A Report on

Purchasing & Procurement

(Traditional & Electronic)

Prepared For: Ankur Sandal

Prepared By Amit Kumar

(A00106100)

What is Traditional Procurement?

 Procurement is the process of sourcing and
acquiring the goods and services, a company
needs to fulfill its business model.
An effective procurement strategy can save company money by negotiating
favorable terms and pricing, and ensuring supplier quality and efficiency.
Procurement deals with the sourcing activities, negotiation and strategic
selection of goods and services that are usually of importance to an
organization. Purchasing is the process of how goods and services are ordered.

Steps in the Procurement Process

Procurement involves much more than just handing over the company
credit card and paying for a purchase. An effective procurement strategy
includes everything from identifying which goods and services a company
needs right through to maintain the right documentation and records.

Steps:
1. Identify which goods and services the company needs
2. Submit a purchase request
3. Assess and select vendors
4. Negotiate price and terms
5. Create a purchase order
6. Receive and inspect the delivered goods
7. Conduct three-way matching
8. Approve the invoice and arrange payment
9. Recordkeeping
 Why is Procurement Important in Business?
Procurement is important in business because it directly impacts a company’s
profit. For an organization to be profitable, the cost of procuring goods needs to be
less than the amount it sells those goods for, excluding whatever costs are
associated with processing and selling them.
Implementing the best procurement procedures will ensure that the buyer (i.e. the
company) is acquiring goods, services, or works at the best possible price at all
times.
Furthermore, procurement is linked to several core business functions within an
organization. So it should always be considered a critical part of any organization’s
corporate strategy.
Four pillars of corporate strategy.

Corporate Identity

 What does our company do and stand for?

 What beliefs inform our business model?

Market Placement

 Who are our customers?

 What do they want?
 What do they believe in?

Company Capabilities

 What are our strengths and weaknesses?

 Do our strengths support our long-term goals?
 How do we want to grow?

Management Issues

 Do we need to hire/develop talent to lead us to our goals?

 Does the company have the resources needed to achieve our goals?
 What is Electronic Procurement?
 In its journey of maturity, procurement has gone through dramatic changes,
evolving from a tactical function to a digitalized, strategic process. In the traditional
process of procurement, the function was managed manually, depending heavily on
Excel sheets, paperwork, as well as phone calls and in-person conversations. In this
tactical approach, the goal was to simply fulfill goods and services to obtain the right
quantity at the right price at the right time. In handling procurement as a process of
short-term purchasing rather than an integral component of business operations,
companies missed out on the value that a strategic approach can bring. Manual
procurement handicapped a company’s operations and potential for financial
success, relying on time-consuming and tedious, repetitive tasks that failed to
generate significant savings or profit.

Role & Importance of moving the process of

procurement to an e-procurement platform in
Supply chain:
To begin with, to be able to handle the rapidly changing demand patterns and agile
business operating models, today’s supply chains are undergoing a makeover. From
being sedated, uni-dimensional sequences of discrete functions, the supply chain
has transformed into dynamic, adventurous, and interconnected network.
Furthermore, to achieve business objectives and deliver customer satisfaction,
manufacturing, planning, procurement, inventory management, and logistics are
harnessing end-to-end supply chain.

ROLE OF PROCUREMENT IN SUPPLY CHAIN

In this case, there is a need to manage suppliers to ensure reliable delivery from
their end and risk mitigation. It is the procurement’s role to transform traditional
procure-to-pay and cost-savings to a more strategic approach. The responsibility
includes qualifying, on-boarding, and managing suppliers.

SUPPLIER MANAGEMENT STRATEGY &

PROCUREMENT
Supplier risk is known as the second-highest priority for CPOs after managing cost
and profit. If not managed competently, Supplier performance impacts a company’s
financial results and damages its reputation. For this, a comprehensive supplier
management strategy is crucial. Procurement authorities with large supplier bases,
complex supply chain operations, and a large amount of direct spend, should adopt
supplier risk management strategy. Through this, Procurement can create a
disciplined framework for suppliers to deliver to the company’s business
expectations.

