MGT 11 – MATERIAL RESOURCE MANAGEMENT

ORDERING AND PURCHASING

OF MATERIALS
Lecture delivered by:
Johnmar C. Aguilar
Instructor I
Learning Outcomes
By the end of the lesson, the students must:
1. Defined Procurement;
2. Identified the factors to consider in material procurement;
3. Differentiated direct and indirect procurement;
4. Identified the activities of a purchasing agent;
5. Explained the purchasing procedures
 Procurement
Procurement is the method of acquiring or
obtaining goods, services, or works from an
external source. Material procurement is the
process of researching, selecting, ordering, and
paying for the raw materials required for
constructing a building or structure.
 Purchasing vs. Procurement
Purchasing is buying goods or
services, while procurement is a broader
term that includes purchasing but also
includes sourcing, negotiation, and
contract management.
 Classes of Materials
1.Raw Material - unprocessed condition.
2.Purchased Parts - obtained from outside
sources.
3.In-process Material- performed to change its
form, size or physical or chemical
characteristics.
 Classes of Materials
4.Finish Products - goods completely
manufactured and inspected ready for
shipment to a customer.
5.Supplies - consumable materials
6.Equipment items - expandable parts of
machines and other physical facilities.
 Scope of Material Flow Control
❑ Procurement – Purchasing
❑ External Transportation – receiving, traffic
and shipping
❑ Internal Transportation – material handling
❑ Inventory control - storekeeping
Factors to Consider in Material Procurement
❑ Quality – refers to the kind of goods desired as
established by specifications emanating usually
from the product-engineering department.
❑ Quantity – determined directly or indirectly from the
production and material requirements set forth by
the routing division of production control.
Factors to Consider in Material Procurement
❑ Time – refers to the delivery linked with the
production schedule.
❑ Price – determined to the contacts with
outside markets for a better and fair price.
 Purchasing Agent
❑ Also known as buyers or purchasers, purchasing
agents work closely with purchasing managers and
are usually responsible for evaluating and
negotiating with the suppliers.
❑ To be successful in this role, you must have a keen
eye for determining the best supplier in terms of
standards, dependability, and cost-effectiveness.
 Purchasing Agent Responsibilities
❑ Researching and comparing suppliers, goods, and services.
❑ Selecting the most suitable suppliers in terms of reliability, product
quality, and cost-efficiency.
❑ Monitoring inventory levels and determining purchase needs.
❑ Requesting cost proposals and negotiating contracts and prices.
❑ Preparing and processing purchase orders.
❑ Maintaining records of all transactions, purchase orders, receipts,
and payments.
❑ Scheduling and verifying purchase deliveries.
❑ Building and maintaining positive, long-term supplier relations.
 Procurement Procedures
There are broadly five steps involved in the direct procurement
of materials. They are as follows:
❑ Requisitioning: This is the first stage and involves preparing and
submitting requisitions for the required material. The requisition
should include quantity, quality, delivery date, and more details.
❑ Planning and scheduling: In this stage, the procurement
department plans and schedules the direct procurement process.
This includes identifying potential suppliers, fixing delivery dates,
and many more.
 Procurement Procedures
❑ Negotiation and placement of order: In this stage, negotiations
are held with the suppliers regarding price, quality, terms of
delivery, etc. After the negotiations are complete, an order is
placed with the supplier.
❑ Receipt and inspection of material: In this stage, the procured
material is received from the supplier and inspected for quality and
quantity.
❑ Payment to the supplier: After inspecting and accepting the
material, payment is made to the supplier based on the contract
terms.
 Purchase Specification
❑ A purchase specification is a concise description of a
good or service that an entity seeks to buy, and the
requirements the vendor must meet to be considered for
the award.
❑ A specification may include requirements for testing,
inspection or preparing an item for delivery, or preparing
or installing it for use, requirements for samples,
descriptive literature, warranty, and packing.
❑ The specification is the total description of the purchase.
 Purchase Requisition
❑ A purchase requisition form is an internal document used by
an employee to purchase goods or services on behalf of their
firm. These purchases may be for business operations (such
as office supplies), inventory, or manufacturing inputs.
