Sourcing & Procurement in Supply Chain Management Unit II 2024.pptx

Sourcing & Procurement

1. SUPPLY CHAIN MANAGEMNT Dr.J.Deepak kumar Assistant professor – department of B. C om -BPS Sri Ramakrishna C ollege of Arts & Science UNIT II

2. Dr.J.Deepak kumar “Supply chain management is a practice explored by companies to ensure that their organization’s supply chain is being managed more efficient and cost-effective. A supply chain is the group of steps that a company follows to transform their raw materials into a final product” Strategic sourcing is a method to supply chain management that solemnizes the way information is collected and used so that an organization can influence its consolidated purchasing control to find the best possible values in the marketplace. Supply Chain Sourcing and Procurement

3. Dr.J.Deepak kumar Supply Chain Sourcing and Procurement

4. Dr.J.Deepak kumar Supply Chain Sourcing and Procurement 1. Plan The primary stage of the supply chain process is the planning stage. A plan or strategy need to be established in order to manage how the products and services will fulfill the demands and needs of the customers. In this stage, the planning should predominantly address on designing a strategy that earns maximum profit. 2. Develop (Source) Developing or Sourcing is the next step involved. In this stage, we mainly focus on constructing a steady relationship with suppliers of the raw materials essential for production. This involves identifying reliable and preferred suppliers but also determining different methods of planning to ship, deliver, and pay for the product.

5. Dr.J.Deepak kumar Supply Chain Sourcing and Procurement 3. Make The third step in the supply chain management process is the manufacturing or creation of the products which are in Customer’s demand. At this stage, the products are designed, created, tested, packed, and synchronized and ready for delivery. 4. Deliver To deliver is the fourth stage component. Here the products are delivered to the customer at the intended location by the supplier. This stage is basically the logistics phase of planning, where customer orders are accepted and delivered. The delivery stage is frequently referred as logistics, where the companies work together for the receipt of orders from their customers, launch a network of warehouses, pick shippers to deliver the products to customers and set up an invoicing system to receive payments. 5. Return The last and finishing stage of supply chain management is specified as the return. In this stage, imperfect or damaged goods are returned to the supplier by the customer. Here, the companies need to deal with customer enquiries and reply to their grievances and compliances etc.

6. Dr.J.Deepak kumar Source to Pay Life cycle Comparison of Quotes for Price, Discount, Delivery Time etc., Performing the competitive bid analysis between the quotes (maximum 3 Quotes for a single purchase will be analysed) which depends upon the type of purchase and value of purchase. Selecting the Supplier and finally awarding the Business. Purchasing involves the process of creating the Purchase Request to the identified supplier with the goods or service requirements as Purchase Orders after necessary budget and finance approvals.

7. Dr.J.Deepak kumar Procurement Lifecycle – an Understanding

8. Dr.J.Deepak kumar The Process of Strategic Sourcing The process of strategic sourcing is a step by step approach. There are different steps involved in the process of strategic sourcing. Understanding the Spend Category 4. Building the Strategy 3. Supplier Survey 2. Supplier Market Assessment

9. Dr.J.Deepak kumar The Process of Strategic Sourcing 1. Understanding the Spend Category Sourcing Team will run the first three steps involved in the Strategic Sourcing. In this first step, the Sourcing Team needs to do an end to end scrutiny and analysis over the total expenditure or spend managed. The team ensures that it recognizes every aspect regarding the spend category itself. The five major areas that are examined in the first stage are as follows − Historic spending records and volumes. Expenditures divided by items and sub items. Expenditures by division, department or user. Expenditures by the supplier. Future demand projections or budgets.

