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Purchase Management is a function of materials management in a company. Their basic function is procuring the inputs for production function. This function encompasses suppliers in the market external to the organization and several internal to the organization. Till recently, the purchasing process simply involved placing an order with the supplier who offered the lowest price. Nowadays, increase in competition and market demand and scarcity of resources have activities. forced The organizations to reexamine their purchasing purchasing department functions have expanded considerably and include verifying activities the such as of credentials
suppliers, inspecting the quality of the material to be purchased, ensuring the timely delivery of the material, etc.
While the value of purchased items varies from industry to industry, it adds up to more than fifty percent of sales in all industries. Purchase management is regarded as a significant activity in many organizations because of the high cost involved in carrying out purchasing activities, increasing quality benchmarks, and increasing global competition. Purchase departments buy raw materials, parts, machinery, and services used by production systems. The objective of purchase management is to procure the right equipment, materials, supplies and services in the right quantity, of the right quality, from the right suppliers, at the right time, at the lowest price.
IMPORTANCE OF PURCHASE MANAGEMENT Purchase management is considered to be very important function of materials management in a company. Its importance is felt even outside the formal scope of materials management. As the purchase decisions commit a very large portion of financial resource of the company purchase function is said to be highly important. Purchase personnel deal with large number of external agencies while performing their functions. Hence they represent company’s reputation in the outside world. As they negotiate and finalize deals worth lot of money for the company their integrity is of utmost importance for the organization.
OBJECTIVES OR GOALS OF PURCHASING Primary objective or goal of purchasing function is making inputs available to the conversion process at minimum cost to the final output of the company. Thus focus is on system output rather than on micro level objectives. The inputs to be made available are raw materials, semi finished items, bought out items etc. There are certain parameters to be monitored for fulfilling the system objectives. We can call them goals of purchasing. These goals are popularly known as 5R’s of purchase namely, right price, right quantity, right quality, right place and right time. In simple terms, if the above 5Rs are achieved primary objective is fulfilled:• Right Price: Right price is determined by costing the production process of the
supplier. Right price is determined by allowing reasonable profit for the supplier and insisting and helping to reduce cost. Tender system should be used to identify lowest responsible bidder rather than lowest bidder. Principles normally used to ensure right price are cost structure and learning curve.
• Right Quantity: Right quantity of purchase is the one that ensures no excess and no
shortage. High priority items are subjected to EOQ analysis to determine the right quantity for purchase. This ensures overall minimum cost for inventory.
• Right Quality: In an item purchased should ensure adhering to mutually accepted
standard by supplier and customer at the time of finalizing the purchase order. The accepted standard may be a drawing, a sample, a grade or a universal standard like DIN, IS, BS etc.
• Right Place: is the one where the item is going to enter the value stream. If the item is
not available here, when needed, it is in short supply for the process.
• Right Time: is as decided by production schedule for meeting customer’s
ORGANISING PURCHASING The effectiveness of purchasing activities can be enhanced by proper organization and coordination of the activities. There are two types of purchasing system:Centralized purchasing system • Decentralized Purchasing system
i. Centralized purchasing system: In a centralized purchasing system, all purchasing
activities of an organization are carried out by a separate department. A centralized system is effective when an organization has a number of production sites within the same site which requires the material with same or similar specifications. In such cases, a centralized system allows pooling of all the requirements so that benefit of bulk purchasing can be realized. The centralization also leads to consistency in buying policies and uniformity in maintaining purchasing records.
ii. Decentralized Purchasing System: In a decentralized purchasing system, the heads of
different departments purchase the needed materials according to their specific requirements. This method gives each department the flexibility to alter its purchasing policies on the basis of specific requirements. However, most organizations do not totally depend on any one system: instead, they use a combination of both the systems. FUNCTIONS OF PURCHASING DEPARTMENT The purchase department is one of the key players in achieving the strategic objectives of a firm. Functions of purchasing department or often categorized as the responsibilities of Purchasing Manager are:•
Vendor Development: The primary responsibility of a purchase manager is to search for and identify a list of possible suppliers. He should ensure that sources of supplies are reliable and stable.
Selection of Suppliers: The purchase manager should examine the cost of the material and other aspects. And selection should be made after analyzing all the relevant issues.
Contract Negotiations and Communication Interface: Once a vendor is selected, the purchasing manager should negotiate and establishes the terms and conditions of contract to be drawn between the two parties.
Value Analysis: The purchasing manager conducts value analysis that aims at achieving cost effectiveness and maintaining the required level of quality.
PURCHASE SYSTEMS In an organization all activities are carried out according to systems and procedures for reducing variations and errors arising out of individuality. This makes performing the function simple and less prone to errors. Purchase organization also consists of such systems established for smooth running of purchasing function. These systems are pre purchase system, ordering system, post purchase system.
1. Pre Purchase System: This system lays down how purchase activity is initiated. Various
activities controlled by this system are requisitioning, selection of suppliers and obtaining & evaluating quotations.
Requisitions: Requisition for an item may be made by anyone in the organization. Pre purchase system prescribes separate requisition form for capital equipment as this purchase activity is controlled by a separate system. Requisition for an item shall be made in a standard format. This format ensures that indenting person furnishes all relevant information like quantity, specifications, etc. and gets the purchase authorized by competent authority in the organization. Thereby making purchase activity easier and less time consuming. This system shall identify the hierarchical level competent to authorize the purchase depending on the nature and value of the item.
Traveling requisitions: In an inventory system where an item is made a
stock item to be perpetually maintained at a minimum level, purchase activity is triggered by stores function based on ROL. The requisition is a permanent document with specification, authorization and quantity required permanently marked on it. The traveling requisition returns to indenting department after purchase is initiated.
Inquiries: Pre-purchasing system prescribes standard formats for making
inquiries in the market for supply of a particular product. These are standard forms boldly declaring that they are not explicit or implicit purchase orders.
2. Ordering System: Purchase order is the most important element in ordering system.
Purchase manager releases the purchase order after selecting the supplier and finalizing the price and other conditions of sale. Once the purchase order is raised and accepted it becomes a legal document. Contents of the purchase order are:Purchase order reference number Description of materials and specifications Quantity required and delivery schedule Price and discounts Shipping instructions Location where the material is to be shipped Signature of the authorized officer Detailed terms and conditions:Several numbers of copies made to be forwarded to various recipients. Many companies color code the copies making the color destination specific. Original and a copy is sent to the supplier for acknowledgment of the original order. This acknowledgment is acceptance of terms and conditions of purchase order. One copy is sent to the receiving department for making necessary receiving arrangement One copy is sent to the indenting department for information. One copy is sent to finance department for organizing payment to the supplier. Post Purchase System: This system includes follow up procedures, receipt and checking invoices.
• Follow up procedures: Follow up is an expensive activity for an organization. Hence
this should be minimized and made more effective. A sound procedure for follow up is required to eliminate duplication and ineffectiveness. After conducting FSN analysis follow up frequency should be fixed for follow up according to FSN status
so that follow up doesn’t become wasteful. Follow up responsibility is assigned to buyers responsible for areas in which suppliers are situated.