❑ The purchase requisition form is submitted to the purchase
department for approval which is the first step in creating an
effective audit trail for purchasing. Once the purchase
requisition is approved by the relevant department, a
purchase order is issued to the vendor of the requested goods
or services.
 Contents of Purchase Requisition
Purchase requisition forms generally require the following
information:
❑ Name and department of the requestor
❑ The date of request
❑ The products or services requested
❑ Item description, quantity, and price
❑ Reason for purchase
❑ Legal name of the supplier
 Request for Quotation (RFQ)
❑ A Request of Quotation (RFQ) is a competitive bid document
used when inviting suppliers or contractors to submit a
price bid for products or services where the requirements
are standardized or produced in repetitive quantities.
❑ An RFQ is often used for high-volume/low-value items. The
buyer must provide a technical specification as well as his
commercial requirements. The document may sometimes be
called an Invitation to Bid or Invitation to Tender.
 Quotation Process
❑ 1.Preparation of the document.
❑ 2. Define the supplier list
❑ 3. Send out RFQ
❑ 4. Receive responses and analyze results
❑ 5. Select the successful supplier
❑ 6. Advise unsuccessful suppliers
 Purchase Orders
❑ A purchase order is a legally binding document drafted by an
organization when placing an order with its suppliers.
❑ Submitting a purchase order confirms the buyer’s intent to
purchase a certain quantity of goods or services for the
negotiated amount from the supplier.
❑ Since the document is issued before the supplier sends an
invoice, it acts as insurance against non-payment, failure to
deliver the supply, and quantity or quality issues.
❑ Once the supplier accepts a purchase order, a binding
contract is formed between them and the buyer.
 Contents of a Purchase Orders
Purchase orders generally require:
❑ Purchase order number (Used to track the purchase order’s status
throughout the purchasing cycle)
❑ Name, contact information, and address of the buyer and the supplier
❑ Type of the product or service being purchased along with the item
number (if applicable)
❑ Quantity of each item
❑ Organization’s billing address
❑ Shipping method, shipping date, and shipping address
❑ The agreed-upon price (unit price and total price of the items ordered)
❑ Appropriate tax amount (if applicable)
❑ Payment terms (Net 30, upon delivery, or in installments)
 Purchase Order Process
❑ 1. Buyer issues and submits a purchase requisition form
❑ 2. Buyer drafts the purchase order
❑ 3. Purchase order is sent for internal approval
❑ 4. Purchase order is sent for supplier’s review and
approval
❑ 5. Order delivery and issuing an invoice
❑ 6. Assessment and three-way matching
❑ 7. Purchase order is closed and the invoice payment is
completed
 Constructive Purchasing Policies
❑ Fair dealings –to gain for the respect and confidence
of the trade and vendors.
❑ “Do unto others as they would do unto you”.
❑ Quantity discounts – it is allowed on some materials
when the order size exceeds a certain minimum.
❑ Social and business courtesies – apply in the
relationships with vendors and their representatives.
 Constructive Purchasing Policies
❑ Acceptance of personal gifts and favors – it should not
influence their decisions and relationships.
❑ Broken delivery promises – inability to make the
delivery on the date specified.
❑ Cancellations – it violates the purchase contract are
often destructive to good business relationships
between vendor and customer.
 Constructive Purchasing Policies
❑ Speculations – defined as the purchase of materials in
excess of normal requirements and in anticipation of a
price rise or a market shortage.
❑ Hedging – a purchasing policy used to protect against
a price rise or futures contract.
❑ Reciprocity – the enterprise makes a practice of
buying from its customers.
 Governing Principles on Government
Procurement
❑ 1. Transparency in the procurement process and in
the implementation of the procurement contracts;
❑ 2. Competitiveness by extending equal opportunity
to enable private contracting parties who are eligible
and qualified to participate in public bidding;
❑ 3. Streamlined procurement process that will
uniformly apply to all government procurement;
 Governing Principles on Government
Procurement
❑ 4. System of accountability where both the public
officials directly or indirectly involved in the
procurement process as well as in the implementation
of procurement contracts;
❑ 5. Public monitoring on the procurement process and
implementation of the awarded contracts.
