Unit 5.

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Key questions
Purchasing Requirements
▪ Explain problems which could arise if
Strategy purchases are not correctly specified.
Elliot Simangunsong, Ph.D., Dip. SCM (ITC)
Correctly specifying the requirement is the starting
▪ Give examples of Capital requirements, MRO,
point to obtaining value for money & avoiding Goods for resale, and Production
misunderstandings with suppliers requirements
▪ Give concrete examples of what can be
specified in terms of quality, quantity,
delivery, service and additional information to
be provided to a supplier.

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The Ability to Influence Cost What can happen when purchasing &
supply is not involved in specifying...

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Cost
Saving
Urgent requirements 9
6
3

Potential Ignoring good commercial practice, resulting

in:
– Restrictive specifications
– Expensive customised parts
– Sourcing difficulties
– Over-specifying
Conceptual Detailed Testing Production
Design Design Lack of clarity for the supplier

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 Not specifying your products or
services correctly may lead to:
❑ Interruptions in the
production process
❑ Damaged and unusable inputs
❑ Using prohibited substances
❑ Machinery and equipment brea
Types of requirements
I. Capital requirements
II. Maintenance, Repair & Operations (MRO)
requirements
III.Goods for resale
IV.Production requirements
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kdowns
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▪ Correctly specifying the requirement is the

❑ Services not available when ne starting point to obtaining value for money &
eded avoiding misunderstandings with suppliers

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Determining and specifying

requirements means knowing:
❑ What is required?
Purchase
❑ How much is required?
Specification
❑ When is it required? Specifying Other
the required information
❑ Where should it be delivered? product/ needed by the
service supplier
❑ How should it be transported? Specifying
Specifying
Specifying supplier service/
the quantity
❑ How should it be quality tested? the delivery responsiveness
requirements
❑ What other information does my
supplier need?

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 Specifications of
Products/Services
• Technical specification
• Performance specification
• Brand name
Purchase
+ Specification
Specifying Other
the required information
product/ needed by the
_ Need for
• VA / VE service supplier
• Brand name Reduce differen-
tiation
cost + • Standard
Specifying
Specifying
Specifying
supplier service/
the quantity
the delivery responsiveness
requirements
_
• Standard

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Specifying Quantity

▪ Class Discussion:
Purchase
The following statement is extracted from an annual Specification
Specifying Other
manufacturing budget: the required information
product/ needed by the
service supplier
“ Component Z: quantity: 1200 units at $10.00 each = Specifying
Specifying
$12,000 total ” Specifying supplier service/
the quantity
the delivery responsiveness
requirements

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 • When & where somethi
ng is needed
• The lead-time availabl
e to the supplier
• Reinforce through con
tractual terms & arran
gements
• Full address • Consider damage, time
• Contact person and cost
• Restrictions on deliveries (
timings, weight & size of deliver • Nature of packing requ
y vehicles and packages) ired
• Access to premises
• Special transport arra
• Supervision and confidenti
ngements
ality (services)

ITC

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Purchase • Levels of service

Specification
Specifying Other
the required information
product/ needed by the • Technical
service
Specifying
supplier supervision/
Specifying
the quantity
Specifying supplier service/ assistance &
the delivery
requirements
responsiveness
training

• Maximum time frames for repair

& delivery of spare parts, etc.

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 ▪ Technical, purchasing
& finance contact
Purchase persons ▪ Information on the buying
Specification company
Specifying Other
▪ Statement of intent
the required information
product/ needed by the ▪ To help suppliers to
service supplier optimise their designs
Specifying
Specifying
the quantity
Specifying supplier service/ ▪ Scope of supplier’s ▪ Legislative requirements
the delivery responsiveness responsibilities related to:
requirements
▪ hazardous goods
▪ health & safety
▪ Safety & ▪ environmental protection
environmental policies ▪ import restrictions...
ITC M2:U4:4.5-1

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The “7 Rights” of purchasing & supply How to implement in practice?

1. The right product or service, of the right quality ▪ P&S should be informed & involved early
2. In the right quantity (or quantities)
▪ Specifying should involve interaction at
3. At the right time(s)
various levels
4. At the right place(s)
5. With the right support service ▪ It should be a cross-functional process
6. At the right price or total cost of acquisition / ownership ▪ P&S should contribute its market knowledge
7. From the right supply chain (i.e. supplier, logistics and facilitate suppliers involvement to
provider, etc.).
promote innovation & best solutions

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 Interactive Exercise

▪ Case Discussion:

Deere Cost Management

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