UNI

VERSI
TYOFI
LORI
N

FACULTYOFMANAGEMENTSCI
ENCES

DEPARTMENTOFMARKETI
NG

COURSETI
TTLE:
PRI
NCI
PLEOFPURCHASI
NGANDSUPPLY

COURSECODE:
MKT304

LECTURERI
NCHARGE:
DR.K.
ABELLO

PREPAREDBY:

300LEVELSTUDENTS19/
20ACADEMI
CSESSI
ON(
GROUP1-
7)

DATE:
-25THMARCH,
2021
GROUP1:
-INTRODUCTI
ONTOPURCHASI
NG

I
NTRODUCTI
ON

Ithasbecomethepubli
cnoti
cethatcust
omeristhecentral
focusofanent
it
y'
sact
ivi
ti
esand
everyor
ganizat
iondeci
sioni
sbasedonthecustomerstockrequi
rement
s

Thewav eofthef
utur
eofanybusi
nessinit
smarket
ingef
for
tsi
stheuti
l
isati
onofup-
to-
date
technol
ogy,
quali
tymater
ial
sandpr
ocessestogai
nmoreinf
ormat
ionprospect
sandcust
omers.

Accor
dingt okotler
(1987)opinedthatcustomerist
hecentralfocusofall
marketi
ng
act
ivi
ti
es,decisi
onsandst r
ategy.Customeristheki
ngthathol dthepowerofl
if
eordeathof
mostorganisati
onandhewhof ai
ledtogoodwill
customervaluewi l
lnotf
orl
ongsurvi
veor
sur
viveforlong.Thus,Customeristhelif
ewi r
erofanorganisati
on.

Inpr oduct i
onoper ation,acqui si
tionofmat erials,ser v i
ces,andequi pmentatt her ight
qual i
ties,att her i
ghtquant iti
es,att her i
ghtpr ices, att her i
ghtt i
me,onacont i
nui ng
basi shasl ongbeenani mpor t
antaspectofmat erialsmanagementandhasoccupi edt he
attentionofmanymanager si nbot hpr i
v ateandpubl i
csect or s.Dy nami sm i nsuppl y
env ir
onment si nt ermsofabundanceandshor tagesofmat erial s,pr i
cef luctuations,and
l
ead- timev ariabi l
it
yal lprov ideongoi ngchal l
engest oef fect i
veandef ficientmat erialf lows.
A maj orgoalofpur chasi ngandpr ocur ementmanagementi st heacqui sitionofmat eri
als,
suppl ies,equi pment ,andser vicest hatwi lladdv aluet ot heacqui siti
onpr ocessandent i
re
product i
onoper ati
onsi nachi evingst r
at egicgoal sandobj ectiv es.I nsomemanuf act uri
ng
organi sations,mat eri
al sacqui sitionsmayaccountf orov erhal fofov erallor gani sat ion
cost sannual ly.Ther ef ore,soundandef fect i
vepur chasi ngandmat erialsmanagement
policiesandpr ocedur esar er equi redt or educecostofoper at ionsandmaxi mizepr ofi
tt o
owner s. Becauseor ganisationsspendhugel yonmat erial
sofanyki nd,pur chasi ngi s
clearlyapot ent i
alar eaf orcostsav i
ngs.Thi sf actencour agedor ganisat ionst hatwantt o
remai ncompet i
ti
v et oest ablishagoodr elationshi pwi t
hsuppl ier sanddev elopesev eral
concept s( suchasEconomi cOr derQuant i
ty( EOQ) ,Just -i
nTi memanagement( JIT) ,Lean
management ,Mat er i
alsRequi rementPl anni ng( MRP) ,ABC Anal y sis,et c.)ofmat erials
management .Ef fectivepur chasi ngandsuppl ymanagementhasasi gni f
icanti mpacton
qual i
typr oductandent i
reor gani sat i
onpr ocess.Mat eri
al scanpr omot eordest roya
company ,int ermsofpr ov i
dingpr oduct sandser vicest hatsat isf yregul at oryr equi rement
andexceedcust omer s’expect ations.Al so,poororwr ongmat er ialscanf ailmi ser ablyt o
meett hesett arget s.A poororwr ongqual i
typr oductcanshutdownacompany ’s
oper ations.I nt oday ’
scompet iti
v ebusi nessoper ations, organi sat i
onspl acemor eat tention
i
nmeet i
ngt heirnumer ouscust omerexpect ationsandt her efor et hebuy ingofqual ityr aw
mat erials,par ts, component sandser vicest heyconsumewhi char emost lyout sour ced.
Thisf urtheri ncreasest her el evanceofpur chasi ngf unct iont ot heorgani sation.
Pur chasingandpr ocur ementf unct ionsar ei ntertwi nedandt her eforeof tenused
i
nterchangeabl
y,al
thought heact
ivi
ti
esdif
ferinscope.Pur
chasingf unct
ionref
erstothe
actualbuyingofmat er
ial
sandt hoseact
ivi
ti
esassoci
atedwitht hebuy i
ngprocess.
Procurementiswiderinscopeandi ncl
udespurchasi
ng,tr
aff
ic,receivi
ng,andstori
ng
mat er
ial
s.

