LOGISTICS AND SUPPLY CHAIN
MANAGEMENT
BAE 5 / BIE 5
Mr I. Simeon
Principles/Basics of Procurement and Supply
Outline
Definition of Purchasing, Procurement and Supply
Main Objectives of procurement
The 5 rights of procurement
The procurement cycle
Cross function Procurement teams
Procurement and Supply
As business is becoming more and more competitive today, procurement and
supply chain management are increasingly recognised as key business drivers by
top managers.
Since over 70% of organisation’s sales turn over is spent on purchased goods and
services, efficient and constructive relationship with suppliers are key to
company’s short term financial position and long term competitive advantage.
In most organisations it is estimated that about 70% of their budgetary allocations
is channelled through procurement.
Purchasing
Definition
The activity of acquiring goods or services to accomplish the goals of an
organization.
The Purchasing function of an organisation involves the acquisition of
supplies or inputs( Raw materials, components, good and services) to
the organisation’s activities (conversion, Consumption or resale)
The role of purchasing and supply is thus to help to secure and convert
inputs from suppliers into outputs that will satisfy the customer.
The purchasing function must not allow disruption of operations due to
unavailability of needed materials/services/equipment
Procurement and Supply
Procurement
The process of obtaining goods and services in a way, including
purchasing , hiring , leasing and borrowing.
Procurement’s basic objectives/purpose is to buy goods/services of
the right quality, in the right quantity, delivered to the right place, at
the right time, at the right price. These are known as the 5 rights of
purchasing.
Procurement and Supply
Supply
The act of providing something or making something available ,
often in response to buyer’s or customer’s requirement. It involves
movement of goods, services and information from one party to
another
Procurement And Purchasing
PROCUREMENT PURCHASING
The process of obtaining goods and services The activity of acquiring goods or services to
in a way, including purchasing , hiring , accomplish the goals of an organization.
leasing and borrowing
umbrella term within which purchasing can Purchasing is a subset of procurement
be found
involves the process of selecting vendors, buying goods or services. Purchasing often
establishing payment terms, strategic includes receiving and payment as well.
vetting, selection, the negotiation of
contracts and actual purchasing of goods
It’s strategically focused Its more on the tactical/operational side
Focus more on what is needed Focus more on reducing cost
Main Objectives Of Procurement
To supply the organisation with a flow of materials and services to meet its needs
To ensure continuity of supply by maintaining effective relationships with existing
sources and developing other sources of supply either as alternatives or to meet
emerging need
To buy efficiently and wisely, obtaining by an ethical means the value for every
money spent
To maintain sound relationships with other departments, providing information
and advice to ensure the effective operation of the organisation as a whole
To develop staff, policies, procedures and organisation to ensure the
achievement of these objectives
Specific Objectives Of Procurement
To do supply market monitoring and identify potential sources of supply
To select the best suppliers in the market after evaluation
Processing procurement or stock replenishment requests
To help generate the effective development of new products
To protect the company’s cost structure
To maintain the correct quality/value balance
To negotiate effectively for better terms with suppliers to reach a win-win
agreement
To adopt environmentary responsible supply chain
The 5 Rights Of Procurement
RIGHT DESCRIPTION
Quality Obtaining goods which are of satisfactory quality and fit for purpose by
- Accurate specifications of requirements and standards
- Supplier and buyer side quality management
Quantity Obtaining goods in sufficient quantity to meet demand and maintain service
level while minimising excess stock holding by- Demand forecasting, -Inventory
management
-Stock replenishment system
Place Having goods delivered to the appropriate delivery point, packaged and
transported in such a way as to secure their safe arrival in good condition by-
Distribution planning,
-Transport planning, - Packaging
Time Secure delivery at the right time but not too early to incur unnecessary
inventory costs by- Demand management,
- Supplier management
Price Securing all the above rights at a reasonable, fair, competitive and affordable
price by- Price analysis, -Supplier cost analysis
-Competitive pricing and negotiation
Purchasing And Supply Chain Management
Procurement is increasingly ceasing to be a discrete function and
becoming a group of activities within integrated supply chain
SCM is identified as principal responsibility of procurement
professionals
SCM is regarded as expanding procurement role
The Procurement (Purchasing) Cycle
1. Need identification- A requisition from a user department for a
particular need
2. Drafting the specification-Drafting of a statement of attributes of
product or service
3. Defining contractual terms-Clearly defining roles and responsibilities of
each contracting party ie. Quality, quantity, delivery place, payment
terms
4. Sourcing suppliers- The processes of searching for capable suppliers
with whom to do business ( Use 10Cs of Carter)
Use 10Cs of Carter in Supplier Sourcing
1. Competency
2. Capacity
3. Commitment to quality
4. Control systems
5. Cash
6. Consistency
7. Cost of acquisition and whole life
8. Compatibility of operations and beliefs
9. Compliance with environmental CSR and sustainability standards
10. Communication
The Procurement (Purchasing) Cycle
5. Inviting for quotes or tenders –These are documents from suppliers
representing their offer in response to a request for quotes/tenders
6. Analysing quotes/tenders – Evaluating offers from suppliers against the
terms set out in the request for quotes/tenders
7. Negotiate contractual terms- A process where two or more parties
decide that they will give and take in an exchange between them
Contract Award.
The Procurement (Purchasing) Cycle
8. Contract Award- In accordance with agreed terms and conditions
9. Contract Management/ Performance – Each party to the contract does
Its part ie. Suppliers deliver the agreed quantities of the specified products at
the right time. Purchasing organisation pays the supplier.
10. Contract review – Every contract ought to be viewed as a project with a
starting and ending date. The whole procurement should be reviewed to
check whether it went well or not. Areas where things went wrong are
identified and corrective actions taken for the follow up procurement
Projects. Remember, procurement is one of the areas where competitive advantage
can be attained.
Cross Functional Teams
1. They bring together individuals with different skills and specialisms, so
that their competencies and resources can be pooled and so that their
respective goals and interests are represented and integrated
2. They are also called multi-disciplinary-teams
3. They are often developed to handle specific strategic issues
4. A good example is the Internal Procurement Committee (IPC)
5. They are organised as matrix structures
Roles of a Procurement and Supply Chain Management Specialist in a Cross
Function Team
1. Providing process knowledge and expertise
2. Providing content knowledge
3. Liaising with supply staff to ensure project needs get attention and
priority
4. Putting forward the supply management point of view
Quiz
Mention 5 roles of an Engineer in a cross functional procurement and
supply team.
Further Reading
1. Purchasing/procurement structures and their suitability to organisation
setting
2. Centralised and decentralised purchasing/procurement structures,
their advantages and disadvantages and their suitable organisation
setting
Thank You.