• Receipt: Receipt system should ensure that defects in receipt process are eliminated
proactively. A systematic record of all receipts, carrier details and descriptions is maintained. This record is in chronological sequence of arrival of supplies. The system ensures that inspection of consignments received is arranged in time and payment to suppliers for accepted consignments is organized. In many organizations a receipt section handles this activity centrally.
• Invoice checking: supplier sends his invoice to customer’s finance department for
payment for the goods supplied. Invoice checking system ensures that the invoice is checked against the PO terms, receipt details, quantity received, inspection reports [accepted quantity and rejected quantity], losses, damages etc. this system helps materials management to coordinate with finance department for payment to suppliers. IMPORTANCE OF SOURCE Source is the place from where we procure our inputs. These inputs may be in the form of raw materials, out sourced components or semi finished items. Manufacturing companies outsource large number of items as they slim down processes.
Following reasons are considered to be making source an important element in materials management:Source of market intelligence: source is a window through which the buyer organization looks at the world outside. Source provides access to the real time information about the phenomenon. Information about current trends and industrial climate is obtained from the sources. Crucial for product quality: buyer organizations depend on out sourced components for producing the product which central to the objectives business. Reliance on capabilities of supplier to meet tough quality standards is very high in current business environment. Member in the value chain: supply source is an important element in the value chain. Any cost added to the value chain reaches the end user as price. Hence effectiveness and efficiency of the source becomes vital to business. Import substitution, cost reduction, value improvement: as indigenization of sub assemblies, components and spare parts is necessary to reduce the cost of product in competition, buyer organizations turn to supply sources to develop these items. Several trials and corrections may be required to finalize the substitute. In house capacity is generally not available for this kind of trials. A resourceful supplier is very useful in this process. Same logic holds good in other exercises for cost reduction and value improvement. It is quite logical that entire process is not outsourced but isolated developmental activities are invariably done. It is common knowledge that many small scale companies do not have full-fledged tool rooms but rely on sources for all tool room activities.
The major principles on which purchasing policies should be based are a sound orientation, reflect a cross –functional approach and be directed at improving the company’s bottom line.
Developing a purchasing and supply strategy requires a thorough understanding of the company’s business policies. The following questions are important to determine how
purchasing and supply strategies will need to support the company in meeting its goals and objectives:What end-user market is the company targeting and what are the major developments going on in those markets? What competition is the company suffering from and what leeway does the company has in setting its own pricing policies? To what extent can material’s price increases can be passed onto the last customer or is it impossible? What changes are happening in the company’s product, production and information technologies? What investments will be made by the company in terms of new products and technology? What products will be taken out of the market for the years to come?
Integrated, cross-functional approach
Purchasing decisions cannot be made in isolation, and should not be aimed at optimization of purchasing performance only. Purchasing decisions should be made taking into account the effects of these decisions on other primary activities like:Production planning Materials management Transportation
Therefore purchasing decisions need to be based on balancing total cost of ownership. When buying for instance, a new packaging line it is important to consider not only the initial investment, but also the costs which will be incurred in the future for buying accessories,
spare parts and services. This example itself illustrates the complexity of its type of purchases and the different kind of decisions that need to be made. Careful decision making in those circumstances, therefore requires a cross functional and team based approach among all the business disciplines affected by it. This can only be done when top managers are involved. The purchasing and supply manager will lead the developing of such views and visions.
The purchasing should provide a healthy commercial opposition vis-à-vis its internal customers. Through their activities the buyers should make their company more and more cost aware. They should consistently look for improving the price/value ratio of the goods and services bought by the company. To accomplish this, purchasing should be able to suggest alternatives to existing product designs, materials or components to be used and alternative suppliers. Experience with companies in which purchasing is recognized as a bottom-line driven activity shows this function contributes to a permanent reduction in cost price of the end product, whilst stimulating innovation from the suppliers at the same time.
IMPLEMENTATION OF PURCHASE POLICY
Important areas to consider when implementing supply and purchase policy are supply, product and supplier quality, materials costs and prices, supplier policy and communication policy
Supply is aimed at the optimization of both the ordering process and the incoming materials flow. Purchasing order processing entails handling of:10 | P a g e
Purchasing requisitions Order processing and expediting Development of efficient, computer –supported order routines
Materials and supply planning relates to:Issuing materials delivery schedules to suppliers Reducing supplier lead times Troubleshooting in case of delivery problems Reducing (pipeline) inventories Monitoring supplier delivery performance
Product and supplier quality
Central to this aspect are the materials specifications. Two important subjects of concern here are purchasing early involvement in design and product development and improving product and supply quality performance. Activities which may contribute to both areas are:•
Standardization of materials-by striving for standardization or simplification of product- specifications, the buyer may reduce product variety resulting in both cost reduction and supplier dependence at the same time;
A purchasing policy focussed on the life cycle of the end products- there is not much point in investigating material quality improvements used in products which will be eliminated shortly;
Specific quality improvements- negotiating targets on improving reject rates, reducing incoming inspection, and negotiating quality agreements;
Agreeing on and gradually extending permanent warranty conditions that are to be provided by the supplier;
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Initiating special programmes in the field of value analysis to simplify product design and/or reduce product costs;
Materials cost policy
The objective of cost policy is twofold:First to obtain control of materials cost and prices in such a way that suppliers are unable to pass on unjustified price increases to the company. Second, to systematically reduce the supplier’s materials cost through joint, well prepared action plans. In order to be successful in both aspects a thorough knowledge of the supplier’s pricing policies and cost structure is required. Understanding and knowledge of the market structures and of their susceptibility of the price paid to market and cost factors is necessary. It should be decided for what products to build detailed cost models, for what models to monitor underlying cost factors, and for what products to develop detailed materials budget estimates.
The supplier policy is focused on the systematic management of the company’s supplier base. Decisions need to be made for what commodities to pursue a multiple sourcing strategy or to go for single sourcing or a partnership relationship. Suppliers who perform best should be rewarded with more business in the future. Targets and possible projects for future co-operation should be determined carefully. Relationships with suppliers who consistently fail to meet the company’s expectations should be terminated. However such decisions need to be made based on detailed data on how the supplier performed in the past and be implemented carefully.
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The company’s purchasing policies need to be communicated both internally and to suppliers. Companies use the Intranet for the former and many employ their own Purchasing Websites in order to communicate their future materials requirements and ways of working to their suppliers. The next step is that preferred suppliers have access to the customer’s Intranet through which internal users can order directly from them through their electronic catalogues.
