Introduction to Procurement Management

Shilpa G Reddy Sreekiran Reddy

FABS, August 13, 2011

Agenda
Procurement Management The definition Procurement The Importance Procurement function Objectives Procurement Agribusiness Context Key Factors Case Study

Agribusiness Procurement Management

Procurement Management The definition

To buy materials and services of the right quality, in the right quantity, at the right price, from the right source and at the right time The process of obtaining goods and services from preparation and processing of a requisition through to receipt and approval of the invoice for payment. It commonly involves
(1) purchase planning, (2) standards determination, (3) specifications development, (4) supplier research and selection, (5) value analysis, (6) financing, (7) price negotiation, (8) making the purchase, (9) supply contract administration, (10) inventory control and stores, and (11) disposals and other related functions.
Agribusiness Procurement Management

Importance of Procurement Management

Business needs uninterrupted supply and flow of requirements to perform the activities Raw materials form 50% (in manufacturing) and 80% (in trading) of value of sales Increase Sales price
Or Decrease the cost price Or Both
Agribusiness Procurement Management

= Increased Profits

Procurement Big Savings!!

Increasing Sales Increases in expenses Advertising, Manpower, Additional Capacity etc. Increased capital requirement and Increased risk A rupees increase in sales contributes only a percentage (profit margin ) to the profits Eg., Sales Increase by Rs.1 Cr ,Profit Margin - 5%, Increase in profit 5Lakhs Saving in purchasing Studies indicate that costs of materials can vary as much as 15% depending on the skill with which the procurement function is organized and operated. A rupee saved in purchase cost is a rupee added to the profit Eg., Rs.1 Cr saved in purchasing is Rs.1 Cr added to profit

In a competitive market savings in purchase costs not only become a key driver of profit but also can potentially increase sales when there are price wars

Agribusiness Procurement Management

Procurement Management Key Components

Products - Raw Materials Direct and Indirect
People Suppliers, Logistics partners, production, sales department, service agents Processes Indenting, quality check, conversion, distribution, sales, etc.
Agribusiness Procurement Management

Procurement Function - Objectives

Uninterrupted Flow Buy competitively Seeking the best price
Tracking the S&D dynamics and spotting the best time and best price

Buy Wisely Seeking better value

Tweaking combinations, finding new ways of buying etc.

Inventory Control Capital and losses Develop alternate sources of supply

Agribusiness Procurement Management

Procurement Function - Objectives

Vendor Relationships Integration with other departments Building the team Develop policies and procedures

Agribusiness Procurement Management

Procurement Agribusiness Context

Unique Factors Production is a function of many uncontrolled factors Seasonality of production Perishability of the produce Difficulty in standardisation Small and marginal producers Production in remote and difficult to access locations Huge number of producers Government regulations on marketing Lack of economies of scale Long and multilayered marketing chain Poor post harvesting handling of produce Effects Quantity of produce available Time of availability Time and Quality of availability Quality of produce Source of procurement Source of procurement Source and Relationship Price of the produce Price of the produce Price and relationships Quality

Interlocking of credit and commodity markets

Quantity and Price

Agribusiness Procurement Management

Factors of Procurement Management

Factors Price Quantity Quality Relationship Source Time
Agribusiness Procurement Management

Thank You