Purchasing Policy & Procedures for Malaw

purchasing policy

1. Strategic Supply Chain Management Purchasing Policy & Procedure Faculty of Business Administration Presented by: Tony Msiska

2. Purchasing Policy and Procedures Understand why purchasing policies are important Understand the different types of purchasing policies Understand the different types of purchasing procedures

3. Procurement Function Procurement is the business management function that ensures identification, sourcing, access and management of the external resources that an organisation needs or may need to fulfil its strategic objectives. Procurement exists to explore supply market opportunities and to implement resourcing strategies that deliver the best possible supply outcome to the organisation , its stakeholders and customers. Procurement applies the science and art of external resource and supply management through a body of knowledge interpreted by competent practitioners and professionals.

4. POLICY The term policy includes all the directives, both explicit and implied, that designate the aims and ends of an organization and the appropriate means used in their accomplishment. Policy refers to the set of purposes, principles, and rules of action that guide an organization. Rules of action refer to standard operating procedures along with any rules and regulations. Although policies are usually documented in writing, unwritten or informal policies can also exist. Informal policies are understood over time and eventually become part of an organization’s culture.

5. Advantages Having written and implied policies is an opportunity to define and clarify top management objectives. a means for executive management to communicate its leadership and view, provide guidance. Policies provide a framework for consistent decision making and action. In fact, one of the primary objectives of a policy is to ensure that personnel act in a manner consistent with executive or functional management’s expectations. Finally, an effective policy provides an additional advantage by defining the rules and procedures that apply to all employees.

6. Disadvantages First, a policy is often difficult to communicate throughout large organizations. Second, employees might view policies as a substitute for effective management. Policy statements are guidelines that outline management’s belief or position on a topic. They are not a set of how-to instructions designed to provide specific answers for every business decision. Third, policy development can also restrict innovation and flexibility. Too many policies accompanied by cumbersome procedures can become an organization’s worst enemy.

7. What makes an effective policy An effective policy is relevant (avoiding trivial or unimportant issues) and concise (stating a position with a minimum number of words). An effective policy is unambiguous, allowing personnel little doubt as to how to interpret the policy’s intent and direction. Policies that are subject to different interpretations will, over a period of time, result in several possible outcomes. This can lead to inconsistent behavior, as people will simply ignore the policy because it is so difficult to interpret.

8. Characteristics of effective policies • Action oriented • Relevant • Concise • Unambiguous/well understood • Timely and current • Guide problem solving and behavior In other words: SMART – Specific, Measurable, Accurate, Realistic, Timely

9. Policy Categories • Policies defining the role of purchasing • Policies defining the conduct of purchasing personnel • Policies defining social and minority business objectives • Policies defining buyer-seller relationships • Policies defining operational issues

10. Purchasing Procedure the operating instructions detailing functional duties or tasks, and a procedure manual is really a how-to manual. A large purchasing department may have hundreds of procedures detailing the accepted practice for carrying out an activity. A procedure is a system of sequential steps or techniques for getting a task or job done. Procedures are also the formal arrangements by means of which policies linking strategies are implemented. A cluster of reliable procedures, each comprised of a number of operations that, together, provide information enabling staff to execute and managers to control those operations, is called a system. E.g . Purchasing Cycle

11. Purchasing Integration The process of incorporating or bringing together different groups, functions, or organizations, either formally or informally, physically or by information technology, to work jointly and often concurrently on a common business-related assignment or purpose. Integration can occur in many forms. It can occur through functions, such as in sourcing or new-product development teams. It can also occur through cross-location teams, where people from different business units are brought together. Finally, the most difficult and challenging form is cross-organizational teams, which involves working with suppliers, customers, or even both concurrently

12. Integration Benefits Information About their markets and bout their own plans and requirements Knowledge and expertise Product and service knowledge and technology Process knowledge and understanding of how to make it work Business advantages Favorable cost structures that can benefit customers and Economies of scale, which can also help reduce costs

13. Purchasing organisation Organizational design refers to the process of assessing and selecting the structure and formal system of communication, division of labor, coordination, control, authority, and responsibility required to achieve organizational goals and objectives, including supply management objectives.

14. Factors Affecting Purchasing’s Position in the Organizational Hierarchy History established organizations, early purchasing history emphasized the gradual development of the policies and procedures defining proper purchasing from an operational perspective. Type of Industry In rapidly changing industries or those where purchased goods and services comprise a larger portion of product or service costs, management usually recognizes the need to place purchasing in a higher position within the organizational hierarchy.

15. Cont’d Total Value of Goods and Services A service organization spending 10 to 20% of its sales dollar for purchased goods and services will, on average, view purchasing differently compared with a firm spending over 60%.

16. Purchasing Department Activities Buying Expediting Inventory Control Transportation Managing Countertrade Arrangements Insourcing/Outsourcing Value Analysis Purchasing Research/Materials Forecasting

17. Supply Management A progressive approach to managing the supply base that differs from a traditional arm’s-length or adversarial approach with sellers. Supply management involves purchasing, engineering, supplier quality assurance, the supplier, and other related functions working together to further mutual goals.

18. Separating Strategic and Operational Purchasing Strategic Manage relationships with critical suppliers. Develop electronic purchasing systems. Implement companywide best practices. Negotiate companywide supply contracts. Manage critical commodities

19. Operational Manage transactions with suppliers. Use E-Systems to obtain standard or indirect items through catalogs. Source items that are unique to the operating unit. Generate and forward material releases. Provide supplier performance feedback.

20. Placement of Purchasing A uthority Centralized When a supply executive at corporate headquarters has the authority for the majority of the organization’s purchase expenditures Decentralized When purchasing authority for the majority of purchase expenditures is at the divisional, business unit, or site level

21. Factors Influencing Centralized/Centrally Led or Decentralized Structures The type of company; The nature or complexity of the product or service produced; The physical number of items that must be purchased; The scope of the purchasing responsibility, including involvement in activities such as strategic sourcing and market research and analysis, and the extent of involvement in services.

22. Cont’d The Firm’s Overall Business Strategy Similarity of Purchases The Overall Philosophy of Management Total Purchase Dollar Expenditures

23. Advantages of Centralized/Centrally Led Purchasing Structures Consolidate Purchase Volumes Reduced Duplication of Purchasing Effort Ability to Coordinate Purchasing Plans and Strategy Ability to Coordinate and Manage Companywide Purchasing Systems Developing Expertise Managing Companywide Change

24. Advantages of Decentralized Purchasing Speed and Responsiveness Understanding Unique Operational Requirements Product Development Support Ownership

25. QUESTIONS??