PROCUREMENT MANAGEMENT

Q.1 ANSWER
INTRODUCTION
XYZ Corporation is a medium-sized manufacturing company that specializes
in producing electronic components. Over the years, the company has
experienced growth and expansion, leading to an increased demand for various
raw materials, components, and services. Procurement management focusses on
sourcing the right material, in the right quantity , of the right specifications and
quality, at the right time, from the right source and the right price. Project
procurement management is the selection, coordination and maintenance of
these goods and services and is an important part of successful project
completion.
A purchasing policy is a collection of rules that control the requisition
process. Purchasing policies help procurement administrators implement their
procurement strategy by creating a policy structure that is aligned with the
organization's strategic purchasing requirements.

CONCEPT

from 2-3 years company has experienced growth and expansion , therefore its
lead to increased demand for various raw material, components and services ,
but unfortunately company not handle these certain changes which affect to the
company’s product. We are following some procurement procedure to improve
company stability.
✓ Identifying Material Requirement :
taking inventory of the materials and components on hand, identifying
which additional ones are needed and then scheduling their production or
purchase. MRP is generally done through computerised MRP applications
which are now essential module of any ERP package. XYZ corporation has
to be planned for how much requirement of raw material and how is
demand.
✓ Issue Purchase Requisition and Review Requirements :
The company need to issue purchase requisition form so, company can
review the purchase requisition for completeness, budgetary allocation
and purchase policy requirements before starting the supplier selection
process or generation of PO.
✓ Identifying Potential Suppliers and float RFx :
XYZ corporation need raw material which supply time to time by potential
suppler it will be a manufacture or supplier. Supplier long term committed
with company must be required.
✓ Evaluate and Select Supplier :
Evaluation of potential supplier is based on the various parameters like
cost , capability , past experience , reputation , management quality , etc.
XYZ corporation must be refer The Chartered Institute of Procurement and
Supply recommends the supplier evaluation framework proposed by Tan,
 PROCUREMENT MANAGEMENT

Layman and Wisner(2002) , which involves product and delivery

assessment, capacity assessment and information assessment.
✓ Negotiate with supplier for the best Terms :
It very necessary to negotiate terms and condition to the supplier. Price,
delivery, Quality, these are important factors to be considered while
negotiating with the suppliers for the best terms.
✓ Establish Contract with Selected Suppliers/ generate purchase order :
XYZ corporation while dealing to supplier without PO and PR it is unsafe.
Because Purchase requisition department review the all the requirement
and policy while generating purchase order for the material procurement.
✓ Receive materials and perform related procedure like the issue goods receipt
notes, etc :
After receiving Po from corporation supplier send it confirm sales order.
Supplier follows the all term and condition and done the delivery on the
time. In between the process there will be some documentation Invoice
with billing amount, Purchase order number , packaging list complete with
quantity of goods shipped. After this process of documents, the
procurement department generates a Goods Received Note (GRN).
✓ Match the PO and make payment to the supplier :
After receiving material XYZ corporation need to make payment to the
supplier. This payment sone when the PO and GRN copy is match. This is
called 3-way matching which ensures that payment is only made for the
goods ordered as per the PO and GRN.
✓ Manage the Contract over its Lifetime ;
This all steps makes the relationship between the company and supplier.
Ans this step ensures that the performance of the supplier is as per the
purchase agreement.

Types of Requisition
➢ Standard Requisition :
Every corporation must have the ERP software which automatically generated into
the purchasing module for standard and routine item. Purchasing requisition
raised by user department , when it received , procurement department verify and
validate all the purchasing guidelines for implementation as per the purchase
procedure.
➢ Travelling Purchase Requisition :
IT is made for the repetitive use and is used by the small companies where the
P2P cycle is not automated.
➢ Bill of Materials (BOMS) :
BOM can be of various types and used for different purposes. It is used to
determine the items for which purchase requisitions and production orders
should be made.
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RFx is a term is used to refer to a family of ‘ Request For…’ Three main documents used
in , included Request for Quotation (RFQ) , Request for proposal (RFP) , and Request for
Bid Terms.
Request For Quotation (RFQ)

A request for a quote (RFQ) is a business process in which a business solicits

quotes from select suppliers and contractors for a specific task or project. RFQs
do not generate unsolicited bids and quotes as businesses target specific
vendors and contractors.