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The purchasing manager conducts value analysis that aims mainly at achieving cost effectiveness and maintaining the required level of quality. Value analysis is an organized effort that studies in detail the ‘value’ of material. Value Analysis reviews the design changes with the objective of eliminating high cost materials and the materials that are technically obsolete and reducing the number of parts. After analyzing the functions and cost of material, the purchasing manager evaluates the possibilities of using the material. Value Analysis evaluates the materials by seeking answers to the following questions:What is the function of the item? Is it possible to run the system without the item? Can the item be substituted with a standard part? How much does the item cost? How much does the substitute, if any, cost? Can the functions performed by two or three materials be clubbed together and be replaced by any other material? Value Analysis involves the coordinated efforts of the engineering, production and the purchasing personnel and helps in reviewing purchase activities to ensure that expenditures result in the receipt of appropriate value. The step by step procedure of Value Analysis is given below:-
Examine all the products/materials that are being reordered and identify each product/material that needs an improvement.
Gather all possible information about the designs, costs and so forth of the product. Form a team that includes experts from various functional areas that are related to the functions performed by the material.
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Generate alternatives by generating new ides and evaluate different ways of accomplishing the task.
Evaluate the alternatives on criteria like cost and feasibility and eliminate the non feasible alternatives.
Refine the feasible alternatives and select the optimal one.
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MAKE-OR-BUY DECISIONS The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). The buy side of the decision also is referred to as outsourcing. Make-or-buy decisions usually arise when a firm that has developed a product or part—or significantly modified a product or part—is having trouble with current suppliers, or has diminishing capacity or changing demand. Make-or-buy analysis is conducted at the strategic and operational level. Obviously, the strategic level is the more long-range of the two. Variables considered at the strategic level include analysis of the future, as well as the current environment. Issues like government regulation, competing firms, and market trends all have a strategic impact on the make-or-buy decision. Of course, firms should make items that reinforce or are in-line with their core competencies. These are areas in which the firm is strongest and which give the firm a competitive advantage. Considerations that favor making a part in-house:• • •
Cost considerations (less expensive to make the part) Desire to integrate plant operations Productive use of excess plant capacity to help absorb fixed overhead (using existing idle capacity) Need to exert direct control over production and/or quality Better quality control Design secrecy is required to protect proprietary technology Unreliable suppliers No competent suppliers Desire to maintain a stable workforce (in periods of declining sales) Quantity too small to interest a supplier Control of lead time, transportation, and warehousing costs Greater assurance of continual supply Provision of a second source Political, social or environmental reasons (union pressure) Emotion (e.g., pride)
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• • • • • • • • • • • •
Factors that may influence firms to buy a part externally include:• • • • • • • • • •
Lack of expertise Suppliers' research and specialized know-how exceeds that of the buyer cost considerations (less expensive to buy the item) Small-volume requirements Limited production facilities or insufficient capacity Desire to maintain a multiple-source policy Indirect managerial control considerations Procurement and inventory considerations Brand preference Item not essential to the firm's strategy
LEAN MANAGEMENT It is a philosophy concerning how to run a manufacturing organization, which entails all aspects of the business system in general, and design, manufacturing and supply management in particular. Fundamental to lean management is that it transfers the maximum number of tasks and responsibilities to those workers actually adding value to the product and it has in place a system for detecting the defects that quickly traces every problem. Important features of lean management are:•
Teamwork among line workers, who are trained in a variety of skills to conduct different jobs within their working group. These not only relate to manufacturing tasks; workers are also trained to do simple machine repairs, quality checks , housekeeping and material ordering.
Simple, but comprehensive information display systems that make it possible for everyone in the plant to respond quickly to problems and understand the plant’s overall situation.
Total commitment to quality improvement5 on the shop floor. Workers are encouraged to think and act positively on how to improve the effectiveness of their work, whereas their supervisors need to provide active support to bring these ideas to fruition.
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LEAN MANAGEMENT AND PURCHASE SYSTEM The average supply base is much smaller in lean management system .Suppliers are usually involved in new product development in a very early stage. Supplier along with engineers from the manufacturer may work full time at each other premises when solving technical problems and/or working out improvements . Suppliers are confronted with well defined targets in terms of quality improvement, lead time reduction and cost reduction and are, by means of a simple grading and performance system, fully informed as to whether they meet contractual obligations. JIT AND PURCHASING SYSTEM The principle of just-in-time (JIT) means that all materials and products become available at the very moment when they are needed in the production process, not sooner and not later, but exactly on time and in exactly the right quantity .It implies that nothing is produced if there is no demand. The production process is in fact ‘pulled’ by customer orders. When no customer orders have been received, manufacturing activities will come to an end and the spare time is used to do minor repairs/maintenance, housekeeping and/or prepare for materials planning. A second characteristic of JIT principle is related to quality awareness, smaller batch sizes which make it necessary to detect quality defects at an early stage. The JIT concept cannot be limited to production only. It must be supported and implemented in every functional area in the organization .Applied to purchasing JIT is a philosophy that aims to make the required materials and products available at exactly the time they are needed, so that value is added only to the product which is to be manufactured , and indirect costs are avoided . JIT has a major impact on both the quality and quantity of the materials to be purchased. The JIT approach is characterized by regular but flexible supply .ordered materials are delivered frequently in different quantities. To facilitate this, the supplier is informed of the production planning and the related purchasing requirements on a daily, weekly and monthly basis through delivery schedules which are available on-line. In this way Conditions are renegotiated with the supplier. Targets for productivity improvement and cost reduction, as required by the producer, are also part of these negotiations.
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As far as quality is concerned, the guiding principle is zero defects. Imposing quality targets upon suppliers may represent large savings to the producer, both in terms of a reduction of the numbers of incoming quality inspections and a reduction of buffer stock. In this way the supplier is educated towards a better quality performance. VENDOR MANAGEMENT Vendor Management is the management and control, by an entity, of those third parties that supply goods and/ or services to that entity. It is the discipline of establishing service, quality, cost, and satisfaction goals and selecting and managing third party companies to consistently meet these goals:•
Establishing Goals- Just as employees need clearly established goals, operations need clearly defined performance parameters. When selecting or managing vendors, vendor managers must optimize their opportunity to achieve these goals by using third parties companies.
Selecting Vendors- The fine art of vendor management is essential to optimizing operational results. Different vendors have different strengths and weaknesses, and it is the vendor manager’s responsibility to match the right company with the desired performance characteristics. Failure to consider this comprehensively could lead to complete failure.
Managing Vendors- On a daily basis, vendor managers must monitor performance, provide feedback, champion new projects, define or approve/disapprove change control processes, and develop vendors. There’s a tremendous amount of detail to this aspect of the discipline, and we’ve covered this in many posts here.
Consistently Meet Goals- Operations must perform within statistically acceptable upper and lower control bounds. Everything the vendor manager does should focus on meeting goals, from providing forecasts to defining requirements, from ensuring vendors have adequate staff to ensuring the staff have completed all required training.
