Chapter 2 - SUPPLIER • Right CONDITION

- The quality of the product that meet a

Suppliers customer's needs.
• Right QUANTITY
− are the external organizations or individuals
- Supply of the products meets the
that provide the goods, materials, and
customers demand.
services that any businesses need to create
• Right COST
their own product or services.
- The price is very reasonable; it is a good
SALES PROPOSAL value.

• Suppliers provides “Sales Proposals” or Make-Versus-Buy & Outsourcing

“Product Quotation” to introduce their
The choice of whether to do something internally
materials to prospective buyers.
or have an outside firm to do it is referred to as a
make-versus-buy decision.
• Product Quotation
- Is a document that contains specific OUTSOURCING
products offered by a company as well
as the prices per product. − are any type of activity that was or could be
performed internally but it’s done by an
• Supplier Search outside provider
- is when a buyer tries to find the best − Outsourcing means the firm has the capability
vendor. to create a product or service but opt to
purchase the product from the outside
STRATEGIC METHODS USED IN IDENTIFYING THE instead of creating it.
RIGHT SUPPLIERS
GLOBAL SOURCING
Suppliers Identification
− Is the search for and selection of suppliers
One thing to consider in supplier identification is to anywhere in the world.
check the legitimacy of the supplier through the
following: Supplier relationship management

• Research & background check − (SRM) is the process of identifying the

• Certifications suppliers that are critical to a business and
• Use of government websites for implementing a system of managing
checking of registration relationships with those key suppliers.
• Verification of references
• Online presence − A commitment over an extended time to work
together to the mutual benefit of both parties
SUPPLIERS EVALUATION AND SELECTION –
ENUMERATION – PPT-CQC

Managers should take into consideration the Good and strong relationship between
supplier’s ability to supply the: buyer/customer & supplier can provide many
benefits such as:
• Right PRODUCT OR SERVICE
- Product with features and functions • Flexibility in terms of delivery and
that meet a customer's needs. payment
• Right PLACE • Better quality
- means that the product are available • Better information
within the area of the buyer • Better material flow
• Right TIME • Create value for customers
- The timeframe for distribution and
delivery of the supplier is applicable to
the operation of the buyer.
Ethical Sourcing

− Is the process of ensuring the products being

sourced are obtained in a responsible and
sustainable way, that the workers involved in
making them are safe and treated fairly and
that environmental and social impacts are
taken into consideration during the sourcing
process. To bring positive social change
through organizations buying behavior.

Ethical Sourcing Practices includes:

• Buying from smaller firms

• Ethnic Minority Businesses
• Women-Owned enterprises
• Discontinue purchase with firms that
has issue with labor
• Supporting firms that applies
environmental practices
• Practice of honest declaration of
product or services costing
Chapter 3 - PURCHASING MANAGEMENT FUNCTIONS OF PURCHASING MANAGEMENT –
ENUMERATION – RRSS-OMP
• Purchasing
1. Receive Purchase Request
- Is the act of buying the goods and
services that a company needs to - Starting point of procurement activity.
operate and/or manufacture products. - It is the Statement of Requirement of
Production.
• Purchase
2. Review and Evaluate Requisitions
- Is the first element which affects the
product cost. - Purchase Department reviews the
following:-
• Purchase Management ✓ Item description
- Decides profitability of the Company. ✓ Quantity
✓ Estimated purchase price or last
• Purchasing Department purchased price
✓ Consumption pattern in the last 3 years
- Ensures that all goods, supplies, and ✓ When the material is required
inventory needed to operate the
business are ordered and kept in stock. 3. Supplier Selection
- It is also responsible for controlling the - Deciding on the mode of procurement
cost of the goods ordered, controlling - Invitation to tender is issued
inventory levels, and building strong
relationships with suppliers. 4. Scrutiny of Offers
DIFFERENCE BETWEEN PROCUREMENT & - Reply of a supplier to the invitation to
PURCHASING tender is called an Offer.
- An offer is scrutinized for its
• Procurement specifications, price and other terms and
- Deals with the sourcing activities, conditions.
negotiation and strategic selection of
goods and services.
5. Order Placement
- Purchasing Department selects the
• Purchasing supplier & places order.
- Is the process of how goods and services
are ordered.
6. Market Research and Information
R'S of Purchasing
- Discussions & meetings between
• Buying Material at Right QUALITY. supplier representatives
• In the Right QUANTITY. - Keeps in check, the latest developments
with respect to the company and its
• From the Right SOURCE.
product.
• At the Right PRICE.
- Studies new developments in
• Right service ...
production materials & processes.
• Delivered at the Right PLACE in.
• At the Right TIME.
7. Payment Authorization
• With Right mode of TRANSPORT.
• With Right CONTRACT. − Ensuring all goods are delivered before
• With Right payment terms. payment is made.
 • Multiple suppliers may not help in
maintaining quality and helps get
Purchasing Process material at competitive prices.
4. Determination of Prices and Availability
Request
to • Methods :
Purchase/
Requisitio a) Vendor’s catalogues and price list
n
are available for standard items
Supplier
Supplier
Invoice/Pa
Selection
b) Negotiation: Bargaining between
yment
buyer and seller
c) Inviting tenders or quotations

