Procurement and Purchasing.

Procurement and Purchasing
Purchasing Terminology
Purchasing The term Purchasing refers to the process of ordering and receiving goods and services. It is a subset of the wider procurement process.
Procurement it describes the activities and processes to acquire goods and services. Importantly, and distinct from purchasing, procurement involves the activities involved in establishing fundamental requirements, sourcing activities such as market research and vendor evaluation and negotiation of contracts.
Objectives and Goals of Purchasing

Efficient acquisition of products and services requires
The right materials In the right quantity In the right condition At the right time From the right source With the right service At the right price
Purchasing Must Accomplish the Following:

Provide an uninterrupted flow of materials, supplies, and services Minimize inventory investment and loss Maintain adequate quality standards Find or develop competent suppliers
Understanding Terms
Supply Chain Logistics
Inbound Logistics or Materials Management Purchasing or Procurement
Enhanced becomes Supply Managementalso called Strategic Sourcing
Materials Management
Definition - Materials management is the planning and control of the flow and stock of materials to support production. Materials Management Activities Materials planning and scheduling Purchasing Transportation Warehousing Inventory control Salvage and scrap disposal
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The Procurement Process

Recognize a need
Identify a supplier Qualify and place an order Monitor and manage the delivery process Evaluate the purchase and the supplier
Purchasing through the years

Clerical Purchasing
Arms length transaction with suppliers Adversarial: Win-Lose Price is the key factor Short term contracts; lots of supplier switching Emphasis is on competition

Managerial Purchasing (1970s )
Purchasing is now viewed, not as a cost center, but as a value contributor Supplier partnerships Personal trust Long-term contracts Quality, service, and price considerations Negotiation as well as competitive bidding
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Strategic Sourcing (Supply Management)
[2000 ]
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
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Strategic Sourcing (Supply Management)
In short, Strategic Sourcing is capturing world-class suppliers and building alliances with them.
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Types of Supplier Relationships
Transactionalemphasis is on price Partnershipsupplier is viewed as a resource Strategic Alliancesupplier is critical to the success of the firm and is viewed as a part of the business enterprise
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Trust levels
Trust
Personal Trust Institutional Trust
Transactional
Partnership
Strategic Alliance
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Strategic Alliances may do the following.

Add value to products
Reduce lead time Make better design by supplier early involvement
Strengthen operations
Alliances can help improve operations by lowering system costs and sharing each other's business processes
Increase organizational expertise

Both partners can improve their operations by teaching and learning
Enhance financial strength

Alliances can help improve overall financial position by increasing revenue while reducing costs
Which type of relationship is appropriate?

Many suppliers of a not-very-differentiated material? T Short-term need for a material or service? T Long-term requirement for a professional service from a capable supplier? P Found a world-class supplier interested in a mutually beneficial longterm contract? P or A See potential to develop a supplier into a highly capable source? P Do you require a great deal of flexibility or responsiveness from a supplier? P or A Is a material critical to your business? Is a supplier strategic to your business? A
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Impact of Purchasing on Customer Service and Customer Satisfaction
Supply Management and Supply Chain Management
Supply Management
It is responsible for purchasing, transportation, warehousing, ensuring quality of incoming materials. SCM focus is on minimizing costs and times across the supply chain to benefit the final customer in the chain
Supplier Criteria: Evaluation

Price Variable Delivery Variable
Quality Variable
Service Variable
Supplier Criteria: Measurement

Price effectiveness Administration and control Efficient deliveries Inventory quality Regulatory, societal, and environmental measures Transportation
Supplier Criteria: Selection (Supplier Base or Pool)

Selection is based on a few suppliers because:
Finding suppliers is expensive Close relationships can be maintained with only a few suppliers One buyer for each supplier gets more business, thereby making it important
Administering a few suppliers is easier
Vendor Evaluation
Criteria Weights Scores (1-5) Weight x Score
Engineering/research/innovation skills
Production process capability (flexibility/technical assistance) Distribution/delivery capability Quality systems and performance Facilities/location Financial and managerial strength (stability and cost structure) Information systems capability (eprocurement, ERP) Integrity (environmental compliance/ ethics) Total
.20
.15 .05 .10 .05 .15 .10 .20 1.00
5
4 4 2 2 4 2 5
1.0
.6 .2 .2 .1 .6 .2 1.0 3.9
Types of Purchasing / Supply Management Strategies Supply Base Optimization Global Sourcing Longer-Term Supplier Relationships Early Supplier Design Involvement Supplier Development
Supply Base Optimization

Process of determining appropriate number of suppliers to maintain and it is also been referred as rightsizing.
Reducing the number of suppliers.