 Republic Act No. 9184 (RA 9184)
❑ – otherwise known as the Government Procurement
Reform Act. January 10, 2003- the Act was enacted by
the Senate and House of Representative.
 Republic Act No. 9184 (RA 9184)
❑ Approved Budget of the Contract (ABC)- refers to the
budget for the contract duly approved by the Head
of the Procuring Entity.
❑ Bids and Awards Committee (BAC)- they are
designated by the Head of the Procuring Entity
that are responsible in ensuring the standards set
forth by this Act and its IRR.
 Republic Act No. 9184 (RA 9184)
❑ Bid- refers to a signed offer or proposal submitted by a
supplier, manufacturer, distributor, contractor or
consultant in response to the bidding documents.
❑ Bid documents - Refer to documents issued by the
Procuring Entity as the basis for Bids.
❑ Competitive Bidding- refers to the method of
procurement which is open to participation by any
interested party.
 Republic Act No. 9184 (RA 9184)
❑ G-EPS- refers to the Government Electronic
Procurement System.
❑ Head of the procuring entity- refers to the head of the
agency or his duly authorized official.
❑ Invitation to Apply for Eligibility and to Bid – it
provides information that enables potential bidders
to decide whether to participate.
 Republic Act No. 9184 (RA 9184)
❑ Procurement- refers to the acquisition of Goods,
Consulting Services, and the contracting of the
Infrastructure Projects by the procuring entity.
❑ Procuring Entity- any person, agency or company who
drafted the bidding documents.
 Kinds of Procurement
❑ Procurement of Goods- Refer to all items, supplies, materials
and general support services, except consulting services and
infrastructure projects.
❑ Procurement of Works - Refers to the acquisition of Goods,
Consulting Services, and the contracting for Infrastructure
Projects by the Procuring Entity.
❑ Procurement of Consulting Services – refers to the
procurement of the services of the consultants and experts in
a certain project of the procuring entity.
 Bids and Awards Committee (BAC)
❑ The members of the BAC shall be designated by the Head of the
Procuring Entity.
❑ Each procuring entity shall establish a single BAC for its procurement.
The BAC shall have at least five (5) members, but not more than seven
(7) members. It shall be chaired by at least a third ranking permanent
official of the procuring entity other than its head, and its composition
shall be specified in the IRR.
❑ BAC Secretary- to assist the BAC in the conduct of its functions, the HPE
shall create a Secretariat that will serve as the main support unit of the
BAC.
 Bids and Awards Committee (BAC)
❑ Advertise and/or post the invitation to bid
❑ Conduct pre-procurement and pre-bid conferences
❑ Determine the eligibility of prospective bidders
❑ Receive bids
❑ Conduct the evaluation of bids
❑ Undertake post qualification proceedings
❑ Recommend award of contracts to the HPE: provided, that in
the event the HPE shall disapprove such recommendation,
 Alternative Methods of Procurement
❑ Limited source bidding (Selective Bidding)-method of
procurement that involves the direct invitation to bid
by the PE from a set of pre-selected suppliers or
consultants
a. procurement of highly specialized type of Goods and
Consulting Services
b. procurement of major plant components where it is
deemed advantageous to limit the bidding
 Alternative Methods of Procurement
❑ Direct Contracting (Single Source Procurement)- method of
procurement that does not require elaborate Bidding Documents

a. Procurement of Goods proprietary in nature, which only obtained

from proprietary source
b. when procurement of critical components from a specific
manufacturer, supplier or distributor is a condition precedent to
hold a contractor to guarantee its project performance
c. those sold by an exclusive dealer or manufacturer
 Alternative Methods of Procurement
❑ Repeat Order- method of procurement that involves a
direct procurement of goods from the previous winning
bidder, whenever there is a need of replenish goods
procured under a contract previously awarded through
competitive bidding.
a. the unit price must be equal to or lower than the provide in
the original contract;
b. the repeat order does not result in splitting of requisitions
or purchased orders;
 Alternative Methods of Procurement
c. the repeat order shall be availed of only within six (6)
months from the date of the Notice to Proceed arising from
the original contract; and
d. the repeat order shall not exceed twenty five percent (25%)
of the quantity of its item of the original contract.
