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THE PURCHASING
PROCESS
OVERVIEW
• PURCHASING OBJECTIVES
• RESPONSIBILITIES OF PURCHASING
• E-PROCUREMENT AND THE PROCURE TO PAY PROCESS
• TYPES O...
ELEMENTS OF THE PURCHASING PROCESS
• IDENTIFY USER REQUIREMENTS
• EVALUATE NEED EFFECTIVELY AND EFFICIENTLY
• IDENTIFY SUP...
PURCHASING PROCESS
4
Purchasing card
On-line catalog
EDI
Stock check
Automated ROP
NO
YES
Small $
Amount?
YES NO
4. Purcha...
PURCHASE REQUISITION FLOW
Purchasing & Supply Chain Management, 4e 5
PURCHASING OBJECTIVES
• SUPPLY CONTINUITY
• MANAGE THE PURCHASING PROCESS EFFICIENTLY AND
EFFECTIVELY
• DEVELOP SUPPLY BAS...
PURCHASING OBJECTIVES
• SUPPORT ORGANIZATIONAL GOALS AND OBJECTIVES
• DEVELOP INTEGRATED PURCHASING STRATEGIES THAT
SUPPOR...
SUPPLY CONTINUITY
• BUY PRODUCTS/SERVICES AT THE RIGHT PRICE
• BUY THEM FROM THE RIGHT SOURCE
• BUY THEM AT THE RIGHT SPEC...
MANAGE THE PURCHASING PROCESS
• DETERMINING STAFF LEVELS
• DEVELOPING AND ADHERING TO BUDGETS
• PROVIDING PROFESSIONAL TRA...
PROCURE TO PAY SYSTEMS
• IMPROVED SPENDING VISIBILITY
• EFFICIENT INVOICING AND PAYMENT
• USER SATISFACTION
Purchasing & S...
DEVELOP SUPPLY BASE MANAGEMENT
• SELECT COMPETITIVE SUPPLIERS
• IDENTIFY NEW SUPPLIERS WITH HIGH POTENTIAL AND
BUILD CLOSE...
DEVELOP STRONG INTERNAL
RELATIONSHIPS
• INTERNAL CUSTOMERS AS STAKEHOLDERS
• STRONG TWO-WAY COMMUNICATION
• CROSS-FUNCTION...
SUPPORT GOALS AND OBJECTIVES
• CONGRUENCY OF FUNCTIONAL GOALS WITH ORGANIZATIONAL GOALS
• MUTUALLY-SUPPORTIVE, NOT COUNTER...
SUPPLY MARKET INTELLIGENCE
• MONITORING SUPPLY MARKETS AND TRENDS
• IDENTIFYING CRITICAL MATERIALS AND SERVICES
• SUPPORTI...
REASONS FOR NOT BEING STRATEGIC
• PURCHASING PERSONNEL HAVE NOT HISTORICALLY
PARTICIPATED IN SENIOR-LEVEL CORPORATE PLANNI...
PURCHASING RESPONSIBILITIES
• EVALUATE AND SELECT SUPPLIERS
• REVIEW SPECIFICATIONS
• ACT AS PRIMARY CONTACT WITH SUPPLIER...
PROCURE TO PAY PROCESS MAP
Forecast and Plan
Requirement
Need
Clarification/
Requisition
Supplier
Identification/
Selectio...
BENEFITS OF ELECTRONIC DOCUMENTS
• VIRTUAL ELIMINATION OF PAPERWORK
• REDUCED TIME BETWEEN NEED RECOGNITION AND ORDER
RELE...
SUPPLIER IDENTIFICATION AND SELECTION
• EXISTING SUPPLIER
• FAMILIARITY AND TRACK RECORD
• LIST OF PREFERRED SUPPLIERS
• N...
SUPPLIER IDENTIFICATION AND SELECTION
• BIDDING VS. NEGOTIATING
• REQUEST FOR QUOTATION
• SPECIFICATIONS OR BLUEPRINTS
• S...
WHEN TO USE COMPETITIVE BIDDING
• VOLUME IS SUFFICIENTLY HIGH
• SPECIFICATIONS OR REQUIREMENTS ARE CLEAR TO THE SUPPLIER
•...
