Purchase Management Course Materials

8/4/2019 Purchase Management Course Materials

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Welcome to

DUBAI INSTITUTE OF

BUSINESS MANAGEMENT

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Purchasing & StrategicProcurement

Bassam Hameidi

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Course Index1- Introduction

2- Management of Organizations3- Purchasing Management

A- DefinitionB- Importance/ FundamentalsC- ObjectivesD- Role and Duties

4- The Purchasing ChainA- FocusB- InterfacesC- CycleD- Centralized VS DecentralizedE- Work Process

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5- Purchasing Strategy &Forecasting and Research

A- Types of StrategiesB- Make or Buy DecisionC- Strategic PartneringD- ForecastingE- Research Techniques

6- Purchasing and Supply Chain Management

A- Purchasing in the Supply ChainB- Objectives and StrategiesC- Functions and activitiesD- Benefits of SCM to Purchasing

Course Index Cont.


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Course Index Cont.

7- Supplier Analysis and SelectionA- Price AnalysisB- Identifying Cost DriversC- Cost Effective Programs

D- Vendor Selection StepsE- Negotiations Strategies/Skills

8- Supplier Relationship Management

A- What is SRM?B- How to Build SRM?C- SRM Tool SetD- Supplier as a Partner


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9- Purchasing Key Skills

10- Purchasing Problems and Control Methods

11-The Evolving Purchasing Role

12- E- Procurement &Strategic Sourcing

Course Index Cont.


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Introduction In modern management, organizationshave to operate within a structured systemin order to be successful, effective andprofitable. This integrated system which isshowing in the coming slide includes four

important elements that must operate as acohesive system for any activity in theorganization to insure continuity and

existence. 7

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Management ofOrganizations

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An Organization As A Structured System

Labor Money Materials Equipment

Inputs Transformationof inputsProcessingProducts Services Outputs

Feedback

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The concept of management is as old as old

ages during Sumerian, Ancient Egyptians andSlave Owners when the need to get the job donewas important for all.

At the end of 18 th century TAYLOR introduced

the Classic / Traditional Theory when peoplewere managed in a very bossy and dictatorshipway. This theory was called The Boss isEverything

Then management developed through severalstages to reach to current Modern SystemTheory applied by most organizationsnowadays.

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What is Management?

Management is both Science and Art where itrequires Knowledge at the same time itrequires Skills and Abilities to Get the JobDone Through People.

Management is the process of utilizing all

input factors through proper and effectiveprocess to produce required outputs toachieve the organization goals .(see slideno. 4)

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Management Functions:1- Planning: means setting SMART goals

and exercising mental efforts to predictand control future.

Why Plan?

To determine the overall Direction.

To Consolidate Efforts. To be Protective: Avoid or reduce related RISK. To be Affirmative: Insure and achieve SUCCESS.

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Stages of Planning:

STATE GOALS/OBJECTIVES

COLLECT EFFORTS

LIST ALTERNATIVES

CHOOSE BEST ALTERNATIVE

PUT PLANS INTO ACTIONS

EVALUATE

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- Ignorance of the importance of Planning.- Poor Planning Skills.

- Getting absorbed with surroundings.

- Fear of unknown.

- Surrendering to LOGIC.

Remember that:No one plans to fail, but we all fail to

plan.

WHY DO WE FAIL TO PLAN?

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2- Organizing: Insuring that Plans are movingtowards right direction through proper,efficient and effective coordination ofinputs to optimize outputs for theachievement of goals.

HOW? Build Organization Structure. Assign major tasks and assignments.

Create subtasks. Allocate resources and link to plans. Evaluate to insure proper Feedback. Design proper policies and procedures.

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3- Directing: Alignment of inputs and

resources towards goals.HOW?

Build Organization Culture. Exercise true leadership. Identify lines of authority. Develop Employee Relations. Determine span of supervision. Enforce Work Ethics.

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4- Controlling: It is an ongoing process toinsure that all Plans and Tacticsdeveloped are implemented effectively.

HOW?

Tie objectives to specific measures of Performance(KPI).

Check quality of Outputs.

