PROCUREMENT POLICIES,

PROCEDURES AND
SUPPORT TOOLS
 Policy includes all the directives, both
explicit and implied that designate the aims
and ends of an organization and the
appropriate means used in their
accomplishment.
PROCUREMENT
POLICY

Policy refers to a set of purposes, principles

and rules of action that guide an
organization.
 FOUR MAJOR LEVELS OF
ORGANIZATION POLICY

1 2 3 4
Executive policies: sets Functional policies: Operating Rules and regulations:
of executive management provide guidance for procedures: provides describe organizational
directives. Provide functional areas and align supportive details of each rules that govern
guidance for strategic functional policies with procedure and professional behavior and
direction to the executive policies. mandatory steps to set of constraints on
organization. complete the task. individual behavior.
 Provide best Carry out
Comply with
Crossrail affordable value in procurement in a
regulatory
procurement policy delivering project fair, objective and
framework
objectives transparent manner

Adhere to
Use best practice in
Align with project Government
application of
vision and values procurement policy
ethical standards
when appropriate

EXEMPLAR PROCUREMENT POLICY

 Deliver Deliver best affordable value

Establish Establish effective governance and control

OVERARCHING
OBJECTIVES
Apply Apply standardized approaches

Build and Build and maintain effective supplier relationship

maintain
 Identification of
The contract
need and
management
specification
phase
PROCUR E MENT development
PROCE DUR ES R E QUI R E D
FOR K E Y PH ASE S OF
P ROCUR E MENT CY CL E
Creating a Notification of
legally binding authority to
contract purchase

Requests for
quotation
(RFQs) and
invitations to
tender (ITTs)
 E-commerce E-business
Any forms of business IBM defines e-Business as
transaction carried out e-Commerce above. The
electronically over public two terms are used
telephone systems synonymously

DEFINITIONS
E-SCM E-procurement
Concerned with Using the Internet to
streamlining and operate the transactional
optimizing the whole aspects of requisitioning,
supply chain through authorizing orders,
internal applications with receiving and payment.
the aim of ensuring Process for the required
maximum sales growth at services or products
the lowest possible cost (CIPS)
 E-PROCUREMENT MODEL

Kolkata and Robinson have identified seven basic types of e-procurement trading
models.

Business-to-
First Second- Third- Industry
employees(B Corporate
EDI generation generation generation consortia:
2E) procurement
networks trading trading trading buyer and
requisition portals
exchanges exchanges exchanges supplier led
applications
  EDI NETWORKS

01 02 03 04
Handful of Simple Batch Reactive and
trading transactional processing costly value-
partners and capabilities added network
customers (VAN) charges
 Make buying fast and
hassle-free for a company’s
employees

 B USI NE SS - TO- Automated approvals

E MPL OY EES( B2E)
R E QUI SI TI ON routing and standardisation
APPL I C AT I ONS of requisition procedures

Provide supplier
management tools for the
professional buyer
 Provide improved control over the
procurement process and let a
company’s business rules be
implemented with more consistency
 CORPORATE
PROCUREMENT
PORTALS

Custom, negotiated prices posted in

a multi-supplier catalogue
 FI R ST
1 2 3
G E NER ATI ON
T R ADI NG Industry content, Storefronts: new Product content
E XCH ANGES job postings and sales channel for and catalogue
news distributors and aggregation
manufacturers services
 SE COND -
1 2 3
G E NER ATI ON
T R ADI NG Automated Supplier, price and Catalogue and
requisition process product/service credit management
E XCH ANGES and purchase order availability
transactions discovery
 Enable partners to closely synchronise operations and
Enable enable real time fulfilment

 THIRD-
G E NER ATI ON Process transparency, resulting in restructuring of
Process demand and the supply chain
T R ADI NG
E XCH ANGES

Substitute Substitute information for inventory

 INDUSTRY
The next step in the evolution of
CONSORTIA: BUYER corporate procurement portals
AND SUPPLIER LED
 It may be defined as the technique based on agree standards, which
facilitates business transactions in standardised electronic form in
an automated manner directly from a computer application in one
organisation to an application in another.

