Purchasing and Procurement Management PDF

Amr MIR Procurement and Supply Chain Program Manager Phd in Supply Chain Manangement Course : Purchasing and Procurement Management SEQUENCE 1 : POSITIONNING AND MISSIONS OF THE PROCUREMENT MANAGEMENT  The historical basis...

Amr MIR Procurement and Supply Chain Program Manager Phd in Supply Chain Manangement Course : Purchasing and Procurement Management SEQUENCE 1 : POSITIONNING AND MISSIONS OF THE PROCUREMENT MANAGEMENT  The historical basis Compagnies Oriented 1945 Production Economy The 30 glorious Cost price + Margin = Selling price Turnover % Procurement : 20% of Turnover 1974 Market Economy The 25 inflation Selling price - Margin = Cost price Costs % Procurement : 50% of Turnover 1990 Globalisation The globalisation Margin = Selling price – Cost price% Margins Procurement : 60% of Turnover 2000 Sustainability = Triple economic, social and The regionalization environmental performance Agility and resilience 3  Distinction between Purchasing and Procurement Develop a procurement policy Calculate needs (Calculation of quantities to Segment purchases order) Analyze supplier markets Process purchase requests (PR) Pre-qualify/Approve/Reference suppliers Transform purchase requests into orders and delivery schedules Analyse Procurement Cost Relaunch, follow suppliers Formulate Procurement Strategies Monitor quantity/deadline disputes Participate in the need definition with the prescribers or internal client Manage inventory (raw material, spare parts, consumables) Consult (Call for tenders) Track supplier payment Negotiate/contract Driving performance and managing supplier relations Source to contract Purchase to pay 7  Distinction between Purchasing and Procurement Procurement process Identify needs Formulate a Manage the Preselect Call for tenders Drive by category procurement execution of suppliers and negotiation performance strategy contracts Manage relationships with internal customers and suppliers Purchasing Process Process Receive, Follow purchase Order Trigger suppliers requests payment 8  The main missions of the Procurement Function TCO Reduction Contribute to Optimization of the working capital requirement economic performance Contribute to Manage risks the creation of value Risk of supply chain disruption Innovation contributions Supplier failure risk Social aspects Normative, regulatory, Environnemental aspects environnemental and social risks… 10  Other missions Define everyone's roles as part of the process The procurement function is Procurement in constant contact with the interior and exterior, it The main contact conveys the image of the with suppliers company Autres missions Inform all purchasers Promote culture innovation of the best conditions in the company of purchase already negotiated Support marketing, finance, production, R&D teams, etc. in defining specifications 11  Amr MIR Procurement and Supply Chain Program Manager Phd in Supply Chain Manangement Course : Purchasing and Procurement Management SEQUENCE 2 PROCUREMENT PROCESS : INTERNAL ANALYSIS (PART 1)  Procurement process : Upstream, central and downstream part Analyse Portfolio du portefeuille analysis The internal upstream analysis phases (the Analyseof Analysis Analyse des Analyse Cost existing portfolio, the needs to be served) and Market analysis thebesoin du need marchés frs des analysis coûts external (markets, suppliers) supplemented by cost analyzes (ABC, TCO, Price breakdown) Procurement Strategy make it possible to establish procurement strategies by family The central part of the process, although very Sourcing Sourcingetand évaluation evaluation desof fournisseurs suppliers operational, nevertheless requires just as much Consultation Tender rigor and professionalism to lead to the choice of the right supplier Award Négociation to suppliers Like any process, this one ends with the Negociation Contractualisation & contractualisation management of performance in order to evaluate and improve the actions of suppliers, but also of all the actors of the Procurement function. Performance management Supplier Relationship Management  Classification of purchases The Purchasing classification defines a unique and shared code used to structure all of a company's purchases into coherent and homogeneous families and sub-families. The classification stipulates at least Purchasing families. Each family of products/services reflects an identical internal need and a homogeneous supplier market Purchasing sub-families The corresponding ERP code, making it possible to make the link with the technical nomenclature 6  Purchasing classification Implementation steps Collect all the items purchased through the information system and group them into macro purchasing groups : production purchases, non-production purchases, investment purchases Group them intoenfamilies Rassemblez-les famillesand et sous-familles d’achats sub-families of purchases by respecting en respectant une aarborescence logical tree structure logique. Group / Non-production purchases Family: general services Sub Family: Maintenance Establish an appropriate coding and tree structure for each group, family and sub-family 7  Purchasing classification Goals Develop a strategy by purchasing family Define the scope of purchasing intervention Define the skills profiles of Build the supplier panel by buyers according to the selecting the best performers by purchasing segment purchasing family 8  Spend analysis by family The expenditure analysis table allows you to collect relevant information and analyze portfolio expenditure by family of purchases. The number of references, the number of items, the number of invoices and the number of suppliers are analyzed by family or sub-family of purchases to extract key information What conclusion do you draw from the analysis of this information? 