 Alternative Methods of Procurement
Shopping- method of procurement whereby the PE simply
request for the submission of price quotations for readily
available off-the-shelf goods or ordinary/regular equipment to be
produced directly from suppliers of known qualification
a. when there is unforeseen contingency requiring immediate
purchase
b. procurement of ordinary or regular office supplies and
equipment not available in the procurement service
involving an amount not exceeding two Hundred Fifty
Thousand Pesos
 Alternative Methods of Procurement
Negotiated Procurement- method of procurement that maybe resorted
under the extraordinary circumstances, whereby the PE directly
negotiates a contract with a technically, legally and financially capable
supplier, contractor or consultant.
a. In case of two failed biddings
b. in case of eminent danger of life or property during a state of calamity
c. take-over of contract
d. where the subject contract is adjacent or contiguous to an on-going
infrastructure project.
purchases of Goods from another agency of the Government.
 Contents of Standard Bidding Documents (SBD)
Section I - Invitation to Apply for Eligibility and to Bid
Section II – Instruction to Bidders (ITB)
Section III – Bid Data Sheet (BDS)
Section IV – General Conditions of Contract (GCC)
Section V – Special Conditions of Contract (SCC)
Section VI – Schedule of Requirements
Section VII – Technical Specifications
Section VIII – Sample Forms
 Section I – Invitation to Apply for Eligibility and to Bid
The invitation shall be:
❑ Advertise at least twice within a maximum period of fourteen
(14) calendar days with a minimum period of six (6) calendar
days in between publications which have been regularly
published for at least two (2) years before the date of issue of
the advertisement;
❑ Posted continuously in the website of the Procuring Entity
concerned, and the Government Electronic Procurement
Services (G-EPS) during the maximum fourteen (14) calendar
days;
Section I – Invitation to Apply for Eligibility and to Bid
❑ Posted at any conspicuous place in the premises of
the Procuring Entity concerned
❑ Have a deadline for submission of bids no later than
thirty (30) days from the last day of the period of
advertisement,
❑ In case of ADB, JBIC and WB funding, sent to all who
have expressed an interest in the supply of goods as a
result of any Procurement Notice issued by the
respective Funding source;
 Eligible Bidders
❑ 1. A bidder and all parties constituting the
bidder shall have the nationality of an eligible
country. A bidder shall be deemed to have the
nationality of a country if the bidder is a citizen
or is constituted, or incorporated, and operates
in conformity with the provisions of the laws of
that country.
 Eligible Bidders
❑ 2. Bidders shall not be under a declaration of
ineligibility for corrupt and fraudulent.
❑ 3. Government-owned enterprises in the
PROCURING ENTITY’s country may participate
only if they are legally and financially
autonomous, if they operate under commercial
law, and if they are not a dependent Source of
the PROCURING ENTITY.
 Eligible Bidders
❑ 3. A joint venture (JV) of two or more firms as
partners shall comply with the following
requirements:
❑ (a) the joint venture agreement,
❑ (b) one of the partners shall be authorized to
be in charge
 Eligible Bidders
❑ (c) the partner in charge shall be authorized to incur
liabilities, receive payments and receive instructions
for and on behalf of any or all partners of the JV;
❑ (d) all the partners of the JV shall be jointly and
severally liable for adherence to these Contract terms,
and a relevant statement
❑ (e) a copy of the notarized Joint Venture agreement
entered into by the JV partners shall be submitted with
the Bid.
 Corrupt and Fraudulent Practices
❑ 1. Corrupt Practice- behavior on the part of the officials
by whom they improperly and unlawfully enrich
themselves others, or induce to do so, by misusing the
position in which they are placed.