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An important objective in purchase management is that of maintaining good relations with vendors. A good vendor is an asset of the company; and, therefore, just as customer goodwill is considered important, a good relationship with the vendor should be treated likewise. A vendor who supplies the proper quality material in proper amounts in proper time is not very easy to find. Moreover, there are many situations where materials are required in hurry. There are situations where materials are in shortage in the supply market. In all such situations, good relationships with the vendors pay dividends. This may entail: personal relationship, professional relationship:By helping the vendor in times of stress and strain with financial aid, by providing management skills if necessary, and, Maintaining a healthy professional relationship by fair negotiation, fair evaluation and fair compensation. The modern management theory and world class manufacturing call for a long-term, almost a lifetime, association with the vendors. This also means that there will be fewer vendors but these will be dedicated vendors- almost a part of organizational family. Until the present and even now, the Indian industry has not given/is not giving much importance to vendor relations. The emphasis, if any, has been on vendor selection and on monitoring the performance of the vendor through a vendor rating system. Vendor is the entity that is, generally, taken for granted. This attitude is: All said and done, the vendors for the company may change over a period of time. They may change to another business; some of them may not give the desired performance in quality, delivery and price, and therefore, one should always expect a drop-out rate in the vendors list of the company. SELECTION OF VENDORS
1. The production capabilities of the vendor
(a) Capacity to manufacture the required product in desired quantities. (b) Possibility of future expansion in capacity. (c) The understanding or the knowledge of the vendor regarding the buying company and its need.
2. The financial soundness of the company 20 | P a g e
(a) The vendor company’s capital structure. (b) Whether it belongs to a larger group of companies; whether it is a Private Limited or a Public Limited company. (c) The profitability record of the company in the past. (d) Expansion plans of the company in the future. 3. Technical capabilities (a) Whether the available machines are capable of the required quality of materials? What are the future plans of the vendor? (b) Whether there are enough technical skills available with the vendor? (c) Whether there is proper research, design and development facility available with the vendor? (d) What is the record of the vendor in filling the orders of other buying companies in the same business? (e) What has been the consistency in the quality produced by the vendor? (f) Whether the vendor has appropriate storage and warehouse facilities to retain the quality of the product produced? (g) Whether proper quality control procedures are being followed in the vendor company? 4. Other considerations (a) What are the working conditions in the vendor company? (b) How are the industrial relations in the vendor company? (c) Whether there is any possibility of disruption of the supply of materials in terms of quantity and/or quality due to human relations problem in the vendor company?
VENDORS MANAGED INVENTORIES
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Vendor Managed Inventory (VMI) is a supply chain practice where the inventory is monitored, planned and managed by the vendor on behalf of the consuming organization, based on the expected demand and on previously agreed minimum and maximum inventory levels. In its simplest form, Vendor Managed Inventory is the process where the vendor assumes the task of generating purchase orders to replenish a customer’s inventory. VMI is a term that is used to describe many types of supply chain initiatives. Traditionally, success in supply chain management derives from understanding and managing the trade off between inventory cost and the service level. The Vendor Managed Inventory Approach VMI reduces stock-outs and reduces inventory in the supply chain. Some features of VMI include:• • •
Shortening of the supply chain Centralized forecasting Frequent communication of inventory, stock-outs, and planned promotions. Electronic Data Interchange (EDI) linkages facilitate this communication. No manufacturer promotions Trucks are filled in a prioritized order. For example, items that are expected to stock out have top priority, then items that are furthest below targeted stock levels, then advance shipments of promotional items (promotions allowed only in transition phase), and finally, items that are least above targeted stock levels.
Relationship with downstream distribution channels Result: Inventory reduction and stock-out reduction
VMI is based on the belief that supplying parties are in a better position to manage inventory as they have better knowledge of the goods production capacities and lead times. Also it is based on the belief that allowing vendors to manage inventory reduces the number of layers in the supply chain, increasing stock visibility and reducing overall inventory levels. To enable VMI, sales data must be provided to the vendor via Electronic Data Interchange (EDI), other electronic means, or via traditional human agents at outlets. Origin of Vendor Managed Inventory
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VMI started in the retail business and grew out of Efficient Consumer Response (ECR), where consumer satisfaction or rather consumer expectation of stock availability is an important way to have a competitive edge over others. Wal-Mart is one of the successful pioneers of this supply chain strategy. VMI is now gradually progressing towards strategic-partnership based forms. These influences the way companies plan their inventory, evolving to Collaborative Planning, Forecasting and Replenishment (CPFR). Usage of Vendor Managed Inventory
• • • • •
Error sensitive industries. Example: Pharmaceutical Sector. Multiple outlets, fast-moving consumer goods. Example: Wal-Mart. Perishable goods. Example: K Mart. Valuable and unpredictable components. Example: PC manufacturing. Strong competition (small margins). Example: Automotive.
Steps in Vendor Managed Inventory VMI should be achieved in a number of phases:1. Communicate expectations of all parties. 2. Retailer/distributor must commit to sharing precise information. 3. Vendor must ensure reliable transmission, receipt, and use of information. 4. Agreement on ordering policy, risk and reward sharing. 5. Commit time and resources. 6. Extensive testing. 7. Implementation and evaluation. Adjust. 8. Appreciate vendors that manage the inventory well. Example: promotion to Category Captain, profit sharing schemes, etc. Strengths of Vendor Managed Inventory
Supply Chain level
Lower inventory levels at total supply chain level. Less overhead.
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Increased sales. Reduces human data entry errors.
Better insight in customer demand (better resource usage, reduced raw and finished goods inventories). Improved, more direct communication with customers. Improved market analysis. Increased sales via lower out of stock rates. Opportunity to provide category management and other value-added services. Reduced replenishment times and lower inventory costs. Increased sales through reduced stock outs. Less redundancy. Build strategic strengths through establishing strong supply chain relationships.
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Vendor assistance with category management. Increased service level. Reduced stock outs
Limitations of Vendor Managed Inventory
Success of VMI initiative depends on the strength of relationship between the vendors and retailers. Increased dependency between the parties and increased switching costs. Lack of trust to exchange data can result in the ineffective implementation in one or more of the following forms:
Inventory invisibility. Inventory imbalance.
Costs of technology and changing organization. Extensive data- and EDI testing is needed.
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Loss of necessary shelf space at the selling party may result in less attention by buyers, compared to competitors that are not into VMI yet. Special promotions or events need to be communicated beforehand to avoid replenishment planning mistakes (loss of flexibility). Increased vulnerability for non-foreseeable risks such as employee strikes, hurricanes, etc. due to lower inventory levels. Most of the benefits are for the end client and for the selling party, while the vendor does much of the work.
Assumptions of Vendor Managed Inventory VMI is usually successful for industries and organizations with the following characteristics:
Multiple outlets, because this increases the benefits compared to traditional inventory management. Severe consequences in case of human errors (Pharmaceutical). Industries with steady and high volumes (Retail, Consumer Products). Industries with high-value inventory and a high level of demand unpredictability (High Tech). Management with strong leadership capability to form strategic long term partnerships (Automotive).