14  Amr MIR Procurement and Supply Chain Program Manager Phd in Supply Chain Manangement Course : Purchasing and Procurement Management SEQUENCE 3 PROCUREMENT PROCESS : INTERNAL ANALYSIS (PART 2)  Specifications Technical specifications Functional specifications It expresses in terms of ‘made of', meaning that a solution is imposed without necessarily This type of specification is expressed in terms of explaining its purpose. Therefore, it is a "made for," which means the search for a result document that gathers all the characteristics derived from a supplier's solution that are imposed on suppliers It includes the characteristics of the equipment It includes the main needs that the product or or service expected, the desired level of quality, service must meet and the general context of the the physical components and a set of plans project 4  THE ECDR MATRIX Les attentes : Expectations Les données : Data It is the quantitative complement of the need: surface area, It refers to the expected results or dimensions, meters, cubic meters, functions volume, quantity, weight, deadlines, etc Les contraintes : Constraints Les exigences : Requirements International standards, regulations, and corporate social End user requirements, internal responsibility (CSR) constraints standards 18  Elaboration des CDC par famille Identify the level of Analyze and justify the standardization and the disparities in needs Write the specifications ability to standardize between entities of the by family specifications across all same group company sites 26  Amr MIR Procurement and Supply Chain Program Manager Phd in Supply Chain Manangement Course : Purchasing and Procurement Management SEQUENCE 4 PROCUREMENT PROCESS : EXTERNAL ANALYSIS  Supplier Market Analysis There are 5 types of supplier market whose nature varies according to the intensity of competition The competitive Includes many actors of all sizes market The monopoly Correspond à un marché sur lequel un unique fournisseur détient le contrôle exclusif de Corresponds to a market in which a single supplier has exclusive control of the offer market l’offre Describes a situation of imperfect competition that is characterized by a small number of The oligopolistic suppliers for a large number of requesters. We speak of a duopoly when two companies market share the market The captive Is a market where technical, legislative and material constraints make suppliers essential market and difficult to replace A viscous Is a market in which the buyer is constrained to source from the same supplier. This is the market case, for example, when purchasing maintenance parts for end-of-life products. 3  Porter’s Competitive Forces Analysis Porter's Competitive Forces is a model of market analysis that takes into account the six forces that operate in this market New entrants Threat of new entrants Upstream Market Demand Supplier market Bargaining power of Competitors Rivalery Bargaining power of suppliers customers Threat of Substitute Products Legal framework and Innovation regulations This analysis of the broader competition helps the procurement officer to identify the dimensions on which he can act to put himself in a position of strength in this market. 8  Request for Information - RFI RFI (Request For Information) allows procurement officers and specifiers to preselect their suppliers using objective criteria. It can take the form of a file or a questionnaire to be returned by suppliers, or an online form to be completed This step makes it possible to ensure the supplier's ability to support the customer in his Assess the project through criteria such as financial capacity, technical expertise, certifications, supplier qualified human resources, technology and equipment, etc. Evaluate the This step confirms the supplier's ability to meet the need. Here it is the prescriber who, product or through the functional and/or technical expression of his need, indicates his expectations. service The RFI thus makes it possible to measure the feasibility of a project on a technical level. Comply with the general Finally, on the occasion of the RFI, the general conditions of purchase can be submitted to conditions of the suppliers for validation purchase 19  The search for suppliers : RFI Areas Criteria Social reason Company structure Location (number of sites, subsidiaries, etc.) Key figures (turnover, profitability, debt, ratios) Share of private sector in turnover Financial data Share of the public sector in turnover Share of international turnover Activity area Main customers Commercial activity Main suppliers Main partners Main competitors Volumes Production capacity and technology Capacity (maximum, minimum volume, per site, machine park, etc.) Know-how, technology, innovation 20  La recherche des fournisseurs : Request for Information - RFI Areas Criteria Number of employees Human ressources Organizational chart CVs of engineers and key resources Experience Service/product/client-project references + corresponding volumes Approvals (certificates, standards, professional or quality standards) Quality ISO 9001, Lean six sigma and continuous improvement Flows (warehouses, logistics partners, distribution, reverse logistics, Supply chain information systems), Delivery delay 21  La recherche des fournisseurs : Request for Information - RFI Areas Criteria Dedicated service (Research & Development, design office) % of engineers dedicated to R&D Innovation Share of turnover dedicated to R&D Licenses, trademarks Innovative alternative solutions The environmental quality of the products offered Employment of people with disabilitiesles % women employment CSR (ISO 26000…), Responsible procurement (ISO 20400), CSR & Sustainability Occupational health and safety (ISO 45001), Energy management (ISO50001) Eco-Design Circular Economy 22 You are a procurement officer at a construction company, and you have received a collaboration request from a potential supplier. The supplier is interested in providing construction