the purchasing process purchasing policy and procedures purchasing and supplier integration for...
TRANSCRIPT
Purchasing ProceduresProcurement in Industrial Management (BPT 3133)
CHAPTER OUTLINE
• The Purchasing Process• Purchasing Policy and Procedures• Purchasing and Supplier Integration for Competitive
Advantage• Purchasing and Supply Chain Organization• Purchasing and Supply Chain Analysis : Tools and
Techniques
LEARNING OBJECTIVES
• Understand the key objectives and responsibilities of purchasing function
• Explain the concept of purchasing process, policies and procedures
• Identify the supply chain concept and various forms of purchasing strategy aimed at gaining competitive advantage
PURCHASING
What is Purchasing?A form of buying that consists in getting the goods or services by paying a certain amount of price or money. The amount of money or price paid in the case of purchasing will be in accordance with the quality and quantity of the goods or services.
A process made up of all activities associated with identifying needs, locating and selecting suppliers, negotiating terms and following up to obtain goods and services.
PURCHASING OBJECTIVES
Supply Continuity
Manage the Purchasing Process Efficiently and Effectively
Develop Supply Base Management
Develop Aligned Goals with Internal Functional Stakeholders
Support Organizational Goals and Objectives
Develop Integrated Purchasing Strategies that Support Organizational Strategies
PURCHASING RESPONSIBILITIES
Evaluate and Select Suppliers Review Specifications
Act as the Primary Contact with Suppliers
Determine the Method of Awarding Purchase
Contracts
PURCHASING PROCESS
a) Forecast and Plan Requirement Begin purchasing cycle – need (requirement) identification
Review spending pattern and prepare a forecast of what will be purchased
Purchasing is the primary vehicle for obtaining external inputs (services and product) from suppliers
Purchasing personnel have to work with a large number of internal customers – understand and plan for what they will be buying
Spot buy – situations that arise when an internal customer has a need that comes up suddenly which is not planned for
PURCHASING PROCESS
b) Need Clarification: RequisitioningCommon method: Purchase requisitions / statement of work• Description of required material or service
– By market grade or industry standard– By brand– By specification– By performance characteristics
• Quantity and date required• Estimated unit cost• Operating account to be charged• Date of requisition (this starts the tracking cycle)• Authorized signature
PURCHASING PROCESS
c) Supplier Identification and SelectionOnce the needs are identified, one of these can happen:
• the need fulfilled by a an existing supplier• the need fulfilled by a new supplier
Two common ways:• competitive bidding• negotiation
Send Request for Quotation (RFQ) to supplier Include additional information or attachments to assist if the
requested item is complex or untested or new productionEvaluate suppliers
PURCHASING PROCESS
d) Approval, Contract and Purchase Order Preparation After supplier is selected, approval to purchase the product or
service is grantedSeveral different approaches, depending on the system:
Purchase Order (PO) / Purchase AgreementBlanket Purchase OrderMaterial Purchase ReleaseFixed-Price Contracts• Firm Fixed Price• Cost-Based Contracts
PURCHASING PROCESS
e) Receipt and Inspection Involves physical transmittal of purchase requirements and it
should be a fairly routine Purchasing or materials planning must minimize the time
required to release and receive material and need to closely monitor the status of open purchase orders
Several important documents that involved:Material packing slipBill of ladingReceiving discrepancy report
JIT Purchasing – allows firms to eliminate most receiving forms
PURCHASING PROCESS
f) Invoice Settlement and Payment Once the item or service is delivered, authorization for
payment will be issued Payment is made through company’s account payable
department Integrated systems: Electronic Funds Transfer (EFT) A record of critical events associated with the purchase is
entered into a supplier performance database – identify trends or patterns
Continuously measure and manage supplier performance
PURCHASING PROCESS
PURCHASING POLICY Policy : set of purpose, principles and rules of action that
guide an organization Characteristics apply to effective policies:
Action oriented and relevant (avoiding trivial or unimportant issues) Concise (stating a position with a min. number of words) Unambiguous (well understood) Timely and current Guide problem solving and behavior
- Advantages: define and clarify top management objectives; provide a framework for consistent decision making and action
- Disadvantages: Often difficult to communicate throughout large organizations; employees might view policies as a substitute for effective management; can restrict innovation and flexibility
Categories of Policya. Policy defining the role of purchasing
b. Policies defining the conduct of purchasing personnel
c. Policies defining social and minority business objectives
d. Policies defining buyer-seller relationships
e. Policies defining operational issues
PURCHASING POLICY
PURCHASING PROCEDURES Procedures: operating instruction detailing functional duties
or task (a how-to manual) Purpose of a procedure:
A reference guide for purchasing personnel – explaining about how to accomplish different activities or assignments