R EQUEST FOR P ROPOSAL (RFP) :

An RFP is used where the request requires technical expertise,

specialized capability, or where the product or service being requested
does not yet exist, and the proposal may require research and
development to create whatever is being requested.
Request For Bid Terms :
It also called Request for Tenders (RFT) , a formal and structured invitation to
suppliers to submit competitive bids to supply raw materials, products, or
services.

CONCLUSION :
XYZ corporation is medium sized manufacturing company and its certainly growth its
lead on the demand and supply to the company. The procurement procedure helps XYZ
corporation for the better solution for the demand and expansion and growth because
procurement procedure making the company to identify what supplier and vendor is good
and how to negotiate and how company can manage the raw material. Some of the
requisition which is follows the verification and validation.
 PROCUREMENT MANAGEMENT

Q.2 ANSWER
INTRODUCTION
Global Mart Inc. is a multinational retail company. The company take some
products and distributes in retail store in worldwide. INCO ( International
Commercial ) terms are pre-defined commercial terms, and it published by
international chamber of commercial (ICC). Incoterms is used for the trade
transaction internationally and domestic also.
International commercial terms—Incoterms for short—clarify the rules and
terms that buyers and sellers use in international and domestic trade
contracts. The International Chamber of Commerce (ICC) developed Incoterms in
1936 and updates them periodically to conform to changing trade practices.
The International Chamber of Commerce (ICC) developed Incoterms in 1936
and updates them periodically to conform to changing trade practices.1 The ICC’s
mission is to promote open markets and ensure global economic prosperity
through trade. Incoterms provide a universal set of rules and guidelines that help
facilitate trade. In essence, they provide a common language that traders can
use to set the terms for their trades. Buyers and sellers can use Incoterms in a
variety of activities necessary to conduct business.

CONCEPT

Incoterms are used to clarify business terms in international trade. The many
benefits of Incoterms outweigh the negatives for most transactions, which is why
many trade agreements are facilitated using Incoterms. There are still
preferences between parties, and the terms themselves must be negotiated
before an agreement is finalized. Incoterms are helpful terms used to facilitate
international trade. They are separated by modes of transport between any
mode, and those specifically involving water transport. The terms categorize
responsibility between the buyer and seller, but there are some aspects of trade
that the terms do not cover, such as the goods being sold or future liability
responsibilities
Significance of Incoterms
➢ The main advantage of Incoterms is the standardized terminology used by
all companies doing international business.
➢ Specific terms or acronyms provide both carriers and buyers with clear
rules, helping to avoid confusion about each party’s responsibilities and
cost management.
➢ Incoterms provides only trade terms and are only a part of the contract of
sale.
➢ Incoterms do not deal with the breach of contract.
➢ International trade deals can involve up to four contracts; the contract of
carriage, contract of sale, insurance contract and contract of finance.
 PROCUREMENT MANAGEMENT

INCO Terms Impact on the Global Mart Inc’s Transportation in following manner
➢ INCO Terms is the standardization and specificity of complicated international
trade aspects, it will easy to understand distribute.
➢ Updated and clarified by an international body (ICC)
➢ Differences between buyer and seller preferences when choosing terms
➢ Certain terms can expose one party to inflated costs
➢ The CFR Incoterm or “Cost and Freight” is an Incoterm that is exclusive to ocean
freight shipping. It states that the seller is not only responsible for delivering the
goods to the port specified by the buyer, but also bears the transportation costs of
the goods to the destination port.
➢ The specific Incoterm agreed upon between the buyer and the seller determines
the responsibilities and costs associated with the delivery of goods, including
transportation, insurance, and customs duties.

