Purchasing in supply chain management (scm)

Purchasing Including E- Procurement, Negotiation,
E-Tendering etc. in Supply Chain Management

1. Done by, Boniya P Bochan SMS, CUSAT

2. PURCHASING Purchasing is responsible for the procurement process. This means it ensures the supply of goods, production materials and equipment so that a smooth production and sales process can take place. For this, goods must be procured at the right time, in the right quantity, and of the right quantity.

3. If the purchasing process falls down, there's a risk that the business will not be able to manufacture products or keep the shelves stocked with sufficient volume to meet customer demand.

4. TYPES OF PURCHASES On the basis of purchase type: Personal Purchases . Mercantile Purchasing . Industrial Purchasing . Institutionalized or government purchasing .

5. On the basis of size and requirements of the organization: Centralized Decentralized

6. Type of Purchase Description Examples Raw materials Items with a lack of processing by the supplier into a newly formed product. Often these raw materials are not of equal quality and are purchased by “grade.” Petroleum, coal, lumber, copper, zinc, gold, and silver Semi-finished products and components All items purchased from a supplier required to support an organization’s final that are production. Components, subassemblies, assemblies, subsystems, and systems (seat assembly, steering assembly, doors, and posts) Finished products Products for internal use or products that require no major processing before resale to the end customer. Furniture, computers, cars, and carts Maintenance, repair, and operating items (MRO) Items that do not go directly into an organization’s product but are required to run the business. Spare parts, office and cleaning supplies Production support items Materials required for packaging and shipping. Tape, bags, inserts, and shrink-wrap Services Services required to support the facility or the business. Customer support, temporary labor , facilities, and legal Capital equipment Assets intended to be used for more than one year. Machinery, computer systems, and material-handling equipment Transportation and third-party purchasing A specialized type of service buying to manage inbound and outbound material flows. Rail, truck, ocean, 3PL, and multimodal

7. METHODS OF PURCHASING 1. Purchasing by Requirement: 2. Market Purchasing 3. Speculative Purchasing 4. Purchasing for Specific Future Period: 5. Contract Purchasing: 6. Scheduled Purchasing: 7. Group Purchasing of Small Items: 8. Co-operative Purchasing:

8. TYPES OF METHODS OF PURCHASING Keep Petty Cash on Hand Formalized Purchase Orders Convenient Purchase Cards Barter for Goods or Services Save with Bulk Purchases On-Demand Purchasing and Zero Inventory

9.   PROCUREMENT Purchasing is the overarching process of obtaining necessary goods and services on behalf of an organization, procurement describes the activities involved in obtaining them. The procurement process in an organization is unique to its context and operations.

10. Procurement Purchasing Activities related to acquiring goods and services Functions associated with buying goods and services Steps that happen before, during, and after purchase Straightforward process of purchasing commodities Used in a production environment (internal process) Used in a wholesale environment (external process) Puts more importance on an item’s value than its cost Tends to focus more on the item’s price than its value Refers to a set of tasks that spot and fulfill needs Refers to the specific task of committing expenditure Includes need recognition, sourcing, and contract closure Includes ordering, expediting, and payment fulfillment Follows a proactive approach to spot and fulfill needs Follows a reactive approach to satisfy internal needs Relational –focuses on creating long-term vendor relationships Transactional –focuses on transactions than vendor relationships

11. 3 P’s

12. AUTOMATION OF PROCUREMENT MANAGEMENT PROCESS Minimizes the chaos made by paperwork Shortens the procurement lifecycle Reduces human dependency  intervention and errors Lessens the workload of all stakeholders Keeps the process accurate and consistent Injects transparency into the process flow Sticks to the predefined procurement cycle

13. E-PROCUREMENT e-Procurement or electronic procurement refers to the process of purchase and sale of goods or services through electronic methods, primarily the Internet. It is an alternative to the manual process of procurement, and is certainly superior to the latter in many respects. Organizations are increasingly opting for e-Procurement platforms, realizing its potential to curb irregularities and unnecessary costs.

14. E-PROCUREMENT VALUE CHAIN E-procurement value chain consists of : indent management e-Informing e-Tendering e-Auctioning vendor management catalogue management

15. Purchase Order Integration Order Status Ship Notice E- invoicing E- payment contract management

16. E TENDERING An internet based process wherein the complete tendering process; from advertising to receiving and submitting tender -related information are done online . This enables firms to be more efficient as paper-based transactions are reduced or eliminated, facilitating for a more speedy exchange of information.

17. BENEFITS OF EFFECTIVE PURCHASING IN PROCUREMENT Unlike companies that usually focus on sales for profit most famous companies like McDonalds, Coco Cola, etc survive in the long run mainly because of their effective purchasing models from reliable and local suppliers. It is those kinds of suppliers that offer raw materials at reasonable rates thereby helping firms to offer cost effective products with good quality to their customers.

18. In case of companies like small retail shops that only see profits, they tend to purchase from cheap sources thereby offering low quality products to customers. Hence even if such small companies manage in the short period, it is the big companies like Walmart, Ben & Jerry that ensures maintaining brand reputation and buyer confidence by involving calculated ricks in their business. Calculated risk refers here to fixed price in acquiring raw materials from suppliers whereby even if prices fall, as per the contract no changes can be done.

19. CASE EXAMPLE: FORD - E-PROCUREMENT IN A MANUFACTURING COMPANY Ford spends an estimated $15.5 billion each year on non-production goods and services, making it one of the largest purchasers of such goods world-wide.

20. With Ford's continuing quest to cut costs, Ford utilises an e-procurement solution, with the intention of cost cutting from the everyday tasks such as purchasing office supplies, and filing expense reports.

21. Ford has revised the purchasing process, instead of receiving catalogues, and having employees complete purchase orders that must be approved by management, which often takes days or weeks. Employees now log onto an Internet system, browse manufacturers catalogues, order from a pre-approved group of suppliers, and obtain purchasing approval in minutes. Ford anticipates to cut spending and transaction costs by as much as thirty percent .

22. Ford also uses procurement applications for processing the more than one million travel and expense accounts that employees submit each year. It is estimated that large corporations spend about $36 on processing each expense report. As this example illustrates, the focus of procurement automation is not so much on production-related raw materials but on non-production goods.

23. MCDONALDS E-PROCUREMENT SYSTEM McDonalds E-Procurement System is basically a main reason for their successful supply chain management It is so efficient that is provides the backbone not only to all the logistics but the whole McDonalds supply chain management.

24. E-MAC Digital(internet procurement site designed for McDonald’s Corporation’s 34,000 franchises)   E-MAC Digital Company is E-Procurement website which is jointly owned by McDonalds and Accel-KKR Internet Co.  It is a procurement hub launched in 2001 allow all of McDonald’s franchise across the globe to buy everything needed to un their restaurants.