Importance of Procurement in Supply Chain

1. Improvement of Operational Efficiency in Supply chain management:

Procurement professionals can get so much more done by simply transitioning from
a manual approach to an electronic one that utilizes e-procurement software. In a
manual approach, procurement operations were managed through paperwork, Excel
sheets and phone calls. In moving operations to an e-procurement platform, S2P
processes become automated and operations are sped up with much faster
processing, allowing procurement practitioners to save time.
2. Increase in Visibility and Transparency
In the traditional approach of procurement, it was very difficult to track and manage
behavior and patterns and without a clear, streamlined view of operations and
transactions, companies couldn’t realize significant value or savings. With the
implementation of e-procurement software, overall visibility and transparency of S2P
processes are boosted, offering procurement professionals greater insight into
spend behavior.
3. Boost in Compliance
When procurement was handled manually, it was difficult to manage relationships
with suppliers and track their performance. E-procurement software offers
companies a comprehensive understanding of their purchasing transactions, as well
as a stronger handle on the life-cycle of their contract with a supplier. With the use of
technology, companies can more effectively monitor supplier performance to help
ensure that a supplier acts in compliance with contractual procedures.
4. Capturing More Savings and Value
An effective use of procurement is about increasing a company’s bottom line and
generating more savings and value to the enterprise. The traditional approach to
procurement downplays a focus on strategy, treating procurement more like a short-
term process of purchasing, thus failing to bring significant savings and profit. With a
digital platform, companies’ can more easily achieve their financial goals with
strategic sourcing of suppliers, better management, and visibility of spend.
5. Enabling Focus on Strategic Work
A mere tactical approach to procurement limits its possibilities. If procurement is
treated like a trivial form of purchasing, procurement professionals would miss out
on a deeper analysis of their company’s spend behaviors and patterns. The
immense benefit of e-procurement software lies in its ability to efficiently handle the
tactical and transactional functions of procurement, freeing up procurement pros to
focus on strategy. By channeling their efforts into more strategic work, procurement
professionals can greatly impact the overall value they can bring to their company.

What is Traditional purchasing?

Purchasing is a set of tasks involved in buying goods and services. This
process involves tasks such as ordering, raising purchase orders, receiving,
and arranging payment.

What are the Steps in the Purchasing Process?

As a function, purchasing is a subset of procurement, thus the purchasing process

sits inside the procurement process.

The steps explicitly related to purchasing should not be tailored to suit the size and
scope of each individual business. These are fundamental steps of good purchasing
and should be employed routinely as a best practice in all businesses.

Steps involved in the purchasing process:

Purchase Order Acknowledgement

Advance Shipment Notice
Goods Receipt
Invoice Recording
3-Way Match
Payment to Supplier

E-purchasing

Electronic purchasing (e-purchasing), automates and extends manual buying

and selling processes, from the creation of the requisition through payment of
the suppliers. The term e-purchasing encompasses back-office ordering
systems, e-marketplaces and supplier websites.

Importance of E-purchasing in Supply

chain- In the emerging digital era, businesses increasingly use electronic
systems for more efficient, predictable, transparent and secure management
of their supply chains. E-purchasing systems provide up-to-date information
on the status of buyers' needs. They allow the establishment of an agreement
with a seller to automatically ship materials when a buyer's stock reaches a
low point. This also applies to the solicitation phase where buyers can track
incoming offers prior to supplier selection. Electronic purchasing provides
predictability as sellers know what to expect and can review an order's
progress, often in real time. Also, the status of the goods can be followed in
real time. A product will show as having been delivered, accepted and
processed for payment without the seller having to call and request
information from accounting staff. Transparency and accuracy is facilitated,
with data exchanged and stored electronically instead of through paper-based
documents.
ROLE OF PURCHASING IN SUPPLY CHAIN

Purchasing departments are at the centre of successful supply chain

management.
Typically, they help other departments to identify their needs, manage the
requisition process and source competitive prices, and generally act as
controllers to ensure adherence to budgets.
To ensure quality and to prevent unethical practices, purchasing is usually
separate from receiving and accounts payable.

Major Objectives of a purchasing department in a

Supply Chain of a business firm.
Lower costs
 The primary function of the purchasing department is lowering the cost. A
well-run department should achieve immediate savings by choosing a mix
of suppliers who can provide the best prices and terms. In this process,
 relationships with suppliers who cannot provide the right level of quality at
the prices required are terminated.
 The purchasing department can also provide savings by taking advantage
of warranties and discounts often forgotten by non-specialists.

Reduce risk and ensure the security of

supply
 Supply chain management involves sharing and managing risks with
suppliers. This can be done by moving the risks to the suppliers who are
best able to manage it. Or it can be done through diversification of supply.
 The purchasing department has to identify what goods and services are
crucial to the company and take the appropriate steps to secure their
supply chains accordingly. Often, this comes down to an economic
decision, where higher risks can result in lower prices, or vice-versa.

Manage relationships
 Purchasing is not only about sharing risk, it is also about sharing benefits.
 Passing on risk to a supplier or outsourcing a service often requires more
management of the supply chain, not less. The challenge of the
purchasing department is to get the supplier interested in working with
your business, getting them to invest in the long-term relationship.