• • •
VMI Implementation Challenges VMI can be made to work, but the problem is not just one of logistics. VMI often encounters resistance from the sales force and distributors. At issue are roles and skills, trust, and power shifts. Some of the sales force concerns are:
Loss of control Effect on compensation - incentive bonuses may depend on how much is sold, but sales force has less influence under VMI. Possible loss of job Scepticism that it will function well - technical problems
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Concern that reduced inventory will result in less shelf space and therefore loss of market share. This concern can be addressed by filling the shelf space with other stock keeping units from the same vendor.
VENDOR RATING Vendor rating is the result of a formal vendor evaluation system. Vendors or suppliers are given standing, status, or title according to their attainment of some level of performance, such as delivery, lead time, quality, price, or some combination of variables. The motivation for the establishment of such a rating system is part of the effort of manufacturers and service firms to ensure that the desired characteristics of a purchased product or service is built in and not determined later by some after-the-fact indicator. The vendor rating may take the form of a hierarchical ranking from poor to excellent and whatever rankings the firm chooses to insert in between the two. For some firms, the vendor rating may come in the form of some sort of award system or as some variation of certification. Much of this attention to vender rating is a direct result of the widespread implementation of the just-in-time concept in the United States and its focus CRITERIA FOR EVALUATION Vendor performance is usually evaluated in the areas of pricing, quality, delivery, and service. Each area has a number of factors that some firms deem critical to successful vendor performance. Pricing factors include the following:•
Competitive pricing: The prices paid should be comparable to those of vendors providing similar product and services. Quote requests should compare favorably to other vendors.
Price stability- Prices should be reasonably stable over time. Price accuracy: There should be a low number of variances from purchase-order prices on invoiced received. Advance notice of price changes: The vendor should provide adequate advance notice of price changes.
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Sensitive to costs: The vendor should demonstrate respect for the customer firm's bottom line and show an understanding of its needs. Possible cost savings could be suggested. The vendor should also exhibit knowledge of the market and share this insight with the buying firm.
Billing: Are vendor invoices are accurate? The average length of time to receive credit memos should be reasonable. Estimates should not vary significantly from the final invoice. Effective vendor bills are timely and easy to read and understand.
Quality factors include:•
Compliance with purchase order: The vendor should comply with terms and conditions as stated in the purchase order. Does the vendor show an understanding of the customer firm's expectations?
Conformity to specifications: The product or service must conform to the specifications identified in the request for proposal and purchase order. Does the product perform as expected?
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Reliability: Is the rate of product failure within reasonable limits? Reliability of repairs: Is all repair and rework acceptable? Durability: Is the time until replacement is necessary reasonable? Support: Is quality support available from the vendor? Immediate response to and resolution of the problem is desirable. Warranty: The length and provisions of warranty protection offered should be reasonable. Are warranty problems resolved in a timely manner? State-of-the-art product/service: Does the vendor offer products and services that are consistent with the industry state-of-the-art? The vendor should consistently refresh product life by adding enhancements. It should also work with the buying firm in new product development.
Delivery factors include the following:•
Time: Does the vendor deliver products and services on time; is the actual receipt date on or close to the promised date? Does the promised date correspond to the vendor's published lead times? Also, are requests for information, proposals, and quotes swiftly answered?
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Quantity: Does the vendor deliver the correct items or services in the contracted quantity? Lead time: Is the average time for delivery comparable to that of other vendors for similar products and services? Packaging: Packaging should be sturdy, suitable, properly marked, and undamaged. Pallets should be the proper size with no overhang. Documentation: Does the vendor furnish proper documents (packing slips, invoices, technical manual, etc.) with correct material codes and proper purchase order numbers?
Emergency delivery: Does the vendor demonstrate extra effort to meet requirements when an emergency delivery is requested?
Finally, these are service factors to consider:•
Good vendor representatives have sincere desire to serve. Vendor reps display courteous and professional approach, and handle complaints effectively. The vendor should also provide up-to-date catalogs, price information, and technical information. Does the vendor act as the buying firm's advocate within the supplying firm?
Inside sales. Inside sales should display knowledge of buying firms needs. It should also be helpful with customer inquiries involving order confirmation, shipping schedules, shipping discrepancies, and invoice errors.
Technical support. Does the vendor provide technical support for maintenance, repair, and installation situations? Does it provide technical instructions, documentation, general information? Are support personnel courteous, professional, and knowledgeable? The vendor should provide training on the effective use of its products or services.
Emergency support. Does the vendor provide emergency support for repair or replacement of a failed product. Problem resolution. The vendor should respond in a timely manner to resolve problems. An excellent vendor provides follow-up on status of problem correction.
A more comprehensive approach is needed for suppliers that are critical to the success of the firm's strategy or competitive advantage. For firms that fall into the latter category performance may need to be measured by the following 7 C's.
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1. Competency-managerial, technical, administrative, and professional competence of
the supplying firm.
2. Capacity-supplier's ability to meet physical, intellectual and financial requirements. 3. Commitment-supplier's willingness to commit physical, intellectual and financial
4. Control-effective management control and information systems. 5. Cash resources-financial resources and stability of the supplier. Profit, ROI, ROE,
6. Cost-total acquisition cost, not just price. 7. Consistency-supplier's ability to exhibit quality and reliability over time.
BENEFITS Benefits of vendor rating systems include:•
Helping minimize subjectivity in judgment and make it possible to consider all relevant criteria in assessing suppliers. Providing feedback from all areas in one package. Facilitating better communication with vendors. Providing overall control of the vendor base. Requiring specific action to correct identified performance weaknesses. Establishing continuous review standards for vendors, thus ensuring continuous improvement of vendor performance. Building vendor partnerships, especially with suppliers having strategic links. Developing a performance-based culture.
• • • • •
Vendor ratings systems provide a process for measuring those factors that add value to the buying firm through value addition or decreased cost. The process will continually evolve and the criteria will change to meet current issues and concerns. RECENT TRENDS AND DEVELOPMENT IN PURCHASING Many companies are now confronted with diminishing growth opportunities, which results in a situation where an increase in turnover can only be realized at the expense of the competition and only with a great deal of effort. This leads to increased pressure on sales prices and consequently on cost prices and margins, which causes two developments.
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On the one hand it has resulted in shifts of power between purchasing and selling parties in many markets. Due to the fact that in many cases the market has changed from seller’s market to buyer’s market, the role of the buyer is now more dominant than a number of years ago.
On the other hand the increasing pressure on sales prices and margins has resulted in an increased pressure on direct materials-related costs. Because the purchasing prices determine the sales prices in the industrial sector to a large extent, the company will be constantly on the look-out for opportunities to keep these prices as low as possible.
As a result of both developments, the purchasing and supply strategies of industrial companies have undergone major changes. Several examples of these changes are presented below:i.
Co-ordination of purchasing requirements: In companies with several manufacturing plants, important purchasing advantages can be realized by combining policy is seen to emerge in many European companies of this type, even across national borders. Traditionally this was already common for raw materials; at present however, a similar approach is used for the purchase of computer hardware and software, capital goods and components. Good examples of companies with an active policy concerning purchasing co-ordination are, apart from the automotive and computer industry, Shell, Philips electronics and Alcatel.
