VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITY
HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY
FACULTY OF MECHANICAL ENGINEERING
——————– * ———————
TERM PROJECT FOR PURCHASING MANAGEMENT
TOPIC: ANALYSING PURCHASING ACTIVITIES OF DUY DAT BON COMPANY
Class CC01 --- GROUP 5--- HK 232
Lecturer: Assoc.Prof. PHAN THỊ MAI HÀ
STT
Name
MSSV
1.
Hồ Tấn Phát
2252598
2.
Ngô Thiên Di
2252104
3.
Huỳnh Bửu Khang
2252291
4.
Nguyễn Thành Lộc
2252459
5.
Phạm Nguyễn Quốc Trung
2213710
Thành phố Hồ Chí Minh – 2024
PROJECT CONTRIBUTION
No.
Name
1
Phạm
ID
Nguyễn
Job role
Quốc 2213710 Chapter 1, Chapter 7
Work Evaluation
100%
Trung
2
Hồ Tấn Phát
2252598 Chapter 3, Format
100%
3
Ngô Thiên Di
2252104 Chapter 2, Chapter 8
100%
4
Nguyễn Thành Lộc
2252459 Chapter 5, AHP
100%
5
Huỳnh Bửu Khang
2252291 Chapter 4, Chapter 6
100%
ACKNOWLEDGEMENT
Procurement Management is one of the most important subjects for students who major
in Logistics and Supply Chain Management. As a useful and practical subject, Procurement
Management not only provides us knowledge about operations and purchasing processes as
well as the relationship between the procurement with other departments, but also improves
our skills to recognize the problems that affect purchasing activities. From that, we are able to
consider and fix the problems to help the purchasing process become more reasonable and
effective, bringing financial benefits to business organizations.
Our group (Team 5) have so much to be thankful and appreciate Ho Chi Minh
University of Technology for giving us an opportunity to study such an interesting subject.
Especially for Assoc.Prof. Phan Thi Mai Ha - who directly teaches us the Procurement
Management subject, creates the greatest conditions for us to follow and finish the report
completely. Besides, we would like to send our thanks to all staff and managers from Duy Dat
Bon Production and Trading Co Ltd for their support for our project.
Based on our accumulated knowledge and additional research, our team has made every
effort to complete this report on time and to the highest standard. However, due to our limited
expertise, there may still be some shortcomings in the presentation and content of the report.
We sincerely apologize for any errors and omissions. We appreciate your understanding and
welcome your feedback, which will help us improve our performance in future assignments.
We are truly grateful for your kindness!
TABLE OF CONTENTS
1. INTRODUCTION............................................................................................................... 1
1.1 The scope of the report ................................................................................................... 1
1.2 Data collection method and content of the report ........................................................... 1
1.2.1 Data collection method ............................................................................................ 1
1.2.2 Content of the report ................................................................................................ 1
2. PURCHASING DECISIONS AND BUSINESS STRATEGY ........................................ 3
2.1 Competitive strategy ....................................................................................................... 3
2.2 Purchasing strategy ......................................................................................................... 4
2.3 Supply chain strategy ...................................................................................................... 5
3. THE LEGAL ASPECTS OF PURCHASING .................................................................. 7
3.1 Overview of the legal aspects of purchasing in the company ........................................ 7
3.2. Important terms in the procurement contract between the company and the supplier. . 7
3.2.1. Rights and Obligations of the Suppliers ................................................................. 8
3.3 Additional information and some comments on the policies of the company in
purchasing. ............................................................................................................................ 9
4. MATERIAL MANAGEMENT ........................................................................................ 10
4.1 Materials and capacity planning: .................................................................................. 10
4.1.1 Materials planning: ................................................................................................ 10
4.1.2 Capacity planning: ................................................................................................. 10
4.2 Different flows in the company: ................................................................................... 11
4.2.1 Materials flows: ..................................................................................................... 11
4.2.2 Information flows: ................................................................................................. 11
4.3 Defective product treatments & maintenance, repair, and operating (MRO) supplies: 12
4.3.1 Defective product treatments: ................................................................................ 12
4.3.2 Maintenance, repair, and operating (MRO) supplies:............................................ 12
4.4 The company's limitations in managing materials and proposing modified solutions . 12
5. INVENTORY MANAGEMENT ..................................................................................... 15
5.1 Introduction to inventory management of the company ............................................... 15
5.3 Methods of preserving inventory .................................................................................. 16
6. JUST-IN-TIME (LEAN) PURCHASING....................................................................... 21
6.1 Proposal to use JIT in the context of production: ......................................................... 21
6.2 Details about JIT purchasing: ....................................................................................... 21
6.2.1 Order quantity: ....................................................................................................... 21
6.2.2 JIT physical and information flows: ...................................................................... 22
6.2.3 Suppliers: ............................................................................................................... 22
7. PURCHASING PROCEDURES ..................................................................................... 23
7.1 Determine needs of purchasing ..................................................................................... 24
7.2 Ordering process ........................................................................................................... 24
7.3 Receiving process ......................................................................................................... 24
7.3.1 Receiving criteria ................................................................................................... 24
7.3.2 Receiving process .................................................................................................. 24
7.3.3 Conditions to return orders: ................................................................................... 26
7.4 Payment method............................................................................................................ 26
7.4.1 Check and Confirm the Invoice ............................................................................. 26
7.4.2 Payment to the Supplier ......................................................................................... 26
7.4.3 Document Storage and Payment Records .............................................................. 26
7.5 Evaluation of the purchasing procedure ....................................................................... 26
8. SUPPLIER SELECTION AND EVALUATION............................................................ 28
8.1 Supplier selection .......................................................................................................... 28
8.1.1 Finding supplier ..................................................................................................... 28
8.1.2 Process to decide suppliers .................................................................................... 29
8.1.3 Limitations and recommendations in the selection of suppliers ............................ 29
8. 2 Supplier evaluation ...................................................................................................... 33
8.2.1 Criteria ................................................................................................................... 33
8.2.2 Supplier evaluation ................................................................................................ 33
8.2.3 SRM evaluation: .................................................................................................... 33
CONCLUSION ..................................................................................................................... 35
REFERENCES ...................................................................................................................... 36
1. INTRODUCTION
1.1 The scope of the report
Through the Procurement Management subject, our group has acquired the
fundamental knowledge of the purchasing process for a business. This is one of the most
important parts of a business' strategy, because the ability to purchase goods will determine
the success or failure of other activities. A business cannot survive if input prices are higher
than the profit gained, making it impractical to sell the product. Cost savings from purchasing
activities will add directly to the company's profits, so the purchasing strategy is the backbone
of the whole system.