Analyze results. Link results to the Big Picture

WHAT WENT WRONG?17


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History of PurchasingSince ancient times, human beings needed toexchange goods as important means of theirsurvival. Therefore, Barter deals werecreated to serve the purpose where people wexchanged goods and commodities they hadwith the ones they did not have. With theinvention of Money such practice developed

to allow people fulfill their needs through theexchange of money which laid the basicprinciples of Modern Purchasing which will be

explored in this presentation. 18


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Purchasing Management:

A- DefinitionB- Importance/ Fundamentals

C- ObjectivesD- Role and Duties

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A- Definition

Purchasing refers to a function in business wherebythe enterprise obtains the Inputs for what itproduces, as well as other goods and services itrequires. In larger businesses, the function is

frequently carried out in a Purchase Department ,headed by a Purchasing Manager

Purchasing is the informal name of the department inProcurement responsible for issuing Purchase Ordersfor goods, including material and equipment. In mostUS Corporations, Purchasing Agents are typicallyreferred to as Purchasing Specialists or simply asBuyers.

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Other Definitions Cont.

Purchasing for personal consumption asultimate users is called Shopping

Purchasing for Industrial and Commercialpurposes is called Purchasing

Purchasing for Government and otherauthorities is called Procurement


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B- Importance/ Fundamentals Major cost center Affects quality of final product Aids strategy of low cost, response, and

differentiationFundamentals Understand the Requirement

Perform Analysis Prepare for Negotiations Execute

Always Document 22


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C- Objectives

Help identify the products and servicesthat can be best obtained externally; and

Develop, evaluate, and determine the bestsupplier, price, and delivery for thoseproducts and services

Develop and implement purchasing plansfor products and services that supportoperations strategies

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D- Role and Duties

Identifying sources of supply

Negotiating contracts

Maintaining a database of suppliers

Obtaining goods and services

Managing supplies

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The Purchasing Chain:A- FocusB- InterfacesC- CycleD- Centralized VS DecentralizedE- Work Process

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A- Focus

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Materials Management-High transportation cost-High inventory costs

Supply Management-High costs-Scarcity: national or

international

Source Management-Unique items-Custom-made items-High technology items

PurchasingManagement-Commodity items-Standard products


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B- Interfaces

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Purchasing

Legal

AccountingOperations

Dataprocessing

Design

ReceivingSuppliers


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C- Cycle

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1.Requisition received

2.Supplier selected

3.Order is placed

4.Monitor orders

5.Receive orders

Purchasing

Legal

AccountingOperations

DataProcessing

Design

ReceivingSuppliers


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D- Centralized VS Decentralized

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Centralized Purchasing Purchasing is handled by one special

department. (Recommended to exerciseproper control)

Decentralized Purchasing

Individual departments or separate locationshandle their own purchasing requirements


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Advantages of Centralized Purchasing

More influence with suppliers --> greater supplycontinuityBuy in large quantities --> better prices

Larger purchasing department --> buyerspecializationCombine small orders --> less order cost

duplicationCombine shipments --> lower transportation costsBetter overall control


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E- Work Process

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ReceivingDock

PurchaseOrder

PackingList

OrderProcessing

Invoice

ReceivablesReport

Check AccountsReceivable

Accounts

Payable

Mail

MailReconcile

Mail

Customer Supplier


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BASIC WORK PROCESS:

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Purchasing Agent receives a requisition.

The Purchaser then evaluates the requisition to determinewhich suppliers would best supply the material andincludes those suppliers on the List of Bidders, or thosewho will be solicited to submit quotation.

The formal request for a quotation is known as an Requestfor Quotation (RFQ) or Request for Proposal (RFP),depending on the complexity of the material or service.

The RFQ/RFP can be as simple as text written in an email,to a complex document requesting engineered drawings,manufacturing locations, multiple points of contact at eachbranch location, and financial statements.


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The Purchaser will also determine the validity period ofthe Solicitation of Bids known as the "Bid due Date", thedate when the window to submit proposals ends.

After the bids are received the Buyer will evaluate theproposals and tabulate the bids, usually on a

spreadsheet. A bid tabulation is essentially aspreadsheet with categories used to informally compareeach supplier's proposals to determine which proposalbest meets the Buyer's needs.

