Chapter 5: Procurement

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 Procurement
• “All activities required in order to obtain the product from the supplier and
get it to the place where it is actually used. It encompasses the purchasing
function, store, traffic and transportation, incoming inspection, and quality
control and assurance. Some firms also include salvage and management
of environmental issues (as they are related to materials) in procurement.” -
Van Weele and Rozemeijer

• Procurement is more strategic and focuses on the ('why' and 'how').

Procurement tries to align with the organizational strategy rather than just
process orders and 'buy things'. Procurement does strategic sourcing,
contract management, category management, procure to pay and supplier
relationship management.

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 Purchasing and Sourcing
• Purchasing is a subset of Procurement. Purchasing
simply involves buying and selling of the goods and
services. Purchasing is only restricted to receiving and
making payments.
• Sourcing, as the name implies, is a finding a source
from where the goods and services can be procured. It is
a subsection of the procurement, sourcing is finding a
least expensive supplier for those goods.

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 Four Enablers of Purchasing
and Supply Chain Management
• What separates firms that achieve real benefits
from those that fail to reap any benefits is a
commitment to the four enablers of purchasing
and supply chain excellence.

• These enablers provide the support that makes

the development of progressive strategies and
approaches possible. Later chapters present
these four areas in detail.

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 Capable Human Resources
• The key to the success of any company is the quality of
its employees.
• the various kinds of knowledge and skills demanded of
today’s supply chain professional. The knowledge and
skills that purchasing and supply chain professionals
require are different from just a few years ago.
• Research indicated that the top five knowledge areas for
purchasers in 2010 would be (1) supplier relationship
management, (2) total cost analysis, (3) purchasing
strategies, (4) supplier analysis, and (5) competitive
market analysis.

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 Proper Organizational Design
• Organizational design refers to the process of assessing
and selecting the structure and formal system of
communication, division of labor, coordination, control,
authority, and responsibility required to achieve
organizational goals and objectives, including supply
chain objectives

• The use of teams as part of supply chain design will

continue to be important. However, managers should
use teams selectively. Few studies have established a
clear connection between teaming and higher
performance.

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 Real-Time Collaborative
Technology Capabilities
• The development of information technology (IT) software
and platforms that support an end-to-end supply chain
have grown rapidly in the twenty-first century, as have
identification technologies such as radio frequency
identification (RFID), ERP Modules and voice recognition
systems.

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 Purchasing Process
1. User Need

Specification
Statement of work
YES Approved New product requirement
Supplier? Customer order / MRP
Traveling requisition
Purchase requisition
Purchasing card
On-line catalog NO
EDI
Stock check
YES Small NO Complex
YES RFI/RFQ
Amount? Requirement
Automated ROP ?

2. Evaluate
NO Suppliers
Purchase order 4. Purchase
approval 3a. Bid and/or
Blanket PO
negotiation
Purchase release
3b. Supplier
Selection
Bill of lading 6. Update
5. Release & Supplier
Packing slip Supplier
Receive invoice
Discrepancy report Scorecard Input used
Product or to award
Acknowledgement
Service future
Match PO and Payment to business
invoice supplier

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 Elements of a Purchase
Requisition
• Description of required material or service
• Quantity required
• Estimated unit cost
• Operating account to be charged
• Date of requisition
• Date required
• Authorized signature

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 The Purchase Order
• Quantity
• Material specification
• Quality requirements
• Price
• Delivery date
• Method of delivery
• Ship-to address
• P.O. number
• Order due date

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