HI
STORYOFPURCHASI
NG

Purchasingisoneoft hebasicpr ocessescommont oallorganizations.I

tistheprocessof
acquir
inggoods, ser
vices,andequi pmentf r
om anot herorganizati
oni nalegalandethical
manner .1Purchasi
ngwasi ni
ti
all
yat acticalcont
ributortotheor ganizati
on,f
ocusingon
tr
ansact i
onalrel
ati
onshipsandl owpr i
ce.Howev er ,overti
met her oleofthepurchaser,andthe
purchasingdepartment,haschangedsi gnif
icant
lyandt hefunctionhasbecomest rategict
o
organizati
onalcompet i
ti
veness.

I
nthel
ate1890s,
Pur
chasi
ngr
arel
yusedasadi
ff
erentdepar
tmentexcepti
nther
ail
road.

I
nthear
ly1900s,
Pur
chasi
ngconsi
der
edcl
eri
cal
wor
k.

I
ntheWorl
dWarIandII
,Purchasi
ngfunct
ionincr
easedi
nimpor
tanceduetotheimport
anceof
obt
aini
ngr
awmater
ial
s,ser
vices,
andsuppli
estokeepthemi
nesandfactor
iesrunni
ng.

I
nthe1950sand1960s,
Purchasi
ngconti
nuet
ogainstatur
e,pr
ocessesmorerefi
ned,andmor
e
t
rai
nedprof
essi
onal
s.St
il
lconsi
deredor
derpl
aci
ngcleri
cali
nastaff
-suppor
tposi
tion.

I
nthelat
e1960s–ear
ly1970s,
lntegr
atedmateri
alssy
stemsi nt
roduced,
mat
eri
alsbecamepar
t
ofst
rat
egicpl
anni
ng,
andimportanceofdepart
mentincreased.

I
nt he1970s,
Oil
embar
goandshor
tagesofbasi
crawmat
eri
alst
urnedt
hef
ocusoft
he
businesswor
ldt
opur
chasi
ng.

Inthe1980s,Therei
sadventofj
ust-
in-
ti
mewithanemphasi
soni
nventor
ycontr
olandsuppl
i
er
quali
ty;quant
it
y,t
imi
ng,anddependabi
li
tymadepur
chasi
ngacor
ner
stoneofcompeti
ti
ve
advantage.

I
ntheear
ly1990s,
Val
uepr
oposi
ti
onofpur
chasi
ngcont
inuedt
oincr
ease;
cost
-sav
ingsbecame
t
hebuzzword.

Int
helate1990s,Purchasi
ngev ol
vedi
ntostr
ategicsourci
ng,
contract
swer
emorelongt
erm,
andsuppli
errel
ati
onshipbuil
dingandsuppl
i
errelati
onshipmanagementst
art
ed.

In2000s, Pur
chasingshi ftedi t
smy opicfocusoncostt omuchbr oaderterms.Someoft he
widelyuseddev el
opment s: spendanalysis,
low-costcountr
ysourcing,procur ementtechnology
evolved(ERP,e-sour
cing) ,pr ocurementoutsourci
ngev ol
ved(P2P),totalcostofowner ship,data
miningandbenchmar king, andl eanpurchasi
ng.Globali
zati
onhasf orcedcompani estoimpr ove
thei
rinternal
processes, suchassuppl ymanagement ,
toremainsuccessf ul.Thelevelof
compet it
ioni
nthemar ketplaceexpandedt oincl
udebot hdomesticandint ernati
onalmar kets.
Purchaser snol ongerdi scuss“ l
owestpr i
ce”butshar einformation,coll
abor ate,andtalktotheir
supplier
saboutt otal cost s,
li
fe-cyclecost s,andcostr educti
ons.Thi srequiresaf ocuson
processi mprov ement sinsteadofshor t-t
ermr elationshipsandpr icereduct i
ons.Thepr i
mary
goaloft hepur chasingor ganizati
oni st opurchaset herightit
em orser vice,intherightquantit
y,
atther i
ghtprice,andatt herighttime.Anabundanceofcompet it
orsandseasonedcust omer s
demandhi gherqual ity,fasterdeliver
y, andpr oduct sandser vi
cescust omi zedt otheirneeds,at
thelowestt otalcost .Thesedemandsar emadeatanev engreaterspeedbecauseoft heinf
lux
oftechnologyandsoci al medi aintobusi ness-to-businessapplications.Informat i
onanddat a
fl
owbet weensuppl ychai nmember sar eincreasing, makingitchal l
engingf ororganizati
onsto
continuouslyadaptt ot heev er-
changi ngneedsoft hecust omer.Get ti
ngpr oductst ocustomers
atther i
ghttime, pl
ace, coshasbecomet hecent ralfocusofpur chasingdepar t
ment .

DEFI
NITI
ONOFPURCHASI
NG

Procurementorbet t
erstil
l,Pur
chasing( Thet wotermsshal lbeusedi nt
erchangeabl
yi n
thi
sr esearchwork),isoneoft hebasicf uncti
onscommont oal
ltypesofbusi ness
enter
prises.Thesef unct
ionsaresobasi cbecausenobusi nesscanoper at
ewi thoutthem.
Byi t
sv erynat ur
e,purchasingisa“ser v
ice”functi
on,ori
entatedtowardscat er
ingforthe
supplyrequirementsofv ar
iousdepar t
ment sbymaki ngpurchasesofmat eri
als,
requi
rement s,suppl
iesorser vi
ces,etc.whi chtheyneed.

