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Week 10 Procurement and purchasing - Coggle Diagram
Week 10 Procurement and purchasing
procurement
definition
Procurement is the process of getting the goods and services your company needs to fullfil its business model.
The tasks involved in procurement include
The development of quality standards for suppliers
Financing purchases
Negotiating price
Goods and services purchases
Aligning purchases to company ethics and policies
Inventory control
Disposal of waste products like the packaging
purchasing definition
Purchasing is a subset of procurement.
Purchasing refers to buying goods or services and often
includes receiving and payment.
The steps related to purchasing within the procurement cycle are
Purchase Order Acknowledgement
Speed up Shipment
Goods Receipt
Invoice Recording
Three Way Match (compare and match po, receipt and invoice)
Supply Management as compared to Purchasing and Procurement
Supply Management
Purchasing
EPI = Environmental performance index
ESI = Environmental sustainability index
CFT = Cross functional teams
Supplier development
Long- term contracts with world-class suppliers
Under supply management, partnerships (or strategic alliances) based on mutual trust are formed with key suppliers and these suppliers are viewed as extensions of the firm.
Types of Purchasing
Retail Buying
Industrial Buying*
Raw Materials
Components and subassemblies
Finished products
MRO supplies
Packaging materials
Services
Capital assets
Transportation
Buying for Institutions
Public Sector Purchasing
The Logistics Model
Inbound Logistics Industrial Purchasing-----Warehouse
Manufacturing Point
Outbound Logistics Service Purchasing---Distribution Centers&Retail Stores
Purchasing (Procurement) Management
PM’s can have a major impact on organization success by influencing
Cost
Quality
Sales
Profits
Product development time
Technologies and innovation
Customer service
Competitive advantage
Purchasing through the years
In short, Strategic Sourcing is capturing world-class suppliers and building alliances with them.
Clerical Purchasing
Price is the key factor
Short term contracts; lots of supplier switching
Emphasis is on competition
Buyers are “paper pushers” (clerks)
Managerial Purchasing (1970s )
Purchasing is now viewed, not as a cost center, but as a value contributor
Supplier partnerships
Long-term contracts
Quality, service, and price considerations
Negotiation as well as competitive bidding
Strategic Sourcing (Supply Management) [2000 ]
Finding and selecting suppliers
Maintaining alternative suppliers (risk management)
Rationalization of the supplier base
Long-term strategic alliances with key suppliers
Institutional trust
Emphasis is not on a specific contract but on the relationship
Senior Management involvement e-Technologies
Relationship-specific capital investment
Types of Supplier Relationships
Transactional—emphasis is on price
Partnership—supplier is viewed as a resource
Strategic Alliance—supplier is critical to the success of the firm and is viewed as a part of the business enterprise
Supplier selection criteria - main
Price of product/service •
Sales terms
Lead time
Financial position
Lot sizes
IT capabilities
Performance history
On time performance
In full delivery performance
Delivery quality
Reputation
Why Purchasing is Important
Cost of material is base for COGS
Purchased materials: the biggest element of cost in manufacturing industries
Manufacturing Industries----55%=material/sales revenue
Services Industries----30%
Purchasing as a profit producer
Profit = Revenues - Cost
Purchasing impact revenues
Purchasing impact costs
Four Enablers of Excellent Purchasing- Procurement Management
Capable Human Resources
Team skills
Manage Relationships
Cost Mgt Tech
E-commerce
Negotiation skills
Contract management experience
Other
Proper Organizational Design
Centralized
Decentralized
Purchasing Councils
Co-location of buyers with users
CFTs
IT
Requirements Planning
B2B
Inventory visibility
Performance Measurement
Suppliers
Supply Management function
Advanced forms of Supplier Relationships
Partnerships & J.Ventures
VMI (Vendor managed inventory)
The vendor (supplier) does not receive any orders. The company(the user) gives the supplier access to their production/sales plans.
The supplier is responsible of managing the inventory levels of products he/she supplies. The supplier is also responsible of the customer service levels.
Demand data sharing
Full transparency and target alingment (CPFR)
(Collaborative Planning Forecasting and Replenishment)
Mostly the case in FMCG sector
Supplier and Buyer shares market information on a completely transparent platform.
Supply chains are mostly integrated
Best application for strong brands and ensuring market leadership in availability
Supply chain optimization
Automatic replenishments with std. quantities
Electronic data exchange
Electronic money transfers