1DPS 304 : Purchasing /Procurement Activities Purchased materials account for about 50% of the total manufacturing cost. Therefore purchasing plays a crucial role in the Supply Chain Management. Quality starts with purchasing. Purchasing must ensure that parts & materials are: Of correct quality; in correct quantity; and Delivered on time. Therefore it is important to select suppliers committed to quality and make them an integral part of the company’s quality program.
2Purchasing Activities Co-ordination with user departments to identify purchase needsDiscussions with sales representativesIdentification of potential suppliersThe conduct of market studies for important materialsNegotiation with potential suppliesAnalysis of proposalsSelection of suppliersIssuance of purchase ordersAdministration of contracts and resolution of related problemsMaintenance of a variety of purchasing records
3Procurement Activities Participation in the development of material and service requirements and their specificationsConduct of materials studies and management of value analysis activitiesConduct of more extensive material market studiesConduct of all purchasing function activitiesManagement of supplier qualityPurchase of inbound transportationManagement of investment recovery activities (salvage of surplus and scrap)
4Purchasing / Procurement Goals Provide an uninterrupted flow of materials, supplies, and service to operate the organizationKeep inventory investment and loss to a minimumMaintain adequate quality standardsFind or develop competent vendorsStandardize items bought where possiblePurchase required items and services at the lowest ultimate priceImprove the organization’s competitive positionHave good relationships with other departmentsKeep administrative costs down
5Scope and Size of Procurement Function Depends on variables such as:the business's strategy and policy as a whole.make or buy policiescentralisation or decentralisation of purchasing decisionsintegration of information systems nationally and internationallythe firm's size and complexity. Small firms with low volume needs may not need a specialist P officer. Buyers of large volumes do.technical complexity of the goods and services themselves. Do buyers need technological understanding? Supply chain co- ordination may involve advanced IT systems.multi-item, multi-site, cross border, intra-firm purchasing- to manage and control these interactions may need a bigger function.
6Procuring for Different Types of Businesses Primary industry - mining and extraction firmsThese firms usually drill, blast, pump, store, move material.Their operations need capital equipment, consumables, maintenance/repair services and others
7Procuring for Different Types of Businesses Manufacturing operationsThey process materials/components by shaping, forming, converting, fabricating, assembling. Their processes range across unique design projects, jobbing (one-offs, small or large batch) and line- operations ( large batch or continuous flow e.g. petro-chemicals).Procuring for these organizations require use ofFormal MRP1 (materials requirements planning) systems with detailed forecasting
8Procuring for Different Types of Businesses Service operationsWholesaler or retail distributors buy and stock goods for resale - adding some service value e.g. polishing, displaying, customer care and staff training. They may offer information and document based products. ( Procure for Stock )Service providers on the other hand purchase: consumables, fixtures/fittings, phones, carpets, and support services. ( Time based procurement very critical)
9Buying SituationsRoutine order situations -product has been purchased many times in past and has established ordering routinesProcedural problem situations - non-routine and may require training employees on new product usePerformance problem situations - non-routine purchases of substitutes for current products which must be tested for performancePolitical problem situations - non-routine purchases for products whose use would affect many departments across the company.
10Purchasing DecisionsMost important evaluation criteria include considerations on Quality, Price, Delivery, and Service. The decisions relate to what to buy, how much to buy, when to buy, who to buy from etc.
11Purchasing Decisions Forward buying Forward buyingThis means purchasing in excess of current requirements.Reasons for forward buying include to minimize risk of rising material costs and protection against future availability.Disadvantages of forward buying are prices actually going down rather than up and Increased carrying cost.
12Purchasing Decisions Volume Contracts Volume ContractsSometimes organizations enter into contract with their suppliers as a way of ensuring constant supply quantities and prices and. This helps them meet purchase requirements over time. This may also lead to better quality materials
13Purchasing Decisions Systems contracts or blanket orders Systems contracts or blanket ordersThese are related to volume contracts. The company agrees to purchase a certain amount over a period of time but they are not legally binding amount. Rather they are just assurances on either parties. They get fixed price. They are also referred to as stockless purchasing because of the lower inventory levels