Accor
dingt
oCar
ter(
1989)t
husdescr
ibedpur
chasi
ngas:

Thedepar tment
,whichi sconcer
nedwi t
ht hepr ocessofascert
aini
ngtheor
gani
zat
ion’
s
mat er
ialandser
viceneeds,sel
ect
ingsuppl
iers,agreei
ngont erms,placi
ngor
dersand
receiv
inggodsandser vi
ces.

MostEngl
i
shdi
cti
onar
ieshavestat
edthatprocur
ementmeansbuy
ing,
whi
l
esuppl
yis
st
atedt
omeantheartofprovi
dingar
ti
clesormat er
ial
s.’

Acordi
ngtoSir
opoli
s(1977)conceptual
i
zedpur
chasingi nter
msoft heessent
ialact
ivi
ti
es
ortaskassociat
edwiththeacquisi
ti
onofthemat eri
als,ser
vicesandequi
pmentusedi n
theoperat
ionofanorganisat
ion.

I
nsummar
yther
efor
e,Si
ropol
i
s(1977):

defi
nedpur
chasingasabusinessf
uncti
onthi
sway:Itist
heent r
epr
eneur’
sresponsi
bil
i
ty
tobuymateri
alsandservi
cesoftheri
ghtqual
it
y,i
nt her
ightquant
it
y,attheri
ghtti
me,
fr
om theri
ghtsuppl
i
er,attheri
ghtpr
ice.

AccordingtoLysons,K.(2000,p.
1)i
nanswert
oaquest
ion,whi
chheposedas“
whati
s
purchasing”defi
nedpurchasi
ngas:

Thefuncti
onresponsibl
ef orobt
aini
ngbypurchase,l
easeorot
herl
egalmeans,equi
pment
,
mater
ial
s,components,suppli
esandserv
icesrequi
redbyanunder
taki
ngforusein
product i
onorr esaleProductionasaconceptbr oadl
ymeanst heprocessofcoor dinati
ng
menandmat eri
als( i
.e.humanandphy sicalresources)t ocreat
efrom rawmat eri
als,
physicalgoodsandser vi
cest hatwil
lsatisfyhumanwant sandneeds.Inotherwor ds,
product i
onisani nput–out putrel
ati
onship.Lysons( 2000)furt
herobservedthat:…i
nt his
defi
nition,t
het erm producti
oni susedi nt heeconomi csenseofcr eat
inguti
li
ties,i
.e.,
goodsandser vi
cest hatsat i
sfywants.Iti snot,t
herefore,
confi
nedtomanufacturi
ngout put
butal soappliestoser vi
cing,dist
ri
buti
on,et c.

I
nt hewordsofAlfordandBeat
ty,
”Purchasi
ngistheprocuri
ngofmater
ial
s,suppl
i
es,machines,
toolsandser
vicesrequi
redf
orequipment,mai
ntenance,andoper
ati
onofamanuf act
uri
ng
plant”
.

Accor
dingtoWalters,pur
chasingfuncti
onmeans‘t
hepr ocur
ementbypurchaseoftheproper
mater
ial
s,machinery,
equipmentandsuppl i
esf
orstoresusedinthemanufact
ureofaproduct
adopt
edtomar keti
ngintheproperqualit
yandquanti
tyatthepropert
imeandatthelowest
pri
ce,
consi
stentwit
hqualitydesi
red.”

Purchasingisamanager ialact
ivi
tyt
hatgoesbey ondt
hesimpleactofbuyi
ng.Itincl
udes
researchanddev el
opmentf orthepr
operselecti
onofmateri
alsandsour
ces,foll
ow-upto
ensuret i
melydeli
very
;inspecti
ontoensurebothquanti
tyandquali
ty;
tocont
roltraff
ic,
recei
vi
ng,
storekeepingandaccount i
ngoperat
ionsr
elatedtopur
chases.

ELLEMENTOFTHEDEFI
NITI
ON

Needl
e,Dav
id(1992)identi
fiedthekeyPr
ocurementvari
abl
esassour
ce,quanti
ty,qual
i
ty,
t
imeandpr i
ce.Thesev ar
iablesar
eexaminedeachinturnint
hefoll
owi
ngdi scussi
on:

Thecent
ral
focusofpr
ocur
ementv
ari
abl
esi
sonpr
ocur
ementr
ight
.

Accor
dingtoRI
CHARDWI LLI
AM,therearetwoprinci
plesi
nmar
ket
ingef
for
tsandt
hese
pr
inci
plesf
ormthebasi
sofallmarket
ingdeci
sion:

RULE1:
CUSTOMERi
sal
way
sRI
GHT.

RULE2:
IFEVERWRONG,
Re-
readRULE1.