❑ 2. Fraudulent Practice- misrepresentation of facts in
order to influence a procurement process or the
execution of the contract to the detriment of the
Procuring Entity.
 Corrupt and Fraudulent Practices
❑ 3. Collusive Practices- scheme of arrangement
between two bidders with or without the knowledge of
the Procuring Entity.
❑ 4. Coercive Practices- harming or threatening to harm,
directly or indirectly, persons or their property to
influence their participation in a procurement process,
or affect the execution of a contract.
 Conflict of Interest
❑ Ways and general conflict of interest :
❑ 1. A bidder has controlling shareholders
❑ 2. A bidder receives or has received any direct or
indirect subsidy
❑ 3. A bidder has the same legal representative as any
other bidder
❑ 4. A bidder has a relationship directly or through
common third parties
 Conflict of Interest
❑ 5. A bidder submits more than one bid in this bidding
process.
❑ 6. A bidder who participated as a consultant in the
preparation of the design or technical specifications
❑ 7. It is not related to the head of the procuring entity by
consanguinity or affinity up to the third degree;
❑ 8. It is not related to an officer or employees having
direct access to information
 Pre-bid Conference
❑ At least one pre-bid conference shall be
conducted for each procurement, unless
otherwise provided in the IRR. Subject to the
approval of the BAC, a pre-bid conference may
also be conducted upon the written request of
any prospective bidder.
 Types of Specifications/Proposal
❑ 1. Technical Specification/proposal- written
documents stating the conditions and possible
activities to be done in the project.
❑ Contents of Technical Proposal
❑ a. The Bid Security
❑ b. Authority of the signatory
❑ c. Production/Delivery Schedule
❑ e. Manpower Requirements
 Types of Specifications/Proposal
❑ f. After sales service/parts
❑ g. technical Specifications
❑ h. Commitment from the license bank to extend to
the bidder credit line
❑ i. Certificate from the bidder under oath of its
compliance with existing labor laws and standards
❑ j. Sworn affidavit of compliance with the disclosure
provisions
 Types of Specifications/Proposal
❑ 2. Financial Specification/proposal- statement of
accounts, budgets and bill of materials used in the
project.
Contents of Financial Proposals
❑ a. Financial Proposal submission sheet
❑ b. Approved Budget for the Contract (ABC)
 Types of Specifications/Proposal
❑ 2. Financial Specification/proposal- statement of
accounts, budgets and bill of materials used in the
project.
Contents of Financial Proposals
❑ a. Financial Proposal submission sheet
❑ b. Approved Budget for the Contract (ABC)
 CLARIFICATION/modification/withdrawal of bids
❑ A prospective bidder requiring any clarification on the
Bidding Documents shall submit their request for
clarification in writing to the BAC of Procuring Entity.
❑ They will respond in writing to any request of
clarification by issuing a Supplemental/Bid Bulletin,
provided that such request is received at least ten (10)
calendar days before the deadline of submission and
receipt of bids.
 CLARIFICATION/modification/withdrawal of bids
❑ The Procuring Entity’s BAC shall issue its response
not later than seven (7) calendar days before the
deadline of the submission and receipt of bids.
 Bid evaluation AND POST-QUALIFICATION
❑ Bid evaluation- the BAC shall examine first the
technical components of the bids using “pass/fail”
criteria to determine whether all required documents
are present.
❑ Post-Qualification-stage where the bidder with the
Lowest Calculated Bid or the Highest Rated Bid
undergoes verification and validation whether he has
passed all the requirements and conditions as
specified in the Bidding documents.
 Rights to Reject Bids, Declare a Failure of Bidding and
Not to Award the Contract
❑ 1. There is a prima facie evidence of collusion
❑ 2. The BAC is found to have failed in following the prescribed
bidding procedures.
❑ 3. Any justifiable and reasonable ground not redound to the
benefit of the PE:
❑ A. physical and economic conditions have significantly
changed.
❑ B. if the project is no longer necessary
❑ C. if the source of funds for the project has been withheld or
reduced
 Rights to Reject Bids, Declare a Failure of Bidding and
Not to Award the Contract
❑ 4. No prospective bidders submit an LOI or no bids are
received.
