PROCUREMENT

AND SUPPLIER
FOCUS
T H I R D B U I L D I N G B L O C K O F S U P P LY C H A I N
MANAGEMENT

WHAT IS PROCUREMENT?
Procurement or buying is an act of purchasing.
Procurement includes:
Purchasing raw materials and packaging
Contracting out utilities and maintenance
Hiring contract or casual labour
Selecting approved or dedicated suppliers
Outsourcing
Use of professional services

PROCUREMENT VS PURCHASING
Procurement Purchasing
- deals with sourcing
activities, negotiation and
strategic selection of
goods and services that
are usually the importance
of organization, while
purchasing is the process
of how goods and services
are ordered.

- a key activity in
determining the
competitive advantage of
an organization.
Porter,1985

Purchasing process consists of a chain of processes.

Lysons and Farrington
Receive Requisition
Solicit Quotations
Vendor Selection
Negotiate with Suppliers
Place Order
Receive Suppliers
Make Payment

REQUISITION, VENDOR SELECTION,

NEGOTIATION, PLACING AN ORDER

If it is a repeat buy and there have been no problems in the

past, a repeat order will be replaced. If the order for a new
product, or if there were problems in the past which can be
resolved, the following steps will be taken:

Possible
suppliers
will be
identified

Seek
quotation
s

Quotation
s

Negotiatio
ns
entered
into

On-going
re-orders

Ordering

RECEIPT, INSPECTION AND QUALITY

ASSURANCE
When goods are received they should be
immediately booked into the inventory system and
married to the order number.
No material or product should ever be issued until
it has been booked in.
No matter how received an order has to be booked
in and subsequently when dispatched must be
booked out.
Failure to do so will lead to confusion and

 The traditional way of ensuring quality and quantity

was to inspect and count goods as received.
The most basic approach to quality is inspection on
receipt of materials.
Quality assurance includes the setting of standards
with documentation and also includes the
documentation of the method of checking against
the specified standards.
Quality inspection, control and assurance are aimed
at achieving an agreed consistent level of quantity.

PURCHASING ETHICS, FRAUD, AND

ENVIRONMENTAL ISSUES

CODE OF ETHICS FOR PURCHASING

MANAGEMENT

A. VALUES
Honesty/Integrity
Professionalism
Responsible Management
Serving the Public Interest
Conformity to the Laws in terms of:
The laws of the country in which they practice
The Institutes or Corporations Rules and
Regulations
Contractual obligations

B. NORMS OF ETHICAL BEHAVIOR

1. To consider first, the interest of ones
organization in all transactions and to carry
out and believe in its established policies.
2. To be receptive to be competent counsel from
ones colleagues and be guided by such
counsel without impairing the responsibility of
ones office.
3. To buy without prejudice, seeking to obtain
the maximum value for each dollar of
expenditure.

4. To strive for increased knowledge of the materials

and processes of manufacture, and to establish
practical procedures for the performance of ones
responsibilities.
5. To participate in professional development
programs so that ones purchasing knowledge
and performance are enhanced.
6. To subscribe to and work for honesty in buying
and selling and to denounce all forms of improper
business practice.
7. To accord a prompt and courteous reception to all
who call on a legitimate business mission.

8. To abide by and to encourage others to

practice the Professional Code of Ethics of the
Purchasing Management Association of Canada
and its affiliated Institutes and Corporation.
9. To counsel and assist fellow purchasers in the
performance of their duties.
10. To cooperate with all organizations and
individuals engaged in activities which enhance
the development and standing of purchasing
and materials management.

RULES OF CONDUCT
Declaration of Interest
Confidentiality and Accuracy of
Information
Competition
Business Gifts and Hospitality
Discrimination and Harassment
Environmental Issues

FRAUD
Intent

Fraudconsists of
activities undertaken by
an individual or company
that are done in

a dishonest or
illegal manner,
Capability
and are designed
to give an to the
advantage
perpetrating
individual or
company.
Opportuni
ty

SIGNS OF POSSIBLE FRAUD:

Employees not taking holiday
Overstocking, over ordering from one supplier
Stock shortages at stock take
Sudden affluence of an employee
Falling profit margins
Missing files and documentation

 The best protection against fraud is to have

a culture of trust and integrity
supported by internal and external audits.
No code of ethics is going to prevent largescale fraud.
A code of ethics can help people to
understand the difference between a
business (free) lunch and a bribe.

