual shift from transactional to collaborative and alliance type relation
E.g. Hindustan Motors , Pithampur (M.P)
Dr. Kauro Ishikawa – one of the pioneers in the Japanese
Quality Movement
Traditional Approach
Two assumptions :-.
(a) Supplier will supply fallacious goods
(b) In-house resources are capable and available for the testing and certification
New Approach
Supplier will receive “Self-Certified Vendor Certificate” from the organization
Steps in Supplier Certification
1. Verify the capability of the supplier in meeting the needs of the organization in all areas
2. Motivate supplies to continue to improve their processes
3 levels-Quality Vendor, Certified Vendor, Excellent Vendor.
3. Improve key supplier processes in the value chain
4. Assess continuously the supplier’s capabilities
Guidelines for the implementation of Supplier Quality
Management Process(SQMP)
1.Assess organization’s needs
2.Assess internal , stakeholders needs and develop a plan
3.Design SQM system structure
4.Provide adequate training
5.Implement supplier policy deployment
Contd..
6. Hold supplier symposiums
7. Perform planning for supplier quality projects
8. Provide logistics improvement support
9. Train suppliers in the macro logistics management system
10. Create a system for continuous monitoring
11. Perform supplier certifications and review prior certifications
12. Review and revise the supplier quality management system
Green Channel Suppliers Elements- TIIA
Benefits:-1. Reduces all round liability & long term risk
2. Improves inventory control
3. Reduces packaging costs
4. Improves status with regulatory agencies
5. Improves supplier relations and productivity
What Do Buyer Gain ?
1. Multiplier effect of supplier gains
2. Reduced purchase costs
3. Reduced liability
4. Greater assurance of consistent and reliable supply
5. Improved inventory control
6. Elimination of unresponsive / non-committal suppliers
What Do Seller Gain ?
1. Reduced production cost-resource optimization
2. Assured client commitment / potential for more clients
3. Reduced liability
4. Improved relations with regulatory agencies
5. Competitive advantage over others
6. Improved management systems at marginal costs
What are the mutual gains ?
1. Mutual competitiveness
2. Improved relations-secured ties
3. Reduction production costs- grater margins
Features of all purchase decision making problems:-
a.Recognition of the existence of several possibilities
b.Prediction of the pay-off of each one of the strategies
c.Assessment of the orders of preference of the strategies
Classification of Decision problems:-
I.Decision Making Under Certainty
II. Decision Making Under Risk
Pay-off Matrix
Stock Number
Probability of Requirement Expected Total costs (Rs.)
0.1 0.5 0.3 0.1
0 1 2 3
0 --- 1000 2000 3000 1400
1 300 --- 1000 2000 530
2 600 300 --- 1000 310
3 900 600 300 --- 480
III. Decision Making Under Uncertainty
Type of Cost Apparatus A Apparatus B
Capital cost Rs. 50000 Rs. 75000
Operating cost per year
Rs. 10000 Rs. 5000
Maintenance expenses(Rs.)
P1 P2 P3 P4
Year 1 2000 2000 2000 1000
Year 2 2000 2000 1000 1000
Year 3 3000 3000 1500 1500
Year 4 7000 3000 1000 2000
Year 5 2000 7000 1000 1000
Life in years 4 5 4 5 4 5 4 5
Maintenance A
P1 P1 P2 P2 P1 P2 P1 P2
Maintenance B
P3 P3 P4 P4 P3 P3 P4 P4
Average Cost A
26000 23200 25000 23400 26000 23200 25000 23400
Average Cost B
27130 22900 27130 22900 25130 23100 25150 23100
Difference
A 0 300 3 500 870 100 0 300
B 1130 0 2230 0 0 0 150 0
Pay-off Table
Principles used in Decision under uncertainty :-
1. Rationality
2. Minimax Principle
3. Maximax Principle
4. Criterion of optimum (Hurwitz Criterion)
5. Principle of Regret
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