Purchasingasanact ivit
yofmat er
ialsmanagementcanbedef inedast hepr ocessthat
consist
sofal lacti
vit
iest hatleadtoef fectiv
ebuy i
ngofr awmat er
ial
s,parts,components,
equipments,spareparts,toolsandsuppor tingitemsr equi
redbyanyor ganisati
ont o
del
iverquali
typroduct
st omeetcust omerr equi
rementsatcompet i
tiv
epr i
ces.Ef f
ecti
ve
purchasingcanalsobedescr ibedasbuy ingofmat erial
satt her i
ghtquali
ty,inther i
ght
quantit
y,atther i
ghtprice,att heri
ghtt ime,f r
om ther i
ghtsource.Theemphasi sof
eff
ectivepurchasi
ngisdoi ngwhati s“r
ight ”atallstagesasdi scussedbelow:
1.Ri
ghtSour
ceManagement

Thisisf acedwi thanumberofdeci sionsconcerni

ngthesour ceofthefir
m’ sr aw
mat er
ialsandcomponent s.Theobv i
ousst rategyisone,whichmaximizest heot herfour
vari
ables,obt aini
ngsuppli
esinthequant it
yandqual i
tyrequi
red,whentheyar eneeded,
andanaccept ablepri
ce.Inachi
evi
ngt heseai ms,management smustdecidewhet herto
producet heirownmat er
ial
sandcomponent sorbuyt hem f r
om ot
hermanuf acturer;and
i
ft hel atter,whethert
ooptf orasi nglesuppli
erorbuyf rom anumberofdi fferent
suppli
er s.

2.Ri
ghtQuant
it
y:

Themaj orpur chasingdeci sionher ei show mucht oor

deratanyat i
met hatist he
purchasingagentshoul densur et hatt hereis adequat einventoryofr aw mat er
ials,parts,
component s,equi pment s,spar epar ts,toolsandsuppor t
ingitemsasr equi r
edbyt he
organisati
onatal lt i
mes.Mat erialsshoul dbeor deredatt her i
ghtquant itybecauseat oo
smallor derr epeatedlycanl eadt ohi gherpriceperuni tandst ockouti .e.ther iskof
runni
ngoutofcr i
ticalmat eri
als.Whenmat er i
alsor dersaret ool arget hanwhati s
requi
redataper i
od,i nventory“ carr
yingandhol dingcosts”ar ehi gher
,ext rawar ehouse
spaceandst affmaybeneeded,andexpensi v est ockmaybecome“ spoiled”orobsol ete
i
nt hest ore.RightPr i
ce:insomeor ganisat
ions,pr icesofmat erialsareThi sisaf unct
ion
ofcost ,storagecapaci t
y ,
andt henat ur
eoft hepr oducti
onsy st em.

3.RightQuali
ty:ri
ghtmat er
ial
smeansbuy ingmateri
alsthatmeetor gani
sationset
standar
d,ful
fil
lallnecessar
yr equi
rementst omeetthefinaluser’sneedsf orapar t
icul
ar
i
tem att helowestoveral
lcost.Itisper t
inenttoment i
ont hatr i
ghtquali
tydoesnot
al
way sconnotet hebestorhi ghestquali
tyormostexpensi ve,norisitalwayst helowest
orcheapest.Themosti mportantfactist hatbuyi
ngthemat er
ialsthatsati
sfythe
companyexpect ati
onintermsofi ncreasi
ngpr oductqualit
y,reducingproductcostand
overal
lcost.

4.RightPr i
ce:insomeor ganisations,pri
cesofmat erial
sar edeterminedt hrough
compet i
tiv
ebi ddingori nvit
ingsuppl i
erstosubmitpr icequot ati
onsorot herpr ocedur es
designedt oper mitcostcompar isonsandhol dcost st or easonablelev el
s.Thepr icesof
mat er
ial
smustbef airandr easonabl etobotht hebuy erandsel l
er.Thegoalofev ery
purchasingof fi
cer,whethercompet i
ti
veornot,shoul dbet hathis/heror ganisati
onand
suppli
ersbot hrealisea“ win”or“ sati
sfy”asar esultoft het r
ansaction.Ri ghtTime:t he
mat er
ial
smanagementdepar tmentshoul densurethatr equir
edmat er
ialsar eav ai
lable
wher etheyar eneededatt herightt i
me.Ef f
ecti
vepl anninghel psinbuy i
ngopt i
mum
mat er
ial
satr ighttimewhi lepoorpl anningmayr esul
ti ntorushedbuy ingatapr emi um,
ort hequal i
tyspeci f
ieddoesnotmeett heorganisati
on’sspeci fi
cati
ons;or ,ev enwor se,
both.

5.Ri
ghtSour
ce:pur
chasi
ngdepar
tmentmustsel
ectar
esponsi
bleandr
esponsi
vesuppl
i
er
whohasagoodr ecordofperfor
manceandwhocanpr ovi
det hebestcombinationof
quali
ty,quanti
ty,
andpr i
ce,attherightti
me.Failur
eofdeliver
y,delaysindel
i
v eryand
deli
veryoflow qualit
ymat er
ial
sandi nadequat
eser v
icecanallcontr
ibut
etohi gher
productcosts.