10. Dr.J.Deepak kumar The Process of Strategic Sourcing 2. Supplier Market Assessment The second step includes frequent analysis and assessment of the supplier market for pursuing alternate suppliers to the already available preferred suppliers. A thorough study of the dynamics of the supplier marketplace and latest market trends has to be made. The major component of the key products design is the should cost. Along with it, a scrutiny on the critical supplier’s sub-tier marketplace and thorough examination for any risks, challenge and better new opportunities are also important. 3. Supplier Survey The third step is creating a supplier analysis or survey for both preferred suppliers and potential substitute suppliers. This analysis or survey assists in examining the abilities and skills of a supplier. In the meanwhile, data collected from the preferred suppliers is used for analyzing the spend information that suppliers have from their sales systems. The areas are as follows − • Feasibility • Capability • Maturity • Capacity

11. Dr.J.Deepak kumar The Process of Strategic Sourcing 4. Building the Strategy The fourth step deals with building the sourcing strategy. The combination of the first three steps explained in detail are the vital elements for constructing a sourcing strategy. Generally, these alternatives are chosen when a purchasing firm has little influence over its supply base. The firms depend on the suppliers who will share the profits of a new strategy. Thus, the sourcing strategy is an accrual of all the drivers mentioned. Strategies for every category or region depends on answering the below questions: • How much available the marketplace is for the supplier? • How supportive are the clients of a firm for preferred incumbent supplier relationships? • What are the alternatives to do the competitive assessment?

12. Dr.J.Deepak kumar RFX, Supplier Selection and Communication with the Supplier RFx (Request for Anything) RFP (Request for Proposal, RFI (Request for Information), RFQ (Request for Quote) RFB (Request for Bid) Generally, in competitive approach, a request for proposal, Quotation or Bid needs to be prepared (e.g., RFP, RFQ, eRFQ ) for most of the spend categories. This defines all the needs for all prequalified or identified suppliers. The request should comprises of the product or services, quantity requirement, pricing terms, ship to and deliver to, discounts if any, time period of delivery etc along with financial terms and conditions. An interaction plan has to be created to attract maximum supplier interest. It must be ensured that every supplier is understands that they are competing on a level playing field. After sending the RFP to all suppliers, it is to be ensured that they have been given enough time period to respond with details. In order to motivate the suppliers with greater response, follow-up messages should also be sent.

13. Dr.J.Deepak kumar RFX, Supplier Selection and Communication with the Supplier 2. Selection This step is all about identifying, screening and negotiating with suppliers. The sourcing team is advised to apply its assessment criteria over the responses provided by the suppliers. Any information over and above the limitation of the RFP is required for selections shall be requested from the supplier for qualification. If selection process is complete with all standards, the awarding process is accompanied first with a larger set of suppliers and then shortlisted to a few finalists. If the sourcing team does the e-sourcing and electronic negotiation tool, large number of suppliers can bid and be in the process, giving more suppliers a better opportunity at winning the enterprise.

14. Dr.J.Deepak kumar RFX, Supplier Selection and Communication with the Supplier 3. Communication with New Suppliers After awarding the winning supplier(s), they will be on-boarded to the system and contractually binded to the enterprise and will be take part in executing procurement. A communication plan will be set up between the enterprise and the supplier on the procurement specifications and improvements in delivery, pricing model and services rendered etc. The company gains enormously from the entire process of creating a communication plan, making some changes and modifications according to the demand and further forwarding this to the customer. It is mandatory that this process should be agreed and acknowledged by both the company and the supplier.

15. Dr.J.Deepak kumar Procurement to pay Process Cycle Procure to Pay Process cycle consist the following process, Material requirement planning Vendor Selection Request for Quotation Purchase Requisition Purchase Order 6. Goods Receipt 7. Goods Receipt Invoice 8. Invoice Verification 9. Payment to Vendors.

16. Dr.J.Deepak kumar Procurement to pay Process Cycle Material requirement planning: MRP refers to the method of having a projected manufacturing schedule to identify the requirement of material and when it is required. Material requirements planning type controls the MRP procedure, pricing, material valuation. MRP carried out by MRP controller in production department. 2. Vendor Selection: Vendor selection is an important step in the Sourcing process, an optimized vendor selection is made through doing a competitive bid analysis through quotations and other relevant sourcing documents. 3. Request for Quotation: Requesting potential vendors to submit a quotation for a product/goods or services. Quotation consist of vendor’s terms and conditions and comprises of the basis for vendor selection.