Based on theoretical knowledge we find understanding operations in real-world
conditions for better understanding. The report is based on the research, data collection and
analysis of business operations, purchasing process of Duy Dat Bon Production and Trading
Co., Ltd. And from that real data and information, we can easily find out the pros and cons of
the company as well as make suggestions to improve some of the above shortcomings.
1.2 Data collection method and content of the report
1.2.1 Data collection method
There are two ways that were used to research and collect data for our report. Firstly,
we prepared questionnaires for each chapter to gain primary information, then gave them to
the staff, who is an accountant for the company. Secondly, we did research, and collected
secondary information about the company via some websites, pages that were suitable for us
to put into our report.
1.2.2 Content of the report
Our report is divided into eight sections corresponding to the company's activities:
 Introduction
 Purchasing Decisions and Business Strategy
 The Legal Aspects of Purchasing
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 Materials Management
 Inventory Management
 Just-in-Time (Lean) Purchasing
 Purchasing Procedures
 Supplier Selection and Evaluation
3.
Business introduction
Criteria
Name of the
company
Information
Duy Dat Bon Production and Trading Co Ltd.
Year of establishment 2002
Form of business
organization
Manufacturer, Trading company
Market of the
company
Nationwide, International
Tax code
0301443333
Location
Lot 12, Street 4, Tan Tao Industrial Zone, Tan Tao A Ward,
Binh Tan District, Ho Chi Minh City, Vietnam.
Working time
Monday to Friday from 7 a.m. to 4.30 p.m.
Products
Glues and Adhesives (glue used to paste packaging, labels)
Customer of
company
Business
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2. PURCHASING DECISIONS AND BUSINESS STRATEGY
2.1 Competitive strategy
Due to the specific nature of the market, the company has realized that customers will
prioritize prices when purchasing because they do not need over-quality glue just to paste the
packaging onto the product. So, the company has decided to provide customers with cheap
glue but still guaranteed long adhesive properties, fast drying time and waterproof. In addition,
other factors such as delivery speed, after-sales service are also one of the company's priorities
to increase competitiveness as well as to maintain relationships with customers. One of the
company's special policies is to allow not to have to pay at once that customers may owe and
will pay later.
Because glue and adhesives are a special industry because it is difficult to predict the
needs of customers but the production time of the glue is fast (only 1-2 hours) so the company
chose to follow make-to-order strategy. This leads to the fact that they store a lot of raw
materials, and when they get an order, they produce instantly and deliver in the day.
In markets, reliability is one of the strengths of Duy Dat Bon, they have 20 years of
experience in glue manufacturing and the production scale is enough to meet our loyal
customers' demands. Also, the company has a variety of products, the main product is
industrial glue used to paste packaging so close customers are consumer companies, industrial
companies, a foreign company....
The company also concentrates on customer satisfaction and has after-sales policies for
customers. That is why they have many loyal customers such as Lothamilk, Bia Saigon.
Collaboration with other big companies and brands also boosts the company's reputation.
*Comment:
Overall, Duy Dat Bon has been aware of the priorities in their business strategy and
has also achieved certain advantages in the market. Duy Dat Bon applies the make-to-order
strategy, they can make sure that the goods do not have to be held in warehouses for a long
time, which can help to reduce the inventory cost but they still ensure that they fully meet the
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requirements of the order and maintain short lead time because the glue production is very
fast. So, the company has done very well in applying the right strategies.
But with the sale of cheap glue that also allows others to own, this can lead to some
constraints and difficulties for the company's financial situation. Low returns plus legal risks
in borrowing is one of the problems that the company is facing. So, the company's managers
have to be smart in dealing with financial and customer relations issues, ensuring that the
funds are stable for the company to operate.
2.2 Purchasing strategy
Objectives in business: Materials’ quality must be suitable for their costs and the costs
must be lowered as much as possible.