After the bids are tabulated, the Buyer will make adecision in regards to which supplier will berecommended and will award the order and the Sellerwill proceed in supplying the material in accordance with

the agreed upon terms. 33

BASIC WORK PROCESS: Cont.


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Purchasing Strategy &Forecasting and Research

A- Types of StrategiesB- Make or Buy Decision

C- Strategic PartneringD- ForecastingE- Research Techniques

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A- Types of Purchasing Strategies

1- Just In Time Purchasing (JIT): This strategy isused when the need arises for certain goods andservices.

2- Advance Purchasing: In large and economicalquantities to meet future needs of the organization

3- Speculative Purchasing: excess quantities tosell at later stage when prices are higher

4- Reciprocal Purchasing: agreement betweenbuyer and sellers to exchange goods and services


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B- Make or Buy Decision

1. Maintain corecompetencies and protect

personnel from layoff2. Lower production cost3. Unsuitable suppliers4. Assure adequate supply

5. Utilize surplus labor andmake a marginalcontribution

1. Frees management todeal with its primary

business2. Lower acquisition cost3. Preserve supplier

commitment

4. Obtain technical ormanagement ability

5. Inadequate capacity

Reasons for Making Reasons for Buying

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Make or Buy Decision.. cont

6. Obtain desired quantity7. Remove supplier control

8. Obtain a unique item thatwould entail a expensivecommitment from supplier

9. Protect proprietary designor quality

10. Increase or maintain size ofcompany

6. Reduce inventory costs7. Ensure flexibility and

alternate source of supply8. Inadequate managerial or

technical resources9. Reciprocity

10. Item is protected by patentor trade secret

Reasons for Making Reasons for Buying

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Vertical Integration

Choosing between making or buying anitem is largely dependent on the verticalintegration strategy of A company.

By vertical integration, we meandeveloping the ability to produce goods or

services that are previously purchased.

It can take the form of forward orbackward integration


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Forward vs. BackwardIntegration

CURRENTPRODUCTIONRAW MATERIAL BUYERS

BACKWARDINTEGRATION

FORWARDINTEGRATION

STEEL AUTOMOBILE DEALERS

COMPUTERSSILICON CURCUIT BOARDS


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C- Strategic Partnering

Who is going to supply your need?

How many suppliers will you work with?

Many business firms in the world borrowed the Japaneseconcept of extremely close supplier interactions andcooperation.

This strategic partnering involves Selecting the best suppliers, Working closely with them, and Entering into long-term relationship based on mutual need and

trust.


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D- Forecasting How much and what time are you going to buy?

When demand is uncertain, Someone should forecastthe quantity to be purchased.

A forecast is an Inference of what is likely to happen infuture.

Forecast can be wrong.

Businesses may use Forecasts in several subjects.

Some of the major forecasting areas are(1) Economic Forecasting,(2) Technological Forecasting, and(3) Demand Forecasting .


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Economic Forecast

Economic forecast is a prediction of what generalbusiness conditions will be in the future.

Some examples of economic forecasting are:inflation rates, gross national product, personalincome, tax revenues, level of employment, andso on.

Economic forecast is usually made bygovernment agencies, banks, and econometricforecasting services.


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Technological Forecast

Technological forecast predicts the probabilityand significance of possible future developmentsin technology.

What technology will the firms competitorsincorporate into their products and processes?

Are there any technological advances with whichthe firm can create a competitive advantage?


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Technological Forecast For example, development

of electric cars seems like achallenging shift for carmanufacturers.

But what time and how will

they be in the market is aconcern of technologicalforecasting. Toyota Prius: A hybrid

(electric + oil) car

The forward-thinking 2005 gas/electric Prius with Hybrid SynergyDrive offers fuel economy and cutting-edge available featureslike Bluetooth technology -- all with the performance of aconventional car.Plus, you never need to plug-in for recharging.


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Demand Forecast

Demand Forecast predicts the quantityand timing of demand for a product ormaterial.

Factors affecting the forecast are: Status of the general economy,

Time of the year, Competitors actions, Advertising and sales promotions,

New product entries to the market, etc.


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Forecasting Methods

A forecast can be developed through either asubjective approach or an objective approach.

