Purchasing, Procurement, and Supply

• Purchasing is acquiring supplies or inputs for an organization's activities.
• Supply is providing or making something available based on a buyer's needs.
• Procurement is broader than purchasing, encompassing all means of obtaining goods or services like purchasing, hiring, leasing, and borrowing.
• Procurement involves supply market monitoring, supplier evaluation and selection, requisitions, specifications, negotiation, buying, and contract development.

Goods, Services, and Construction Works

• Goods are tangible items that can be consumed.
• Services are actions that provide a benefit without resulting in ownership.
• Construction works are project-based, including both goods and services.

Direct vs. Indirect Procurement

• Direct procurement involves materials for production or resale.
• Indirect procurement includes ancillary items, maintenance, repair, and operating supplies.

Porter's Value Chain

• Primary activities relate to bringing resources into the organization, transforming them, moving them, and marketing them.
• Secondary activities support the primary business functions.
• Direct procurement quality directly impacts goods quality; indirect procurement generally does not.
• Direct procurements are often held in stock to prevent disruption to production, while indirect items are often ordered as needed.
• Direct procurements are more likely to be made long-term.
• Fixed costs remain constant regardless of activity level, while variable costs change with activity level.

Types of Goods

• Raw materials are items extracted from the ground.
• Components and assemblies are finished outputs incorporated into another manufacturer's product.
• Goods for resale require little additional work.
• Maintenance, repair, and operating (MRO) items are goods and services needed to transform raw materials into end products.
• MRO items are often stocked for when needed; the value is in preventing potential disruption.
• Items are stocked based on demand estimates, historic usage, and other factors.
• Non-stock procurements are common in sectors like construction, where products are obtained in response to a specific requirement.
• Perishable foods deteriorate over time and should not be stocked unnecessarily.

Capital Goods (CAPEX)

• Capital goods have a long lifecycle and high acquisition cost.
• Purchase price is only one element; total cost of ownership (TCO) should be considered.
• Procurement considers lease vs. buy options and maintenance.
• Benefits and costs of capital purchases should be analyzed in advance.

Operational Expenditure (OPEX)

• Operational expenditure benefits the organization briefly, such as stock or business operations.

Services (HIIPO)

• Services are intangible activities or benefits that do not result in ownership with Heterogeneity, Intangibility, Inseparability, Perishability, Ownership.
• Heterogeneity: Difficult to standardize.
• Intangibility: Lack of inspectability.
• Inseparability: Production and consumption occur simultaneously.
• Perishability: Cannot be stockpiled.
• No Ownership: No transfer of ownership.
• Service procurement requires more pre-contract work for service level agreements, professional input, and ongoing supplier management.
• Service levels can be monitored via observation, spot checks, business results, feedback, electronic monitoring, and self-assessments.

Outsourcing

• Outsourcing delegates a non-core task to an external service provider on a long-term basis.
• Advantages are investment and concentration on core tasks, access to economies of scale.
• Disadvantages are loss of control of quality and potential loss of confidential information.

Procurement Segmentation

• Pareto ABC Analysis: A small number of elements (20%) account for a large amount of effort (80%).
• Kraljic Matrix: Importance of items vs. complexity of supply, categorizing items as routine, leverage, strategic, or bottleneck.

Obtaining the Right Inputs

• The general principle of procurement is to obtain the right inputs.
• Right inputs are of the right quality, quantity, place, time, and price.
• Other objectives include internal customer service, risk management, cost control, and reputation management.
• Added value is the increase in worth due to production and delivery to a customer.

Porter’s Value Chain

• Primary activities: Inbound logistics, operations, outbound logistics, marketing and sales, service.
• Support activities: Infrastructure, HR, tech development, procurement.
• Procurement contributes by securing quality materials and reliable delivery.
• Main focus is on adding value by cutting costs or securing operational efficiency.