Integration of purchasing in logistics: Automation enables companies to improve materials planning and supply systems. It furthermore may significantly improve the productivity within the materials area. An integrated approach of materials management requires close cooperation between the production planning, inventory control, quality inspection and purchasing. To achieve succesful automation, system standardization is a prerequisite. Purchasing cannot be allowed to follow its own course. To ensure effective integration of the different materials related areas. Purchasing increasingly is integrated into supply chain management.
Integration of purchasing in engineering and production planning: In practice, supplier selection is determined to a large degree by the technical specifications. Once established, this specification is often very difficult to change. From a commercial point of view it is undesirable that specifications are defined towards a particular supplier; in
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that case purchasing often ends up with a monopolist, which seriously hampers negotiating. To prevent this it is desirable to include purchasing in the development process at an early stage. The goal is to make optimal use of purchasing knowledge of products and markets for the benefit of the product design.
Make or Buy: Practice shows that several production activities can be done cheaper and faster by specialized suppliers. Moreover, companies may take greater demands in terms of quality on external suppliers than on their own. This is why in some industrial branches, the purchasing to sales ratio has been steadily rising. For some companies these have resulted in detailed make or buy studies. Purchasing should always be closely involved in this type of study, because they are the logical source of market information.
Reciprocity agreements and compensation obligations: Companies operation on international markets is often obliges to compensate their sales turnover by counter purchase obligations. The recent opening up of the eastern European block has counter trade an actual issue. Buying from these countries may even open up interesting sales opportunities. Purchasing become involved in fulfilling such obligations
Total quality control and just-in-time production: In several companies a growing interest in quality improvement and increased productivity can be observed. The activities of the European foundation for Quality Management, initiated by the presidents of 14 European industries on 5 September 1988, illustrate the first; several EEC programmes, aimed at logistics, the second. There is a growing awareness in the international business scene that, if Europe wishes to remain competitive on a world scale in several sectors, Improvements must be made in both the level of costs and the level of quality of the end products.
E-PURCHASING AND E-PROCUREMENT The Internet and e-commerce is drastically changing the way purchasing is done. Internet use in buying has led to the terms "e-purchasing" or "e-procurement." Certainly, communication needed in competitive bidding, purchase order placement, order tracking, and follow-up are enhanced by the speed and ease afforded by establishing online systems. In addition, negotiation may be enhanced and reverse auctions facilitated. Reverse auctions allow buying firms to specify a requirement and receive bids from suppliers, with the lowest bid winning.
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E-procurement is considered one of the characteristics of a world-class purchasing organization. The use of e-procurement technologies in some firms has resulted in reduced prices for goods and services, shortened order-processing and fulfillment cycles, reduced administrative burdens and costs, improved control over off-contract spending, and better inventory control. It allows firms to expand into trading networks and virtual corporations. Criteria for e-purchasing include:
Supporting complete requirements of production (direct) and non-production (indirect) purchasing through a single, internet-based, self-service system. Delivering a flexible catalog strategy. Providing tools for extensive reporting and analysis. Supporting strategic sourcing. Enhancing supply-chain collaboration and coordination with partners.
• • • •
ETHICS IN BUYING Since the purchasing department deals with large sums of money purchasing personnel may in some cases may take part in unethical and illegal activities such as manipulating quotations, fixing prices, favoring up specific supplier and so on. Most organisations develop a set of rules and guidelines to ensure that their purchasing manager conduct business in ethical manner. Some of these rules are:-
The organization’s interest should be kept in mind while purchasing. No undue favor should be taken from or given to suppliers. All purchasing activities should be conducted honestly and truthfully. All purchasing commitments should be completed on time.
Organisation can reduce the temptation to adopt unethical practices by compensating employees suitably.
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For many businesses, the advantages of online procurement have been tantalizingly clear but damnably distant. Long ago, these companies recognized that getting rid of paper-based purchasing could save them money. Their executives realized that electronic procurement could eliminate human errors and speed up business processes. But, these savvy companies weren’t willing to pay hundreds of thousands, even millions of dollars for a full ERP or e-Procurement implementation that would take months, if not years, to implement. So, these companies sat on the sidelines, monitoring the war stories of eProcurement projects that failed. Today, companies can opt for hosted e-Procurement solutions that are “pay-as-you-go” systems, instead of committing to an extensive internally managed and funded program. Hosted e-Procurement is part of the On-Demand movement typified by technology providers such as Salesforce.com and Perfect Commerce
BENEFITS OF e-PROCUREMENT
The advantages of electronic procurement are well documented. In an enterprise with buyers distributed throughout the organization, e-Procurement allows purchasing professionals to regain control of the purchasing process. With all purchases going through an e-Procurement system, the purchasing department can ensure that buying complies with negotiated contracts. It reduces “maverick” or off-contract purchasing. At the same time, e-Procurement streamlines and automates the purchasing process by eliminating paper or faxed purchase orders (POs) and supplier responses. Instead, standardized electronic documents reduce human errors and dramatically speed up PO processing, cutting time from days or weeks to minutes. Purchasing cycle times may be cut by 75 percent or more. Workflows in the e-Procurement software correctly route requests for approval. In short, procurement becomes more efficient. People who once shuffled paperwork can be assigned to higher-value procurement activities like purchasing analysis or supplier relationships. Departments can get immediate visibility into the status of all orders and requisitions, saving on urgent phone calls and faxes. In addition, reporting can provide data to purchasing
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managers to help analyze performance. Conducting this type of analysis allows some companies to cull their number of suppliers and keep only the best ones.
WHO NEED HOSTED E-PROCUREMENT?
Anyone sitting on the sidelines watching as the benefits of on-demand unfolded and who elected to hold-off on buying pricey procurement software is a candidate for hosted eprocurement. This includes large enterprises that have implemented ERP (enterprise resource planning) software but haven’t purchased the procurement modules. Another category: Midsized enterprises that couldn’t justify the expense of procurement software and on-going support in their IT budgets. In addition, many Global 2000 companies have grown by mergers and acquisitions, leaving them with a hodge-podge of different procurement systems. In some cases, past policies of decentralized IT decisions resulted in multiple procurement systems installed in different divisions or geographies. Instead of “ripping and replacing” these existing investments, these enterprises can transition their procurement process to Perfect Commerce’s Procurement Manager and their hosted supplier network, The Open Supplier Network to get centralized visibility throughout the enterprise and to enforce purchasing contracts. We needed to quickly consolidate these functions in order to accomplish our goal of delivering continuous improvement to our customers, shareholders and employees. We chose Perfect Commerce based on their proven processes and depth of expertise in bringing programs on line quickly and efficiently.”
WHAT MAKES A GOOD E-PROCUREMENT SYSTEM?
