Rutgers, Intro to Supply Chain, Chp. 5

Procurement

The process of selecting and vetting suppliers, negotiating contracts, establishing payment terms, and the actual purchasing of goods and services.

purchasing

The action of obtaining merchandise, capital equipment, raw materials, services, or maintenance, repair, and operating (MRO) supplies in exchange for money, or its equivalent.

purchase requisition

An internal Document that defines the need for goods and/or services. An internal document. Does not constitute a contractual relationship with any external party.

Purchase Order (PO)

a commercial document. It is the official offer issued by a buyer to a seller to acquire goods or services.

It is used to control the purchasing of products and services from external suppliers.

Indicates types, quantities, and agreed prices for products or services.

Becomes a _legally binding contract only when accepted by the supplier.

WILL BE ON EXAM

E-procurement

the business-to-business (B2B) purchase and sale of supplies and services over the Internet.

merchants

Wholesalers and retailers who purchase for resale

Industrial Buyers

Individuals within an organization who purchase raw materials for conversion into products, and/or purchase services, capital equipment, and MRO supplies.

contracting

term often used for the acquisition of services

Request for Information (RFI)

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

Request for Proposal (RFP)

A detailed capabilities document used to determine a supplier's capability and interest in the production of a product or service

Request for Quotation (RFQ)

a document used to solicit bids from _interested and qualified suppliers for goods or services that the organization needs to obtain.

The Primary Objectives of Purchasing

1) Ensure an uninterrupted flow of materials and services at the lowest total cost

2) Improve the quality of the finished goods produced

3) Optimize customer satisfaction

How to achieve the Primary Objectives of Purchasing

Actively seeking reliable suppliers.

Working with the expertise of strategic suppliers to improve quality and materials.

Involving suppliers and purchasing personnel in new product design and development efforts.

Purchase process steps

1. a need is identified, and a purchase requisition is issued

2. obtain authorization as necessary

3. identify and evaluate potential suppliers

4. make supplier selection

5. purchase order po is created and delivered to the supplier

6. supplier confirmation of the purchase order

7. fulfillment

8. receipt of goods

9. invoice and reconciliation

10. payment

11. close out the purchase order

12. analysis

The basic e-procurement process consists of:

An electronic purchase reuistion and/or purchase order

An invoice (which might be one with the receipt)

A payment

Return on Assets (ROA)

profit before tax/assets

Profit Leverage Effect

a term used to describe the effect of $1 in cost savings increasing pretax profits by $1 and a $1 increase in sales increasing pretax profits only by $1 multiplied by the pretax profit margin

Inventory Turnover Ratio

cost of goods sold/average inventory

high is good

low is bad

Total Cost of Ownership (TCO)

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

the four elements of cost

Quality, Service, Delivery, and Price (QSDP).

used to find the TCO

Reasons for making

-Protect proprietary technology

-No competent supplier

-Better quality control

-Use existing idle capacity

-Control of lead-time transportation, and warehousing cost

-Lower cost

Reasons for Buying or Outsourcing

-Non-strategic

-Cost advantage

-Insufficient capacity

-Temporary capacity constraints

-Lack of expertise

-Quality

-Multi-sourcing strategy

-Inventory considerations

-Brand strategy

risks associated with outsourcing

- potential loss of control

- increased reliance on suppliers

- increased need for supplier management

benefits associated with outsourcing

Concentrate on core capabilities

Reduce staffing levels

Accelerate reengineering efforts

Reduce internal management problems

Improve manufacturing flexibility

in-sourcing

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

Co-sourcing

-The sharing of a process or function between internal staff and an external provider.

-Using dedicated staff at an external provider that works exclusively under your control and direction

backward Vertical Integration

Refers to a company acquiring (i.e., buying) one or more of their suppliers

forward vertical integration

Refers to a company acquiring (i.e., buying) one or more of their customers

centralized purchasing

purchasing department located at the firm's corporate office makes all the purchasing decisions

Decentralized Purchasing

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

Advantages of Centralization

-concentrated volume

-leveraging volume

-avoid duplication

-specialization

-lower transport costs

-no competition within units

-common supply base

Advantages of Decentralization

-Knowledge of local requirements

-Local sourcing

-Less bureaucracy

Tariffs

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

International Purchasing- Potential Challenges

trade policies

cost

communicating

sourcing

currency

time span

cultural, political, and labor

longer transportation

documentation

legal matters

import brokers

Agents licensed by the governmental regulatory authority to conduct business on behalf of importers, for a service fee

Import Merchants

A person or company engaged in the purchase and sale of imported commodities for profit.

trading companies

buy products in one country and sell them in different countries where they have their own distribution network

Government & NPO purchasing

is somewhat different from private industrial purchasing as the public requires openness visibility and accountability since it is the public's money that is being spent.

bid

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

competitive bidding

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

bid bond

a debt secured by a bidder for the purpose of providing a guarantee that the successful bidder will accept the contract once awarded. If not, the bond would be forfeited.

performance bond

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

payment bond

a debt secured by a bidder for the purpose of providing protection against 3rd party liens not fulfilled by bidder

benchmarking

measuring what other businesses do best and matching their performance, is an effective approach to improving your supply chain.

Assessing and Improving the Purchasing Function Criteria:

§Surveys or audits can be administered as self-assessments among purchasing staff as part of the annual evaluation process.

§It is preferable to periodically monitor the purchasing function's performance against set standards, goals, and/or industry benchmarks.