The company now offers two different kinds of glue to its customers, one of which is
made by the company and the raw material is purchased from the domestic company. The rest
is that the company will buy the adhesive from abroad and resell it, acting as a distributor.
Both products have to satisfy the criteria that they are cheap, the type of glue bought abroad
will be a little better. The company distributes two such adhesives with the aim of providing
customers with a variety of cheap options but the quality is still in line with each customer's
requirement.
After more than 20 years of operation, the company continues to pursue price-based
strategy. First, they target the potential suppliers then make a comparison based on price
offered between these companies to find out the most lucrative option. If those companies
have the same quality but different prices, Duy Dat Bon will choose the cheaper one and start
again from step 1 to find the best suppliers.
4
Figure 2.1: Duy Dat Bon’s model to find the best supplier
*Comment:
Because this technique is so basic, it can be easier to evaluate the suppliers. However,
it can be a problem if we have many suppliers. Companies give too much priority to product
discounting, there are sometimes mistakes in evaluating suppliers on other criteria.
The company should have an optimal technique, such as AHP (a method of selection
based on the evaluation of multiple criteria). The business can use this method to obtain good
results with a wide range of suppliers with many aspects.
2.3 Supply chain strategy
5
Duy Dat Bon has built long-term collaborative relationships with their suppliers, which
directly affects the business's production process; they have fixed suppliers, that means they
do not need to find alternative suppliers after a period. The relationship between the company
and the supplier is the open-market relationship because they tend to buy in small batches in
order to minimize the risk of buying. In Covid-19, they still sign contracts with suppliers, not
changing any suppliers, but business and purchases from abroad were interrupted.
As a product supplier to the business, the company maintained the relationship as a
close partner, willing to share the benefits of each other such as willing to let other companies
owe.
*Comment:
By maintaining long-term relationships with fixed suppliers, Duy Dat Bon can rely on
consistent product quality, pricing, and delivery schedules, reducing uncertainty and
disruption in the production process. Having fixed suppliers eliminates the need for
continuous supplier search and evaluation, allowing the company to focus on core business
activities and streamline procurement processes. Maintaining close partnerships with suppliers
allows for mutual benefits, such as sharing profits or extending credit terms during challenging
times, demonstrating a commitment to supporting each other's success.
Fixed supplier arrangements may limit the company's flexibility to adapt to changing
market conditions or take advantage of new opportunities, potentially hindering innovation or
cost-saving initiatives. While long-term relationships can enhance trust and reliability, there's
always a risk of supplier performance declining over time, whether due to changes in
management, quality issues, or competitive pressures.
Duy Dat Bon should find more alternative suppliers after a period and apply techniques
to choose the best suppliers at a particular time. In some cases, such as the supplier cannot
satisfy enough demands, Duy Dat Bon may need alternative suppliers to solve this problem.
While maintaining fixed supplier arrangements offers stability, consider diversifying the
supplier base to mitigate risks associated with dependency on a single source. Exploring
alternative suppliers can provide backup options and leverage competitive advantages.
6
3. THE LEGAL ASPECTS OF PURCHASING
3.1 Overview of the legal aspects of purchasing in the company
They do not have a specific position in charge of purchasing functions. Instead, the vice
director will lead procurement. The duties will include negotiating with the suppliers and
deciding the terms of the contract, such as the quantity of goods purchased, prices, delivery
times, and delivery procedures.
The employee will draft the contract with the supplier first and then the vice director
will approve and sign the contract. He will make sure that the contract is full of necessary
terms and that the interests of both sides are balanced. Moreover, he will represent the
company and negotiate and communicate with other parties.
With domestic partners, the company will give priority to communicating through
popular methods such as email, telephone, and texting. With foreign partners, the company
will have to write several documents, such as purchase orders, contracts, and invoices.
3.2. Important terms in the procurement contract between the company and the
supplier.
1. Price and Payment Terms:
The company has purchased adhesive chemicals for 20.000 VND to 102.000 VND for 1
kg. The payment method is the arrangement reached out between the buyer and the seller, the
company usually pays for the suppliers through bank transfer.
2. Delivery Terms
Due to the large quantity, the company cooperates with other third-party companies to
deliver. The Seller must fulfill the obligation to deliver the goods to the Buyer according to
the agreed object of the contract at the agreed location in the contract, which normally is the
warehouse of the company in Binh Tan district. The delivery companies take responsibility
for dealing with the importing procedure and providing some essential documents to customs.
7
Some of the shipping units that the company cooperates with are DHL, EMS, etc. Related
costs such as taxes and shipping charges, will be borne by the purchasing company.
The average ordered amount of raw materials and chemicals is usually around 1 ton.
3. Quality Assurance and Inspection
The supplier ensures to sell raw material which meets the standard and requirements. The
vice director will inspect prior to receiving the materials. Moreover, he will check all related
documents to ensure the purchase complies with the law.
4. Warranties and Guarantees
If there are any issues related to quality or quantity, it is possible to get a refund, and the
supplier will bear the costs. These include inconsistencies in composition, the presence of
impurities or contaminants, and issues related to moisture content.
3.2.1. Rights and Obligations of the Suppliers
According to information from the company, in the contracts with suppliers, the
company always specifies the rights and obligations of the supplier as follows:
Suppliers of raw materials for adhesive production have several important responsibilities.