Expediting and tracing shipments is used for the transportation. Meaning of

expediting and tracing is “to speed up”. Tracing is the procedure of locating
shipments. In today’s era so many tracings system and software are available which
can be trace the delivery product any time. But this product trace by some
information like ,Date of shipment, Shipper, Origin, Consignee, Destination, carrier’s
way bills numbers. Most carriers provide status of shipment through online tracing
system.

CONCLUSION :
Incoterms can make international trade easier but one should consider a
number of issues when choosing an Incoterm. Incoterms should be used only for
sales of goods and not for services. Another issue is the transport method used
and one should consider which term is most suitable from a customer-service
point of view.

Incoterms, widely-used terms of sale, are a set of 11 internationally

recognized rules which define the responsibilities of sellers and buyers. Incoterms
specify who is responsible for paying for and managing the shipment, insurance,
documentation, customs clearance, and other logistical activities. The use of
Incoterms eliminates inconsistencies in language by giving all parties the same
definition of specific terms within a trade agreement. As a result, the risk of
problems during shipment is reduced since all parties clearly understand their
responsibilities in performing trade under the given contract.
 PROCUREMENT MANAGEMENT

Q.3A ANSWER
INTRODUCTION
TechCom Solutions is a fast-growing IT services company that provides a
wide range of solutions to its clients. Spend analysis is a process of collecting,
categorise the data. Spend analysis is a process used by businesses to examine
and understand how they are spending their money on various goods and
services. It involves a detailed review of financial data related to purchasing
activities.

CONCEPT

Spend analysis plays vital role in the success/failure of strategy. Conducting

spend analysis is crucial for TechCom Solutions because it helps the company
understand how it is spending its money, where cost-saving opportunities exist,
and how to make its sourcing strategy more effective.
Cost Savings: By doing this analysis, TechCom can find areas where it might be
spending too much and try to find ways to spend less money while still getting
what it needs.
Better Sourcing: It also helps TechCom decide where it should buy things from. If
they find a better place to buy something, they can change their supplier to save
money.
Here are some steps and criteria to enhance the supplier selection process and
ensure you're working with qualified and reliable suppliers:
Steps:
✓ Data Collection: Gather information about all your spending. This includes
invoices, contracts, and purchase orders. It's like collecting all the pieces of the
spending puzzle.
✓ Data Analysis: Look at the data and find patterns. For example, you might see
that you're buying a lot of the same thing from different suppliers, and that could
be a cost-saving opportunity.
✓ Supplier Evaluation: Decide what qualities you want in a supplier. This might
include reliability, quality, price, and location.
✓ Supplier Identification: Identify potential suppliers who meet your criteria. You
can look for suppliers through online searches, industry directories, or referrals.
✓ Supplier Qualification: Check if potential suppliers meet certain standards. This
could include their financial stability, certifications, or past performance.
✓ Negotiation: Talk to the potential suppliers and see if they can offer you a good
deal. It's like haggling at a market to get the best price.
✓ Selection: Choose the supplier that offers the best combination of quality, price,
and reliability.
Criteria for Supplier Selection:
 PROCUREMENT MANAGEMENT

Price: Consider the cost of the products or services. It should be competitive and
within your budget.
Quality: Make sure the supplier can provide high-quality products or services that
meet your standards.
Reliability: The supplier should be dependable and deliver on time. You don't want to
be waiting for things you need.
Location: Consider where the supplier is located. Sometimes, a nearby supplier can
be more convenient and cost-effective.
References: Check if the supplier has good reviews from other companies they've
worked with.
Long-Term Relationship : Think about whether this supplier is someone you can work
with for a long time.
TechCom Solutions can make smarter decisions about where to spend money, find
ways to save, and work with suppliers who are the best fit for their needs. It's like
putting together the pieces of a puzzle to make the whole picture clear.

