21-May-19 Procurement Procurement “ Procurement means acquiring goods and/or services from an outside source. Procurerrent is the term generally use by government, while business uses the term purchasing, and outsourcing is commonly used by the information technology industry. “ Procurement includes purchase and supply of goods. These two elements interrelate to each other. + In Carly days, the purpose of procurement was to make goods avaliable for the production process, which were not prodiiced by oneself.21-May-19 Procurement 4 Today the focus changed in the way, that more often the offer is bigger than the request. The possibility for negotiation of the customer Increased and so their buyer- power. + The upcoming spread of intemet and new media offers ne possibilities for the whole procurement process, New tren lead towards E-Procurement and Online Market Places. + The basic procurement decision of each company is the so called make-or-buy-decision. Companies have to decide whether to produce or to Buy components. By choosing the concept of outsourcing, the company concentrates on its core’competences. Procurement21-May-19 © Stages of Procurement + Step 1: Need Recognition - This is a seemingly obvious step, but one that needs to be mentioned, A business ‘owner (or procurement department) must recognize a product is needed in order to purchase it. That product, can be either a brand new item, or one that is being re- ordered. + Step 2: Specific Need — Does your industry have specific requirements for various praducts. If that is the cas your industry, be sure you are up-to-date on those requirements and order actordingly. 8 Stages of Procurement “ Step 3: Source/Examine Supplier Options ~ Every business needs to determine where to get their goods. ‘Some companies have an approved vendor's list (this is a recommended practice) whl e others are still trying to determine who the best supaliers are. Once a supplier is chosen, companies should stick with that relationship a try to establish preferred pricing. o Step 4: Price and Terms — Orive ¢ supplies is chosen, companies should stick with that relationship and try to establish preferred pricing and specific terms (i.e. delivery).21-May-19 © Stages of Procurement + Step 5: Purchase Order — The purchase order is used the formal contract used to buy the product. The purchase order outlines the price, specifications and terms and conditions of the product or service and any other additional obligations. + Step 6: Delivery - The transfer of the purchase order vial email, mail or fax (email is highly recommended). 8 Stages of Procurement “ Step 7: Expediting - This stage addresses the timeliness of the service or materials delivered. Delays, for many businesses, are important, Tne purchase order will have expected delivery date information. + Step 8: Receipt and inspection - Once delivered, the receiving company inspect and, subsequently, accepts or rejects the product. Rejection is almost always due to a damaged product.21-May-19 © Stages of Procurement “Step 9: Invoice Approval and Payment ~ At this stage, three documents must match when the seller wants payment — the invoice, the receiving document (attache to the product) and the original purchase order. This Is known as three-way matching. If there is a discrepancy, jf must be resolved before payment is made. + Step 10: Record Keeping - The receiving (buying) company must keep good records. This means saving all relevant documents for every completed purchase. Procurement Methods Generally speaking, there are six procurement methods used commonly, The actual names of these could vary depending on industry, but the process remains the same. Open Tendering + Open tendering is shorthand for competitive bidding, It allows ‘companies to bid on goods in an open competition or open solicitation manner. Open tendering requirements call for the ‘company to: > Advertise locally > Have unbiased afd coherent technical specifications > Have objective evaluation measures > Be open to all qualified bidders > Be granted to the least cost provider sans contract negotiations21-May-19 Stages of Procurement Restricted Tendering + Unlike open tendering, restricted tendering only places a limit on the, ‘amount of request for tenders that can be sent by a supplier or service provider. Because of this selective process, restricted tendering is also sometimes referved to as selective tendering. © Like open tendering, restricted tendering is considered a competiti procurement method, however, tie competition is limited to, agencies that are invited by the procuring team, The procuring entity should establish a set of guidelines to use wh selecting the suppliers and service providers that will be on the invitation list. Randomized selections will not bode well for procuring, This method is selective to find the best-suted and most qualified agencies to procure goods and services from. It’s also ‘employed as a way for the procuring team to save time and money during the selection process. Stages of Procurement Request for Proposals (RFP) “+ Request for Proposal isa term thet is used all across the business world, Social media managers receive RFP's from potential clients a the time when a client is seeking a new manager of their venture. & This kind of proposal is a compelling and unique document stating why the business