1.

Types of Purchases -
Organizations buy many different goods and services. All purchases represent a trade off
between what an organization can make itself versus what it must buy externally. For many
items, the make-or-buy decision is actually quite simple. Few firms could manufacture their own
production equipment, computers, or pencils. However, all firms require these items to support
continued operations. The challenge is deciding which suppliers offer the best opportunity for
items an organization must purchase externally. The following sections outline the variety of
goods and services a typical purchasing department is responsible for buying. Please note that
for each category, organizations should establish measures that track the amount of goods in
physical inventory.

a) Raw Materials :
Timber, coal, oil, and metals like copper and zinc are all included in the raw materials
purchasing category. Additionally, it may consist of agricultural basic products like cotton
and soybeans. The supplier’s failure to transform the raw material into a freshly produced
product is a crucial aspect of raw material. The raw material becomes marketable after any
processing. For instance, copper needs to be refined to get rid of impurities. The fact that
raw materials are not all of the same quality is another important feature. For instance, the
amount of sulfur in different types of coal can vary. Raw materials frequently earn a grade
that indicates their level of quality. This enables the acquisition of raw materials based on
the desired grade.

b) Finished Products :
All organizations purchase finished items from external suppliers for internal use. This
category also includes purchased items that require no major processing before resale to
the end customers. An organization may market under its own brand name an item
produced by another manufacturer. Why would a company purchase finished items for
resale? Some companies have excellent design capability but have outsourced all
production capability or capacity. Examples include IBM, Hewlett- Packard, Sun, Cisco,
General Motors (Geo), and others. The purchase of finished products also allows a company
to offer a full range of products. Purchasing (or engineering) must work closely with the
producer of a finished product to develop material specifications. Even though the buying
company does not produce the final product, it must make sure the product meets the
technical and quality specifications demanded by engineering and the end customer.

c) Maintenance, Repair, and Operating Items :

Anything that does not directly go into a company’s product is considered maintenance,
repair, and operation (MRO) item. But these things are necessary for running a business.
This covers cleaning materials, office and computer supplies, and spare machine parts.
Monitoring MRO inventory is challenging due to the common dispersion of these
products within an organization. When a user forwards a purchase requisition, most
buying departments simply learn when to order MRO inventory. A typical purchasing
department can get hundreds of small-volume purchase requisitions because MRO
components are used by all departments and locations. MRO items are sometimes
referred to as nuisance items by buyers.

d) Production Support Items :

Production support items include the materials required to pack and ship final products,
such as pallets, boxes, master shipping containers, tape, bags, wrapping, inserts, and
other packaging material. Production support items directly support an organization’s
production operation; this is a key distinction separating production support and MRO
items. The DaimlerChrysler sourcing snapshot in Chapter 19 provides a good example of
how this activity can be managed. Services all firms rely on external contractors for
certain activities or services. An organization may hire a lawn care service to maintain
the grounds around a facility or a heating and cooling specialist to handle repairs that
the maintenance staff cannot perform. Other common services include machine repair,
snow removal, data entry, consultants, and the management of cafeteria services. Like
MRO items, the purchase of services occurs throughout an organization. Therefore,
there has been a tendency to pay limited attention to them and to manage the service
purchases at the facility or department level. A study by AT&T several years ago
revealed that the company was spending over a billion dollars a year on consultants. As
with any purchase category, careful and specialized attention can result in achieving the
best service at the lowest total cost. More and more, companies are negotiating longer-
term contracts with service providers just as they would with other high-dollar purchase
categories.

e) Capital Equipment :
Purchasing capital equipment entails investing in items destined for longer-term usage.
The acquisition of capital equipment falls into a number of areas. The first consists of
common equipment that doesn’t call for any special design specifications. Furniture,
computers, and general-purpose material-handling equipment are some examples.
Capital equipment created particularly to satisfy the needs of the buyer falls under a
second category. Examples include modern manufacturing facilities, sophisticated
machine tools, and machines for generating power. These latter items demand careful
technical interaction between the buyer and seller in order to be purchased.

f) Transportation and Third-Party Purchasing :

Transportation is a specialized and important type of service buying. Few purchasing
departments involved themselves with transportation issues before the early 1980s.
However, legislation passed during the late 1970s and early 1980s deregulated the air,
trucking, and railroad industries. This legislation allowed buyers to negotiate service
agreements and rate discounts directly with individual transportation carriers.
Previously, the U.S. government, through the Interstate Commerce Commission,
established the rate (referred to as a tariff) that a transportation carrier charged. It was
common for suppliers to arrange shipment to a purchaser and simply include the
transportation cost as part of the purchase cost.
2. Strategic sourcing is a long-term form of sourcing that makes considerations for budgeting and
the future needs of both suppliers and customers. It is a highly important business concept
because it allows an organization to reduce costs overall, minimize risk, ensure a higher quality
of products, develop concrete business relationships with suppliers, and meet the needs of the
organization, suppliers, and clients most effectively.

