Purchasing

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Purchasing SCM
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Purchasing Musts

• Right stuff
• Right price
• Right quality
• Right quantity
• Right time
• Right place
• Right source (?)

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The Purchasing Cycle
1. The Identification of a Purchasing Need 2.
Potential Supply Source Evaluation 3. Supply
Source Selection 4. The Release and Receipt of
Material Requirements 5. The Continuous
Performance Measurement and Management of
Suppliers Note Material with Established
Suppliers Consists of Steps 45
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Steps in a Purchase
1. Recognition of need 2. Accurate description of
desired commodity or service 3. Selection of
possible sources of supply 4. Determination of
price and terms 5. Preparation and placement of
the purchase order 6. Follow up and/or expedite
the order 7. Receipt and inspection of goods 8.
Clear the invoice and pay the supplier 9.
Maintenance of records
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Typical Purchasing Cycle
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The Purchasing System

• 1. Need Identification
• Know individual requirements what, how much,
  when needed
• Supply department responsible for helping to
  anticipate needs
• Place forward orders
• Supplier can contribute more in the
  need-recognition stage
• than later in acquisition process
• Emergency and rush orders

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The Purchasing System

• 1. Need Identification (continued)
• Small orders (Paretos law Transaction costs)
• Handling Small Orders
• Standardization
• Hold until accumulation
• Establish a requisition calendar
• Stockless buying/systems contract
• Procurement credit card
• Blanket orders

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The Purchasing System

• Handling Small Orders (continued)
• Establish electronic linkage
• Adjust authority levels
• Use integrated suppliers
• Low-value order placement is outsourced to 3rd
  party
• Users place orders directly

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The Purchasing System

• 1. Need Identification (continued) Methods
• Purchase Requisition - internal document
  completed by user
• that informs purchasing of a specific material
  need
• Contains
• Description of material
• Quantity and date required
• Estimated unit cost
• Operating account to be charged
• Date
• Authorized signature

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The Purchasing System

• Methods (continued)
• Traveling Purchase Requisition - Printed card
  filed for each
• item controlled in a manually operated system
• Contains
• Description of item
• List of approved suppliers and addresses
• Last price paid to suppliers
• Reorder point
• Record of usage

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The Purchasing System
Methods (continued) Reorder Point System - Uses
information regarding quantity and demand
forecasts. When inventory is depleted to a given
level, the system signals the material control
department to request inventory
replenishment. Stock Checks - The physical
checking of inventory to verify that system
records match actual on-hand inventory
levels. Cross-Functional Teams - Teams to
identify material purchase requirements often
for new products
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The Purchasing System

• 2. Accurate description of desired commodity
• or service
• Information that should be included on the
  requisition
• Date
• Identification number
• Originating department
• Account to be charged
• Complete description of material desired and
  quantity
• Date material needed
• Any special shipping instructions
• Signature of authorized requisitioner

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The Purchasing System

• 2. Accurate Description (continued)
• Blanket and open-end orders cover a variety of
  items
• Stockless Buying or Systems Contracting more
  sophisticated
• Periodic billing procedures
• Allow non-purchasing personnel to issue order
  releases
• Employ special catalogues
• Require suppliers to maintain minimum inventory
  levels
• Do not specify volume of contract items
• Improve inventory turnover rates
• Third-party consolidator (e.g., MRO)

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The Purchasing System

• 3. Selection of Possible Sources of Supply
• Locating qualified sources
• Assessing performance before and after sale
• 4. Determination of Price and Terms
• Analyze bids, price list, negotiations

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The Purchasing System
5. Preparation and Placement of the Purchase
Order (PO) Written order should be made Form
of the PO 1. Contain provisions to guard buyer
from damage suits caused by patent
infringement 2. Contain provisions concerning
price 3. Clause stating no charges allowed for
boxing, crating, etc. 4. Acceptance is
contingent on inspection and quality
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The Purchasing System
Form of the PO (continued) 5. Require in case
of rejection that the seller receive a new order
before replacement is made 6. Precisely
describe quality requirements and method for
quality assurance/control 7. Provide for order
cancellation if deliveries not received on
specified date
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The Purchasing System
Form of the PO (continued) 8. Contain
conditions that the buyer refuses to accept
drafts drawn against the buyer 9. Mention
quantity (under and over-shipments) 10. Matters
of special interest
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The Purchasing System
6. Follow-Up and/or Expedite the Order Follow-Up
- The routine tracking of an order to
ensure that the supplier will be able to
meet delivery promises often by phone
or computer Expediting - Application of
pressure on a supplier to get it either to meet
the original delivery promise, deliver ahead of
schedule, or speed up delivery of a late order
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The Purchasing System
7. Receipt and Inspection of Goods Receiving -
very close to purchasing may be bypassed
for small purchases Purposes of Receiving
1. Confirm order placed some time ago has
arrived 2. Check that shipment has arrived in
good condition 3. Ensure correct quantity 4.
Forward shipment to next destination 5. Ensure
proper documentation is registered and
forwarded to appropriate parties
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The Purchasing System
7. Receipt and Inspection of Goods
(continued) Reasons to Withhold Payment Until
Goods Arrive 1. Invoice does not reach buyer
until late in discount period 2. Inspection
3. Date invoices as of date of shipment or
receipt of invoice whichever is later, for
discount period Reasons to Process Payment
Before the Goods Arrive 1. Financial
consideration 2. Credit standing of buyer 3.
Relationship with supplier
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The Purchasing System
8. Clear the Invoice and Pay the Supplier
Varies according to firm Purchasing or
Accounting Why Purchasing - where original
agreement was made Accounting - process where
invoice mailed to accounts payable, checked, and
certified for payment refer to purchasing
department if variance exists
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The Purchasing System
9. Maintenance of Records 1. PO log identifies
all POs by number and status 2. PO file, copy of
all POs, filed numerically 3. Commodity file by
major commodity 4. Supplier history file
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Purchasing Documents

• Purchase Requisition
• Request for Quotation
• Purchase Order
• Receiving Report Form
• Systems Contracting
• Blanket Purchase Order

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Typical Purchase Requisition Form
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Typical Request for Quotation Form
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Typical Purchase Order Form
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Receiving Report Form