TYPEOFPURCHASI
NG

Basi
call
y,pur
chasingistoobt ai
nr aw mat
eri
als,component
s,par
ts,aswel
las
i
nformati
onthatar er
equir
edf ortheproduct
ionofgoodsorpr ov
idi
ngserv
ices.The
fol
l
owingaretheformsofpurchase:

1.Accor
dingt
othepur
pose

 Per
sonal
Pur
chasi
ng:

Theconsumerpur chasesf ort

heconsumpti
onofthemsel
ves,
thentheyfal
li
ntothisver
y
i
mpor tantcategoryclass.Theyar
eulti
matel
ydri
vi
ngtheeconomythroughthepurchaseofi
tis
products.Therefor
e,theeconomybecomesdependentonthem

 Mer
cant
il
ePur
chasi
ng:

Facil
i
tatedbymiddl
emenf ortheint
ent
ionofr
e-sal
etomeetot
her
srequi
rement
s.Agents,
wholesaler
sandret
ail
erscomeundert hi
scat
egorypr
ovi
dingt
hei
rownchannel
sofdist
ribut
ion
totheconsumer.i
tisvi
taltoorgani
zat
ion.

 I
ndust
ri
alPur
chasi
ng:

Thepur
chaseri
sbuyingtoconv er
tmater
iali
ntof
ini
shedgoodsandpr
oduct.I
tent
ail
sbuy i
ng
rawmater
ial
s.Components,suppli
esandconsumablest
ores,
spar
esandtool
s,machinesand
equi
pmentandoff
iceappli
ance.

I
nst
it
uti
onal
i
zedorgov
ernmentpur
chasi
ng:

Governmentagenci
esori
nst
it
uti
onsar
ever
yimpor
tant
,cr
it
ical
,theypur
chasei
nbul
kforpubl
i
c
ut
il
it
ies.

2.Accor
dingt
othenat
ureoft
hepr
ocur
ement

 Rawmat
eri
als:

Raw mat er
ialsconsi stofbot hext racti
ngandagr i
cult
uralproductssuchaspet roleum
products,coal ,rice,bean,copper ,lead,ir
ons,cot t
on,cocoa,coffeeandsoy beans.These
mat er
ialsmostt imeunder gof urt
herprocessingt osemif i
nishedandf ini
shedsal eabl
e
products.Al so,r awmat erialsar enotofequalqual it
y.Theyar ecl assif
iedingrade
accordingtot heirqual it
ies.Forexampl ecr udeoi l
,cocoaandcof feear eindiff
erent
grades,byv ariousf i
rms.Pur chasingdepar tmentbuy sbasedont her equi
redgr ade.Itis
thedut iesofpur chasingdepar tmentt ounderstandclearl
y;buyandr eceivethequal it
yof
raw materi
alsthati sr
equi
redforoperat
ions,becauseef
fect
ivenessandeff
ici
encyof
producti
onoperationstoal ar
geextentisdeterminedbythequal i
tyofr
aw mater
ial
sthat
goi nt
opr oduct
ion.

 Semi
-f
ini
shedPr
oduct
s,Par
tsandComponent
s:

Semi -f
ini
shedpr oducts,par tsandcomponent sincl
udepr ocessedpr oductspur chased
fr
om suppl i
ersthatwi llbeusedi nt hel aterstageofpr oductionpr ocessandphy sically
presentint hefinalpr oduction.Theyconsi stofsi ngl
ecomponent ,subassembl y,and
assembl ythatdonotneedanyphy si
calchangesbutcanbei ncorporatedintot hef inal
products.Semi-f
inishedpr oducts,partsandcomponent spur chasedbyaut omobile
manuf act
ureraret yres,mi rrors,carframes,seatassembl ies,headl amp,bul bset c.The
comput erproducerspur chasemot herboards,centr
alprocessinguni t,mouse,moni tors,etc.
Managi ngthepur chaseoft hesei temsi scr i
ticalasthequal i
tyandcostoft hef inal
productisal soaf unctionoft hesei t
ems.

 Fi
nishedPr
oduct
s:

Thesear epr oduct st hatarenotmanuf acturedbyt heor ganisat i

onbutcanbepur chased
fr
om ext ernalsuppl iersforinter naluseorr esale.Fi nishedpr oductsar eobt ainedaf terthe
fi
nalpr ocessingst agemost l
yf r om reputablesuppl iers.Somewel lknowncompani esor
brandnamesar eusedt obuyt hef ini
shedpr oductsf rom smal lmanuf acturersand
mar ketunderbr andnames.Or gani sati
onsadoptt hisst rategyt oof feraf ullr
angeof
productsout sidet heirproductioncapaci t
yandt ot akeadv antageoft heirexcel l
entdesi gn
capacitydespi telackingpr oduct ioncapabili
tyandcapaci ty.Pur chasingandt echnical
department smustr elat
ecloselywi t
ht hepr oducerofaf inishedpr oducttousespeci fi
ed
mat eri
alsandpr oducet omeett echni
calandcust omerspeci fi
cationi ntermsofqual i
ty
atthel owestcost s.