The most important of them is quality assurance, which calls for materials to meet specific
requirements and be free of problems or contaminants that can affect the effectiveness or
safety of the product. Maintaining a consistent level of quality and timely delivery is crucial
for maintaining predictable manufacturing operations and preventing delays. Furthermore,
suppliers need to support regulatory compliance and efficient quality control with precise
documentation and traceability data. One might prepare technical support to help
manufacturers determine and optimize material consumption. Adherence to production,
handling, and transportation requirements is crucial, as is keeping open lines of contact with
manufacturers about any modifications or issues. In the end, these responsibilities work
together to provide a consistent supply of superior raw materials, which makes glue
manufacture easier.
8
3.3 Additional information and some comments on the policies of the company in
purchasing.
Because of having good relationships with partners, the company can negotiate with them
through informal means such as face-to-face conversations or phone calls This informal
approach accelerates the procurement process and emphasizes the relationship's strength.
Even in the informality of oral contracts, clarity remains important. In the information age,
communicating with foreign partners is not an obstacle. Emails play a vital role in sending
information and agreeing to the terms of the contract.
Comments
Overall, Duy Dat Bon has a very good, smart purchasing policy. The company has taken
advantage of the benefits of developing a way of communicating that allows for faster
negotiations and purchases. In addition, the company always focuses on the quality of raw
materials, efficient delivery process, and the terms of the company always ensure that both
sides are mutually beneficial. Direct involvement in purchasing allows for tighter control over
costs and negotiation strategies, potentially leading to more favorable terms and savings for
the company.
However, without a dedicated purchasing department, the Vice Director may face
challenges balancing purchasing responsibilities with other duties, potentially leading to
delays or oversight in procurement activities. The Vice Director's capacity to handle all aspects
of purchasing, including legal matters, may be limited, particularly in larger or complex
procurement scenarios, potentially leading to inefficiencies or missed opportunities.
To address challenges in purchasing activities, several strategies can be implemented.
Firstly, delegate specific tasks to other staff members or departments to alleviate the Vice
Director's workload. Moreover, the company can consider letting the external consultants take
responsibility for purchasing. Because they know how to establish clear processes and
standardized procedures, ensure consistency and reduce errors.
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4. MATERIAL MANAGEMENT
4.1 Materials and capacity planning:
4.1.1 Materials planning:
The company supplies raw materials according to the outgoing flow of the finished
products, which is constant throughout the year. Hence, it leads directly to the fact that the
brand possesses a stable incoming flow of needed components. Moreover, due to the
company's characteristics, they hardly had any special requirements concerning special raw
material treatments.
The company manages raw materials quite simply, when the quantity is low, they can order
more. So they do not have a specific plan and schedule for purchasing new materials.
Typically, the company will buy a lot of raw materials at the beginning of the year and use
them gradually until the end.
4.1.2 Capacity planning:
The number of adhesives that customers order is often unstable, it can range from a few
hundred pounds to a few tons. In addition to the fact that the production time is short, an
average of five tons of glue can be produced in one workshift. So the company stores a lot of
raw materials, maybe up to a few dozen tons for critical raw materials.
Duy Dat Bon’s inventory is responsible for storing raw materials serving for manufacture.
Mainly, Duy Dat Bon company would divide their inventory into 2 separate sections for 2
distinguished functions: self-produced products, imported products. Usually, customers will
buy more self-produced products, so the stock for this type of glue will make up about 70%.
The rest will be glue purchased from foreign companies, usually only one or two customers
order this type of glue so stock not too much
Despite having a stable sales rate, the inventory also has prepared for crisis scenarios such
as backlogs, backorders,…. This is proven by the responsiveness of the inventory towards
various departments.
10
4.2 Different flows in the company:
Apart from the monetary flow that seamlessly runs throughout the company, the 2 main
vital flows are: Materials flows – they are responsible for keeping the production rate on time,
low lead time, low cycle time,… - and Information flows - they are the vessel behind the
seamlessness of the operation itself.
4.2.1 Materials flows:
The order is first verified by via telephone or emails, two patterns will then be derived
from the confirmation above. Orders will be processed and completed.
There is also a post-sale department to keep track of customer satisfaction along with
maintaining an acceptable customer service rate. Due to that reason, the Duy Dat Bon Co. has
managed to acquire consistency in terms of buyers. Furthermore, the productivity of the
company also depends on the orders and market demand. They are always prepared to scale
up production to meet larger orders and to assure quick delivery times.
*Comments:
The company has a fairly good order processing process as the company can produce
immediately after receiving the order and deliver in the day, so the lead time is vey short. The
delivery rate is very high, according to the information we get from the company, almost 100%
of orders will be delivered on time. Overall, the company has made very good use of the
characteristics of this industry by focusing on shortening lead time and good after-sales
service. Customers usually do not need glue with too good quality, no need to provide special
products so the company chooses such a way to increase customer satisfaction is reasonable.
4.2.2 Information flows:
Duy Dat Bon is using a rather old-fashioned information exchange system as they tends to
have all of their statistics, meetings in person be presented each month. On the contrary, the
company has a relatively modern way to stay on the same page with the customers as emails
are sent, calls are made to assure the company can have any emergency resolved.