WHEN TO USE NEGOTIATION
• ANY CRITERIA FOR COMPETITIVE BIDDING ARE MISSING
• THE PURCHASE REQUIRES AGREEMENT ON WIDE RANGE...
WHEN TO USE NEGOTIATION
• THE SUPPLIER CANNOT DETERMINE RISKS AND COSTS
BEFORE CONTRACT IS AWARDED
• THE SUPPLIER REQUIRES...
THE PURCHASE ORDER
• QUANTITY
• MATERIAL
SPECIFICATION
• QUALITY
REQUIREMENTS
• PRICE
• DELIVERY DATE
• METHOD OF
DELIVERY...
P.O. FORM
Purchasing & Supply Chain Management, 4e 25
BLANKET P.O.
• USED FOR ONGOING PURCHASES OF AN ITEM
• RELEASE MATERIALS AS NEEDED VS. ISSUING A NEW P.O.
EACH TIME
• P.O....
BLANKET P.O. FORM
Purchasing & Supply Chain Management, 4e 27
TYPES OF P.O.S
• FIXED-PRICE CONTRACTS
• FINANCIAL RISK – MARKET FLUCTUATIONS
• COMPETITION
• TECHNOLOGY RISK
• COST-BASED...
RECEIPT AND INSPECTION
• ELECTRONIC VS. PAPER DOCUMENTS
• MATERIAL PACKING SLIP
• BILL OF LADING
• RECEIVING DISCREPANCY R...
RECEIVING PROCESS
Purchasing & Supply Chain Management, 4e
30
INVOICE SETTLEMENT AND PAYMENT
• THREE-WAY MATCH REQUIRED
• P.O.
• INVOICE
• RECEIVING REPORT
• ELECTRONIC FUNDS TRANSFER ...
TYPES OF PURCHASES
• RAW MATERIALS
• SEMIFINISHED PRODUCTS AND COMPONENTS
• FINISHED PRODUCTS
• MAINTENANCE, REPAIR, AND O...
TYPES OF PURCHASES
• PRODUCTION SUPPORT ITEMS
• SERVICES
• CAPITAL EQUIPMENT
• TRANSPORTATION AND THIRD-PARTY LOGISTICS PR...
MRO PURCHASING
• MOST ORGANIZATIONS DO NOT TRACK MRO ITEMS LIKE
THEY DO PRODUCTION ITEMS
• THERE ARE TYPICALLY TOO MANY MR...
IMPROVING THE PURCHASING PROCESS
• ONLINE REQUISITIONING SYSTEMS
• PROCUREMENT CARDS ISSUED TO USERS
• E-COMMERCE USING TH...
IMPROVING THE PURCHASING PROCESS
• PURCHASING PROCESS REDESIGN
• ELECTRONIC DATA INTERCHANGE (EDI)
• ONLINE ORDERING USING...
ADVANTAGES OF ONLINE ORDERING
• IMMEDIATE VISIBILITY TO BACKORDERS
• FASTER ORDER INPUT TIME
• REDUCED ORDERING ERRORS
• O...
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Purchasing objectives | Responsibilities of purchasing | E-procurement and the procure to pay process |

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Purchasing objectives | Responsibilities of purchasing | E-procurement and the procure to pay process | Types of purchases | Improving the purchasing process |

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Purchasing objectives | Responsibilities of purchasing | E-procurement and the procure to pay process |

  1. 1. THE PURCHASING PROCESS
  2. 2. OVERVIEW • PURCHASING OBJECTIVES • RESPONSIBILITIES OF PURCHASING • E-PROCUREMENT AND THE PROCURE TO PAY PROCESS • TYPES OF PURCHASES • IMPROVING THE PURCHASING PROCESS Purchasing & Supply Chain Management, 4e 2
  3. 3. ELEMENTS OF THE PURCHASING PROCESS • IDENTIFY USER REQUIREMENTS • EVALUATE NEED EFFECTIVELY AND EFFICIENTLY • IDENTIFY SUPPLIERS • ENSURE PAYMENT OCCURS PROMPTLY • ASCERTAIN THAT THE NEED WAS EFFECTIVELY MET • DRIVE CONTINUOUS IMPROVEMENT Purchasing & Supply Chain Management, 4e 3
  4. 4. PURCHASING PROCESS 4 Purchasing card On-line catalog EDI Stock check Automated ROP NO YES Small $ Amount? YES NO 4. Purchase approval Specification Statement of work New product requirement Customer order / MRP Traveling requisition Purchase requisition 2. Evaluate Suppliers 3a. Bid and/or negotiation 3b. Supplier Selection Purchase order Blanket PO Purchase release 5. Release & Receive Product or Service Bill of lading Packing slip Discrepancy report Kanban Acknowledgement Supplier invoice Match PO and invoice Payment to supplier 6. Update Supplier Scorecard Input used to award future business E-procurement documents RFI/RFQComplex Requirement ? YES NO 1. User Need Approved Supplier?