For a good e-Procurement solution, the first principle is to distribute purchasing decisions (when to buy and how much to buy) to authorized users in operating units. At the same time, a good system enforces rules set by purchasing management on preferred suppliers, approved items, terms and other aspects. In other words, enterprises should set policies globally, but implement them locally. Second, a good system must provide tools for central purchasing to aggregate demand from throughout the organization so it can negotiate better deals. That requires centralized visibility into purchasing activity throughout the enterprise. You can’t get a better deal, if you
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don’t know how much you’re buying. Once negotiated, those contracts must be enforced no more buying from petty cash and getting reimbursed for office supplies. Third, procurement is not a stand-alone activity, and e-procurement must be integrated with existing back-end financial, accounts payable and invoice management applications. Make sure the connections are easy. Does the hosted e-procurement service support SAP, Oracle, PeopleSoft or other enterprise financials? Does it allow for XML dispatching of POs and Change Orders? Does it integrate easily with supplier hubs? Fourth, don’t forget invoicing and receiving. A good e-procurement solution either addresses these activities with a complete “purchase-to-pay” system or links easily to an enterprise’s existing capabilities. Fifth, the value a company gains from an e-Procurement system depends mightily on how many employees use it to make purchases. Ease of use, intuitive interfaces and powerful search features will boost compliance. Sixth, look for catalogue management tools and services. Catalogues change, so insist on management tools to keep listings up-to-date. Finally, the success of an e-Procurement system is influenced by the number of suppliers using it. Just because a supplier is online doesn’t mean it can use your system. Look for a network that not only has many suppliers but also a network where many of your suppliers already connected. Those suppliers will be immediately available to you. For suppliers not on the network, you should be able simply to invite them to join, and then expect easy onboarding.
WHAT ARE THE ADVANTAGES OF ONLINE PROCUREMENT?
Although much attention is focused on direct procurement (materials that are utilized in a company’s final product), AMR Research found that enterprises also can realize important
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benefits from indirect e-procurement. (Indirect procurement refers to the everyday materials and services needed to run a business — MRO, industrial items, office supplies, etc.)
Importance of benefits Purchase price reduction Reduce Maverick Buying Increase efficiencies Free staff for strategic activities Staff reduction Getting business units to work together cross functionally process of
Rating 6.6 6.6 6.6 5.9 4.3 4.1
In Hard ROI 89% 83% 77% 51% 51% 23%
Table:-Ranked benefits of indirect procurement
As the table above illustrates, the biggest gains come from better pricing, sticking to authorized contracts and reduced paperwork. “The strategic relationship between Office Max and Perfect Commerce has helped customers accelerate their e-purchasing initiatives. This partnership benefits customers accessing The OSN with the fastest deployment capability in the industry. Customers can begin realizing the gains of implementing an automated procurement process in just days, not weeks and months as can be the case.”Jim Carrington, Director, Electronic Commerce, OfficeMax (formerly Boise Office Solutions)
Features to look for: Beyond those high-level principles, companies must decide on purchasing criteria that will serve them for the long term. Among the areas to consider: Easy to use. Is the user interface intuitive? If not, your roll-out could be slowed by the need to extensively train your purchasing users. Ask whether your e-procurement provider offers training services to users.
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Easy to locate items. Every e-Procurement system has a search function, but users look for items in different ways. You want multiple ways to search or browse catalogues. Once found, users want to save their commonly purchased items for future use. Also, they need to identify preferred suppliers quickly. Punch-out and round-trip. These capabilities allow buyers to access content or configuration tools on a supplier’s Web site using the buyer’s own e-Procurement software. This real-time access to configuration tools and product information is critical for products with many configurations or options and for products that must be customized for each buyer. Customize workflows. Every organization has its own authorization and approval processes, and an e-procurement solution should adapt to existing practices or allow enterprises to improve them. These include configurable approvals and routing and spending limits for specific purchasers. Create single requisitions. Buyers want to specify purchases once and have them approved and implemented without more paperwork. That means a single requisition for multiple suppliers and shipping addresses. Generate POs. Does the eProcurement system automatically create purchase orders, send them electronically to suppliers, and request electronic confirmations? It should. Check order status. Users should be able to log on and instantly see all their open orders and requisitions and their status. Handle receivables. Reconciliation of items ordered to items received, and items invoiced should be easy. Global flexibility. Global companies need an e-procurement solution that can handle multiple languages and multiple currencies
What about my suppliers?
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As mentioned above, an e-Procurement system only works if your suppliers are able to receive and process POs from it. Slow supplier adoption has hampered many e-Procurement efforts. Here’s what to look for: A single connection.-Your company wants a single connection to many suppliers, not pointto- point links for each supplier. Open system.- For suppliers not already connected to your network, look for whether suppliers can get online easily, accept electronic POs and issue invoices and ASNs, etc. Catalogue management. -Suppliers should be able to submit their own catalogue or obtain assistance in creating and loading them. Make sure those resources are available on the network you choose. Manage buyers-Suppliers need tools to manage multiple buyers (you and their other clients) on the same system. Killer combination.-procurement Manager and The Open Supplier Network
Perfect Commerce offers a hosted e-Procurement solution, Procurement Manager, that lets purchasing departments take back control of their purchasing processes. Procurement Manager, built on sound procurement principles, offers a complete solution that gives buyers centralized control of their entire procurement process.
Procurement Manager’s end-to-end functionality comes with features sophisticated buyers will prize: ·Automated requisitions and purchase orders. · Searches by supplier, manufacturer, keywords or UNSPSC commodity codes. · Comparisons of products and pricing from multiple suppliers. · A single requisition for multiple suppliers and shipping addresses.
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· Automated workflows that conform to enterprise business processes. · Support for multiple payment methods. · Detailed reports on transaction and purchasing activity. · Integration of PO extracts to AP and financials. · Integration with invoice management, providing 2- and 3-way reconciliation and dispute management. In addition, Perfect Commerce’s Procurement Manager works closely with Perfect Commerce’s Open Supplier Network (The OSN), which lists 8,000 suppliers and 21 million products ready for purchase. Many enterprises will find their current suppliers already on The OSN, the largest independent supplier network in the world. The OSN offers an “easy onramp” with automated tools not only for buyers but for suppliers too. Together, The OSN and Perfect Commerce’s hosted Procurement Manager comprise an “On- Demand” solution that delivers the fastest road to ROI. With a low start-up investment and quick deployment, Perfect Commerce’s automated processes save enterprises time and money. With Perfect Commerce, the promised benefits of automated procurement are delivered with a typical 75% reduction in purchasing cycle time and true visibility into enterprise-wide procurement spending. Procurement Manager connects seamlessly not only to The OSN but also to enterprise applications, enabling straight-through processing with financial and accounts payable systems. Procurement Manager’s flexibility lets companies configure it to their business processes, including management approvals. In short, hosted procurement streamlines the purchasing process through automation and improves spend management.
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PZ Cussons is a major manufacturer of personal healthcare products, and consumer goods. It operates worldwide, especially in Africa and Commonwealth nations. The company is listed on the London Stock Exchange and a constituent of the FTSE 250 Index.