Subjective approaches are qualitative in natureand they are usually based on the opinions ofpeople (that is why they are subjective).

Objective approaches involve quantitativemethods and mathematical formulations.

(They can also be referred as statisticalforecasting)


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E- Research Techniques Supplier investigation: competencies, capacities,

credit rating, service quality Our dependency on particular suppliers Competitor information

Advising suppliers on how to meet our qualityrequirements Economic forecasting & the supplier Purchase targets & their attainment

Financial targets & our profit plan Value analysis - of buying processes & items we buy Our quality/service requirements & control methods

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Purchasing and SupplyChain Management

A- Purchasing in the Supply ChainB- Objectives and Strategies

C- Functions and activitiesD- Benefits of SCM to Purchasing

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A- Purchasing Link in the Chain

MarketAssessment

BusinessNeed

ProposalEvaluation

Procurement

Strategy

SupplierSelection

RequirementDefinition

BidEvaluation

Contractpreparation

ContractManagement

SystemDevelopment

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Plans to help achieve company mission Affect long-term competitive position Strategic options

Many suppliers Few suppliers Keiretsu network

Vertical integration Virtual company

Plan

B- Objectives and Strategies

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Objectives and StrategiesCont

Negotiate with many suppliers; play one supplieragainst another

Develop long- term partnering arrangements with afew suppliers who will work with you to satisfy theend customer

Vertically integrate; buy the actual supplier Keiretsu - have your suppliers become part of a

company coalition Create a virtual company that uses suppliers on an

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Many sources per item Adversarial relationship Short-term Little openness Negotiated, sporadic POs High prices Infrequent, large lots Delivery to receiving dock

Many Suppliers Strategy

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1 or few sources per item Partnership (JIT) Long-term, stable On-site audits & visits Exclusive contracts Low prices (large orders) Frequent, small lots Delivery to point of use

Few Suppliers Strategy

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C- Functions and Activities

Forecasting Purchasing Inventory management

Information management Quality assurance Scheduling Production and delivery Customer service

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D- Benefits of SCM to Purchasing

Lower inventories Higher productivity Greater quickness

Shorter lead times Higher profits Greater customer loyalty Integrates separate organizations into

a cohesive operating system

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Successful Supply Chain will Build:

Trust among trading partners Effective communications

Supply chain visibility

Event-management capability The ability to detect and respond to

unplanned events Performance Parameters

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Suppliers Analysis and Selection

A- Price AnalysisB- Identifying Cost DriversC- Cost Effective Programs

D- Vendor Selection StepsE- Negotiations Strategies/Skills

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A- Evaluate Overall PriceReasonableness With Price Analysis

Price analysis - process of examining and evaluatinga proposed price to determine if it is fair and reasonable

Cost analysis - not a substitute for price analysis Perform a price analysis whenever there is a valid base for

analysis Cost analysis - insight into what it will cost the firm Cost analysis does not necessarily provide a picture of what

the market is willing to pay

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Basis for Price Analysis

Select the basis for comparison in determiningif a price is fair and reasonable, such as:

Proposed prices received in response to the solicitation

Commercial prices Previously proposed prices and contract prices for the sameor similar end items

Parametric estimates or estimates developed using rough

yardsticks Independent public body estimates Prices obtained through market research

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Price Reasonableness Decision

Price analysis is a subjective evaluation Resolving differences between cost and price analysis:

If price analysis does not support the cost analysis,reexamine the cost analysis result

Consider alternative methods of contract completion If the results of cost analysis and price analysis

cannot be reconciled, refer thecontract action to the next level

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B- Identifying Cost Drivers

Cost drivers - aspects of proposal orcontract requirements that if changed wouldhave a major impact on contract price

What are some possible cost drivers?

