PROCUREMENT/
PURCHASING
Learning Outcomes
1. Describe the role of procurement in the
supply chain
2. Identify
the
differences
between
traditional purchasing and contemporary
purchasing.
3. Identify and define the four stages of
purchasing sophistication
Learning Outcomes
4. Describe the critical success factors
(CSFs) needed in the purchasing function
5. Identify the key functions of purchasing
6.
Construct a vendor rating system when
making an important purchase.
ROLE OF PROCUREMENT
IN THE SUPPLY CHAIN
What is Procurement?
It is the business functions of procurement planning,
purchasing, inventory control, traffic, receiving,
incoming inspection, and salvage operations
BUYER
An individual whose functions may include supplier selection,
negotiation, order placement, supplier follow-up, measurement and
control of supplier performance, value analysis, and evaluation of new
materials and processes. In some companies, the supplier scheduler
handles the functions of order placement and supplier follow-up
PRODUCT
Any good or service
produced for sale,
barter, or internal use
TRADITIONAL PURCHASING
VERSUS CONTEMPORARY
PURCHASING
TRADITIONAL
• buyers were to send a request for quotation (RFQ) to
two or three potential suppliers
• they decided to whom they would award the
order, usually based on the lowest quoted
cost, assuming the delivery time and product
quality were acceptable
TRADITIONAL
The traditional purchasing function was concerned
primarily with the buying process in which they placed
the orders and followed up to assure delivery of those
orders
• To evaluate vendors many companies have
resorted to using vendor rating systems that
cover a number of both tangible and intangible
factors
Table 1
CONTEMPORARY PURCHASING
Companies recognize that purchasing
should be involved in both tactical
and strategic decisions
The contemporary approach requires
the buying organization to become
partners with its suppliers
CONTEMPORARY PURCHASING
Purchasing organizations
are
expected
to
participate, often as part
of a cross-functional team,
in decisions concerning
strategic sourcing.
CONTEMPORARY PURCHASING
These decisions include:
• Supplier evaluation
• Supplier selection for long-term
relationships
• Contract structuring and negotiation
• Supplier relationship management
(SRM)
• Supply
chain
coordination
and
collaboration
CONTEMPORARY PURCHASING
Contemporary purchasing is
more oriented to building
long-term relationships with
fewer, but more dependable
suppliers.
CRITICAL
FACTORS FOR
PURCHASING
CRITICAL
FACTORS FOR PURCHASING
1.
Functionality
The first CSF for purchasing was
to obtain goods or services that
satisfied the needs of the users
CRITICAL
FACTORS FOR PURCHASING
2. Availability
Purchasing has always had the primary
responsibility to make goods or services
available when needed by the production
line, by the retail store when having a sale.
CRITICAL
FACTORS FOR PURCHASING
3. Cost
Close behind availability was the
requirement to buy goods and services at
the lowest possible cost.
CRITICAL
FACTORS FOR PURCHASING
4. Quality
Obtaining a good quality of purchased
goods and services has always been an
implicit responsibility of purchasing.
CRITICAL
FACTORS FOR PURCHASING
5. Match Inflow with Outflow
Just as matching the product amounts and mix
produced with the amounts sold required
collaboration between the production and
marketing departments, matching inflows with
outflows required collaboration between
production and purchasing as well.
CRITICAL
FACTORS FOR PURCHASING
6. Reduce Variances in Delivery
• It is necessary for purchasing departments to
monitor the performance of their suppliers and
encourage them to be more consistent in their
performance.
• If they did not improve, suppliers faced the
prospect of reduced business, or even elimination
as a supplier.
CRITICAL
FACTORS FOR PURCHASING
7. Increase Supplier Dependability
• The attention to supplier delivery performance
opened the opportunity and need to evaluate
suppliers on other tangible criteria as well, such as
lead times and quality of merchandise, and even to
explore such intangible services such as the
supplier’s help in suggesting ways to improve the
buyer–seller relationship
CRITICAL
FACTORS FOR PURCHASING
8. Reduce the Bullwhip Effect
• The bullwhip effect is an extreme change in the
supply position upstream in a supply chain,
generated by a small change in demand
downstream in the supply chain
CRITICAL
FACTORS FOR PURCHASING
9. Become an Intercompany Facilitator
• They generally had the most information about
suppliers and could expand their information base
to include information desired by other functions
in the buying organization.
CRITICAL
FACTORS FOR PURCHASING
10. Find Sustainable Suppliers
• The reputation of a firm is closely linked to the
social, environmental, and ethical profiles of an
organization’s spending.
• Purchasing departments must add finding
responsible suppliers to their list of operating
objectives.
PURCHASING PROCESS, SUPPLIER
EVALUATION, AND BUILDING
SUPPLIER RELATIONSHIPS
Purchasing Process
These activities include:
1. determining the order quantity
2. timing the order placement
3. monitoring the orders for on-time delivery
4. assessing the accuracy of the order
5. checking the quality of the product
6. approving the supplier invoice for payment
7. and reconciling problems that occur during
the process.
1. purchaser
receives the
request
5. orders are
received
2. purchaser
selects a
supplier
PURCHASING
CYCLE
4. orders are
monitored
3. purchaser
places the
order with a
vendor
Figure 1. Purchasing Cycle
Figure 2. Purchase Order Process Flow
Supplier Evaluation
The evaluation should include tangible and less tangible measures
• Tangible measures - product
quality and on-time delivery
• Less tangible measures - supplier
cooperativeness and trust.
Supplier Relationship Management
“a comprehensive approach to
managing
an
enterprise’s
interactions with the organizations
that supply the goods and services
the enterprise uses.
Supply Chain Coordination/Collaboration
All of the activities mentioned should
lead to an effective level of supply
chain coordination and eventually to
collaboration among supply chain
participants.
Thank You