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4.3 Defective product treatments & maintenance, repair, and operating (MRO) supplies:
4.3.1 Defective product treatments:
Duy Dat Bon defect rate usually increase within each month because they have their
machines treated half-yearly. This causes cycle time being dragged down. Moreover, defective
products are inevitable regarding the matter. Usually the product fault is due to the input
materials in a wrong ratio resulting in glue loss of adhesion, glue too liquid...
After making a defective product, the company undergoes a process to evaluate how it
would deviate from a perfect counterpart, which is done by sending it to the quality assurance
department, then making decisions upon them. The company will choose to abandon all
defective products and accept higher costs.
If the product is already delivered, customer service and relevant departments will get
involved to perform the act of retrieving and exchanging the product for the customers. But
the rate of defective products delivered is virtually nonexistent.
4.3.2 Maintenance, repair, and operating (MRO) supplies:
As proposed previously, the company’s machines get treated semi-annually. By using the
third-party service, the company can focus on optimizing their chain of activities within their
supply chain.
Repairment is required and called by the same party if only one of the machines breaks
down. Because of this matter, the company is at stake if the majority of their machines
malfunction.
4.4 The company's limitations in managing materials and proposing modified solutions
First, ordering a large quantity of raw materials at the beginning of the year can lead to
risks such as raw materials may get damaged or worn out during storage, especially if not
properly stored. This can lead to waste and increased production costs. Purchasing large
quantities of raw materials can make the production process stable and inflexible, making it
difficult to adapt to changes or new demands from the market or customers. So the solution is
12
to ttrengthen collaboration with suppliers and customers to share information on demand
forecasting, minimize supply chain risks, and promote raw material supply in line with actual
production needs. Since the majority of customers are consumer goods producers, the
company can ask them to share new demand forecasts quarterly so that they can obtain
materials with adequate data. Negotiating flexible contract terms, including setting a fixed
quantity of raw materials but allowing adjustments based on actual needs or changes in the
market. The company can estimate the quantity of raw materials in stock monthly to plan new
purchases based on business data from close customers as well as reserve for new customers.
Second, although customers rarely ask for high-quality adhesives, the company should also
have a product quality assessment and a non-standard adhesive process. The company should
have a new department in charge of testing the technical characteristics of the adhesive,
including adhesiveness, durability, drying time, operating temperature and heat resistance and
use appropriate experimental equipment to evaluate the performance of the glue to ensure it
meet the minimum requirements. For defective products, the company should classify the
defects and figure out how to handle each type of defect. For example, our team have come
up with the table listing all the errors and suggesting the solution.
Type of defect
Severity Level
Solution
Review manufacturing
process and quality of raw
Poor adhesion capability
Severe
materials. Consider
adjusting formula or
manufacturing method.
Check and adjust the
Dry or hardened adhesive
manufacturing process to
Severe
ensure correct reaction time
and temperature. Consider
13
using anti-curing agents for
transportation and storage.
Optimize adhesive formula
or seek alternative materials
Poor heat resistance
Severe
with higher heat resistance.
Check and improve
manufacturing process.
Review the chemical
composition of the adhesive
Unpleasant smell
and control the
Minor
manufacturing process to
eliminate odor-causing
substances.
Table 4.1: Possible defect and suggesting solution
With the application of the above solution, it will limit the failure of the product as well as
the maintenance of stable glue quality.
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5. INVENTORY MANAGEMENT
5.1 Introduction to inventory management of the company
To efficiently manage our adhesive inventory and raw materials, they have transformed
a 2000 square meter plot of land adjacent to the company premises to serve as a storage
facility. The warehouse was purchased by the company's owners, so it didn't cost storage and
saved a lot of operating costs.
Figure 5.1: The company's warehouse and production area
As is observed, the company arranges all kinds of raw materials on fixed shelves. So, it's
also very convenient to get stuff for production. This strategic move will enable the brand to
store their adhesives and related materials in a controlled environment, ensuring its integrity
and longevity. With this additional space, we can implement proper storage practices,
including the use of specialized cabinets, vacuum sealing machines, and air conditioning
systems to maintain optimal temperature and humidity levels. By centralizing our adhesive
storage in a dedicated facility, they aim to streamline our inventory management processes
and enhance the overall efficiency of our operations.
15
The storage temperature for adhesive varies depending on the specific type and
composition of the adhesive. However, many adhesives are typically stored at room
temperature, which is around 20-25 degrees Celsius (68-77 degrees Fahrenheit), with a
relative humidity of approximately 50-60%.
5.3 Methods of preserving inventory
Because the company doesn't have any finished goods on hand and only produces after
receiving orders, The company only uses the warehouse to store the raw materials, we can see
a huge amount of raw materials. But the imports and exports of materials are recorded only
once a year and do not have any specific methods to manage it effectively.
Figure 5.2: Simulation of Sales data and values of ordering and purchasing cost in a year
Figure 5.3: The value of importing and exporting materials in the warehouse
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It can be seen that the management of raw materials is still ineffective when the value of
the inventory at the end of the year is still very high, more than 5 billion VND, not including
other costs to handle those materials such as (storage, security…)
Figure 5.4: The charts for the amount of money and quantities of inventory in 2023
Comment:
Our team finds that this approach by the company is still too simplistic and lacks
optimization and efficiency. So we have suggested some methods such as ABC Classification
or Economic Order Quantity
To apply the Economic Order Quantity (EOQ) model and ABC analysis to help a adhesive
company purchase raw materials efficiently, we will perform the following steps:
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Identify necessary data and parameters:
 Price of raw materials per unit.