Contract terms and conditions

Delivery requirements Technical requirements

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Identify Sources of Cost Risk

Most cost estimates include a "pointestimate"

In most cases, the point estimate isone of a range of possible costs

There are usually variances betweenprojected and actual costs

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Cost Risk

Increases when market prices are unstable orcost information is lacking

There are a variety of methods for reducing and

controlling contract cost, among the mostimportant are the appropriate use of: An appropriate contract type Clear technical requirements

Public body furnished property Other contract terms and conditions

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C Cost Efficiency Programs


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C- Cost Efficiency Programs Qualify current suppliers and contractors

Search for new alliancesQualify current products and servicesQualify current prices keep updatingQualify delivery, receiving and issuancemethodsImplement annual and semi annual purchaseplansCompare purchases to budgetGroup purchases and services (centralizedPurchases)Minimize cash purchases

This Will Lead To


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This Will Lead To

Reduce high percentage of lossesControl pricesGet best quality service

Control cash flowAvoid cash paymentsExtend payment terms

Build high market profileBuild strong relationship withalliances


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Vendor evaluation Identifying & selecting potential vendors

Vendor development

Integrating buyer & supplier Example: Electronic data exchange

Negotiations

Results in contract Specifies period of agreement, price,

delivery terms etc.

D- Vendor Selection Steps

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Company Financial stability

Management Location

Product

Quality Price

Service Delivery on time Condition on arrival Technical support Training

Supplier Selection Criteria

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Vendor Selection Rating Form (Example)


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Vendor Selection Rating Form (Example)

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The Evaluation Team

Criteria:EmpoweredEstablish reporting

relationshipFull timeTeam roomFlexibleShared goalsShared loyalties 69


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E- Negotiation Strategies

Negotiation Types:

Cost-based price model - supplier opens itsbooks to purchaser; price based upon fixedcost plus escalation clause for materialsand labor

Market-based price model - published price

or index Competitive bidding - potential suppliers bid

for contract70


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Negotiation skills:

Researching sources, assessing sources,customer relationships management, win-win &mutual respect.

Methods to keep costs down such as tendering

Negotiate: preparation, the negotiation,completing the buy. Attention to detail Humor, patience, self-control, Avoid dramatics

Analytical approach to problems Questioning & listening Verification - contract formulation & testing

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Pre-negotiation Documentation

Draft elements of a Price NegotiationMemorandum (PNM) before negotiations: Purpose of the negotiation Description of the acquisition

Exception's) used and its basis

The extent to which the purchasing agent: Relied on the data submitted Recognized any submitted data as inaccurate,

incomplete, or non-current Determined that an exception

applies and will not requirecertification


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Additional Documentation

Document important aspects of the procurementsituation that affected pre-negotiation objectives,such as:

The items or services and quantities being purchased The place of contract performance The delivery schedule or period of performance Differences between the proposed delivery schedule and

the objective schedule

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Suppliers RelationshipManagement

A- What is SRM?B- How to Build SRM?C- SRM Tool SetD- Supplier as a Partner

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A Wh i S li R l i hi


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A- What is Supplier RelationshipManagement?

Supplier Relationship Management(SRM) involves defining and managingall aspects of supplier relationships,from information sharing andcollaboration to sourcing, negotiating

and streamlining purchasing activities.

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B- How to Build SRM?

Select the right firms Involve appropriate personnel Assess the relationship from your perspective Supplier assesses relationship independently Assessments form basis for initial conversations Focus on areas of agreement and disagreement Identify gaps

Evaluate the leakage caused by these gaps Develop action plans to remedy the gaps Supplement existing metrics to evaluate progress Schedule periodic assessments

C SRM T l S t


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C- SRM Tool Set

Processes were viewed as linear andseparate.

A separate dedicated SRM team wasenvisioned.

All processes are interrelated. Our Commodity Managers bear

primary responsibility. No separateCOE to hand off to.

Strategic Sourcing

Demand Management

Buy, Pay, Track

Supplier Relationship Mgt

Strategic

Sourcing

Demand

Mgt

Buy,Pay,Track SRM

How we used to think about SRM How we think today

P R O C E S S E S

SRM is not a separate process. It is a set of competencies,tools and techniques that support the overall Procurementprocess

D Supplier as a Partner


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D- Supplier as a Partner Aspect Adversary PartnerNumber of suppliers Many One or a few

Length ofrelationship

May be brief Long-term

Low price Major consideration Moderately important

Reliability May not be high HighOpenness Low High

Quality May be unreliable;buyer inspects

At the source;vendor certified

Volume of business May be low HighFlexibility Relatively low Relatively high

Location Widely dispersed Nearness isimportant

Supplier Partnerships cont


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Ideas from suppliers could lead to improved competitiveness:

1.Reduce cost of making the purchase2.Reduce transportation costs3.Reduce production costs4.Improve product quality5.Improve product design6.Reduce time to market7.Improve customer satisfaction8.Reduce inventory costs9.Introduce new products or services

Supplier Partnerships cont

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PurchasingKey Skills

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Purchasing - Key Skills1. Business awareness and strategic

procurement2. Developing & managing procurement

systems3. Purchasing techniques and methods4. Supplier evaluation and selection5. Risk and value management

6. Contract management Legal aspects ofprocurement (contracts) 81

P h i K Skill


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Purchasing - Key Skills ..cont.

7. Purchasing negotiations8. Quality management9. Service level agreements10. Ethical behaviors in procurement11. Relationship management (client-server)

12. Performance evaluation of suppliers & self13. Change management

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PurchasingProblems and

Control Methods83

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Purchasing Problems


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Purchasing Problems How goods are received can be a headache Receiving problems are credit/payment problems Errors & confusions cause delays & more processing Transactions on goods received:

correct Order Ref, quantity, specification & pricing Items shipped match PO & invoiced quantity? split shipments - item consolidation? How? reaction to shortage

What % of invoices are paid via auto-pay? When do we have to pay? If it is valuable someone will steal it !!!!

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Segregation of Duties & Fraud


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Segregation of Duties & FraudNo one individual can influence purchasing

outcomes to own advantage or hasresponsibility for more than one of

Specification/requisition process & authorization

Supplier selection : tender lists & receipt, short-listing, negotiation parties Contract award: deciding the supplier; authorizer

of contract/order Goods received: checking exact order received

& to be paid for Payment authorization: signing off invoices &

setting system tolerances 85

Control Methods


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Control Methods Procurement procedures , processes &policies (incl. ethical code re-transparency& declaration of interest).

Risk analysis. Random audits of different contracts &procurement projects.

Financial limits e.g. open-to buy, howmuch each buyer can commit

Disciplinary how to comply with policies Rotations: buyers not too close to favorite

suppliers86

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The EvolvingPurchasingRole

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Developing the Competency


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Developing the CompetencyThe Evolving Procurement Role

Knowledgeable aboutprocurementDisconnected frombusiness strategy

Less technologyknowledge

TransactionalNegotiation/T&C skills

One-dimensional

supplier relationshipsShort term benefits

Priorities driven by technicalcommunity

Multi-dimensionalknowledge manager

Center of Expertise onbusiness/markets

Understands evolution oftechnology

Acts as consultant

Holistic relationshipmanagement

Strong analytic/financial/cash

management understandingComplex deals

Influence/lead change

TRADITIONAL PROCUREMENT THE NEW PROFESSIONAL

This Evolving Role will Enable


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This Evolving Role will Enablethe Organization to:

Identify new expectations and corresponding skills

Communicate expectations repeatedly

Retrain procurement employees

Train employees outside of procurement organization

Provide job aids

Set the example

Consider outside help to enable fast start

Staff appropriately

Make the tough decisions

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E-Procurement& StrategicSourcing

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Wh i ?


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What is e-procurement?The combined use of information and

communication technology throughelectronic means to enhance internal and

external purchasing and supplymanagement processes.

Resolving the issue of the longtail low value paper Purchases

Why e-procurement ?


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Why e procurement ?

Quick, easy, internet-based access tovendors to negotiated agreements.

Maximizes the total value of the suppliers

relationship. Targets high-transaction users, traditionally.

Allows further development of the relationshipbetween suppliers and consumers.

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How Does e Procurement Work?


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SERVICES

Supplier connectivity Extensive product taxonomy Centralized e-Catalogs Price/content management Transaction integrity Transaction tracking

TRANSACTION DATA

Purchase Order Advanced Ship Notification Invoicing Receipt notification Contract data Payment data

Internet buying at the users desktop. Catalog-style concept to accesspreloaded vendor deals.Configurable to organization needs foroversight.Automates the buying experience.

How Does e Procurement Work?

