Purchasing

A functional group (i.e. a formal entity on

the organization chart) as well as a
functional activity (i.e. buying goods and
services).
The word purchasing is not used
interchangeably with the word
procurement, since procurement
typically includes Expediting, Supplier
Quality, and Traffic and Logistics
(T&L) in addition to Purchasing.

Supply Management
Is a strategic approach to:
Planning for and acquiring the
organizations current.
Future needs through effectively
managing the supply base.
Utilizing a process orientation in
conjunction with cross-functional teams
to achieve the organizational mission.

Institute of Supply Managements

(ISM) Definition
The identification, acquisition,
access, positioning, and
management of resources and
related capabilities an organization
needs or potentially needs in the
attainment of its strategic objectives.

A Brief History of Purchasing Terms

Purchasing Obtaining merchandise,
capital equipment; raw materials,
services, or maintenance, repair, and
operating (MRO) supplies in exchange
for money or its equivalent.
Merchants Wholesalers and retailers
who purchase for resale.
Industrial Buyers Purchase raw
materials for conversion, services,
capital equipment, & MRO supplies.

A Brief History of Purchasing Terms

Institute of Supply management
defined supply management as the
Identification, acquisition, access,
positioning, and management of
resources an organization needs or
potentially needs in the attainment
of its strategic objectives.

The Role of Supply Management in an

Organization
The primary goals of purchasing are:
Ensure uninterrupted flows of raw materials at the
lowest total cost.
Improve quality of the finished goods produced.
Optimize customer satisfaction.

Purchasing contributes to these objectives

by:
Actively seeking better materials and reliable suppliers.
Work closely with and exploiting the expertise of
strategic suppliers to improve quality and materials.
Involving suppliers and purchasing personnel in new
product design and development efforts.

Difference between Purchasing &

Supply Management
The purchasing group performs many
activities to ensure it delivers
maximum value to the organization.
Examples include :
Supplier identification and selection.
Buying, negotiation and contracting.
Supply market research.
Supplier measurement and improvement.
Purchasing systems development.

Difference between Purchasing &

Supply Management
Purchasing has been referred to as
doing the
five rights (correct actions):
1. Getting the right quality.
2.
In the right quantity.
3.
At the right time.
4.
For the right price.
5.
From the right source.

Difference between Purchasing &

Supply Management
Supply Management is a strategic
approach to planning for and acquiring the
organizations current and future needs
through:
1. Effectively managing the supply base.
2. Utilizing a process orientation in
conjunction with cross-functional teams
(CFTs) to achieve the organizational
mission.

SM Managerial Perspective
Various views exist suggesting that
Supply Management should be taken
up as a:
Strategic Responsibility
Broader concept
Process approach
Cross functional

The Evolution of Purchasing and Supply

Chain Management
Period 1: The Early Years (18501900)
Charles Babbage (1830s) suggested the concept of material man

Period 2: Growth of Purchasing Fundamentals (19001939)

Period 3: The War Years (19401946)
Period 4: The Quiet Years (1947Mid-1960s)
Period 5: Materials Management Comes of Age (Mid-1960s
Late 1970s)
Period 6: The Global Era (Late 1970s1999) The global era,
and its effect on the importance, structure, and behavior
Period 7: Integrated Supply Chain Management (Beyond
2000)

Purchasing Process
This is the process used to:
Identify user requirements.
Evaluate the need effectively and
efficiently.
Identify suppliers.
Ensure payment occurs promptly.
Ascertain that the need was effectively
met.
Drive continuous improvement.

The Purchasing Process Manual

Purchasing (older system)
Step 1- Material Requisition/Purchase
Requisition
Stating product, quantity, and delivery date. May
originate as a planned order release from the MRP
system. Traveling requisition used for recurring
orders.

Step 2- The Request for Quotation (RFQ)

Buyer identifies suppliers & issues a request for
quotation (RFQ) for routine items or a Request for
Proposal (RFP) for more demanding products.
Supplier Development is used to develop supplier
capabilities.

Step 3- The Purchase Order (PO)

Is the buyers offer & becomes a binding contract
when accepted by supplier. When initiated by the
supplier on their own terms, the document is a sales
order. The Uniform Commercial Code (UCC)

The Purchasing Process e-Procurement

Step 1- Material user inputs a materials
requisition
Relevant information such as quantity and date
needed.
Step 2- Materials requisition submitted to
buyer
At purchasing department (hardcopy or
electronically).
Step 3- Buyer assigns qualified suppliers to
bid
Product description, closing date, & conditions are

Purchase to Pay Process

Consider high level process map.
This section presents the purchasing
process as a cycle consisting of six major
stages:
1. Forecast and plan requirement.
2. Need clarification/ requisition.
3. Supplier identification/selection.
4. Contract Approval /purchase order generation.
5. Receipt of material or service and documents.
6. Settlement, payment, and measurement of
performance.