Provides consistency and order by documenting the step and activities required to perform a task
Primary emphasis: development of a concise, accurate and complete set of operating instructions
Existing procedures may no longer apply when well-established processes are changed
Most of purchasing procedures correspond to one of the following areas:a. The Purchasing Cycle
proper steps to follow during each stage of the cycle
b. The Proper Use of Purchasing Forms typical purchasing function relies on many form to conduct its business
c. The Development of Legal Contractsspecific procedures for contracting with outside suppliers and individuals
d. Operational Proceduresprovide instruction and detail across a broad range of topicscovers from following a specific set of steps requires consistent action to promote efficiency to carries out directives of functional or executive policies
PURCHASING PROCEDURES
P&S INTEGRATION - The process of incorporating or bringing together different
groups, functions, or organizations- Either formally or informally, physically or by information
technology- To work jointly and often concurrently on a common
business-related assignment or purpose- Can occur in many forms:
- through functions such as in new product development - through cross-location
- Supply management’s linkages divided to:- internal- external
Must maintain a number of
communication flows and linkages
To facilitate integration with other internal
function
Become stronger and more important
as the role of supply
management continues to
develop and evolve
INTERNAL INTEGRATION
Supply management represents the external face of the organization
Serve as the primary vehicle to integrate external suppliers and other entities into the organization
Acts as a liaison with external parties on multiple fronts (materials, new technology, information and services)
Linkages:
EXTERNAL INTEGRATION
Suppliers
Local CommunitiesGovernment
Collaborative Buyer-Seller RelationshipCollaboration - Process by which two or parties adopt a high level of purposeful co-operation to maintain a trading relationship over time•Characteristics defining the relationship:
1. One / limited number of supplier for each purchased item2. A win-win approach to reward sharing3. Joint efforts to improve performance4. Open exchange of information5. A credible commitment to work together during difficult
times6. A commitment to quality
EXTERNAL INTEGRATION
EXTERNAL INTEGRATION
P&SC ORGANIZATION
Purpose of organization structure:• Shows the assignment of work along with the authority that
accompanies those responsibilities• Formal structure – helps in defining how the firm
communicate and integrates decision making throughout the groups
• Physical placement of purchasing – indicate its organizational status and influence
• In some organizations the highest purchasing professional reporting status is on par with other major functions
Factors Affecting Purchasing Position:a. Historyb. Type of industryc. Total value of goods and
servicesd. Type of purchased
materialse. The ability to influence a
company’s performance
P&SC ORGANIZATION
• Various methods of organizing the function:– Organization by end product– Organization by category– Organization by value classification– Organization by profit centre
• Centralization/Decentralization– Complete decentralization: allowing full autonomy in each of the units– Complete centralization: which in practice means that apart from local
purchases of small value, all purchases are made from a central office– A combination of the two
P&SC ORGANIZATION
• Buying• Expediting – contacting suppliers to determine status• Inventory control – manage using sophisticated equations or
algorithms to facilitate balancing of product• Transportation – evaluate, negotiate and select• Managing countertrade arrangement – international or domestic• Insourcing/Outsourcing • Value analysis• Purchasing research/material forecasting• Supply management – progressive approach to manage supply base• Other responsibilities – receiving and warehousing, managing
company travel arrangements, production planning etc
PURCHASING DEPT. ACTIVITIES
P&SC ANALYSIS• Strategic analysis: understanding the relationship between
different factors affecting the organization and its choice of strategies
• The 3 main area for analysis are:
– The environment
– Internal resources, competencies and strategic capabilities
– Stakeholders’ expectations
P&SC ANALYSISAnalysis Methodologies
Environmental analysisPEST (political, economic, social, technological) analysisSWOT (strengths, weaknesses, opportunities, threats)
Porter’s five forces, Competitor analysis
Competitive position Strategic group analysis, Competitor analysis
Resources analysis, competencies and
strategic capabilitiesValue chain analysis, Resource audit, Core business
Comparative analysis Historical and financial analysis, Benchmarking
Organizational analysis SWOT, BCG (Boston Consulting Group) analysis, Critical success factors (CSFs)
Stakeholders’ perceptions Ethical considerations, Stakeholder mapping, Mission statements, Culture, Paradigms
• Purchasing process have:
6 objectives
4 responsibilities
6 steps
• Policy and procedures is essential for understanding how organizations operate and work
• Organization need to develop closer relationship with internal and external groups in order to become competitive
SUMMARY