❑ 5. All prospective bidders are declared ineligible.
❑ 6. All bids fail to comply with all the bids requirements or fail
post-qualification.
❑ 7. The bidder with the Lowest Calculated Responsive Bids
refuses, without justifiable cause to accept the award of the
contract, and no award is made.
 Award, implementation and termination of the
contract
❑ Notice and Execution of Award
❑ -within an period not exceeding 15 calendar days from the determination
and declaration by the BAC, the HPE shall immediately issue the Notice
of Award to the winning Bidder.
❑ -Within 10 calendar days from the receipt of the Notice of Award, the
winner bidder shall formally enter into contract with the PE. Maximum of
20 calendar days to approve or disapprove it if further approval of higher
authority is required.
❑ -the PE shall issue the Notice to Proceed to the winning Bidder not later
than 7 calendar days from the date of approval of the contract by the
appropriate authority.
 EXTERNAL TRANSPORTATION
❑ refers to the preparation of goods, selection of carriers and accept both
outgoing and incoming commodities.

❑ DEPARTMENTS OF EXTERNAL TRANSPORTATION

❑ Shipping-refers to the preparation of goods for delivery to the
customers.
❑ Traffic- it is the transportation of both outgoing and incoming
items.
❑ Receiving- it is refers to the acceptance of incoming articles.
 ACTIVITIES IN TRAFFIC DEPARTMENT
❑ 1. Preparation of goods for shipment
❑ 2. Selection of the carriers
❑ 3. Handling of all matters pertaining to shipping
classifications, tariffs and rates.
❑ 4. Weighing, marking, documenting and loading goods
for shipment.
❑ 5. Handling, documenting and inspecting goods
received.
❑ 6. Processing claims for damaged goods.
 Three Cardinal Rule in Packaging for Shipment
❑ 1. They should be designed to minimize breakage in
transit.
❑ 2. They should make for ease of handling.
❑ 3. They should conform to the commodity
classification regulations.
 DEFINITION OF TERMS
❑ Containerization-a term refers to basic concepts in
❑ shipping packages that holds promise for the future.
❑ Bill of Lading – serve as the promise from the carrier
to deliver the goods to the customer but also
acknowledge the carriers receipt of the goods from the
shipper.
❑ Demurrage – a term used to penalized shippers for
delays in handling freight cars.
 DEFINITION OF TERMS
❑ Dispatch – the charterer requires the use for less time
than the given time.
❑ Detention – a term if the empty container has been
detained and not returned within the allowed free
time after it has been picked up and delivered to the
destination.
 MODES OF TRANSPORTATION
Water freight- boat transportation; provides a slow but inexpensive
means of shipping large quantities of bulk materials.
Railway freight – it is perhaps the best means of hauling heavy or
bulky goods long distances.
Motor freight – it is the excellent way of shipping over short hauls,
particularly where full carload shipments are not possible and
where door- to-door delivery with but one handling is desirable.
Air freight – suitable for light to heavy items and is finding favor
where faster delivery over considerable distance is required.
References:
• Better Team. (n.d.). Purchasing Agent Job Description. Retrieved from
https://www.betterteam.com/purchasing-agent-job-description
• Expense Management. (n.d.). What is a purchase order? Retrieved from
https://www.zoho.com/expense/guides/what-is-purchase-requisition.html
• Expense Management. (n.d.). What is purchase requisition? Retrieved from
https://www.zoho.com/expense/guides/the-complete-guide-to-using-purchase-orders.html
• Kushner, A. (2022). What Is Material Procurement? Retrieved from
https://www.approve.com/blog/material-procurement/.
• Voices. (2019). The Simple Request for Quotation (RFQ) Process for Procurement. Retrieved from
https://sievo.com/blog/the-simple-request-for-quotation-rfq-process-for-procurement
• Wichita State University. (n.d.). Purchasing Specifications. Retrieved from
https://www.wichita.edu/services/purchasing/Webpage_Origination_Documents/Purchasing_Specif
ications.pdf