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
- Forecast and plan requirement
- Need clarification (requisition)
- Supplier identification/selection
- Approval/ Contract/purchase order generation
- Receipt of material or service and documents
- 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