 Mai
ntenance,Repai
randOper
ati
ngI
tems:

Thesear emat erialsorpr oduct

st hatdonotent erpr oducti
onl i
nebutar eessenti
alf or
runningt hebusiness.Theyar er equiredr egul
arlyf orconti
nuousf uncti
oning.These
mat eri
alsincl
udecomput er
s,printers,sparemachi nepar t
s,cl eaningandmai ntenance
supplies.Maintenance, r
epairandoper atingmat erialsarer equiredinev eryuni toft he
organisati
onandt hi
smakest hemoni t
oringandbuy i
ngoft hesemat eri
alsdi f
ficul
t.Itis
advisableforpur chasingdepar t
mentt oadoptJust -
in-
Timet echniqueofi nv entoryto
reducet hechal l
engesofl argei
nv entori
esoft hesei t
ems.

 Pr
oduct
ionSuppor
tIt
ems:

Thesemat eri
alssuchaspal l
ets,boxes,contai
ners,t
ape,bags,wrappi
ng,andhandli
ng
i
temsar erequir
edf orpacki
ngandshi ppi
ngt hef i
nalpr
oductsei
therforint
ernaluser
sor
ext
ernalcust
omer s. Pr
oducti
onsupportmat eri
alsgodirect
lywit
ht heproducsand
supporttheproducti
onoper at
ions.Someti
mes,largei
nvent
ori
esoft hesemat er
ial
sare
purchasedbecauseoff requentusagesandt heyconst
it
utethemajorsourceofi nvent
ory
i
nvestment.Itisadv i
sabl
et hatpurchasi
ngdepart
mentshouldadoptacr eat
iveapproach
tocont r
olthebuy i
ngoft heseitems.

 Ser
vices:

Allor ganisat
ionsout sourcecer t
ainser vi
cesext er
nal
l
ybasedoncont r
act.Theser v
ices
canr angef r
om officecl eaning,repair
,mai nt
enance,
housekeepi
ng,buil
dingrepair
s,
cafeteria,heati
ng,cool i
ng,andsaf etyserv
icest oset
tingupanew pr oducti
onf aci
li
ty.
Effectiv
eandef fi
cientstrategyofcont racti
ngt heseservi
ceswil
lreduceoperati
onalcosts.

 Capi
talEqui
pment
:

Theset ypesofmat erialsar epur chasedf oruseov eroney ear.Pur chasi ngcapi tal
equipmenti nvolv eshugei nv est
ment sandt heydepr eciateandbecomeobsol eteaf t
era
peri
odoft ime.Capi talequi pmentpur chasescanbecat egorisedasgener alpur pose
mat erialthatr equi r
esnospeci aldesi
gnr equirements.Exampl esi ncludegener alpur pose
handlingequi pment s,comput ersystemsandf ur
nitur
e.Anot hercat egorisedi sspeci al
equipmentdesi gnedspeci f
icallytosui ttherequirement soft hepur chaser . Speci ali
sed
product i
onmachi nery,new machi net oolsandpowergener ati
ngequi pment sar ecal led
capitalequi pment s.Pur chasi ngdepartmentshoul dsel ectqual if
iedcapi talequi pment
supplierswhocansuppl y,installandser vi
cet hesei temsasandwhenr equired.suppor t
thepr oductionoper ations.Somet i
mes,l ar
gei nventori
esoft hesemat er
ialsarepur chased
becauseoff requentusagesandt heyconst i
tutethemaj orsour ceofi nv ent
oryi nv estment.
Itisadv i
sablet hatpur chasingdepar t
mentshoul dadoptacr eativ
eappr oacht ocont rol
thebuy i
ngoft hesei t
ems.

BENEFI
TOFEFFECTI
VEPURCHASI
NG

Despit
et hecomplexi
tyofmanagingwor ld-
classor ganisat
ions,organisationsareexploi
ti
ng
thei
rpur chasingforcompet
it
iveadvantages.Or ganisati
onshav ediscov eredthatfocusi
ng
onpur chasingandsupplychai
nmanagementwi l
lhel pt oincreasecust omerv al
ueby
i
mpr ovi
ngper for
mancewhilesimult
aneouslyr educingcost s.Thef ol
lowi ngbenefi
tsare
whator ganisati
onscanderi
vef r
om effecti
vepur chasing:

1.I
mpr
ovedqual
i
tyofmat
eri
alssuppl
i
es.

2.Enhancedpr
omptmat
eri
aldel
i
ver
y.

3.
Impov
edper
for
manceoft
hei
rpr
oduct
s.

4.Oper
ati
onalcostr
educt
ionori
mpr
ovement
.

5.Shor
terpr
oduct
ioncy
clet
ime,i
ncl
udi
ngpr
oductdev
elopmentcy
clet
imes
6.
Cont
inuousqual
i
tyi
mpr
ovement
.

7.Pr
omot
ethedev
elopmentofnew t
echnol
ogyf
orpr
oduct
ionpr
ocess.

8.Est
abl
i
shgoodbuy
er-
suppl
i
err
elat
ionshi
p.