is the best fit fo-the type of project at and. Similarly in the procurement world, a RFP is@ method used when suppliers or service providers are proposing their good or service t procurement team for review. Ifyou're @ supplier, understanding th in’s and out’s of quality service management is key to winning your biStages of Procurement Request for Proposals (RFP) ++ Procurement teams are often on the hunt forthe best valued, most marketable iteme to bring into cireulation. A client may feel they have: of the qualifications to fit the needs of fuliling.a specific requirement, cof a procurement team ~ but they have to prove it. The agencies writ the RFP's should submit a two-envelope proposal to the procurement| manager, The two-envelope process allows the procurers' to review t proposal through and through without knowing the financial ‘component. The financial proposals sealed in the second envelope a should only be opened after the content of the first-envelope proposal is approved or rejected: The.proporal with the best fit qualifications an best price will be selected. ifa lesser qualified (yet stil qualified) selection has a lesser price, no contract should be negotiated. The most {qualified and appropriate proposal, regardless of price, should be selected. Stages of Procurement ‘Two Stage Tendering “*P Thete are-two procedures that are used under the two stage tendering metho Fach one of the procedures has a two tage process. This can be disadvantageous for some procureme rt teams ifthere is atime limit on securing a contract. In the same vein, tis option s more flexible for both partis, allowing more oom for discussion to meet mutual needs, “The frst procedure is very similar to the REP method as discussed above. The procurement team receives a proposal ith two envelopes —one with the proposal itself and one with the associated financal information. The differe the bidder & requited to submita technical proposal that highlights their solutions to fulfilling the requirementsas specified by the procuring, department. This proposal i septed according to the relevance of the solution to the needs of the procurer, The highest scoted proposal is invited for further discussion in an attempt to each an agreement. fer the final agreement for ‘the technical proposal is reached, the biddé is invited to submit their financial proposal and then further discussions ensue'to negotiate a contract 21-May-19Stages of Procurement ‘Two Stage Tendering The second procedure is much like the above, however, instead of the bidder submitting a fully-comaleted technical proposal, a partia proposal is submitted. The methodology and technical specificatio will be included but not to the ful est extent. This allows room for even more customization and discussion, Once the highest qualife bidder is selected, they will be invited to submit a thorough techni proposal along with a financial proposal. The technical proposal wil be evaluated and only then will tre financial proposal be opened. ‘The combined score of both the technical proposal and the financial proposal are the grounds oh which a bidder is contracted, Stages of Procurement Request for Quotations + This procurement method is used for small-valued goods or services. Request for quotation Is by far the least complex procurement method available. If you have the option, use this method to ensure a fast procurement process and not a lot of paperwork. There is no formal proposal drafted from either party in this method. Essentially, the procurement entity selects a minimum o} ‘three suppliers or service providers that they wish to get quotes from..A comparison of quotes is analyzed and the best selection determined by, requirement compliance is chosen. 21-May-19Stages of Procurement Single-Source ‘ Single source procurement is a non-competitive method that should only be used under specific circumstances. Single source procurement occurs when the procuring entity intends to acquire goods or services from a sole provider. This meth should undergo a strict approval process from management before being used. The circumstances which call for this method are: > Emergencies ifonl one supplier available and qualified to fulfil the requirement > if the advantages of using a certain supplier are abundantly clear > ifthe procurer-vequltesa ceytain product or service that is only duailable romane supplier > For thé continuation of work thal Cannot be reproduced by another supplier Types of procurement Single procurement Single procurement is triggered by a specific customer order and initiates the suppliers process of production. ‘Stock procurement “ Stock procurement means that goods are shipped to stock in periodically defined terms without any specific order of @ customer. The important premise is, that the demand can be forecasted. When finishing the production process, the goods be stocked until the next orciar is received from the customer. One way of applying stock procurement by the customer is to define the minimum stock level. If the stock level falls below this definedilimit, the procurement process is initiated % This type of procurement offers high flexibility to the customers, but the procurement costs tend to be-higher. 