Purchase and Procurement PDF

In procurement, the process involves optimizing, managing, and disposing of goods or services for an organization from external sources. The key stages include: 1. Navigation: Identifying the right needs and market opportunities. 2. Vendor selection: Choosing the best suppliers. 3. Establishing paym...

In procurement, the process involves optimizing, managing, and disposing of goods or services for an organization from external sources. The key stages include: 1. Navigation: Identifying the right needs and market opportunities. 2. Vendor selection: Choosing the best suppliers. 3. Establishing payment terms: Setting up financial agreements. 4. Strategy development: Managing vendor relationships strategically. On the other hand, purchasing focuses on the specific process of how goods or services are ordered, which is part of the broader procurement function The stages of Procurement sourcing stage identifier needs create pursue ruqerment asses vendor purchase stage negation term create order receiving and inspecting goods and service payment stage contact three way matching approve the invoice and arrange payment keep record Every stage Has functions Strategic Transactional Supportive Need identification Purchase Request (PR) Depart Policies Definition Specification of requirement Purchase Order (PO) Vendor rating Market Research & Supplier Dispatch of Products by Supplier Performance Sourcing Supplier Monitoring Supplier Evaluation and Reception and Storage of Training and Development Selection the Goods Purchase Request (PR) Goods Physical Inspection Contracts (Quality Assurance) Management Contract Terms Negotiation Documents Inspection Supplier Relationship (Three-way match) Management Supplier Awarding Supplier Paymen Procurement must interface and balance internal and external relationships Types of Supplier Relationships Arm’s length Transactional and short-term Focused on price and terms without a long-term commitment Co-operative Moderate term Involves working together to meet mutual goals Often involves some level of trust and shared information Collaboration More engaged and strategic Involves sharing resources and knowledge to improve processes and outcomes Partnership Long-term and strategic Deep mutual commitment and shared objectives the benefits of partnerships? The buyer Reduced lead times; Faster product and service development; Improved quality; Reduced costs. The supplier Long-term agreement; Marketing advantage; Financial stability. Reduced total cost; Improved long-term planning; Greater innovation; Lower inventory and consequently lower stockholding costs. Supply Market Dynamics The changing forces within a market that influence the availability, cost, and quality of goods or services. Key factors Supply and Demand:Fluctuations in supply and demand affect prices and availability. Market Competition: The number and strength of competitors can impact supplier behavior. Global Events: Political, economic, and environmental events can disrupt supply chains. Technological Advancements:Innovations can reduce costs or make certain suppliers more competitive Supply x Demand Supply curve:As price increases, quantity supplied increases. Demand curve: As price decreases, quantity demanded increases. Equilibrium point: The point where the supply and demand curves intersect, for a certain price and quantity. Surplus: When the quantity supplied is greater than the quantity demanded, leading to lower prices. Shortage: When the quantity demanded is greater than the quantity supplied, leading to higher prices. The applications of understanding the Supply and Demand in Procurement Price negotiation:Identify bargaining power and set realistic price targets. Supplier selection:Assess supplier risk and identify potential cost savings. Inventory management:Avoid stockouts and optimize inventory costs. Risk mitigation:Diversify suppliers and monitor market trends. Strategic sourcing:Identify alternative sources and evaluate long-term partnerships. Supply Market Types Main types: Monopolies: A single supplier dominates the market, controlling prices and supply. Characteristics: Complete Control: Supplier sets prices with no direct competition. Limited Alternatives: Buyers have few or no other options. High Barriers to Entry: Difficult for new competitors to enter.  Procurement Strategy: Manage Supplier Relationships: Focus on non-price factors like service levels and delivery schedules. Explore Alternatives: Consider in-house production or substitut Oligopolies:A few large suppliers dominate the market, with limited competition. Characteristics Few Dominant Firms: Few number of large firms control the market. Interdependence: Firms’ actions affect each other, leading to strategic behavior. Medium Barriers to Entry:Some obstacles for new competitors Procurement Strategy: Negotiate Long-Term Contracts:Secure agreements to stabilize costs and ensure reliable supply. Monitor Market Trends: Track competitors’ actions and industry changes. Cartels: A group of suppliers colludes to control prices and restrict competition. Characteristics: Collusion:Firms or countries coordinate to control prices or production. Price Fixing:Agreement to set prices or production levels collectively. Market Control:Limit competition to maximize joint profits. Procurement Strategy: Diversify Supply Sources:Reduce dependency on colluding suppliers. Monitor Market Changes:Keep track of price movements and productio adjustments Competitive / Fragmented:Many suppliers compete, driving prices down, with buyers having strong power. Characteristics: Many Competitors: Numerous small and large players vie for market share. Low Barriers to Entry: Easier for new firms to enter the market. Varied Offerings: Wide range of products and services available. Procurement Strategy: Leverage Competition:Compare multiple suppliers for the best terms. Focus on Differentiation:Focus on unique suppliers or products.