ELECTRONIC DATA
A transaction in EDI-speak is a term used to describe the electronic
INTERCHANGE transmission of a single document.
(EDI)

Each transaction set is usually referred to by a name and number,

which are defined by the ASC X12 or EDIFACT standards.
 STANDARDS

• By the use of trade, national and international standards, organisations can trade
electronically.
• Automotive manufacturers including Ford, General Motors, Saab, Renault, Austin Rover
and suppliers Lucas, Perkins, set up ODETTE (organisation for data exchange by tele-
transmission in Europe).
• ODETTE sets the standards for e-business, engineering data exchange and logistics
management that link the 400 plus businesses in the European motor industry and their
global partners.
 • Company a creates a purchase order using its
internal business software.
• EDI software translated the order.
• Company A sends the 850 purchase order to
EDI company B over a third-party value added network
I M P L E M E N TAT I O N (VAN) or encrypted in EDIFACT format over the
internet.
• Company b receives the 850 purchase order
document and will translate it from EDI to its
proprietary format and, typically, company B will
send an acknowledgement to company A.
 Replacing the
paper
documents
Enhanced
Reduction in
buyer–seller
lead times
relationships

Reduction in
Integration
ADVANTAGES of functions
cost of
inventory
OF EDI

Facilitation of Release of
invoice working
payments capital

Facilitation of Better
global customer
procurement service
 E-HUBS

• A hub is a device that connects several

networks together. As used in e-businesses,
a hub generally means a central repository
or private exchange, such as the star
network.
 EXCHANGE

• An exchange is a business-to-business (B2B) website where purchasers and

suppliers meet to transact business.

• Can be either one-to-one or one-to-many connections

Private
exchanges

• Extend outside the boundaries of the company and involve many-to-many interactions
Public
exchanges
 It is a website that enables
purchasers to select from many
suppliers.

MARKETPLACE

The buyer is in control as open

marketplaces enable purchasers
to evaluate all potential suppliers
for a particular product or
service and make informed
decisions regarding what and
where to buy.
 • A web page that provide information on
products and services offered and sold by a
E- C ATALOGUES
vendor and supports online ordering and
payment capabilities.
 ADVANTAGES
Improved reliability, updating and relevance
of Product data in circulation
Elimination of time spent inputting Product
data
Fewer non-quality costs relating to input
errors
Substantial cost reductions for data
processing operations
Time-saving with respect to data
exchanges
Improved ordering procedures (e-
procurement system)
Simplified supplies management (e-
procurement system)
TYPES OF E-CATALOGUE

Sell- side catalogues

Buy-side catalogues
Third-party catalogues
 • One step up from e-catalogue.
• Defined as –
• An electronic market which can exist in both
E- business-to-business and business-to-consumer
AUCTIONS context.
• Sellers offer goods or services to buyers
through a website with a structured process
for price setting and fulfilment.
WEB AUCTIONS MAY FOLLOW
DIFFERENT BID-PROCESSES
 Bids are successively replaced by
ENGLISH BID higher bids to obtain highest price
PROCESS for a given item.
 • The auctioneer starts at a high price and descends
by steps until a bid is received.
• The successful bidder then decides whether to buy
DUTCH BID the whole or portion of the items on offer at that
PROCESS price.
• The auctioneer increases the offer price for any
items remaining in current lot and then again
descends by steps until either all items of the lot
are sold or a reserve price is reached.
 • A potential purchaser issues a request for bids to be
submitted by a prescribed dates and time according
to a sealed format.
SEALED BID • At that mentioned date and time, the purchaser’s
PROCESS representatives will evaluate and compare bids
according to a rating grid.
• The bid that achieves maximum scores is the
winning bid.
REVERSE • The buying organization post the item they wish to buy and
BID price they are willing to pay while suppliers compete to offer
the best price for the item over a prescribed time period.
PROCESS
 WHEN TO USE REVERSE AUCTION

• For spot buying to eliminate time-consuming offline process of selecting suppliers,

requesting quotations and comparing quotes received.
• At times of uncertainty in terms of size of market and willingness of sellers to supply a
product.
• When purchasing large quantities of an item for which clear specifications are possible
• When selling surplus assets
• For services such as car rentals, freight services, travel, etc.
THE REVERSE AUCTION
PROCESS
 Appoint auction provider

Purchaser (contracting officer)

Identify potential suppliers – criteria
– manufacturing capacity, reputation,
resources, past performance
Specify requirements

No – buy traditionally Approved supplier list

Suitable for auction?

