CHAPTER 2
The Purchasing Process

Elements of the Purchasing Process

Identify user requirements

Evaluate user needs effectively and efficiently

Identify suppliers to meet that need

Develop agreements with suppliers

Develop ordering mechanism

Ensure payment occurs promptly

Ascertain that need was effectively met

Drive continuous improvement

Participants in the Business Buying Process

Influencers

Buyers

Deciders

Gatekeepers

Users

Purchasing Objectives

Supply assurance

Manage Sourcing Process

Supplier Performance Management

Develop Aligned Goals with
Internal Stakeholders

Develop Integrated Strategies that
Support Goals and Objectives

Contract management

Definition

Define the contract, roles & responsibilities of both parties

Advise when to modify & ensure appropriate escalation

Competitive bidding

Price is the most, enough

Specifications: Clear

Volume: High

Not prefer any supplier

Negotiation

Price is not the most

Specifications: Adjustable

Volume: Not really high

Selected supplier

Procure-to-Pay & E-procurement

Procure-to-Pay

  1. Forecast and plan requirement
  1. Need clarification (requisition)
  1. Supplier identification/selection
  1. Approval/ Contract/purchase order generation
  1. Receipt of material or service and documents
  1. Settlement, payment, and measurement of performance

E-Procurement

Virtual elimination of paperwork

Reduced time between need recognition, order release & receipt

Improved communication

Reduction in errors

Reduction in overhead costs

Reduction in P.O. and invoice processing time

Types of Purchase Order/Contracts

Standard purchase order.

Planned purchase order.

Blanket purchase order

Contract purchase orders.

Most used, the easiest to understand

Irregular, infrequently, or one-off procurement

Completed specifications

Omi dates for payment & delivery
Others as a standard one

Issue a release to confirm when delivery information determined

Omit delivery information + specific quantity

Usually open for 1 year,
remains open

Repeated purchases of item or family of items from a supplier

Release materials as needed & issue new P.O. each time

Importance of escape clause

The vendor’s details is only thing confirmed (potentially payment & delivery terms)

Basis for an ongoing commercial relationship

Fixe - price contracts

Financial risk – market fluctuations

Industry competition

Levels of supply

Market prices

Technology risk

Cost - based contracts

Simplest, Easiest for purchasing to manage

Expensive, complex, critical purchases

Risk of large contingency fee

Need to identify and monitor relevant
supplier costs

Types of Purchases

Direct Purchase

Raw materials

Semifinished product and component

Finished Products

Maintenance, repair, operating items

Indirect Purchase

Production Support Items

Services

Capital Equipment

Transportation and third-party purchasing