CONCLUSI
ON

Fort hesmoot hflow ofmat er

ialsinanorganisat
ion,effecti
vebuyingofraw materi
als,
parts,components,equi pments,sparepart
s,toolsandsuppor t
ingi
temsrequi
redt o
produceanddel i
v erqual i
typroductstomeetcustomerr equi
rementsatthecompet it
ive
pri
cesshoul dbet heconcernofmanagement .Ef f
ectivepurchasingoccur
swhenmat eri
als
areprocuredatther ightquali
ty,intheri
ghtquantity
,att her i
ghtpri
ce,att
herightt ime,
fr
om t her i
ghtsour ce.Theemphasi sofcompet it
ivepurchasingisdoingwhatis“ r
ight”at
al
lst ages.

SUMMARY

Theai msofacompet i
ti
vepur chasingunitordepar t
mentgof arbey ondt het radit
ional
bel
iefthatpur chasing’spr i
mar yroleist obuymat eri
alsinresponset oi nternalneeds.
Thepr i
mar yobj ectiveofpur chasingisnott ojustbuybutt obuymat eri
alsofr i
ght
quanti
tyandqual it
yatt her i
ghttimeandatt hecheapestcost .Nowaday s,or ganisati
ons
havedi scov eredt hatf ocusingonpur chasi
ngandsuppl ychainmanagementwi llhelpt o
i
ncreasecust omerv aluebyi mprov i
ngper f
ormancewhi l
esimultaneouslyr educingcost s.
Soallpur chasesi st heout comeofst rat
egicdeci
siononmakeorbuyappr oachwhi ch
deter
mi newhatmat erial
st hepur chasedepar t
mentshouldsour ceext ernall
yor
manufact urei nternall
ybyt hepr oductiondepartment.
GROUP2:
-IMPORTANCE,
ROLESANDRELATI
ONSHI
POFPURCHASI
NGDEPARTMENT
WI
THOTHERFUNCTI
ONALAREASI
NANORGANI
ZATI
ON

TABLEOFCONTENT

 I
ntr
oduct
iont
opur
chasi
ng

 Obj
ect
iveofPur
chasi
ng

 I
mpor
tanceofpur
chasi
ng

 Rol
esofpur
chasi
ng

 Rel
ati
onshi
pofpur
chasi
ngwi
thot
herf
unct
ional
areai
ntheor
gani
zat
ion

 Pur
chasi
ngdepar
tmentandFi
nanceandAccountdepar
tment

 Pur
chasi
ngdepar
tmentandPr
oduct
iondepar
tment

 Pur
chasi
ngdepar
tmentandEngi
neer
ingdepar
tment

 Pur
chasi
ngdepar
tmentandQual
i
tycont
rol
depar
tment

 Pur
chasi
ngdepar
tmentandSal
esdepar
tment
I
NTRODUCTI
ON

I
tisper
ti
nentt
oknowt
hatev
eryor
gani
zat
ionwhoi
nvol
vesi
nmanuf
act
uri
ngorot
her
oper
ati
onsr
equi
resr
awmat
eri
alf
ort
hei
rpr
oduct
ionoroper
ati
ons.

Pr
ocur
ementoft
heser
awmat
eri
alar
ebei
ngdonebyadepar
tmenti
ntheor
gani
zat
ion.

Thedepar
tmentbei
ngi
nvol
vei
sknownaspur
chasi
ngdepar
tmentwhi
chi
sver
ycr
uci
al
t
othesuccessoft
heor
gani
zat
ion.

Pur
chasi
ngdepar
tment
shel
pkeepor
gani
zat
ionsf
inanci
all
yheal
thy
.

Theypr
ocur
egoodsandser
vicesdesi
gnedt
omeetoper
ati
onal
needswhi
l
epr
ovi
ding
t
hehi
ghestpossi
blev
alue.Theyest
abl
i
shedpol
i
ciesandpr
ocedur
est
oensur
ethei
r
or
gani
zat
ionoper
ateswi
thi
ntegr
it
yint
hemar
ket
place.

Pur
chasi
ngdepar
tmentkeepoper
ati
onsmov
ingsmoot
hlybecauset
heymoni
torsuppl
y
chai
nsandt
akecar
eoft
edi
oust
askl
i
kenegot
iat
ingcont
ract
swi
thv
endor
s,sot
he
depar
tmentcanf
ocusonot
hert
hings.

Accor
dingt
oLy
sons(
1996)
,or
gani
zat
ional
pur
chasi
ngmaybedef
inedast
hatf
unct
ion
r
esponsi
blef
orobt
aini
ngbypur
chase,
leaseorot
herl
egal
means,
equi
pment
,mat
eri
als,
suppl
i
esandser
vicesr
equi
redbyanunder
taki
ngf
orusei
npr
oduct
ion.

Pur
chasi
ngorpur
chasemanagementbasi
cal
l
yisaf
unct
ioni
nanyent
erpr
iset
hat
wor
kst
osav
emoneyandenhancepr
ofi
ts.Hence,
itbecomesoneoft
hemost
i
mpor
tantdepar
tment
sorf
unct
ionsi
namanuf
act
uri
ngcompany
.Or
gani
zat
ionshav
e
r
eal
i
zedt
hatcostsav
ingscanbeachi
evedi
fthepur
chasi
ngdeci
sionsar
eef
fect
ive.The
mai
nfunct
ionoft
hisdepar
tmenti
stopr
ocur
ethemat
eri
alori
nput
sthatar
eneededf
or
pr
oduct
ion.

