Sourcing process:

 Sourcing is the stage that comes before any purchases are made and can be
considered a subsection of the procurement department.

 When you have an effective strategic sourcing process in place, you’ll find
reliable, affordable, and quality suppliers to supply the goods you need.
Good work here makes the procurement process more streamlined and
efficient.

 You must assess your purchasing needs, map out a plan, conduct market
research, and identify potential suppliers. After all this is completed, you’ll
then evaluate the suppliers, and then choose the most suitable supplier for
the need. 

 Stages in Sourcing:

1. Specification development

What are the needs of your internal customer i.e. the person who requires the
product or service to be purchased? As a buyer, your challenge and “translate” these needs
in specifications that suppliers can understand.

The objective of buyers at the specification stage is twofold:

 Reduce total costs

 Safeguard a competitive market at the upcoming negotiation stage: key cabinet:
ABC

Developing specifications in its turn is a 4 step process:

 Assess Customer needs 10*10

 Assess what the market has to offer 10*12
  Develop specifications 10*12
 Define winning criteria

2. Market Assessment

Once you have a clear picture of the business requirements, your next step is to
formally invite suppliers to quote for your business.

You formally approach the market via:

Request for Information (RFI)

 This is used to pre-qualify suppliers to whom you would send the RFQ.
 An RFI is usually a simple and short questionnaire for the supplier, which
enables the buyer to judge if the supplier is promising and has a good chance to
win the business.
 An RFI is optional. If you know the market relatively well, there is no need for an
RFI.

A Request for Quotation (RFQ)

 This is a formal request to the supply market to quote for your business.
 The RFQ is a more complex document with a company presentation, bidding
instructions for suppliers and detailed information about the project and
requirement

 Right price
 Right place:
 Right time
  Right source/vendor
 Right quality

Purchasing:

Purchasing process focuses on how products and services are acquired and ordered,
such as raising purchase orders and arranging payment.

Negotiation: RFQ (discussion for price reduction)

 Price based (standard) :50-45, 30days, 15days
o Base price 60%-70%:42 (Material + processing )
o TS
o Package
o Loading and unloading
o Tax:2
Price parameters(price brake up)
o Insurance
o Profit margin 100

Payment terms

Service

Non- price parameters

Warranty=

Post sale support

1. 10/ unit: 1,00,000- :1,00,000*10=10lkh price /unit is low



Cash contribution:10%-5%

Free of charge qty : 200 FOC:99800*10=998000-100FOC

Part package contribution: FOC and cash contribution: 100 foc+ 3%

 2. 10,000/unit: price BP: A10000: 500, B 9800: 200and C 10800: 800

9500*1000=95,00,000 5%=3%: 10000*1000=

9500/unit: 500*100=50000+3% 92000

Non price terms:

o Payment terms30 -60

o Service
o Post sale support: paid 4hrs= 500, 8hrs=400
o Warranty =1y 4hrs 1000 c 500*1000=500000

Price Based/ QTY (Standard): terms considered 1lkh/m/c= price /unit high

 Base price (Material + processing )

 TS
  Package
 Loading and unloading
 Tax
 Insurance
 Profit margin =200

Price Based Non-standard (customized): 200 base price (Should costing

method for comparison and negotiation)

2.75mm thickness and 10*10=10*8

Pens 5000 material= wood, company logo and name 1000

 Material cost
 Processing cost (Man hour rate and machine hour rate )
 Non Recurring Engineering cost (NRE) XYZ= ABC pen manufacturing(for first
time)
 Scarp or wastage
 Utility cost
 TS
 Package
 Loading and unloading
 Tax
 Insurance
 Profit margin

Quantity Based: 10000 pens* 10/pen

 Supplier contribution:
o Free of charge (FOC) units 10,000-100FOC=9900
o Cash contribution=10000*10=1,00,000--(3%)
o Part package contribution= 50+3%
o Year over Year (YOY)
o Launch contribution

Case1: 10/unit*1, 00,000=10, 00,000= Qty based more effective=FOC, cash

 contribution and part package

Case 2: 10000/machine*100= 10, 00,000=price based more effective= cash

contribution, price based

---9900/machine price/unit high go for - cash contribution, price base

PR: Requirement: A tri core industrial Copper Cables

QTY: 30000 units*26.3

DT: 1 month

Regular Supplier: Northen cables Bangalore (DT, Quality, Availability)-100%

STEPS:

1. Analysis of PR: QTY is more and DT and also its regular material

2. Listing potential Suppliers:

a. Northen cables Bangalore

b. Cubic cables Hyderabad

c. Poly cable wiring Delhi

d. Finolex Across India

e. Havels Across India

f. RR cables Mysore

3. Calculating estimated spend= Price/unit * total qty = 30*30000=9 lkh

IF E.S<2lkh=1 supplier single term contract

2 < E.S < =8 lkh= 3 Suppliers

E.S > 8 lkh= 3Suppliers +online (any no)

1-3 week

4. Sending RFQ & Obtaining Quotations

 5. Comparative Statement

6. Negotiation

7. Finalizing the Source of Supply=1 vendor

8. PO to vendor

Price based: 28, Availability

DT in
Vendor Price/unit Negotiated price
months

Northen cables
3 35 ---
Bangalore

Cubic cables
1 28 26
Hyderabad

Poly cable wiring

1 31 28
Delhi

Finolex Across
1 30=15000 26.3
India

Havels Across
1 30 26.3
India

RR cables
1.5 31 ----
Mysore

Availability at sudden req uirement is also a factor.

Payment terms:

Northen cables
Bangalore
 Cubic cables
Hyderabad

Poly cable wiring

Delhi

Finolex Across
India

Havels Across
India

RR cables
Mysore

Negotiated Payment
Vendor Remarks
price terms in days

Northen cables
--- ---
Bangalore

Cubic cables Best

26 60
Hyderabad supplier

Poly cable wiring

28 45
Delhi

Finolex Across
26.3 15
India

Havels Across
26.3 15
India
 RR cables Mysore ---- ---

Indirect PR:

2. Requirement: safety shoe

Qty: 250

15days

3. Requirement: Fasten

Qty: 1,00,000

Price: 7-9/unit
3. Requirement: Thermo plastic Machine (to print paths in PCB)
Qty: 1
DT: 1 month
Supplier: Precision Electronics UK

Buyer payment terms: 30days

Vendor payment terms: 15days During the First time Purchase

Issue: During last purchase vendor demanded the payment by 15days but buyer
negotiated and convinced vendor for 30 days, as per the discussion buyer should make the
payment 30days but ended up making payment on 65th day.

Now we have the above requirement for material and internal customer wants the
material from same vendor so how to Approach the Supplier?

Partial Advance payment & future

PO: 25 - 30%

GRN: 30%

Installation: 40%
Possible reasons for delay of the payment.

1. Wrong payment

2. Invoice delay to the BC by purchase person

3.

.04. Requirement: Electrostatic discharge Tiles (ESD)

Qty: 250

Desired vendor: Cabson enterprises Bangalore

Last purchase price: 95/tile

1. PR analysis: price

2. List of Potential Suppliers

 Cabson Enterprises Bangalore

 Capricon Technologies

 Usha Armour PVT LTD

3. Estimated spend= 95*250=23,750< 2 lkh: RFQ

4. Sending RFQ and obtaining quotations

 Quotation from Cabson Enterprises=120/tile

 115- Negotiation price

120/tile: 115/tile

Purchase info records: PIR - REFER

QTY based negotiation:

 Supplier contribution:

o FOC
 o Cash contribution

o Part package

o YOY- Can apply this method if the business is in long period.

o Launch contribution

Should costing is nothing but suppliers expenses made on the product. Made for accessing

5. Negotiating with Supplier based on Year over Year=YOY

--Solution is based on the YOY your long term data.

Year Quantity Price/tile Total Amount

2015 200 125 26000

2016 170 130 23800

2017 300 110 33000

2018 400 100 40000

2019 450 95 42750

2020 250 120 30000

110/tile
Average 295/year 195550
107/tile
RFQ-1 vendor: discussion-sample costing

Buyers own quotation

Should costing:
RFQ sample preparation pricing 5000

 Should costing is an analysis, conducted by a customer, of the supplier’s expenses

involved in delivering a product or service or fulfilling a contract.
 The purpose of should-cost analysis is assessing an appropriate figure to guide
negotiations or to compare with a quotation provided by a supplier. Should costing is
often used in procurement.
 It is the framework that enables to generate cost estimates containing a breakdown of
total product cost with various cost components by which buyer can take proactive steps
to reduce cost through supplier negotiation.
 ABC sample