ENVIRONMENTAL PURCHASING
Environmental purchasing is a most important
step in the war against global warning and
pollution.
Organizations need to be aware of
environmental issues and to make their
concerns and needs known to their suppliers.

MAKE OR BUY DECISIONS:

WHERE TO MAKE OR BUY A PRODUCT AND WHY

SOURCING
In business, the term wordsourcingrefers to a
number ofprocurementpractices, aimed at finding,
evaluating and engaging suppliers for acquiring
goods and services.
Sourcing includes materials and labor, and also
includes the basic decision of whether to make or
buy.
Sourcing and a search for low labor costs give way to
the beginning of globalization of manufacturing.

SOURCING STRATEGIES
Improved logistics and electronic
communication systems are
assisting the implementation of
sourcing strategies.

Corporate
Strategy

Innovatio
n
Programm
es

A sound sourcing strategy for a

manufacturing company will be
a requirement for the future
survival.

Sourci
ng
Strate
gy
Marketing
Strategy

The sourcing strategy should be

dynamic in a relentless pursuit
of value to customers in a
changing market place.

SOURCING STRATEGIES:
MANUFACTURING SECTOR

Strategic planning process in order to develop a sourcing strategy:

Project
brief

Setting up a project team

Having the documents that cover current company
activities
The project brief should clearly state the scope, time scale,
deliverables and resources required for the project.

Manufacturing mission defines the aim of manufacturing

in the corporate strategy or the business plan.
Operation Manufacturing objectives consist of performance
al mission measures that the companys manufacturing must achieve
&
as part of the annual operating plan.
objectives

 Strategic factors relate to the longer-term

implication of both the internal and external factors
to project manufacturing in the future (e.g.
Strategic competition, customer preferences, technology,
factors
environment, economic conditions, statutory
regulations).
Areas to be considered: general information,
product information, plant information, stock
Data
collection information, personnel information, and cost
and
information.
analysis

Strategic options determine how sourcing or own

manufacture is going to meet the objectives of the
Strategic
mission.
options

 Evaluating two or three main options in order to

Options
select the best strategy for the future.

evaluation

There should be a structured implementation plan

Implemen describing the phasing, responsibility, costs and
tation
obstacles that have to be overcome.
plan

A need for regular evaluation and review of progress

to implement the strategy.
Review

SOURCING STRATEGIES:
SERVICE SECTOR
Outsourcing
In sourcing
Off shoring

OUTSOURCING
Outsourcing is the collaboration with a
partner to manage a part of your business.
Distinct categories of outsourcing in the
service sector:
1.IT outsourcing
2.Business process outsourcing
3.Managed services

RATIONALE OF OUTSOURCING
Advantage of outsourcing:
1. Cash flow
2. Flexibility
3. Key management resources

.Other benefits of outsourcing:

1. External expertise
2. Cost savings

SEVERAL FACTORS DRIVING THE

GROWTH OF OUTSOURCING:
The rapid change in the
technology landscape
Globalization

BASUS OUTSOURCING MODEL

Hig
h

Dedicated
third
party

Own
manufact
ure

Flexible
third
party

In-source

Volum
e
Low

Low
Hig
Core Strength/Patent
h
Life

OFF-SHORING
Off-shoring is a form of outsourced managed services
where skilled labor is cheaper.
Cost savings are the primary benefits.
Other benefits include time zone differences enabling 24
hour services and access to more wiling well-qualified
workers to tackle boring jobs.
Risks of off-shoring:
1. Services going down
2. Data and physical are in potential danger.
3. Excessive foreign travel

IN-SOURCING
In-sourcing means centralizing multiple,
distributed operations into a semi-autonomous
unit.
Advantages of in-sourcing:
1. The business maintains strategic control
2. It avoids third-party margins
3. It is reversible.

E-PROCUREMENT
Various e-procurement models:
1. EDI networks: Providing communication between a
few trading partners(buyers and sellers)
2. B2E: Allowing transfer of information within an
organization between departments and employees
3. B2B: A website sometimes where business meet to
buy and sell
4. B2C: An e-mail address or web page that allows
customers to buy on line

OTHER EXPRESSIONS USED IN

E-PROCUREMENT:
E-catalogue: provide on line and up to date lists,
photographs, sometimes video clips of products,
specifications, price, etc.
E-auctions: a seller can display a product on-line
and buyers can make bids until a price is reached
and a sale agreed.
Reverse auctions: the buyer advises the product
and quantity they want, and suppliers complete on
line by offering lower prices.