The 5 Rights of Procurement

• Quality: Obtaining goods of satisfactory quality and fit for purpose.
• Quantity: Obtaining sufficient quantity to meet demand and maintain service levels while minimizing excess stock.
• Place: Delivering goods to the appropriate delivery point.
• Time: Having goods at the right time to meet demand but not too early.
• Price: Securing all of the above at a reasonable, fair, and competitive price.
• Price analysis determines if the price offered is fair.
• Cost analysis justifies price by covering cost.
• Whole life cost and total acquisition cost include costs not immediately apparent.
• The 5 rights are interdependent.

Additional Objectives of Procurement

• Relationship
• Innovation
• Ethics
• Social responsibility
• Whole life cost
• Right supplier
• Value for money is the optimum combination of whole life cost and quality.
• Sustainability balances economic, environmental, and social aspects, avoiding compromising future generations and incorporates the triple bottom line (Profit, Planet, People).

Historical Development of Procurement

• Procurement specialists now handle matters beyond traditional buying, taking a more holistic view of the supply chain.
• Materials management includes all tasks, functions, and activities related to the transfer of external materials and services into an organization.
• Coordinating materials-related activities in a single management framework isolates costs related to materials flows.
• Physical distribution involves activities in the output phase of the supply chain, moving goods from production to the customer.
• Logistics integrates both input and output phases, embracing the full range of supply chain activity with a focus on end customer requirements.

Supply Chain

• Supply chain involves the transfer of goods, services, and information from one party to another.
• Two-way flow of goods, services, and information.
• Suppliers are upstream, and customers are downstream.
• Internal supply chains exist within organizations.
• Effective procurement uses cross-functional project teams.
• Supply chain networks are strategic models for mapping and analyzing supply chain relationships.
• Tiered supply chain structures involve outsourcing activities other than final production stages.
• Closed-loop recycling supply chains involve end-users becoming suppliers of goods back to the manufacturer.

Supplier Base

• Supplier base consists of the vendors that supply.
• Broadening the supply base can meet unforeseen peaks in demand and reduce risk.
• Rationalizing the supply base controls costs and avoids waste.
• Value-adding supply strategies: Value engineering, lean supply, agile supply, negotiations.

Supplier Management

• Rationalizing the supply base, selecting, coordinating, and appraising supplier performance.
• Supply chain management is managing upstream and downstream relationships with suppliers and customers.
• Drivers for supply chain management: Cost pressures, time pressures, reliability pressures, and response pressures.
• Benefits: Reduced costs, improved responsiveness, resources, communication, faster lead times.
• Drawbacks: Considerable investment and data sharing can lead to data leaks.
• Supply chain management requires collaborative and integrative relationships.

Stakeholders

• Stakeholders are individuals or groups who depend on the organization to fulfill their own goals.
• Stakeholders may seek to influence an organization.
• Internal stakeholders are members of the organization, such as employees.
• Connected stakeholders have a direct legal, contractual, or commercial dealing with the organization.
• External stakeholders do not have a direct contractual or commercial relationship but have an interest in activities such as government.

Stakeholders Types

• Internal stakeholders: Directors, staff, technical, design, manufacture, sales and marketing, finance, storage.
• Connected stakeholders: Shareholders, end customers, intermediary customers, suppliers, lenders.
• Indirect stakeholders: Government or regulatory bodies, trade unions, general public.

Corporate Social Responsibility (CSR) / ESG

• Environmental: GHG, pollution, waste management.
• Social: Rights and wellbeing of communities, modern slavery.
• Governance: Bribery, business ethics.
• Environmental responsibility: Recycling and reusing materials, safe disposal of goods, supplier selection policies.

Stakeholders Analysis

• Mapping stakeholders (Mendelow Matrix: Interest vs. Power)

Minimal Effort

• Keep Informed
• Keep Satisfied
• Key Player
• Stakeholder position analysis
• Maps internal and external stakeholders according to their support or opposition.
• Stakeholder management involves goal analysis, desired outcomes, stakeholder marketing and communication programs, relationship management, and issues management.

Internal v External Comms

• Communication mechanisms include intranet/extranet. Frequency and media are also important.