Ch 05 - Purchasing Management

procurement

process of selecting and vetting suppliers, negotiation contracts, establishing payment terms, and the actual purchasing of g/s

purchasing

• obtaining merchandise, capital equipment, raw materials, services, or MRO supplies in exchange for money or its equivalent

• represents the function of and the responsibility for acquiring materials, supplies, and services for an organization

supply management

newer term that encompasses all acquisition activities beyond the simple purchase transaction

purchase requisition

an internal document that defines the need for g/s

purchase order - PO

• external commercial document

• official offer issued by a buyer to a seller to acquire g/s

e-procurement

the B2B purchase and sale of suppliers and services over the internet

merchants

wholesalers and retailers who purchase for resale

industrial buyers

individuals within an organization who purchase raw materials for conversions into products or purchase service, capital equipment, and MRO suppliers

contracting

acquisition of services

request for information - RFI

standard business process whose purpose is to collect written info about the capabilities of various suppliers

request for proposal - RFP

detailed capabilities document used to determine a supplier’s capability and interest in producing a p/s

request for quote - RFQ

a document to solicit bids (price/delivery) from interested and qualified suppliers for g/s the org needs to obtain

total cost of ownership - TCO

sum of all the costs associated with every activity in the supply stream of a product

make vs buy

the act of deciding whether to produce an item internally or buy the item from an outside supplier

qualitative factors

more subjective and include control over the quality, reliability, and reputation of potential suppliers (internal/external)

quantitative factors

incremental costs of making or purchasing the item, such as the availability of manufacturing facilities, needed resources, and manufacturing capacity

in-sourcing

reverting to in-house production when external quality, delivery, and services do not meet expectations

co-sourcing

the sharing of a process or function between internal staff and an external provider

backward vertical integration

when a company buys one or more of their suppliers

forward vertical integration

when a company buys one or more of their customers

centralized purchasing

the purchasing dept located at the firm’s corporate office makes all the purchasing decisions

decentralized purchasing

individual, local purchasing depts, such as the plant level, make their own purchasing decisions

tariffs

duties, taxes, or customs imposed by the host country for imported or exported goods

non-tariff barriers

quotas, licensing agreements, embargoes, laws, and regulations imposed on imports and exports

countertrade

international trade by exchange of goods rather than by currency

import brokers

agents licensed by the govt regulatory authority to conduct business on behalf of importers for a service fee

import merchants

a person/company engaged in purchasing and selling imported commodities for profit

trading companies

buy products in one country and sell them in different countries with their distribution network

bid

a proposal or quotation submitted in response to a solicitation from a contracting authority

sealed bid

bid that is enclosed in a sealed envelope and submitted in response to an invitation to bid

competitive bidding

a procurement process in which bids from competing suppliers for the right to supply specified materials or services are requested

open competitive bidding

the sealed bids are opened in full view of all who may wish to witness, the big opening

closed competitive bidding

the sealed bids are opened in the presence only of authorized personnel

bid bond

debt secures by a bidder to guarantee that the successful bidder will accept the contract once awarded - if not, the bond would be forfeited

performance bond

debt secured by a bidder for the purpose of providing a guarantee that the work will be on time and meet specifications

payment bond

debt secured by a bidder to protect against 3rd party liens not fulfilled by the bidder