materials for an upcoming project that you share in internet. Your task is to respond to the supplier by asking him to provide you with a set of information in the form of an RFI 24 Dear [Supplier's Name], I hope this message finds you well. We appreciate your interest in collaborating with our construction company for the upcoming project, which we recently shared on the internet. We are always open to exploring potential partnerships that can contribute to the success of our projects. Before we proceed further, we kindly request that you provide us with certain information to better evaluate the possibility of collaboration. This information will help us understand your capabilities, reliability, and alignment with our project's requirements. Below is a list of information and details we would like to receive from your organization as part of the Request for Information (RFI) process: 25 1. Company Overview: Provide a brief overview of your company, including its history, mission, and core values. Describe your experience in the construction materials industry and any relevant projects you have been involved in. 2. Financial Stability: Share your company's financial statements for the past three years (income statement, balance sheet, cash flow statement). Highlight any financial indicators that demonstrate stability and reliability 26 3. Product catalog Provide a detailed catalog or list of construction materials you offer, including specifications, available quantities. Mention if you have any specialized or unique products that may be relevant to our project 4. Quality Assurance: Explain your quality control and assurance processes for construction materials. Share any certifications or standards your products adhere to (e.g., ISO certifications). 27 5. Supply Chain & logistics Describe your supply chain capabilities, including sourcing, manufacturing, and distribution processes Provide details on your lead times and ability to meet project timelines 6. References Share contact information for at least three references from recent construction projects you have supplied materials for. Include project names and a brief description of your role 7. Sustainability and Compliance Detail any sustainability initiatives or environmentally friendly practices your company follows Confirm compliance with all relevant industry regulations and standards 28 8. Collaboration Proposal: Outline your proposal for collaboration, including the scope of materials you can provide for our specific project Highlight any value-added services or benefits you can offer as part of the partnership 9. Insurance and Risk Management: Provide information on your insurance coverage, including liability and product liability insurance Explain your risk management practices and how you handle potential issues or disputes 10. Response Deadline: Please submit your responses to this RFI by [Insert Deadline] to ensure timely evaluation. 29 Once we receive your comprehensive responses, we will review the information and assess the potential for collaboration on the upcoming project. Please feel free to include any additional relevant information or documentation that may assist us in making an informed decision. We appreciate your interest in partnering with us, and we look forward to receiving your RFI responses. Should you have any questions or require further clarification, please do not hesitate to contact us at [Your Contact Information]. Thank you for considering this collaboration opportunity. Sincerely, 30  Amr MIR Procurement and Supply Chain Program Manager Phd in Supply Chain Manangement Course : Purchasing and Procurement Management SEQUENCE 5 PROCUREMENT PROCESS : COST ANALYSIS  Total Cost of Ownership Upstream Acquisition costs procurement costs The Total Cost of Ownership, is the full cost of a good or service. Destruction Implementation costs or TCO costs Beyond the price, it recycling includes all the costs for the company inherent to its procurement : Supplier management costs Usage costs 3  Le Total Cost of Ownership Destruction, Costs of destruction or Depollution recycling Supplier Supplier management costs Maintenance Non quality Costs incurred Energy Usage Costs Storage Costs control Startup Development Implementation Costs Administrative costs Transport Acquisition costs Purchase price Call for tender & Sourcing Upstream procurement costs Life cycle 4  Price decomposition Here is a classic breakdown of cost items Overheads Purchasing Added value Specific costs Logistics Frais généraux  Workforce  Study & design  machine: direct  equipment and  Raw materials  Operating costs  Transportation operating and tools  Components  Information  Storage maintenance costs  Training  subcontracting system  Customs + machine  Marketing  Picking&Packing depreciation 12  Amr MIR Procurement and Supply Chain Program Manager Phd in Supply Chain Manangement Course : Purchasing and Procurement Management SEQUENCE 6 PROCUREMENT PROCESS : PROCUREMENT STRATEGY You are the procurement manager for a medium-sized manufacturing company that specializes in producing automotive parts. Your company is considering expanding its operations to a new market. Your task is to conduct a SWOT analysis to assess the feasibility and potential risks and benefits of this expansion. Your company has a highly skilled procurement team Your company has a good reputation for quality and reliability Competition in the new market is fierce, with well-established local suppliers Your company has an established supplier relationships Political instability in the region could disrupt supply chains Your company's procurement processes are not fully digitized, leading to inefficiencies The new market you are considering has a growing demand for automotive parts due to increased car manufacturing in the region There is a lack of experience in dealing with international suppliers There are a government incentives