 Ordering cost (including shipping costs, order processing).
 Inventory holding cost (handling costs).
Calculate Economic Order Quantity (EOQ):
Use the EOQ formula to calculate the optimal quantity of raw materials to order each
time.
2𝐷𝑆
Formula: 𝐸𝑂𝑄 = √
𝐻
Where:
 D is the annual demand (quantity of units needed to be purchased annually).
 S is the ordering cost per order (including shipping costs).
 H is the holding cost of inventory per unit per year.
For example:
For example, a material code 706K, after years of sales, a company can draw the average
amount of material it uses annually. Let take that they use around 200kg per year so D =200,
Ordering cost (S): 100$, Holding cost (H): 10$
EOQ = 63 kg
So the company can order 63 kg for each period.
ABC Classification:
We've applied the ABC model to the data files that the company provides.
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Figure 5.5: Applying ABC classification
ABC classification helps identify the most valuable items (group A) and focuses resources
and attention on managing them more efficiently. For example, the product "DA 102," with
the highest value in the list, will receive special attention to ensure effective management.
Items belonging to group A (e.g., "DA 102," "706K") typically represent most inventory value.
Effectively managing them can reduce inventory costs, ordering costs, and stockout costs.
Moreover Group A items often have lower uncertainty factors in forecasting and
measurement, improving forecast accuracy and supply planning. ABC classification helps
determine appropriate ordering strategies for each item group. For instance, "DA 102" may
require more frequent and smaller orders to minimize inventory costs, while items in group C
may be ordered less frequently but in larger quantities to reduce ordering costs.
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Thus, ABC classification not only helps businesses identify and prioritize the most critical
items but also optimizes inventory management activities and reduces inventory and ordering
costs.
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6. JUST-IN-TIME (LEAN) PURCHASING
6.1 Proposal to use JIT in the context of production:
Based on a long-term relationship with a partner, the brand Duy Dat Bon can use Just-intime as their purchasing strategy, the method will help the company to immensely lower the
ordering costs to only transportation and negotiation, excluding other unnecessay costs such
as paperwork, inspection . The method also provides the brand flexibility in managing their
inventory. With the help of JIT method, the company can reduce the number of orders,
increase the delivery rate to customers on time, and reduce the lead time.
Below is a brief of how the method is applied to Duy Dat Bon’s process of purchasing:
Figure 6.1: Simulation of Sales data and values of ordering and purchasing cost in a year
6.2 Details about JIT purchasing:
6.2.1 Order quantity:
The company’s order size is categorized in tons and in boxes quantity. Each time an order
is placed, it comes in ranging from a few hundred kilograms to a few tons of raw materials or
1,000 boxes. It is an advantage for the company as their buyers. Regarding the characteristics
of the business - B2B, the order time is easily predicted and calculated.
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6.2.2 JIT physical and information flows:
Flows of information are the fundamental of the brand’s procuring strategy. They directly
manage the flow of manufacturing and order fulfilling processes as in the Pull method. The
physical flows, on the other hand, are representing the runnings inside the business model
itself. By managing the physical flow, it also means optimizing the ordering process as well
as the operation.
6.2.3 Suppliers:
Duy Dat Bon depends solely on one supplier, this may leads to the act of shutting down if
a crisis occur, for instance, they would face a predicament if another pandemic similar to
COVID19 occurs due to the reason of only having a sole supplier.
However, by keeping a simple yet direct supply-demand system, it is more manageable
when it comes down to minimizing the expenditure on procuring, transporting,etc…. Another
point to add is that with a B2B business model, the goal of the brand is put on time as shorter
the time is, the higher the profit. The company’s supplier has a high on-time delivery rate,
hence support massively to the work of time control.
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7. PURCHASING PROCEDURES
Figure 7.1 Ideal procurement procedure of the company
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7.1 Determine needs of purchasing
Every three weeks, the warehouse manager will send the information about what materials
they need to store (such as: chemicals, flour, Ammonia... in kilograms) for production to the
vice director. The vice director will know the number of materials and the types of materials
needed, then, this information will be sent to the accountant so she will send the money for
him to buy materials.
7.2 Ordering process
After knowing the need of purchasing suppliers, that will deliver the materials, the
company will proceed to place an order and call the supplier directly to request it.
Figure 7.2 Ordering process
7.3 Receiving process
7.3.1 Receiving criteria
 Deliver the goods as agreed upon and on time
 The supplier must deliver the correct products, in the specified quantity, model, and
quality as previously agreed
 Provide complete invoices and relevant documents for cross-referencing when
necessary
 Do not accept defective or insufficient goods; the supplier must make necessary
additions or exchanges before payment is accepted.
7.3.2 Receiving process
Preparation before Receiving Goods
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 Contact the supplier to confirm the delivery time, delivery location, quantity of
items, and other necessary information.
 Check the warehouse to ensure that the warehouse has enough space to
accommodate new goods and organize the receiving area neatly and cleanly.
 Prepare inspection tools such as invoices, warehouse entry forms, pens, notebooks,
and barcode scanners (if available).
Receiving goods
 Inspect the external appearance of the items to ensure that the items are intact, not
torn, dented, or showing signs of damage.