Steps in the strategic sourcing process :

The seven-step strategic sourcing process has been proven as an effective way to source
supplies appropriately in business. The steps in the strategic sourcing process are:

a) Profile the category –

The first step of strategic sourcing is identifying your business’s sourcing category or
commodity. The best way to do this is with a spend analysis. By collecting the
necessary data, sorting through it, analyzing it, and validating it, your procurement
team will have a better understanding of the particular sourcing category for your
business, as well as the commodities within it. They will, therefore, be more equipped
to make informed sourcing decisions for the betterment of your company. As the first
step of the strategic sourcing process, as outlined by AT Kearney, this step is a
planning phase. So, it is important to gather as much information as possible.
b) Analyze the supply market –
Investing in a supply market analysis solution helps businesses easily spot the changes
that may be required to their offerings or services, saving time and money. Once
businesses have their research outcomes, they will have sufficient insights to create
the best possible tactic for interacting with customers. Understanding the likes and
dislikes of the customer base ensures excellent communication and greater returns in
the long run. Creating deals with new suppliers comes with some significant costs.
However, supply market intelligence wards off many of such expenses. By cooperating
in a mutually beneficial relationship with major suppliers, companies can strive for
cost-cutting in the long term. As a defined and established supplier relationship
evolves, communication gets better. Suppliers gather a better picture of the
businesses they serve, and this enables them to fulfill their requirements more
efficiently. Pauses in the supply chain will reduce, and the flow of operations will
significantly step up. And when problems in the ordering process come up, the strong
working relationship between client and supplier will make it easier to resolve such
issues.

c) Developing a strategy –
What we're ultimately after is smarter (and possibly faster) decisions around how to
procure or develop the services, skills and materials we need to get our real job done.
This is sometimes called "strategic sourcing". Specifically,
Strategic Sourcing : is the process of taking deliberate action to improve procurement
processes, supplier relationships and capability development in order to optimize the
supply chain. To reach our objective of optimizing the supply chain, we'll need a
 framework---or better yet, a plan---that we can use to identify and guide those
deliberate actions. Hence, the
Sourcing Strategy : captures the decisions we've made and/or policies we've set to
inform and direct our sourcing activity; anticipates the skills, assets and capabilities
that are required to meet our future needs; and articulates a plan for acquiring or
developing them.

d) Selecting the sourcing process:

Time to solicit bids! The most common method that many businesses are using is
Request for Proposal (RFP).
If you’re not familiar with the term, RFP is a document that solicits proposals, which is
often used through a bidding process, written by an organization interested in
acquiring a product or service from vendors for their project. The document outlines
the details of product or service specifications, requirements, pricing breakdown, legal
and financial terms and conditions, and evaluation criteria.

e) Select and negotiate with suppliers:

Now you may have many suppliers that respond to your RFP. Your next task is to
shortlist the most potential suppliers, then interview for clarification or asking more
details if needed. The more information you have from each supplier, the better
decision you will make. To do that, you need to form the best possible team that
knows the product or service you want to purchase, which helps ask the right
questions to potential suppliers.

f) Implement the strategy:

Communicating with suppliers is an integral part of strategic sourcing. After
negotiation, you may have the decision of what suppliers you want to partner with.
Make sure you notify those successful suppliers that are going to be involved in the
implementation stage. The more complex your product is, the tighter your
cooperation and partnership should be. It’s critical to integrate suppliers into your
meetings or discussions included in the implementation stage, making sure they’re up-
to-date on the most recent changes and updates.

g) Track and report (benchmark) the results:

Many people underestimate this step, but it’s a huge mistake to skip it. It’s essential to
measure the supplier’s performance over time – starting with benchmarking the
current status of the product, continuously monitoring the results and ensuring the
goal is being achieved. By doing so, you can quickly identify the problem during the
implementation and notify your supplier to address the issue with the lowest business
impact.
3. A) An E-marketplace refers to an electronic platform where buyers and sellers can meet to make
business transactions online. It can be classified into public and private E-marketplaces. A public
E-marketplace is run by an electronic intermediary company, which is neither a buyer nor a
seller, for conducting electronic buying and selling between members of the exchange. On the
other hand, a private E-marketplace is designed and run by private investors and it invites
buyers and sellers to do online business on its platform.
Online catalogues allow the online purchase of materials and other resources. These catalogues
contain products for online purchasing from predetermined suppliers. Online catalogues also
provide pricing details and applicable discounts for volume buying.
These catalogs may be available for purchasing goods within the procurement intranet of the
buying organization provided by approved suppliers. These catalogues may be developed,
maintained, and updated for E-procurement processing by the buying organization based on
supplier catalogues and an internal inventory system.

Various online catalogs of e-marketplaces :

a. Product Online Marketplace :

This type is what we typically call as an ecommerce marketplace, where people buy and sell
products. The platform brings together all types of sellers into a one-stop-shop that is
convenient for consumers to not only check prices for the best deals but do so all under one
electronic roof. Also, with features like auction and fixed price sale, the seller lists a product
and sets a deadline; buyer with the highest bid gets the item.

b. Online Service Marketplace :

The online marketplace is no longer restricted to just selling products. You can even cater to
the service industry. For a startup business that wants to launch a marketplace with minimal
input, it is good to offer different services that people search for.

c. Online Rental Marketplace :

When it comes to online rental marketplace, the transportation and fashion industry are
popular among investors and aspiring entrepreneurs. However, in the past few years, the
rental marketplace for home appliances, electronic accessories, gears, is not too far behind
to become famous.

d. Hybrid Model in Ecommerce :

There can be two types of hybrid online marketplaces. One category is where people expect
to sell and buy both services and products on the same platform. The online marketplace
like Olx fits into this category.

e. Hyperlocal Marketplace :

The concept of hyperlocal came into the picture when people start to look for the nearby
options while searching for shops, restaurants, etc. through search engines. In this
marketplace model, the aim is to provide facilities and services within the shortest possible
time from local vendors.

B) An online auction is a type of auction that’s held over the internet, unlike in-person
auctions. The best part of holding an online auction is the freedom of bidding from any
location with bidders connected through the internet. However, activities in online auctions
can differ based on it’s type, such as business-to-business (B2B), business-to-consumer
(B2C), and consumer-to-consumer (C2C). There are many platforms that offer B2B, B2C, or
C2C products for online auctions.

An online auction involves several phases, each requiring enhanced digital product
engineering for advanced functionality.

a. Develop an online auction platform - The first phase of the online auction
process is creating a reliable platform that can handle auction activities such
as managing multiple bids, adding or removing product descriptions,
showcasing all the items on the auction, and synchronizing data in real time.
b. Registration process - Bidders register online for the auctions to access the
platform. It allows them to place bids and negotiate item prices. While on the
business side, registration is a standard process for every auction house, on
the technical side, you need to consider.
c. Bidding process - The bidding process begins with the auctioneer announcing
the base price with the first item on sale and asking for bids. On an online
auction platform, auctions are often live-streamed, where bidders can place
their bids in real-time. To create a platform that can live stream the entire
auction and facilitate the bidding, you need a resilient, flexible, and scalable
software architecture. Apart from the live streaming, you should also design
the online auction website with real-time chat features for bidders to
communicate with auctioneers. Take an example of the online auction
platform where an operator works on-site to input every bid on the web
interface. This feature helps all the bidders to have more visibility on what is
happening in the auction platform. Auction houses can use automation and
create a virtual clerk that bids on behalf of the bidders on-site. Each time an
online bid is placed, the system records it. Further, based on this record, a
virtual clerk places the bid, and an operator updates the web interface for all
the bidders to view in real time.
d. Payment options - Online auction platforms typically offer a range of payment
options to facilitate transactions between buyers and sellers.
e. Certificate of sale - A certificate of sale is the legal document issued by an
online auction platform to the bidder after a successful auction. It serves as
proof of purchase and ownership of the items on auction. This document
typically includes the auction date, item description, purchase price, and
buyer’s details. The technology behind the certificate of sale involves a secure
database that stores all transaction data related to the auction. The online
auction platform uses this database to generate the certificate of sale, which is
then sent to the buyer via email or the platform’s messaging system.