17. Dr.J.Deepak kumar Procurement to pay Process Cycle 4. Purchase Requisition: A Purchase requisition is an internal request to purchase or procure a good or service. It is a request to the buyer to procure a certain quantity of material or services for a certain period or date. It can be created automatically through Material requirement planning or it can be created manually. The Purchase Requisition converts to Request for Quote (RFQ) then as Purchase Order. Purchase Requisition forms include the following information: • Material Quantity, Service Requirement, Description of goods and services and total value. • Account number • Authorized signatory • Attached Quote from Vendor • Delivery Instructions. • Attach Quote from the suggested Vendor

18. Dr.J.Deepak kumar Procurement to pay Process Cycle 5. Purchase Order: Purchase Order is a formal request to a vendor to supply certain materials or services under the certain conditions. A Purchase order can be created with reference, or without reference to a Purchase requisition, a request for quotation, or another purchase order. PO usually specify terms of payment, incoterms, delivery date, specifications, material quantity, price and reference or part numbers. Types of Purchase orders: Standard PO, Planned PO, Contract PO. 6. Goods Receipt: Goods Receipt or GRN is a note created in the system to reflect the goods receipt is recorded once the specified material ordered is delivered as per the Purchase Order. Once the goods are received the Company warehouse records the following information for their Finance and Accounting, Inventory Management and to manage the Purchase return. • Good or Services Delivered with details of the Goods. • Vendor who delivered the Goods • Details of the Goods received including who, when and How the goods delivered.

19. Dr.J.Deepak kumar Procurement to pay Process Cycle 7. Goods Receipt Invoice (GRIN): Goods Receipt Invoice process is one of the important process in procurement process cycle. It is matching the goods that a company receives from the supplier for the purchase order sent. It involves verifying the goods in terms of damage and quality, price verification, Quantity and Payment terms. Goods movement are updated into the system with the Purchase Order reference. Goods receipt material documents are posted to the general ledgers and stock accounts by Finance and Accounts department of the company. 9. Payment to Vendors: The Final step in the procurement process cycle is payment to the suppliers or vendors and it also know procure to pay process. Vendors are paid as per payment terms. In this fast technology world, companies can pay through many methods to Vendors. For Example: through Online, CHAPS, BACS and Transfers. 8. Invoice Verification: Post verifying the GRIN Invoice verification is the next important process in the procurement journey A Vendor Invoice is created with reference to the Purchase Order, a Goods Receipt, a Delivery note. Invoice is validated in-terms of prices, quantity, Necessary finance and project approvals by the department. Invoice is posted into the system post verifying all the details and the data is saved in the system.

20. Dr.J.Deepak kumar Technology Intervention in Sourcing and Procurement Companies choosing to participate in supply chain management initiatives ascertaining a specific role. Companies have a mutual feeling that along with all other supply chain competitors, will be better off because of this collaborative effort. Retailers have an essential designation when there is a talk about information access in Supply Chain Management. They emerge to the position of importance with the help of technologies. The advancement of information system across the organization in the field of supply chain has three distinct benefits. These are − Cost reduction − The advancement of technology has resulted further to readily available of all the products in catalogue with different offers and discounts. This leads to decrease of costs of products. Productivity − The development of information technology has enhanced the productivity due to the innovation of new tools and software. That makes improved productivity with leaned and less time consumption. Improvement and product/market strategies − Recent years have seen an enormous growth in Technologies and Market itself. New strategies are made to attract the customers and new thoughts are being experimented in improving the product.

21. Dr.J.Deepak kumar Technology Intervention in Sourcing and Procurement Electronic Commerce Electronic Data Interchange Quick turnaround of information Delighted Customer Service Paper Less work. Improved productivity Advanced track of information and expediting Cost efficiency and effective. Competitive benefit Advanced billing 3. Barcode Scanning 4. Data Warehouse 5. Enterprise Resource Planning (ERP) Tools