Procurement and Purchasing Process

Posted on Nov 29, 2024 in Economy

Procurement and Supply

This involves a series of business processes for acquiring goods and services. The key activities include:

  • Needs Calculation
  • Purchase or Acquisition
  • Procurement
  • Storage
  • Distribution
  • Stock Control
  • Waste Location

Procurement Objectives

  • Ensure a consistent flow of necessary materials, supplies, and services.
  • Minimize stock investment and losses.
  • Maintain appropriate quality standards.
  • Secure and retain competent suppliers.

Supply Areas

  • Planning
  • Purchasing
  • Warehouse
  • Inventory Management

Importance of Supply

Supply information acts as a crucial factor influencing a company’s economic status.

Comakership

This new supply philosophy, rooted in Total Quality Management and Just-in-Time production, emphasizes continuous improvement and systematic waste elimination.

Strategic Comakership Developments

  • Quality Control: Ensuring quality and continuous improvement.
  • Value Chain Maximization: Optimizing value within the entire system.
  • Total Manufacturing Management/Just in Time: Reducing costs in inputs and support processes.
  • Product-Process Development: Focusing on product and process design to impact cycle times and total costs.

Purchasing (Supply)

This is how companies acquire raw materials, components, products, services, or resources from service providers for their operations.

Purchasing Objectives

  • Identify competitive suppliers.
  • Maximize value for money.
  • Secure timely supplies (Just in Time).
  • Minimize inventory.
  • Obtain standard materials.
  • Collaborate with other company areas.

Purchasing Department

Responsible for managing the purchase of services and products, depending on the company’s size and activity.

Roles within the Purchasing Department

  • Purchasing Manager: Organizes, coordinates, and controls department activities.
  • Buyers: Procure services and materials, striving for the best deals for the business.

Principles of the Purchasing Department

  • Location: Defines the department’s position within the company structure.
  • Centralization/Decentralization: Determines which activities are centralized and which are decentralized.
  • Simplicity: The department’s organization should be as streamlined as possible.
  • Harmony: Maintain positive relationships with other departments.
  • Flexibility: Adapt to changing business needs.
  • Efficiency: The result of applying all the above principles.

Purchasing Approaches

  • Centralized Purchasing: Acquiring materials through a single headquarters with a unified procurement policy.
  • Decentralized Purchasing: Departments make purchases directly.
  • Centralized-Decentralized Purchasing: Used in companies with multiple plants.

Procurement Process

  1. Planning Purchases
  2. Needs Analysis
  3. Request for Bids and Budgets
  4. Supplier and Offer Evaluation
  5. Supplier Selection
  6. Terms Negotiation
  7. Order Request
  8. Order and Agreement Tracking

Auction Types

  • First-Price Sealed Bids: Suppliers submit sealed bids; the lowest bid wins.
  • English Auctions: Ascending bids; highest bidder wins.
  • Dutch Auctions: Descending price; first bidder to accept wins.
  • Second-Price Auctions (Vickrey): Lowest bidder wins but pays the second-lowest bid price.

E-Shopping Types

  • Special: For fixed assets or large investments.
  • Early: For medium- to long-term needs, often anticipating price increases.
  • Seasonal: For seasonal products, based on previous orders.
  • Small Quantity: For daily consumption.
  • Opportunity: High-risk purchases for potential extra benefits.
  • Emergency: Small volume, urgent needs.