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A Process
Is a set of activities that has a beginning and an end, occurs in a specific sequence, & has inputs
& outputs.

The essential steps in the supply process are:

1. Recognition of need.
2. Description of need.
3. Identification & analysis of possible sources of supply.
4. Supplier selection & determination of terms.
5. Preparation & placement of purchase order.
6. Follow-up and or/ expediting the order.
7. Receipt and inspection.
8. Invoice clearing and payment.
9. Maintenance of records and relationships.

Recognition of Need
A purchase originates when a person or a system identifies a definite need in the
organization—what, how much, & when it is needed.

Description of Need
Purchaser must do what exactly the internal customer wants.
Unclear or ambiguous descriptions, or over-specified materials, services, or quality levels will
lead to unnecessary costs.

Requisition
Is the document used to communicate needs internally between users/specifiers & supply
management according to established accounting controls.
Types of Requisitions
Standard Requisition, Traveling Requisition, Bill of Materials, & Stores/Inventory Requisition.

Requisition
Gate 1: Authority
Does the requisitioner have the authority to make the specified request—goods or services—
and at the specified budget level?
The supply chain department establishes who has the power to buy what.

Gate 2: Internal Clarity

Is the need described in a clear and unambiguous way?

Gate 3: Internal Clearance

Descriptions should be reviewed before preparing documentation to communicate externally
with potential suppliers.

Standard Requisition
All the following should be included:
1. Date
2. Number (identification)
3. Originating department
4. Account to be charged
5. Complete description of material or service desired & quantity
6. Date material or service needed
7. Any special shipping or service-delivery instructions
8. Signature of authorized requisitioner.

Traveling Requisition
Innovation used for recurring requirements & standard parts to reduce operating expenses.

Bill of Materials
Simplifies the requisitioning process for frequently needed line items in organizations that
make a standard item over a relatively long period of time.
Includes all materials & parts, including allowance for scrap, to make one end unit.

Stores/Inventory Requisition
Needs may be met by a material requisition from inventory or the transfer of surplus stock from
another department or division.

Issue an RFx
1. Request for information (RFI)
2. Request for quotation (RFQ)
3. Request for proposal (RFP)
4. Request for bid (RFB)

RFI
i. Issued to gather information about potential suppliers' products & services.
ii. Is not a solicitation for business or an offer to do business.

RFQ
i. Typically issued when there is a clear & unambiguous description of the need.
ii. Basically a price comparison tool for commonly used commodities sold in an open & free
market where quotations can be obtained at any time.

RFP
i. Is used for more complex requirements in which price is only one of several key decision
factors.
ii. Includes a detailed description of the requirement & invites bidders to use their expertise to
develop & propose one or more solutions.

RFB
i. Used in a competitive bid process with or without the opportunity to negotiate after bid
receipt.
ii. A detailed bid specification package, similar to an RFP, is developed.

Supplier Selection & Determination of Terms

Analysis & selection of the supplier lead to order placement. Applicable tools range from a
simple bid analysis form to complex negotiations.

Preparation & Placement of the Purchase Order

In no instance—unless it is for minor purchases from petty cash—should materials be bought
without documentation, written or computer generated.

Preparation & Placement of the Purchase Order

Format
The essential requirements are the serial #, date of issue, name & address of supplier, the
quantity & description, date of delivery, shipping directions, price, terms of payment, &
conditions governing the order.

Blanket & Open-End Purchase Orders

Reduce costs by reducing the number of purchase orders issued.

Master Service Agreement (MSA)

Is an agreement wherein the supplier(s) provides predetermined services over a specified
period of time with total costs not to exceed an amount previously agreed upon.

Follow up
Is routine order tracking to ensure the supplier can meet delivery promises.

Open-end Orders
Allows for addition of items &/or extension of time.
Expediting
Is the application of pressure on a supplier to meet the original delivery promise, to deliver
ahead of schedule, or to speed up delivery of a delayed order.
Threats of order cancellation or loss of future business may be used.

Receipt & Inspection

The prime purpose of receiving are to:
1. Confirm that the order placed has actually arrived.
2. Check that the shipment arrived in good condition.
3. Ensure the quantity ordered has been received.
4. Forward the shipment to its proper destination (storage, inspection, or use).
5. Ensure that proper documentation of the receipt is registered & accessible to appropriate
parties.