 Verify the quantity of items which means that compare the actual quantity of items
received with the quantity stated on the invoice or delivery note.
 Report any issues (if applicable) which means that if any discrepancies are found in
terms of quantity or item condition, promptly report them to the supplier and record
them for future reference.
Detailed Product Inspection
 Compare the products with the invoice like cross-reference the model, size, color,
and actual quantity of products with the information on the invoice.
Recording Inspection Results
 Record the actual quantity of products in a notebook or inventory management
system.
 Organize products by model, size, and color for display or storage.
 Keep copies of invoices, warehouse entry forms, and product inspection reports as
evidence when needed.
Completing Goods Receipt Procedures
 Confirm that the inspection is complete, and all items have been received.
 Inform them of the quantity of products received for updating the sales system.
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7.3.3 Conditions to return orders:
For shipments with the defective rate in the acceptable range which has been dealt with on
both sides, the station will not be able to return the orders. Except for the case that the delivery
company ships the wrong item, the wrong number quantity ordered, the station has the right
to return the defective orders.
In case the shipment has the proportion of defects larger than the agreed rate, the station
has the right to complain and immediately return the orders to the suppliers and ask for other
consignment with the extra fee (delivery cost) paid by the suppliers.
7.4 Payment method
7.4.1 Check and Confirm the Invoice
The company carefully verifies the information on the invoice, including the supplier’s
name, tax identification number, address, invoice date, product details (product names,
quantities, unit prices, total amounts), payment methods, and payment terms.
Ensure that the product information, quantities, and prices on the invoice match the details
on the goods receipt note.
Verifying that the total payment amount on the invoice is accurate.
7.4.2 Payment to the Supplier
The company pays for the supplier by bank transfer if the cost of the order is greater than
20 million VND. Below that, they will pay in cash. The payment time that company pays for
the suppliers is around 1 month from the date of issuance of the invoice.
7.4.3 Document Storage and Payment Records
The company needs to keep purchase invoices along with payment records (receipts,
transfer receipts) for reconciling accounting books and as a basis for the company’s auditing
work.
7.5 Evaluation of the purchasing procedure
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There are eleven stages for purchasing materials and packages of the company. The
procedures start from determining the demand, which means that the need for materials for
production from the warehouse and end with the evaluation of the chosen supplier to check
whether this supplier is good or not, and should the company choose this supplier for the next
time. Duy Dat Bon was established in 2002, and its purchasing procedure has been adjusted,
improved for the past 20+ years, so, up to now, we can see that purchasing procedure of Duy
Dat Bon is good, in each step, there are some details descriptions for what should be completed
and then move to the next one. Besides, in stage payment, with the cost of the order is greater
than 20 million VND, the company will transfer that money to the supplier via bank transfer,
they use that method and with that point of money because with the lower range of money,
which is lower than 20 million VND, they can easily manage and keep in hand. Overall, the
purchasing procedure of Duy Dat Bon is quite clear and easy to understand, other production
companies can apply the same stages, but they can adjust some criteria in stages of receiving
goods, payment method, etc., depending on the specific types of products they produce.
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8. SUPPLIER SELECTION AND EVALUATION
8.1 Supplier selection
8.1.1 Finding supplier
Almost all suppliers of Duy Dat Bon Company are selected strictly. One of the criteria is
Reliability, which is the most important criterion, deciding whether the supplier can sign a
contract with the company or not. As has already been mentioned, the company still takes
price priority over other criteria.
Typically, for the most important and important ingredients, suppliers have to be largescale companies with many years of experience in the manufacturing field. For different items,
the company will have different suppliers. Most of these suppliers will sign long-term
contracts, almost unchanged for many years. And for other by-materials, and if they buy them
in small quantities, the company can buy them through small suppliers.
Typically, Duy Dat Bon will search for suppliers through the following methods:
• Through online information channels: search for information on the Internet or on social
media suited to the needs of the store such as: geographical location to evaluate the ability to
deliver the goods quickly and respond timely. Or some relevant information, such as brand
value in the market, has ever been involved in any quality legal issue...
• Contact the supplier directly: Shipping issues (time, price...), supply quantity, support
policy
• Meeting in person: shipping contract, customer contract, warehouse survey, etc.
• Surveys of other companies, stores: reviews of suppliers selected by the store. When
available, stores compare, compare and note the supplier's contact information for
consideration.
Vice Director responsible for contacting, meeting suppliers and making decisions about
the choice of suppliers.
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The company has two types of glue, one made by itself, and one purchased from abroad
and resold to customers. The domestic supplier will supply the chemicals for Duy Dat Bon to
make the glue, and the supplier abroad will supply the adhesives for reselling. Some suppliers
of Duy Dat Bon are Truc Giang Company, Texchem Material VN and H.B Fuller Adhesives
Malaysia.
8.1.2 Process to decide suppliers
Before deciding to sign contracts with suppliers, the company has a process to check
whether the supplier is acceptable or not.
Figure 8.1 Duy Dat Bon’s process to make decisions
8.1.3 Limitations and recommendations in the selection of suppliers
While there is a good relationship with the supplier, it’s mainly based on the owner’s
relationship, so if there’s a problem with the existing supplier the company doesn’t have the
tools to evaluate.