Goods Purchase
5. Placing the order
Receipt Order Purchase Order
− The legal order is placed with supplier
Delivery/F
ulfillment on a form

6. Order Acknowledgement
There are two main forms of Requisition: − Is to get a definite commitment from
the supplier about the supply of items
• Manual – by the use of PURCHASE on time.
REQUISITION FORM
7. Follow Up
• System – e-Procurement (ELECTRONIC − Is done to ensure that the items orders
PROCUREMENT SYSTEMS) are delivered by the supplier on time
− Though a general policy should be
1. Recognition of Need
established for the entire purchasing
− Identifying an item that is officially
department, the intermediate
bought to the attention of purchasing
responsibility for expediting is likely to
department.
rest on the buyer who placed the order

• Issuance of requisitions
8. Check the Invoice and approval Payment
- The needed item and becomes the
basis for action by the purchasing
Supplier Invoice
department
− Is the bill issued by the vendor for goods
and delivered or service rendered to a
• Issuance of bill materials
customer
- A list of all items to be incorporated
− At time of delivery the supplier will
into a finished product that the
typically issue an invoice – which either
company procedure
accompanies the goods or is sent
separately. This will be received by the
2. Description of Requirement
finance department – processed and
• The purchase requisition described the
paid (assuming the goods are received, it
required item
is correct and in good condition)
• In order to assure complete and accurate
information for ordering, the requisition Selection of Vendors
must include all the necessary
information − This is the process where the organization
identifies potential suppliers for specified
3. Selection of Source supplies, services, or equipment.
• A right supplier is one who delivers
materials of the correct specifications on − These suppliers' credentials and history are
the delivery dates analyzed, with the products or services they
• Single supplier helps develop long-term offer.
relationship and reduce the risk and
interruption in the supply.
− Purchasing managers research potential Comparative Analysis
bidders obtaining information on the
organizations and products from media Value analysis may investigate all identical parts
sources and their own industry contacts. purchased by the company and this investigation
can expose opportunities to cut costs of some of
− This selection process can include or exclude these parts.
international suppliers depending on
organizational goals and criteria. Supplier contacts

Negotiating Supplier contacts is yet another approach to value

analysis. Smart purchasing personnel maintain close
− Negotiating is a key skill set in the Purchasing contact with suppliers who suggest improvement
field. One of the goals of Purchasing Agents is and cost- reduction ideas.
to acquire goods per the most advantageous
terms of the buying entity

− Purchasing Agents typically attempt to

decrease costs while meeting the Buyer’s
other requirements such as an on-time
delivery, compliance to the commercial terms
and conditions

− That savings could exceed the annual budget

of the department, which in effect would pay
the department's overhead - the employee's
salaries, computers, office space, etc.

Value Analysis

− Is Also called as ‘Value Engineering’

− It is a combination of Purchasing and

Methods Engineering.

− This activity is aimed at modifying the

specification of materials, parts & products to
reduce their cost.

− Value analysis has wide acceptance as it offers

increased value of a product without
increasing the cost and it reduces the cost
without reducing the usefulness of the
product.

− It is widely used by many companies and

governmental agencies

− Steps

1. A value analysis team or committee

takes a product, which has been
designed or produced.

2. Then they attempt to define what

function, product should fulfill.

3. The analysis committee tries to perform

that function at the lowest possible cost.