CONCLUSION :

Spend analysis is the process of collecting, cleaning, classifying and analysing

expenditure data from across the organization to identify patterns and trends within
vast amounts of transactional data. Spend analysis helps companies reduce costs
and extract the maximum value from their procurement expenditures. This analysis
can reveal opportunities to streamline and consolidate purchases and renegotiate
supplier contracts. Financial management software that includes real-time
dashboards and business intelligence reporting can help organizations conduct
spend analysis tasks more quickly and efficiently.
 PROCUREMENT MANAGEMENT

Q.3B ANSWER
INTRODUCTION
TechCom Solutions is a fast-growing IT services company that provides a wide
range of solutions to its clients. Total cost of ownership (TCO) is a financial
estimate intended to help buyers and owners determine the direct and indirect
costs of a product or service. It is a management accounting concept that can be
used in full cost accounting or even ecological economics where it includes social
costs.

CONCEPT

Understanding Total Cost of Ownership (TCO) is a crucial part of the decision-

making process for TechCom Solutions when selecting suppliers and products.
TCO takes into account all the costs associated with a product or service, not just
the initial purchase price. Let me break down how TCO can contribute to decision-
making, and how Activity-Based Costing (ABC) can help allocate costs more
accurately:
Total Cost of Ownership (TCO):
✓ Initial Cost vs. Long-Term Costs: TCO helps TechCom Solutions look at the
bigger picture. Instead of just considering the upfront cost of buying a
product or service, it takes into account all the costs that come with it over
its entire lifespan.
✓ Hidden Costs: TCO includes costs like maintenance, repairs, operational
expenses, and even disposal or end-of-life costs. This is important because
sometimes a cheaper product upfront might end up costing more in the
long run if it's not reliable and needs frequent repairs.
✓ Supplier Evaluation: TCO helps in comparing different suppliers and their
offerings more comprehensively. A supplier might offer a product at a
lower price, but if their product is less reliable and requires frequent
maintenance, it can end up costing TechCom Solutions more over time.
✓ Informed Decision-Making: TCO allows TechCom to make more informed
decisions by considering the full financial impact of a purchase. It helps in
selecting products and suppliers that not only meet immediate needs but
are also cost-effective in the long term.
✓ Activity-Based Costing (ABC): Activity-Based Costing is a method that helps
TechCom Solutions allocate costs more accurately. Here's how it works:
✓ Cost Allocation: Instead of spreading costs evenly, ABC breaks down costs
based on the specific activities that drive those costs. It helps in identifying
which activities or processes are the most expensive.
✓ Cost Transparency: By accurately tracking and allocating costs to activities,
TechCom can see exactly where money is being spent. This is like knowing
which parts of a recipe use the most ingredients.
✓ Better Decision-Making: ABC provides a clearer view of how different
activities contribute to the overall cost of a product or service. TechCom
can use this information to make more informed procurement decisions.
 PROCUREMENT MANAGEMENT

✓ Resource Optimization: It helps in identifying areas where resources are

being underutilized or overused. TechCom can then make adjustments to
allocate resources more efficiently.
✓ Cost Reduction: ABC can highlight areas where cost-cutting measures can
be applied without sacrificing quality. It's like finding the ingredients that
can be replaced with cheaper alternatives in a recipe without changing the
taste too much.
✓ In summary, understanding TCO helps TechCom Solutions make decisions
that consider the full financial impact of their purchases, while ABC helps
allocate costs more accurately. Together, they empower the company to
make informed procurement decisions, optimize resource allocation, and
ultimately reduce costs, leading to more efficient and cost-effective
operations. It's like having a clear recipe for success in purchasing and
cost management.

CONCLUSION :
A TCO analysis helps businesses determine the difference between short-term
(purchase price) and long-term (total cost of ownership) costs of a product or
system. The three main benefits of using TCO in procurement are to improve
customer satisfaction, reduce the costs of procurement, and improve
procurement efficiency. Customer satisfaction is improved because TCO can help
to ensure that products and services meeting customer needs are obtained at the
best possible price.