Therefore, we hereby introduce the company to the categorical method to evaluate the
suppliers based on their delivery time, cost, product quality and satisfaction. Such example
will be given below as reference to the brand:
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Supplier
Delivery
Cost
Product quality
time
(Compared to
Product
Total
satisfaction
its market)
A
On-time (+)
Higher (-)
Good (+)
Neutral (0)
+
B
Late (-)
Lower (+)
Acceptable (0)
Bad (-)
-
C
On-time (+)
Same (0)
Bad (-)
Good (+)
+
Table 8.1 Categorical Method
We also provide another solution in addition for Duy Dat Bon, a linear average method is
added as a viable option for the company to pursue because of the method’s practical
characteristics:
Criteria
Reliability
Quality
Scoring
Weight
Excellent (10)
Good (8)
Fair (5)
Poor (2)
 Many
 Few years
 About 5
 Less than 30.2
years in
in this field
years in
years
this field
(>8 years)
this field.
experienced
(>10 years)  Supply ~5  Supply at
in this field
 Supply
companies.
least 3
more than  Certificates
companies.
10
companies.
 Certificates
- High quality,
can be kept in
long time (~ 1
years)
- Having
licenses, clear
origins.
- Can be kept
in 5 – 9
months.
- Can be kept
in 3 – 6
months.
- Can be kept
in a short time
(< 6 months).
- Having
licenses, clear
origins.
- Having
licenses, clear
origins
- Not having
both licenses
and clear
origins.
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0.3
Fixed cost
Shipping
cost
Less than 10%
compared to
market price
Less than 5%
compared to
market price
- <5% order
- <10% order
price.
price.
- Having
- Having
discount for all discount for
orders
big orders
- The products
- The products
are not leaked
are not leaked
Same price
with market
price
More
expensive than
market price




~10%
order price
No
discount
The
products
are not
leaked


0.3
~10% order
0.2
price
No discount
The
products
are able to
be leaked
Table 8.2 Scoring for suppliers
Criteria
Company
Company
A
Company
B
Company
C
Reliability
Quality
Fixed cost
Shipping cost
Total
0.2 x 8 = 1.6
0.3 x 8 = 2.4
0.3 x 10 = 3
0.2 x 8 = 1.6
8.6
0.2 x 10 = 2
0.3 x 8 = 2.4
0.3 x 5 = 1.5
0.2 x 10 = 2
7.9
0.2 x 5 = 1
0.3 x 10 = 3
0.3 x 8 = 2.4
0.2 x 5 = 1
7.4
Table 8.3 Scoring for each company
Furthermore, there are several methods to evaluate suppliers’ criteria to select the best
option, such as AHP.
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Figure 8.2 Selecting supplier using AHP method
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8. 2 Supplier evaluation
8.2.1 Criteria
There are many metrics that are taken into assessment when the brand chooses their
suppliers, such as reliability, quality, cost.... In many cases, the company needs to review their
long-term source of materials after a period of trusting, hence detailed evaluations are required
over a fixed schedule.
The remainder of this section will cover the part of which evaluations are considered and
provided to ensure the company has the optimal outcome.
8.2.2 Supplier evaluation
Many big companies choose well-known and reliable suppliers, Duy Dat Bon is not the
exception. That leads to the fact that the business sometimes ignores other costs and lacks
consideration. The company will review its suppliers annually to see whether the weighting
of the criteria needs to be adjusted in order to see whether the company is suitable for the
company's development goals and from that they can identify the best supplier.
8.2.3 SRM evaluation:
SRM evaluation method is a tool of analysis used to determine the quality of a supplier, in
this example, we will be taking three same companies into consideration. Another detail to be
added is that the evaluation caps at 4.0 which means the lower the score is the higher chance
of replacing the supplier and vice versa.
This report uses the SRM evaluation method to make comparison with Duy Dat Bon
assessments. The SRM evaluation will judge based on contract, risk insurance, performance:
Company
Contract
Risk insurance
Performance
Average
Truc Giang
2.5
0.5
4.0
3.5
1.5
3.0
1.0
1.8
Company
Texchem
Material VN
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H.B Fuller
2.0
2.5
3.5
4.0
Adhesives
Malaysia
Table 8.4 example of SRM method for Duy Dat Bon
*Comments:
As shown in the table above, Truc Giang Company and H.B Fuller Adhesives Malaysia
are two exceptionally good supplier which will be reevaluated yearly. On the contrary,
Texchem Material VN is categorized in the acceptable supplier and must be assess
semiannually.
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CONCLUSION
The team applied the knowledge acquired from the Purchasing Management course and
some other subjects to analyze the purchasing function of Duy Dat Bon company. Overall, the
store has operated the purchasing function relatively well, ensuring necessary processes such
as demand forecasting, material planning, inventory management, quality assessment, and
supplier evaluation, while implementing competitive strategies to diversify products. Each
process impacts the operation, costs, revenue, and profitability of the business.
With the help of this report, my team and I have become more adept at working together,
making presentations, and producing reports. We hope that the firm will develop and prosper
in the future.
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REFERENCES
Jr, W. B. (2009). Purchasing and Supply Chain Management. McGraw Hill Companies.
Ha Phan Thi Mai, 2022. Procurement lecture slides. Ho Chi Minh City University of
Technology (HCMUT – Bach khoa) - Vietnam National University
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