The one who are not capable of achieving world class performance are eliminated from the supply base. It is an analysis of supply base to ensure that only the most capable suppliers are kept in the supply base. General Motors eliminate 160 suppliers worldwide who were poor performers.
Global Sourcing:
Viewing entire world as a potential source for components, services and finished goods.
Main objective is to provide immediate and dramatic improvements in cost and quality.
An opportunity to gain exposure to product and process technology, increase the number of available sources, establish a presence in foreign markets.
Barriers, few qualified or capable personnel to develop and negotiate with global suppliers.
Early Supplier Design Involvement

Key suppliers participating at the earliest stage of new product development. In this, suppliers have considerable expertise and they are capable to offer more than the basic previously specified items. It helps in understanding materials and manufacturing processes; Improve overall design and quality; Access to innovative technologies.
Supplier development:
When suppliers capabilities are not high enough to meet current or future expectations, yet they do not want to eliminate the supplier from the supply base, switching cost might be high or performance potential supplier. Main motivation behind this strategy is that supplier improvement and success lead to longer term benefits to both parties.
How Many Suppliers to Use

Reasons Favoring a Single Supplier
1. 2. 3. 4. To establish a good relationship Less quality variability Lower cost Larger purchase volumes Transportation economies Advantage of TL shipments, cheaper than LTL rate. 5. Volume too small to split
How Many Suppliers to Use

Reasons Favoring Multiple Suppliers
1. Need capacity - demand exceeds the capacity of a single supplier 2. Spread the risk of supply interruption - strike, quality problem, political instability 3. Create competition - Price and quality 4. Wide sources of knowledge and expertise to tap.
Why would we buy something (items, components, services) when we could provide it ourselves?
Reasons to buy:
Cost Advantage, We don't use it enough, We don't have space, We don't understand the technology, We don't have the skill, It's not our core business/expertise, It's expensive to set up the process, Superior Quality, suppliers have better technologies, processes and skilled labor
Reasons to provide in-house:

It's critical to the business, Retain specialist knowledge/skills, We have control over the supply, Quality issues are critical, No suitable/competent supplier, It's part of our core business/expertise,
HBL Sacks over 2,000 employees An announcement of HBL said on Friday that the bank had abolished the entire cadres of manual workers with immediate effect under a retrenchment order of March 10. The order further said that it had been decided to concentrate on core banking activities and retrench all non-clerical cadres including guards, messengers, godown guards, drivers, maintenance staff and other categories of manual workers. The bank has also decided to outsource services with service providers for providing quality and efficient services at competitive market rate. Currently, there are over 2,300 employees working in the HBL dedicated to non-core activities including security, transport and other manual work. The announcement said the administration and management of these activities like business development and customer services.
All Manual (I.e. Non-Clerical) Workmen in Habib Bank Ltd. Retrenchment (cutback) In order to focus on core banking activities and rationalize our staff strength, HBL had introduced Voluntary Separation Schemes in the past.
Currently there are over 2300 employees working in HBL dedicated to non -core activities including Security, Driver and other manual work.
The administration and management of these activities is causing a severe lack of focus on core activities like business development and customer service etc. the market practices amongst progressive Bank dictates an Urgent need for outsourcing such services.
Supply Chain Management

Ethics in Buying: Child Labor Environment Green Supply Chain Fair Trade
The End

Procurement and Purchasing.

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Procurement and Purchasing

Objectives and Goals of Purchasing

Purchasing Must Accomplish the Following:

Enhanced becomes Supply Managementalso called Strategic Sourcing

The Procurement Process

Purchasing through the years

Purchasing through the years

Purchasing through the years

Purchasing through the years

Types of Supplier Relationships

Strategic Alliances may do the following.

Increase organizational expertise

Enhance financial strength

Which type of relationship is appropriate?

Impact of Purchasing on Customer Service and Customer Satisfaction

Supply Management and Supply Chain Management

Supplier Criteria: Evaluation

Supplier Criteria: Measurement

Supplier Criteria: Selection (Supplier Base or Pool)

Administering a few suppliers is easier

Supply Base Optimization

Reducing the number of suppliers.

Early Supplier Design Involvement

How Many Suppliers to Use

How Many Suppliers to Use

Reasons to provide in-house:

Supply Chain Management

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