Improve quality
 Purchasing departments can help to improve quality by establishing target
performance levels for quality and then tracking performance against
those targets. Critical to quality characteristics is a typical metric used to
measure things such as durability, the look and feel of the product or the
timeliness of delivery.
  Some companies work closely with their vendors to develop their
processes and assist them in improving quality.

Pursue innovation
 Due to the fact that the purchasing department is always in contact with a
variety of outside businesses, it is in an ideal position to source innovative
goods and services that can provide a competitive advantage to a
business with an edge in price, quality or convenience.
 The purchasing department will also play an important role in helping to
source supplies for innovative products or services developed by a firm.

Leverage technology
Purchasing department should identify technology solutions to address supply
chain problems of a business. The purchasing department should also play an
important role in the selection and implementation of ERP systems, inventory
control systems and other technology that aims to improve the efficiency of
supply chain management of a firm.

Procurement vs Purchasing
Procurement and Purchasing are both performed when a company needs to acquire
goods and services. But these two functions have different focuses and different
methods for achieving their respective end goals .

Procurement Purchasing
 To identify company needs and fulfill To arrange company expenditure and
What is the end
the procurement of those needs. It buy goods/services for the company.
goal?
is a strategic, proactive process. It is a reactive process.

How
Places more importance on an item’s
goods/services are More focused on price than value.
value than how much it costs.
assessed

Involved in the end-to-end activities

When it’s Gets involved when it’s time to buy
needed to acquire all necessary
deployed goods and services.
goods and services.

Everything from need recognition to

Tasks involved sourcing, contract closure, and Ordering, expediting, and payment.
recordkeeping.

Focused on making efficient

Focused on developing long-term,
How it deals with transactions; not overly concerned
win-win relationships with suppliers
suppliers with developing vendor relations
(relational focus).
(transactional focus).

E-Procurement Tools and Applications

E-Procurement Tools: Built For Purpose Software
Introduction:
In simple terms, e-procurement is an electronic data transfer that supports
strategic, operational, and tactical operations. The industry has been using
either pyramid for a long time in one form or another. In the earliest iterations,
it was done with paper and fax machine or mail, but today, most of it takes
place over the internet.
Traditionally, procurement of material and supplies used done through a
paper-based process that slowly migrated to an electronic option to print and
store orders. As e-commerce rose in popularity, procurement moved from a
paper-based process to websites an email. As internet technology continues
to evolve, the e-catalog became front and center, thereby allowing
procurement to take place through the internet. In the current market with
data security and advanced tools, the entire process of e-procurement is done
over the internet.

E-procurement is an essential part of the purchasing professional’s arsenal.

Nearly 90% of large companies use a dedicated tool. 86% of those surveyed
say their company has deployed an e-procurement tool. Of these, 60% are
using module developed by a specialized procurement provider. 20% indicate
they’re using a procurement module that is part of an ERP system and the
remaining 20% another tool, most commonly an internal development.
E-Procurement Tools and Applications
 With an electronic data interchange system, procurement messages are
exchanged between computers belonging to separate organizations. The
messages are transferred in batches and can be easily transmitted and
stored. EDI is mostly used for order transmission, order confirmation,
logistics information, and order invoicing.
 Enterprise Resource Planning systems have separate modules to handle
the procurement function. These systems are modular software systems
designed to help you integrate the main functional errors of your
organization’s business processes into a single unified system.

 ERP system includes core software components such as customer

relationship management, supply chain management, finance &
accounting, human resources, and more. An organization can choose
which core module to use based on which firm feel is most critical to
business.

 There are several internet-based tools and resources to help in the

procurement process. Some of the most common applications include
internet-based EDI, XML-based data exchange, and email. The internet
provides tools for e-sourcing, e-auctioning, e-tendering, e-ordering, and e-
catalog.
 E-sourcing tools help to identify potential suppliers during the selection
phase.
 E-tendering tools send out tenders with procurement requirements, the
supply schedule, contract terms, and so on.
 E-auctioning tools bring together potential suppliers identified during the
selection phase under a single umbrella to undertake and auctioning
 process. E-auctioning tools operate under two separate mechanisms – an
upward price mechanism for the selling organization and a downward
price mechanism for the buying organization.
 E-ordering tools are used to procure items. They are accessible to all
employees of the organization. E-ordering tools are used mainly for ad-hoc
purchases.
 A web-based ERP tool is used for product-related purchases and is used
solely but the procurement department. It falls under a planned process.

XXX End XXX

References:

https://www.purchasecontrol.com/blog/e-procurement-tools/

https://www.smartbygep.com/blog/traditional-procurement-vs-e-procurement

https://blog.procurify.com/2014/02/07/what-is-the-difference-between-procurement-and-

purchasing/

https://www.bdc.ca/en/articles-tools/operations/purchasing/pages/purchasing-department-

objectives.aspx