21-May-1921-May-19 Types of procurement Vendor Managed Inventory (VMI) * By using the VMI-concept the supplier is responsible for ‘the stock at the customers company. A crucial premise t achieve optimized processes, lower costs and high flexibility is @ close network with the supplier. Types of procurement Just in time procurement + Just in time procurement is characterized by low stock levels at, the customers’ company. This leads to a reduction of costs an to lean and balanced processes. The entrepreneurial applian of just in time delivery only makes sense, if the suppliers’ pla is in the maximum radius around 100 km to the customers’ place. In times of global sourcing, logistic centers are therefor established in strategic areas close to the customer. For a successtul implementation ot just in time procurement is very importanttto install and build up an operating, close network. Therefore processes with the suppliers, ‘communication, transport and logistics as well as quality management are crucial processes.-These processes need to be perfectly coordinated. 1021-May-19 Types of procurement Just in sequence procurement + This concept is based on the just in time concept. It is extended by the supply of goods in the required sequene! at a defined time. This leads to a very efficient and lean way of procurement. Shipto line “The goods are directly delivered from the last value add process of the supplier to the first value added process o the customer. That means that only few logistical steps ar: needed: Trends in Supply Chain Management 4 Consumer expectations are becoming increasingly higher. ‘When once consumers were happy with waiting a week to receive a package in the mail, today anything longer than two day delivery means that many consumers will forget their ord by the time it arrives, and maybe decide they would rather n receive any item at all than wat. 4 Companies, retailers, and suppliers are now expected to comply and come up with creative ways to meet consumer demands, For example, Amazon recently announced that it w. expanding its samé day delivery service on its Prime Now app and EBay also tried a pilot in the US for same day delivery. at21-May-19 Trends in Supply Chain Management “ For consumers, same day delivery is convenient, but what they don't see is the significant planning and resources that go in to, managing a supply chain that can deliver in such a short time frame. For example, same day delivery requires companies t have inventory on hand in close proximity to the consumer al to have streamlined logistics that would allow it to process, pack and ship an order almost instantaneously. With these requirements come challenges of inventory storage, forcing companies to find a balance between the minimal inventory neéded.to safeguard against stock outs, and the threat that inventory may expire or go out of style before it is sold Trends in Supply Chain Management 4 Determining the right level of inventory is no easy task. In fact, forecasting and demand planning is the biggest challenge in supply chain management today. This challenge is only gettin harder as the way people shop keeps changing, 12Trends in Supply Chain Management Supply Chain Challenges sosicions Fang uty ‘uppers ara tnd halersnng Optima evel) ee Darang Expand Sec etl wth Trends in Supply Chain Management 4 The consumer's relationship wth retailers is no longer that of a person in need seeking something from a giant provider. Shifting trends have given consumers more power in the relationship, causing consumer activity to change and forcing, retailers to adjust accordingly. + Some of the biggest global trends affecting consumer activiti are: > Changing consumer experience > Growing ecommerce > Crowding in urban centers 21-May-19 1321-May-19 Trends in Supply Chain Management “ To meet these challenges, companies to adapt and modify their supply chains to maintain profitability in more complicated world. “ Direct Delivery Channels : This means stores will have to offe| more same day delivery services, the ability to buy online an pick up at store, allow for instant shopping without a store, ai skip supply chain links. Trends in Supply Chain Management Transparency : Today's consurrers expect transparency from retailers, from how things are made to how they are delivered., ‘With new advances in technology, such as the loT (Internet of, Things) and big data, companies are able to gain complete visibility of their entire supply chain and make dynamic decisions and optimize their resources. Y a\ O° 1421-May-19 Trends in Supply Chain Management + Collaboration : Companies will need to work together to ‘optimize their supplier chains. While working alone may seem preferable, companies can save money and time if they share, ‘whether it be space in a warehouse or truck, of in a delivery system. Agility and Flexibility : The ability to change plans fast and react will become more and more important, as companies stuck in their ways will find it harder to maintain profits if the can't keep up with trends. Trends in Supply Chain Management % “itis not about improving the eccuracy of the forecast and reducing the amount of uncertainty in the future, it is about eliminating the need for certainty." Ronald W. Bohl, Senior director of supply chain at Eli Lily * Supply chain management is all about meeting customer demands in a way that is profitable and sustainable. As demands change, so must supply chains so that they can be managed and operated as needed. 15