MODULE 3 SUPPLY CHAIN

MANAGEMENT
INTRODUCTION TO
PROCUREMENT
PROPERTY OF MR. JIMSY F. MACAWILE
MODULE 1: Purchasing Management
• Nature of Purchasing Management
Purchasing & Procurement
(Local and Importation)
• Objectives of Purchasing Management
• Purchasing responsibilities
• Purchasing Policies
• Buying Scenarios
• Ordering System
• Guidelines in Selecting Suppliers
• Bid Preparation and Evaluation
PURCHASING

The decision-making process by

which formal organizations' establish
the need for purchase products and
services, and identify, evaluate and
choose among alternative brands and
suppliers.
The activity of acquiring goods or
services to accomplish the goals of an
organization.
PURCHASING vs PROCUREMENT
❑ Procurement is the overarching end to end process of acquiring
goods and services. Purchasing is a sub process of the procurement
that deals with the action of buying.
❑
Procurement strategy is part of the procurement process but not of
the purchasing process, while PO placement is part of the
purchasing process and the procurement process.

❑ "Procurement" process takes into account factors such as the cost

over the life of the good or service, and the quality necessary to meet
users' requirements.

"Purchasing" refers to the specific activity of committing expenditure

and which tends to focus on issues of price rather than of value."
Simple definition: Purchasing is
transactional
(I will buy x for £y). Procurement
encompasses Purchasing and everything
else before and after the purchase.
Purchasing is only part of Procurement
which covers much more work leading to
and also after the order has been placed.
STRATEGIC VS
TRANSACTIONAL
 LOCAL (Is buying from or within the
Philippines whether goods or services
Documents needed ARE DELIVERY RECEIPTS
AND SALES INVOICE UNDER THE BIR TAX
CODE SECTION 237
 Importation (is buying from other countries whether
goods or services).
Documents needed
1. Duly endorsed Bill of Lading or Airway Bill, or certification by the carrier
or agent of the vessel or aircraft
2. Certificate of Origin, if requested
3. Commercial Invoice, Letter of Credit or any other verifiable commercial
document evidencing payment
4. Packing List
5. Sales Contract or Proof of Payment (if declared value is below the
National Value Verification System (NVSS) reference values. The NVVS is an
internal tool of the Bureau of Customs (BOC) Assessment Officers to check the
declared value of importation against the prevailing reference values.)
6. Documents as may be required by rules and regulations, such as:
• Import Permit or Clearance, if the commodity is regulated
• Authority to Release Imported Goods
• Copy of an Advance Ruling, if the ruling was used in the goods declaration
 OBJECTIVES OF PURCHASING

❖ Maintain the quality and value of

a company’s products,
❖ minimize cash tied-up in inventory,
❖ maintain the flow of inputs to maintain the
flow of outputs, and
❖ To procure materials economically at a cost
consistent with the quality and service
required
Strengthen organizations competitive
position
❖ To maintain good sources of materials
by keeping suppliers with good track
record

❖ To maintain the company’s reputation

and credibility in the market by fair
dealings and prompt payments
❖ To develop and maintain good buyer-
seller relationship
 PURCHASING RESPONSIBILITIES

❖ Procurement of goods through indigenous & foreign sources

❖ Checking of requisitions/purchase indents
❖ Selection of suppliers
❖ Obtaining quotations of the needed materials
❖ Analyzing quotations and bids etc., & preparation of comparative statement
 PURCHASING RESPONSIBILITIES