Blanket orders
Usually covers a variety of items.

Invoice Clearing & Payment

• Invoice is a claim against the buying organization.
• Payment for service may vary somewhat from payment of goods.
• Progress payments are usual for large contracts spread overtime, whereas regular payments
are appropriate for ongoing services such as building maintenance or food service.

Strategic Spend
Is goods or services critical to the mission of the organization.

Vendor Managed Inventory (VMI)

The supplier has access to inventory levels (often electronically) & generates purchases orders
• Supplier manages inventory levels at buyer's location
Information Systems
Include interconnected components that collect, process, & store raw data & distribute
information to support decision making, control, & coordination within the organization.
Allow organization to be connected with important partners in their supply chain networks

Benefits of Information System Technology

Provide seven important benefits to the organization:
1. Cost reduction & efficiency gains.
2. Data accessibility.
3. Speedier communication.
4. Dedicate resources to strategic issues.
5. Data accuracy.
6. System integration.
7. Monetary control.

Cost reduction & efficiency gains

Achieved by streamlining the supply processes & freeing up supply staff to do more value-
adding work.

Data accessibility
Access to data in real time aids in sound decision making.

Speedier communication
Improve supply chain effectiveness & efficiency, especially with global suppliers.

Dedicate resources to strategic issues

More resources can be spent on strategic supply initiatives because less time is spent on
administrative & tactical supply activities.

Data accuracy
Benefits include lower inventories & stockouts, lower expediting costs, & improved customer
satisfaction.

System integration
Integration across departments, suppliers, & customers can provide accurate information.

Monetary control
Enterprise systems provide control over how & where money is spent.

Operating system software

Is the interface that connects your computer & its components.

Applications software
Programs manipulate data for a specific purpose, such as analyzing supplier performance
statistics & formatting a performance scorecard.

On-premise software
Applications software that is installed & run on computers on the premises of the person or
organization using the software.

On-demand software
Applications software, content, & services are delivered as flexible Web-based solutions.

Types of Information Systems:

1. Operational level systems
2. Management level systems
3. Knowledge level systems

Operational level systems

Process data for routine operations.
- For supply, this includes generating POs, change orders, & requests for quotation.

Management Level Systems consist of:

1. Management information systems
2. Decision support systems

Management information systems

Provide reports & information to management to support planning, controlling, & decisions
making.

Decision support systems

Process data to assist in decision.

Knowledge Level Systems

Buyer workstations integrate a number of elements to create a total systems package that can
result in increased effectiveness & productivity.

Electronic Procurement Systems

Is an applications software package that allows the requisitioning, authorizing, receiving,
invoicing, & paying for goods & services over the internet.

Electronic or Online Catalogs

Is a digitized version of a supplier's catalog.

Electronic data interchange (EDI)

Allows computer-to-computer exchange of business documents between two organizations
using agreed standards to structure the message data.
- Documents exchanged via EDI include purchase orders, shipping schedules & notifications, &
invoices.
Four types of EDI
1. Value-added network
2. Internet EDI
3. Web EDI
4. Outsourced EDI

Value-Added Network
Is a private network for secure information exchange between companies.

Internet EDI
Two computers, a client and a server, communicate with each other securely via the internet.

Web EDI
Allows documents exchange through an easy-to-use Web interface.

Outsourced EDI Services

The benefits are expert people, processes, & technology to operate a full-featured EDI program.

E-Marketplaces
Virtual shopping malls.

Vertical e-marketplaces
Focus on one specific industry.

Horizontal e-marketplaces
Offer a product or service across industries.
Open offer Auction
Suppliers select items, see the most competitive offers from other suppliers, & enter as many
offers as they want up until a specified closing time.

Private Offer Auctions

Buyer offers a target price & quantity. Suppliers enter offer(s) on select item(s) by a specific
time.

Radio Frequency Identification (RFID)

Contain a chip & antenna that emit a signal, using energy from a radio frequency reader, which
contains information about the container or its individual contents.

Posted price auctions

The buyer posts the acceptable price; the first supplier to meet it gets the award.

Accepted:
Closed:
BAFO:
Open:
The supplier is awarded the contract, contingent on final qualification.
The supplier may no longer submit offers on the item.
The supplier may submit one more offer for the item.
Bidding may be continued for as many rounds as necessary to accept or close all items.
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