  5. 5. PURCHASE REQUISITION FLOW Purchasing & Supply Chain Management, 4e 5
  6. 6. PURCHASING OBJECTIVES • SUPPLY CONTINUITY • MANAGE THE PURCHASING PROCESS EFFICIENTLY AND EFFECTIVELY • DEVELOP SUPPLY BASE MANAGEMENT • DEVELOP STRONG RELATIONSHIPS WITH OTHER FUNCTIONAL STAKEHOLDERS Purchasing & Supply Chain Management, 4e 6
  7. 7. PURCHASING OBJECTIVES • SUPPORT ORGANIZATIONAL GOALS AND OBJECTIVES • DEVELOP INTEGRATED PURCHASING STRATEGIES THAT SUPPORT ORGANIZATIONAL STRATEGIES Purchasing & Supply Chain Management, 4e 7
  8. 8. SUPPLY CONTINUITY • BUY PRODUCTS/SERVICES AT THE RIGHT PRICE • BUY THEM FROM THE RIGHT SOURCE • BUY THEM AT THE RIGHT SPECIFICATION THAT MEETS USERS’ NEEDS • BUY THEM IN THE RIGHT QUANTITY • ARRANGE FOR DELIVERY AT THE RIGHT TIME • REQUIRE DELIVERY TO THE RIGHT INTERNAL CUSTOMER Purchasing & Supply Chain Management, 4e 8
  9. 9. MANAGE THE PURCHASING PROCESS • DETERMINING STAFF LEVELS • DEVELOPING AND ADHERING TO BUDGETS • PROVIDING PROFESSIONAL TRAINING AND GROWTH OPPORTUNITIES • INTRODUCING PROCURE TO PAY SYSTEMS Purchasing & Supply Chain Management, 4e 9
  10. 10. PROCURE TO PAY SYSTEMS • IMPROVED SPENDING VISIBILITY • EFFICIENT INVOICING AND PAYMENT • USER SATISFACTION Purchasing & Supply Chain Management, 4e 10
  11. 11. DEVELOP SUPPLY BASE MANAGEMENT • SELECT COMPETITIVE SUPPLIERS • IDENTIFY NEW SUPPLIERS WITH HIGH POTENTIAL AND BUILD CLOSER RELATIONSHIPS • IMPROVE EXISTING SUPPLIERS • DEVELOP NEW SUPPLIERS WHO ARE NOT CURRENTLY COMPETITIVE Purchasing & Supply Chain Management, 4e 11
  12. 12. DEVELOP STRONG INTERNAL RELATIONSHIPS • INTERNAL CUSTOMERS AS STAKEHOLDERS • STRONG TWO-WAY COMMUNICATION • CROSS-FUNCTIONAL COORDINATION AND COLLABORATION • POSITIVE, PROBLEM-SOLVING RELATIONSHIPS Purchasing & Supply Chain Management, 4e 12
  13. 13. SUPPORT GOALS AND OBJECTIVES • CONGRUENCY OF FUNCTIONAL GOALS WITH ORGANIZATIONAL GOALS • MUTUALLY-SUPPORTIVE, NOT COUNTER-PRODUCTIVE • PURCHASING’S SUBSTANTIAL IMPACT ON THE ORGANIZATION’S BOTTOM LINE • PURCHASING AS A STRATEGIC CORE COMPETENCY Purchasing & Supply Chain Management, 4e 13
  14. 14. SUPPLY MARKET INTELLIGENCE • MONITORING SUPPLY MARKETS AND TRENDS • IDENTIFYING CRITICAL MATERIALS AND SERVICES • SUPPORTING NEW PRODUCT DEVELOPMENT • DEVELOPING SUPPLY OPTIONS AND CONTINGENCY PLANS • SUPPORTING A DIVERSE AND GLOBALLY COMPETITIVE SUPPLY BASE Purchasing & Supply Chain Management, 4e 14
  15. 15. REASONS FOR NOT BEING STRATEGIC • PURCHASING PERSONNEL HAVE NOT HISTORICALLY PARTICIPATED IN SENIOR-LEVEL CORPORATE PLANNING • EXECUTIVE MANAGEMENT HAS NOT ALWAYS RECOGNIZED THE BENEFITS OF WORLD-CLASS PURCHASING Purchasing & Supply Chain Management, 4e 15