Terms considered in should costing:

 Material information
 Composition of material
 Material market price
 Manufacturing process involved
 Scrap or wastage
 Utility cost
 Profit margin
 Overhead charges

Sources of should costing:

 Market survey
  Techno commercial discussions
 Industry catalogue
 Online sources

Payment to the vendor: 30days 15days payment terms 10lkh: onetime payment

ABC material purchased from Xyz 30days payment terms, 13th Oct 10 or 25th
Buyer: ABC=Payment days 10th and 25th vendor payment

Meeting with Stakeholder meeting: (2times/month : Supplier performance)

 Discussion on Supplier performance i.e. Delivery time, Quality and Availability 100%
 Discussion on forecast requirement : AL

Meeting with Suppliers meeting: (1time/month)

 Discussion on the feedback provided by the stakeholder regarding material Supply
 Presenting the forecast requirement in form of Request For Proposal (RFP)
 Resolving all issue related to the vendor payment.

6: Major Principles of Purchasing:

 Right price
 Right quality
 Right quantity
 Right time
 Right Source
 Right place

Right price: The primary function of purchasing is to buy goods at right price. The right price
can be market price or Competitive price or Negotiated price or vendor quoted price. The right
price has greater influence on price of the final product.
The two distinct and closely terms of right price are:

For example: A cutting tool from new source

A cutting tool purchased from new source at too low price 450/tool many not represent
a good purchase if the tool doesn’t give adequate life.
Cutting tool: 1000-(550+450)=Product value from previous vendor.
 Tool life
 Temperature 5000
 Cutting force
Historical vendor: 750/tool
New vendor: 450/tool

Factors influencing Right price:

 Quality requirement
 Quantity requirement
 Demand and supply conditions
 Delivery time
  Extent of competition
 Standard and Non-standard part
 Buyer and Supplier relationship
 Government regulation: 0, 5,12,18,28
 Terms of purchase: payment terms
 Geographical location: kolar and Hassan 200km
E-way Bill:

10 km – 50km

EWay Bill is an Electronic Way bill for movement of goods to be generated on the eWay Bill
Portal. A GST registered person cannot transport goods in a vehicle whose value exceeds Rs.
50,000 (Single Invoice/bill/delivery challan) without an e-way bill that is generated on
ewaybillgst.gov.in.

 An e-way bill is valid for periods as listed below:

o For Less Than 100 Kms- 1 Day
o For every additional 100 Kms- additional 1 Day
 Part A request for the details such as
o Recipient GSTIN, place of delivery
o Invoice or challan number and date,
o HSN code, copper cablesindia
o Goods value,
o Transport document number (Goods Receipt Number in the case of road
transport) and
o Reasons for transportation.
A (Supplier), B (transport provider) & C (buyer)

 Part B comprises of transporter details (Vehicle number and transporter ID).

Bill of Lading: BOL is the legal contract between the shipping party and the carrier. At its most
basic level the BOL contains the following information:

In additional it should contain - inco terms AND

Buyer and Supplier Relationship Management:

 Conducting joint improvement activities by exchanging the best practices with

suppliers.
 Share proper information with Supplier
 Award contracts either Single tender contract or long term contract.
  Provide bulk orders
 Avoid unnecessary rejections
 Financial hand holding
 Appreciation based on the performance

Supplier performance is evaluate based on

1. Quality
2. Delivery time
3. Availability - Any sudden order.

Procurement material are classified based on amount on consumption of material

type(ABC) and price type
ABC Type
1. A- Most consumed.
2. B- Moderate consumed.
3. C- Less consumed.
What buyer needs
1. Quality material (Photo in the mobile)
2. X
3. X
4. X
5. Xx
6. Xx
7.

Expectations from the buyer

1. Proper communications during the day.

2. Support during the uncertain conditions.
3. Ability to hold to price: --------
4.

Expectation from the suppliers

1. X
What supplier needs

1. proper specification

2. Prompt payment

3. Minimization of uncertain orders.

4. Bulk orders.

5. Contract.

6. Single tender contract.

7. Financial hand holding.

8. Avoid unnecessary rejections.

9.