Yes – Invite suppliers to bid

Suppliers decide to bid

Suppliers decide not to bid

Schedule auction – notify bidders of

time and auction duration
 Bidders submit initial
prices

Prices are ranked

(lowest to highest
ranking bid)

Bidders informed of
their rankings

Bidders can submit new

Conduct auction
bids up to closing time

Auction provider
Bids communicated to
notifies purchaser of
other participants
winning bid

Place contract debrief

Auction closes
bidders

Bidders notified of their

final ranking
 ADVANTAGES OF REVERSE AUCTION

01 02 03 04 05 06

Provides access to A global supply Enhancement in Reduced An opportunity Provide anonymity

wide range of base can be market negotiations for suppliers to so time is not
suppliers achieved relatively information enter previously wasted on seeing
quickly. sources closed markets, supplier’s
which is important representatives
for smaller
companies
01 02 03

Based on win-lose approach Can cause adverse shift in Long-term effects on

– the seller is trying to get
the most money while the
buyer is after the best deal
and goal is to win either a
good deal or a profitable deal
at other person’s expense.
buyer-seller relationships as economic performance of
supplier may feel exploited both suppliers and
and become less trustful of purchasers
buyers

DISADVANTAGES OF REVERSE AUCTION

 It An electronic order for goods and services
enables to be sent to a trading partner

An electronic receipt to be held and linked

to the order for goods and services

E-PAYMENT
An electronic invoice to be sent to the
Ministry of Defence (MoD)

The order, receipt and invoice to be

matched online, generating an electronic
message authorising the processing of
payment that is sent to the trading partner
 LOW COST PROCEDURES

• For efficient handling of low-value purchases

• Delegated order placement to users
• Placement of own orders by users within specified limits and with approved suppliers
over the internet.
• Procurement cards
• Similar to credit cards
• Involve a provider such as an International Bank and usually an issuing bank
• Enables users to make purchases and provide payments to suppliers for low-value
purchases
 PROCUREMENT CARDS - BENEFITS

01 02 03 04 05 06

Compliance levels Average Implementation Suppliers are paid Greater and Less time spent
can improve transaction and costs are much faster improved on order
order processing less than the e- • Invest more in documentation of paperwork
costs can drop procurement their business data on accounts,
dramatically system taxes and
• Improve their suppliers
services to
clients
 OTHER METHODS FOR LOW-VALUE
PURCHASES

Blank
Telephone Petty cash Standing Stockless
Self-billing cheque
orders purchases orders buying
orders
 • A medium for communicating information regarding
• Procurement policies – state objectives and
responsibilities of procurement function
• Procedures – prescribe sequence of activities by which
PROCUREMENT policies are implemented
MANUALS • Instructions – detailed knowledge or guidance for carrying
out procedures or policies
• Regulations – detailed rules regarding conduct of
procurement
 PROCUREMENT MANUAL
ADVANTAGES
• Helps with precision and clarity
• Provides opportunity for looking at
existing policies and procedures
• Aids in training and guiding staff
• Help the annual audit
• Ensures uniformity and continuity of
procurement principles and practice
DISADVANTAGES
• Costly to prepare
• Needs to be updated continually to show
changes in procedures and policies
• Tend to foster red tape and bureaucracy
as well as stifle initiative
 PROCUREMENT MANUALS - CONTENTS
Organization
• Job descriptions for all posts
within procurement function
• Teams relating to
procurement and supply
chain activities
• Administrative information
for staff such as absences,
hours of work
Policy
• Statements of policy,
objectives, responsibilities
• Terms and conditions of
contract and its use
• Environmental policies
Procedures
• Descriptions accompanied by
flow charts, of procedures
relating to ordering,
expediting, receiving,
inspecting, storing and
payment of goods
THANK YOU