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PZ Cussons was founded in 1879 as a trading post in Sierra Leone by George Paterson and George Zochonis as Paterson Zochonis. The British-owned company expanded its operations into nearby Nigeria before the end of the 19th century PZ expanded considerably during the 20th century, acquiring factories and establishing offices in Ghana and Kenya. It was one of three or four firms which commercially dominated Guinea as a colony before 1958. In 1975 the Company acquired Cussons Group (founded by Thomas Cussons). Later that century more offices and factories were acquired in Asia, with PZ's first factory built in Thailand in 1986, and operations expanded into Indonesia in 1988. In 1993 PZ bought the state-owned Pollena Wroclaw in Poland, followed in 1995 by Pollena Uroda and in 2002 Paterson Zochonis Plc was renamed PZ Cussons Plc. In 2004 PZ Cussons sold the 1001 Carpet Cleaner brand to the American WD-40 Company for £6.2 million. In 2005 PZ Cussons closed their Nottingham factory (founded by Gerard Bros.), and relocated the operations to Thailand. In 2006 PZ Cussons announced a plan to move their remaining English factory from Kersal to Swinton, both in the City of Salford. In 2008 PZ Cussons Plc acquired the Sanctuary Spa and Sanctuary products business.
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1879 George Paterson and George Zochonis set up a trading post in Sierra Leone 1899 Paterson Zochonis (PZ) opens a branch office in Nigeria 1948 PZ acquires its first soap factory in Nigeria 1969 A manufacturing base is established in Ghana 1973 PZ enters the detergent and refrigerator markets simultaneously in Nigeria 1975 PZ acquires Cussons Group Ltd 1976 Soap manufacture starts up in Melbourne, Australia 1977 Minerva SA, a leading Greek edible oils and fats manufacturer, is acquired 1983 PZ purchases its first soap factory in Kenya 1986 Manufacture begins at the Pathum Thani site in Thailand 1988 PT Cussons Indonesia is established 1993 PZ buys the state-owned Pollena Wroclaw in Poland, followed in 1995 by Pollena Uroda 2003 PZ Cussons Plc enter into a joint venture (Nutricima) with Glanbia Plc to supply evaporated milk and milk powder in Nigeria 2005 Nutricima JV commences manufacture in Nigeria 2008 PZ Cussons Plc acquires the Sanctuary Spa and Sanctuary products business
Strategy of Company
PZ Cussons operates in Africa, Asia and Europe with its strategy built on four core principles. We operate in selected markets that have the potential for future growth, both in mature and emerging markets. Our presence across Africa, Asia and Europe ensures a naturally balanced portfolio of global markets, which we continually review to ensure they provide the Group
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with the best opportunities for profitable growth. We take pride in our knowledge of local markets which enables us to respond quickly and appropriately to local needs. We develop leading brands for the markets in which we operate. Whilst some have global reach, the majority of our brands are sold only in local and regional markets as we create products that are particularly suited to local needs and tastes. Our strategy is to grow these brands so they achieve category leading positions in their markets and we continually review and expand the categories in which we operate to ensure profitable growth. We are proud of our portfolio of category leading brands which are developed to satisfy the particular needs of local consumers. We operate world class supply chain networks that enable us to deliver our brands quickly and efficiently to our local consumers. Our distribution systems vary by market type, from traditional supply chain models in mature markets to extensive nationwide depot networks in emerging markets. We continually adapt our methods of distribution to suit our local markets and to changing market needs. We take pride in our flexible distribution capability which is tailored specifically for the local market. We recruit, develop and retain a great team of people who are aligned with our values and who can drive our plans for growth. Our aim is to create a high performance culture offering career experiences and development. We work together as a true meritocracy where leadership is determined by talent.
PZ Cussons has factories in Salford and a number of countries abroad including Poland, Thailand and Indonesia. The PZ Cussons Group operates in Europe, Africa and Asia, in both mature and emerging markets.
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• • • • • PZ Cussons' main brand is the Imperial Leather range of soaps, bath and shower and cosmetic products. It also produces Joy soaps, Cussons Kids toiletries, Premier soaps, Carex antibacterial moisturisers, Cussons baby lotions, Luksja gels and soaps, Makler perfumes, Pearl soaps, Sweet Seventeen teenage cosmetic products, Venus range of hair care products, Original Source shampoos and gels, Morning Fresh dishwash liquid, Flourish Toothpaste, Elephant Extra Detergent, Radiant Laundry Granules, Robb mentholated rubs, Duck Laundry Soap and Minerva Olive Oils.
Purchase Procedure of PZ CUSSONS
Annual Requirement/ Purchase Request
The specifications and number/quantity and delivery of equipment, devices and materials are determined by the department that will be using the product or materials. The Purchasing Department conducts purchase activities based on
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purchase requests submitted by the Concern department. The Purchasing Department, at its sole discretion, selects companies from which estimates will be sought. Suppliers are selected from the files of "Companies with Previously Established Business Relationships", "Companies from Which Estimates Can Be Requested" and "Products and Suppliers". Selection is made by comprehensively evaluating such factors as Selection Of Companies/ Regular Supplier the quality and performance of the equipment, device(s) or materials to be purchased, compatibility with existing facilities, degree of reliability, product requirements including safety, delivery time, the scale of the order, after-sale service and the company's previous business record. As a rule, when requesting an estimate from a company that it has selected, PZ Cussons will set out a specification from listing PZ Cussons requirements in respects of quality, performance standard, size, inspection and method of inspection. The selected ESTIMATE REQUEST companies will be asked to submit cost estimates and specifications to PZ Cussons prior to a specified date.
Specification sheets submitted by potential suppliers at their own expense are checked by the Purchasing Department and the department that will be using the product, in order to SUBMISSION ESTIMATE determine whether the required standards are met by the product. All products must pass this examination. During this process, Osaka Gas may request additions or changes to the specifications. After valid cost estimates and specifications have been comprehensively evaluated in respect of price, technical requirements, etc. PZ Cussons will commence negotiation with the company with the most attractive proposal to discuss the NEGOTIATION
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amount of the contract and other terms and conditions. The selection of such a company shall be made by PZ Cussons at its sole discretion. Contract terms and conditions will be decided upon mutual agreement. The business will be established upon conclusion of a contract, in the form of a written document if necessary. The obligations and liabilities of PZ Cussons arise only when such contract is CONTRACT CONCLUSION concluded. Delivery dates specified in the contract must be strictly observed. Precise details of the delivery schedule will be agreed between the supplier and the relevant department of PZ Cussons. Delivered equipment, device or materials must pass inspections conducted by the relevant department of PZ DELIVERY AND INSPECTION Payment will be made according to the payment terms specified in the contract. PAYMENT Cussons. When deemed significant, an interim inspection may be conducted during the manufacturing process.
Operations Management By S.N. Charry Purchase and Supply Management by Arjan J Van Welee Operation Management by ICFAI Business School Operation Management by K. Ashwathapa Purchase Management by L.C. Jhamb Wikipedia
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