❖ Consultation with the top management and accounting dept. for

selection and approval of quotations
❖ Negotiating contracts
❖ Checking legal conditions of contracts
❖ Issuance of Purchase Orders
❖ Follow-up of purchase orders for delivery in due time
 PURCHASING
RESPONSIBILITIES
❖ Verification and passing of supplier’s bills
to see that payments are made promptly.
❖ Correspondence and dealing with
suppliers, carriers etc., regarding
shortages, rejections etc.
❖ Maintenance of purchase records
❖ Maintenance of vendor performance
records/data
❖ Evaluation of suppliers
❖ Conducting Supplier Audit
❖ Forecasting Demand
 PURCHASING POLICIES
To purchase wisely, one needs to buy
the right quality and quantity of
materials or products at the best
possible price
and at the appropriate time from
the best vendor
 BUYING SCENARIOS
The order is placed on a
Routine Order/Repeat routing basis. No evaluation
Orders of the buying situation.
The procedure for placing an
Procedural problem order is complicated such as
numerous signatures or
authorization.
The buying order does not
Performance problem respond to the needs of other
logistics activities.
The buying order is submitted
Political problem to external and/or internal
pressure. Goods or services
bought maybe substandard.
ISSUES ON REPEAT ORDERS
Repeat Orders may be placed on the following conditions:
❖ The items to be ordered again should be of identical specifications.
❖ There should be no sudden and unannounced increase in the product
prices.
❖ The quantity to be ordered should not be higher than the original order,
for the first few months of transactions
❖ Efforts should be made to obtain quantity discount from the supplier.

❖ Quality of product and delivery must be consistent and price

quotations of materials must be well justified.
PURCHASING ORDERING SYSTEM
RECEIPT OF PURCHASE REQUISITION

SEARCH FOR SUPPLIER

EVALUATE SUPPLIER & ITS PRODUCTS/SERVICES

ISSUE PURCHASE ORDER

INSPECTION OF SUPPLIES BEFORE RECEIVING

ISSUANCE OF PAYMENT
SUPPLIER SELECTION GUIDELINES

refers to a number of procurement practices, aimed at

finding, evaluating and engaging suppliers of goods and
services that can contribute the following:
❖ Economic variables such as pride and
quality of service
❖ Degree of essentiality of transport to
the organization
❖ Allocation of transport buying
authority
❖ Achievement motive of the buyer
❖ Desire for risk reduction
❖ Desire for work simplification
❖ Investment by the firm in its own
transport facilities
GUIDELINES FOR SUPPLIER
SELECTION
❖ Find out how long the supplier has been
in business.
❖ Find out who are the supplier's primary
customers and ask for and check
references.
❖ Investigate a supplier's financial stability.
❖ Check bank references.
❖ Tour the supplier's facilities, if possible.
BID PREPARATION AND EVALUATION

❖ development of a set of
specifications
❖ setting the requirements
❖ the requirements are
communicated to the
selected suppliers by a
Request for Quotation
(RFQ) or a Request for
Proposal (RFP)

RA 9184
The Buy-grid Framework
Modifie Straight
Stage New Task d Re-buy
Re-buy
1.Anticipation or recognition of a problem and a YES
general solution.
2. Determination of characteristics and quantity of YES
needed item.
3. Description of characteristics and quantity of YES
needed item
4. Search for and qualification of potential sources YES

5. Acquisition and analysis of proposals YES YES

6. Evaluation of proposals and selection of suppliers YES

7. Selection and order routine YES

8. Performance feedback and evaluation

 The Buy- Class Characteristics
NEW TASK
◼The problem has not arisen before
◼Littleor no relevant past buying experience exist
◼Important for decision –makers as it sets the pattern for routine purchases to follow

◼Reputation is considered more important than price

STRAIGHT RE-BUY
◼A routine transaction only with listed suppliers
◼Suppliers not on the list are not considered

◼Little new information is required, and what is required is not complex

◼Personal commitments in the buyer –seller relationship become more important

◼The buyer usually makes decision autonomously

MODIFIED RE-BUY
◼May arise internally through changes in the internal organization environment, or externally
because of environmental or marketing events
◼Additional information is needed before the decision can be made

◼Buyer usually makes the decision with other group members

◼Sellers who are not current suppliers try to convert buyers straight re-buys into modified re-buys
MODULE 1 SUMMARY

• Nature of Purchasing Management

Purchasing & Procurement
(Local and Importation)
• Objectives of Purchasing Management
• Purchasing responsibilities
• Purchasing Policies
• Buying Scenarios
• Ordering System
• Guidelines in Selecting Suppliers
• Bid Preparation and Evaluation