for foreign companies investing in the area. Question : Discuss and list factors that fall under each quadrant based on the provided information 3 You are the procurement manager for a large IT company that relies heavily on electronic components for its products. Your task is to conduct a Kraljic Matrix analysis to categorize and prioritize your company's suppliers based on supply risk and impact on business objectives. Supplier A: A key supplier for critical electronic components. Their products are essential for your company's core products. Supplier B: A supplier that provides non-essential office supplies. Supplier C: A relatively new supplier for specialized IT software licenses. Supplier D: A supplier for standard IT hardware components used in routine operations. Supplier E: A supplier for a unique, patented technology that your company relies on for a competitive advantage. Supplier F: A supplier for generic packaging materials used for shipping finished products. Question : Discuss and categorize each supplier into one of the four quadrants of the Kraljic Matrix 5 SOLUTION 6 Strategic procurement: Supplier A (Critical Electronic Components): Supplier A falls into this quadrant as they provide critical electronic components that are essential for the company's core products. Any disruption in the supply of these components could significantly impact the business objectives, including product delivery, quality, price and innovation. Hence, they have a high impact on business objectives, and their supply is at risk due to their critical role Bottleneck Procurement Supplier C (Specialized IT Software Licenses): Supplier C falls into this quadrant as they provide specialized IT software licenses. While their products are essential, the overall impact on business objectives may be lower compared to others. However, there's a higher supply risk due to the specialized nature of the software and potential issues related to vendor stability or service interruptions Supplier E (Unique Technology): Supplier E falls into this quadrant because they provide a unique, patented technology that gives the company a competitive advantage. While their products doesn't really have a high impact on financial performance, the supply risk is high because they offer something exclusive 7 Leverage procurement: Supplier D is categorized as leverage procurement. While they provide standard IT hardware components used in routine operations, the impact on financial performance is high, and there's generally a low supply risk for such standard items Supplier F falls into the leverage quadrant as they supply generic packaging materials for shipping finished products. These materials have a high impact on financial performance, and there's typically low supply risk Non-Critical Procurement Supplier B (Office Supplies): Supplier B falls into this quadrant as they provide non-essential office supplies. These supplies have a low impact on core business objectives, and there's typically low supply risk as they are readily available from multiple sources 8  Amr MIR Procurement and Supply Chain Program Manager Phd in Supply Chain Manangement Course : Purchasing and Procurement Management SEQUENCE 7 PROCUREMENT PROCESS SELECTION PROCESS CALL FOR BIDS  Develop a Tendering document Scenario: You are working on a procurement project to purchase new laptops for a university. In this exercise, you will create the three essential components of a tendering document for this project Part 1. Letter : Invitation to tender In this part, develop the letter for the call for bids. Include key information such as the purpose of the procurement, important dates, contact details, and submission instructions Part 2: Requirements Specification (Functional and Technical Requirements) In this part, outline functional or technical requirements for the laptops that the university is seeking to purchase. Functional requirements should describe what the laptops must do, and technical requirements should detail the specific technical specifications Part 3: Special Elements In this part, identify and describe the special elements that are relevant to the laptop procurement project. These can include elements like evaluation criteria, innovation expectations, and terms of contracts 3  Amr MIR Procurement and Supply Chain Program Manager Phd in Supply Chain Manangement Course : Purchasing and Procurement Management SEQUENCE 8 PROCUREMENT PROCESS : SUPPLIER RELATIONSHIP MANAGEMENT  Contract Progress Report and Improvement Actions You are responsible for managing a complex IT project with a significant contract. The contract involves multiple aspects, including the level of quality of deliverables, resources implemented, overall progress, management of the mission, and responsiveness. In this exercise, you will create a contract progress Report and identify implementation actions for improvement. Part 1: Contract Progress Report In this part, you will create a contract progress report to track the various criteria associated with your contract. You will assess the current status of the contract in each of the specified criteria. Instructions: 1. Create a table with columns for the following criteria: 1. Level of Quality of Deliverables 2. Resources Implemented; 3. Overall Progress ; 4. Management of the Mission; 5. Responsiveness 2. Rate and comment the current performance of the contract in each criterion on a scale of 1 to 5, with 1 being “ Very Poor" and 5 being "Excellent." 3  Contract Progress Report and Improvement Actions Part 2: Implementation Actions for Improvement In this part, you will identify specific actions to improve the contract's performance in each of the criteria. Instructions: 3. For each criterion (Level of Quality of Deliverables, Resources Implemented, Overall Progress, Management of the Mission, Responsiveness), list at least one implementation action that can lead to improvement. 4