  16. 16. PURCHASING RESPONSIBILITIES • EVALUATE AND SELECT SUPPLIERS • REVIEW SPECIFICATIONS • ACT AS PRIMARY CONTACT WITH SUPPLIERS • FORECAST AND PLAN REQUIREMENTS • CLARIFY REQUISITIONER’S NEEDS Purchasing & Supply Chain Management, 4e 16
  17. 17. PROCURE TO PAY PROCESS MAP Forecast and Plan Requirement Need Clarification/ Requisition Supplier Identification/ Selection Approval/ Contract/ PO Generation Receive Material & Documents Settle, Pay, and Measure Performance 17 Start End Supplier Need Fulfillment Internal Customers Projects Operations Enablers: Finance, Legal, Human Resources, Information Technology
  18. 18. BENEFITS OF ELECTRONIC DOCUMENTS • VIRTUAL ELIMINATION OF PAPERWORK • REDUCED TIME BETWEEN NEED RECOGNITION AND ORDER RELEASE AND RECEIPT • IMPROVED COMMUNICATION • REDUCED ERRORS • REDUCED OVERHEAD COSTS • REDUCED ORDER AND INVOICE PROCESSING Purchasing & Supply Chain Management, 4e 18
  19. 19. SUPPLIER IDENTIFICATION AND SELECTION • EXISTING SUPPLIER • FAMILIARITY AND TRACK RECORD • LIST OF PREFERRED SUPPLIERS • NEW SUPPLIER • PROBLEM OF MAVERICK SPENDING • NEED TO IDENTIFY POTENTIAL SUPPLIERS • NEED TO EVALUATE AND QUALIFY • NEGOTIATE OR COMPETITIVE BIDDING? Purchasing & Supply Chain Management, 4e 19
  20. 20. SUPPLIER IDENTIFICATION AND SELECTION • BIDDING VS. NEGOTIATING • REQUEST FOR QUOTATION • SPECIFICATIONS OR BLUEPRINTS • SUPPLIER EVALUATION Purchasing & Supply Chain Management, 4e 20
  21. 21. WHEN TO USE COMPETITIVE BIDDING • VOLUME IS SUFFICIENTLY HIGH • SPECIFICATIONS OR REQUIREMENTS ARE CLEAR TO THE SUPPLIER • MARKETPLACE IS COMPETITIVE • BUYERS RECEIVE BIDS ONLY FROM TECHNICALLY QUALIFIED SUPPLIERS • ADEQUATE TIME IS AVAILABLE • BUYER DOES NOT HAVE PREFERRED SUPPLIER Purchasing & Supply Chain Management, 4e 21
  22. 22. WHEN TO USE NEGOTIATION • ANY CRITERIA FOR COMPETITIVE BIDDING ARE MISSING • THE PURCHASE REQUIRES AGREEMENT ON WIDE RANGE OF PERFORMANCE FACTORS OTHER THAN PRICE ALONE • THE BUYER REQUIRES EARLY SUPPLIER INVOLVEMENT Purchasing & Supply Chain Management, 4e 22
  23. 23. WHEN TO USE NEGOTIATION • THE SUPPLIER CANNOT DETERMINE RISKS AND COSTS BEFORE CONTRACT IS AWARDED • THE SUPPLIER REQUIRES SUBSTANTIAL LEAD TIME TO DEVELOP AND PRODUCT THE REQUESTED ITEMS Purchasing & Supply Chain Management, 4e 23
  24. 24. THE PURCHASE ORDER • QUANTITY • MATERIAL SPECIFICATION • QUALITY REQUIREMENTS • PRICE • DELIVERY DATE • METHOD OF DELIVERY • SHIP-TO ADDRESS • P.O. NUMBER • ORDER DUE DATE Purchasing & Supply Chain Management, 4e 24