Benefits of E-procurement Technologies


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p gCost Reduction

Significant cost reduction on externally procuredgoods and services through increased use ofvolume buying, better negotiated pricing and

reduced off-contract (or maverick) buying

Reduction in Procurement Cycle Time

Shorten requisition to order cycle for term-contractpurchases

Shorten bid-to-award cycle time for competitive

bidding process

Benefits of E procurement Technologies


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Benefits of E-procurement Technologies.

Reduced administrative workload andcosts:

Reduction in Vendor Management administrativeefforts

Reduction in competitive bidding administrative

efforts

Reduction in term-contract creation anddistribution administrative efforts

Benefits of E- procurement Technologies


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Benefits of E procurement Technologies.

Increased Control with simultaneous end-user freedom

Tighten control over off-contract or maverick

purchasing by empowering end users with desktopgoods/services catalogs and using technology tosimplify the procurement process

Establish a controlled yet non-restrictiveprocurement process

Ability of users to easily comparison shop online96

Benefits of E- procurement Technologies.


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Enhanced negotiation of reduced goods/

services costs- Improved data gathering and reporting on all procurementprocesses

More efficient business model- Re-assign procurement professional from administrative tostrategic

Better leveraging of vendor Base

- Ensures contract compliance and increases negotiation leverage

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Components of E-Procurement


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Integrated, Internet-based Bid/Quote Auction

System.

Graphical Internet-based Electronic Catalog System onevery desktop with current, negotiated pricing and

approved vendors.

Integrated, Internet-based, self-service VendorManagement System.

E-Procurement Functional Requirements:

1. VENDOR MANAGEMENT

2. BID / QUOTE & AUCTION

3. E-CATALOGS

Typical As-Is or Existing Process


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Typical As Is or Existing Process

Existing ProcurementApplication

Buyers

Organization External Vendors

Manual / Paper

Manual /Paper

Manual /Paper

Vendors in -line

Future Process


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Future Process

Web-enabled

ProcurementApplication

AdministrativeTime

Organization External Vendors

Vendors online F I R E WA L L

Manual /PaperX X

Internet

Current Procurement Scenario


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Traditional Procurement Process

ProcurementApplication

Buyers manually assemblepaper bid package

Procurement Office Vendors

PaperBid Package

Vendors in -line Users CreateRequisitions

PaperBid Package

PaperBid

Response

PaperBid

Response

Buyers manually enterresponses from paper

Future E -Procurement Example


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pInternet-enabled Solicitation Process

SolicitationAutomation E-ProcurementModule

University Procurement Vendors

ProcurementPersonnel

F I R E WA L L

Bids

Responses

HTML

WFD Fie ld Operators

WFD Users

Intranet

Campus

Personnel

Internet Intranet

F I R E WA L L

Vendor Organizations

Goals of Strategic Sourcing


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Goals of Strategic Sourcing

Reduce to total cost of goods and services Rationalize the supply base Optimize the companys supply chain Increase requisition- through- payment

process

Saving from strategic sourcing:


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Saving from strategic sourcing:

It can be 5% to 20% or more dependson:

Type of products and services Market palace factors Current purchase practices Implementation of automated system Execution of sound sourcing strategy

Steps in Strategic Sourcing:


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p g g

1- Analysis of spending patterns2- Assessment of requirements3- Identification of potential Suppliers4- Development of Sourcing Strategy

5- Execution of Sourcing Strategy6- Monitoring and reporting

Strategic Sourcing is an ongoing process Not a one time job

Role of Strategic Sourcing in E-


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procurement:

Why do savings tend to erode without


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Why do savings tend to erode withoutan e- procurement solutions?

Employees tend to forget or ignoreEmployees come and go

Suppliers back off promises of lowerpricesWithout actual spending data,customers cannot leverage full buyingpower

When should strategic


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When should strategic

sourcing be performed?

Strategic Sourcinge ProcurementImplementation

Time


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Strategic Sourcing

e ProcurementImplementation

Time

Why? To shorten the time to savings!

At the End


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At the End..

Is not this what

we are alllooking for?


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Thank you

Purchase Management Course Materials

Documents

Transcript of Purchase Management Course Materials