  25. 25. P.O. FORM Purchasing & Supply Chain Management, 4e 25
  26. 26. BLANKET P.O. • USED FOR ONGOING PURCHASES OF AN ITEM • RELEASE MATERIALS AS NEEDED VS. ISSUING A NEW P.O. EACH TIME • P.O. REMAINS OPEN DURING THE TIME SPECIFIED Purchasing & Supply Chain Management, 4e 26
  27. 27. BLANKET P.O. FORM Purchasing & Supply Chain Management, 4e 27
  28. 28. TYPES OF P.O.S • FIXED-PRICE CONTRACTS • FINANCIAL RISK – MARKET FLUCTUATIONS • COMPETITION • TECHNOLOGY RISK • COST-BASED CONTRACTS • RISK OF LARGE CONTINGENCY FEE • NEED TO IDENTIFY AND MONITOR RELEVANT SUPPLIER COSTS Purchasing & Supply Chain Management, 4e 28
  29. 29. RECEIPT AND INSPECTION • ELECTRONIC VS. PAPER DOCUMENTS • MATERIAL PACKING SLIP • BILL OF LADING • RECEIVING DISCREPANCY REPORT Purchasing & Supply Chain Management, 4e 29
  30. 30. RECEIVING PROCESS Purchasing & Supply Chain Management, 4e 30
  31. 31. INVOICE SETTLEMENT AND PAYMENT • THREE-WAY MATCH REQUIRED • P.O. • INVOICE • RECEIVING REPORT • ELECTRONIC FUNDS TRANSFER (EFT) • MOSTLY DONE ELECTRONICALLY NOW Purchasing & Supply Chain Management, 4e 31
  32. 32. TYPES OF PURCHASES • RAW MATERIALS • SEMIFINISHED PRODUCTS AND COMPONENTS • FINISHED PRODUCTS • MAINTENANCE, REPAIR, AND OPERATING SUPPLIES (MRO) Purchasing & Supply Chain Management, 4e 32
  33. 33. TYPES OF PURCHASES • PRODUCTION SUPPORT ITEMS • SERVICES • CAPITAL EQUIPMENT • TRANSPORTATION AND THIRD-PARTY LOGISTICS PROVIDERS Purchasing & Supply Chain Management, 4e 33
  34. 34. MRO PURCHASING • MOST ORGANIZATIONS DO NOT TRACK MRO ITEMS LIKE THEY DO PRODUCTION ITEMS • THERE ARE TYPICALLY TOO MANY MRO SUPPLIERS • THERE ARE TOO MANY SMALL ORDERS WHICH TAKE UP TOO MUCH TIME Purchasing & Supply Chain Management, 4e 34
  35. 35. IMPROVING THE PURCHASING PROCESS • ONLINE REQUISITIONING SYSTEMS • PROCUREMENT CARDS ISSUED TO USERS • E-COMMERCE USING THE INTERNET • LONGER-TERM PURCHASE AGREEMENTS • ONLINE ORDERING SYSTEMS Purchasing & Supply Chain Management, 4e 35
  36. 36. IMPROVING THE PURCHASING PROCESS • PURCHASING PROCESS REDESIGN • ELECTRONIC DATA INTERCHANGE (EDI) • ONLINE ORDERING USING ELECTRONIC CATALOGS • DIRECT USER-SUPPLIER CONTACT Purchasing & Supply Chain Management, 4e 36
  37. 37. ADVANTAGES OF ONLINE ORDERING • IMMEDIATE VISIBILITY TO BACKORDERS • FASTER ORDER INPUT TIME • REDUCED ORDERING ERRORS • ORDER TRACKING CAPABILITY • ORDER ACKNOWLEDGEMENT FROM SUPPLIER • ABILITY TO BATCH MULTIPLE ITEMS INTO A SINGLE ORDER • FASTER ORDER CYCLE TIME Purchasing & Supply Chain Management, 4e 37

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