Nowaday
s,wi
thsomuchcompet
it
ionandhugedemandi
nthemar
ketandhasmade
manyor
gani
zat
ionst
ore-
lookathowt
heyar
egoi
ngaboutwi
tht
hei
rpur
chasi
ng.The
r
oleofpur
chasi
ngdepar
tmenthasenhancedi
nabi
gwayandi
tincl
udest
asksl
i
ke
v
eri
fyi
ngt
hesuppl
i
ers,
rev
iewi
ngt
hemat
eri
alqual
i
ty,
maki
ngsur
ethatt
hedel
i
ver
yison
t
ime.
OBJECTI
VEOFPURCHASI
NG

1.Thef
ir
stobj
ect
iveofsci
ent
if
icpur
chasi
ngi
stopr
ocur
epr
operquant
it
yofmat
eri
als
sot
hatpr
oduct
iongoesonuni
nter
rupt
edl
y.

2.Toensur
ethatgoodspur
chasedar
eofpr
operqual
i
ty.

3.I
tensur
est
hesuppl
yofmat
eri
alsatt
het
imei
tisneededbypr
oduct
iondepar
tment
.

4.Thewast
agesofmat
eri
alsduet
ospoi
l
age,
obsol
e­scence,
dupl
i
cat
ionet
c.ar
ekept
att
hemi
nimum.

5.Schedul
i
ngofpur
chasebykeepi
ngi
nvi
ewofshor
t-t
erm andl
ong-
ter
m pr
oduct
ion
pol
i
ciesoft
heconcer
n.

6.Tomai
ntai
nsui
tabl
esour
cesofsuppl
i
esandal
sot
okeepi
ntouchwi
thal
ter
nat
ive
sour
ces.

7.Pay
ingar
easonabl
epr
icef
ormat
eri
alssot
hati
nvest
ment
sinst
oresar
emi
nimum.

8.Tomai
ntai
ncompet
it
iveposi
ti
onoft
hef
ir
m bymai
ntai
ningqual
i
tyst
andar
ds
posi
ti
vel
ycompar
abl
ewi
tht
hoseofcompet
ingf
ir
ms.

9.Todev
elopgoodsuppl
i
err
elat
ionshi
pswhi
chwi
l
lensur
ethebestt
ermsofsuppl
yof
mat
eri
als.

10.Toadoptt
hemostadv
ant
ageousmet
hodofpur
chaset
oensur
esmoot
hdel
i
ver
yof
mat
eri
alsf
rom suppl
i
ersandt
oav
oidt
her
isksofanydi
sput
esoff
inanci
all
oss.

I
MPORTANCEOFPURCHASI
NGDEPARTMENT

Anyor
gani
zat
ioni
sapur
posi
veonewhi
chset
soutt
oachi
evesomeobj
ect
ives.For
exampl
e,amanuf
act
uri
ngcompanyset
soutt
opr
oducef
ini
shedgoodsf
orsal
esata
pr
ofi
t.I
tmayhav
eot
herobj
ect
ivessuchassoci
alr
esponsi
bil
i
tyt
owar
dscust
omer
s,
wor
ker
sandt
hesoci
ety
.Non-
prof
itor
gani
zat
ionssuchasal
ocal
gov
ernmentmayai
m
atpr
ovi
dinggoodser
vicei
nter
msofgoodeducat
ion,
env
ironment
alsani
tat
ion,
good
dr
inki
ngwat
er,
etc.

I
nor
dert
oachi
evet
heseobj
ect
ivesanor
gani
zat
ionmustcombi
neandcoor
dinat
emen,
machi
nes,
mat
eri
alsandmoneyi
nanef
fi
cientmanner
.

I
nthemanuf
act
uri
ngi
ndust
ryt
oday
,mat
eri
alsar
ethel
i
febl
ood.Wi
thoutt
hem nof
ir
m
canoper
ate.

Mat
eri
alsmustbeav
ail
abl
eatt
hepr
opert
imeandi
nthepr
operquant
it
iesf
ort
heuseof
pr
oduct
ionandot
herdepar
tment
s.

Pur
chasi
ngi
sther
efor
eani
ntegr
alpar
tofbusi
nessmanagementj
ustasmar
ket
ing,
pr
oduct
ion,
finance,
engi
neer
ing,
etc.Fort
hebusi
nesst
obesuccessf
uleachi
ndi
vi
dual
f
unct
ionorpar
tmustbesuccessf
ul,
andt
hati
ncl
udespur
chasi
ng.

Pur
chasi
ngdepar
tmenti
ssupposedt
obeav
eryi
mpor
tantdepar
tmentofmat
eri
als
managementi
nanyor
gani
zat
ion.Pur
chasest
affhast
omanagev
ari
ousv
endor
sand
ext
ernal
agenci
esandt
hust
heyr
epr
esentt
hei
ror
gani
zat
ion’
sreput
ati
ont
othel
arger
wor
ld.Theyar
eresponsi
blef
ornegot
iat
ingandt
henf
inal
i
zingbi
gdeal
swhi
chmi
ght
meanal
ott
othei
rcompany
.Ot
hert
hant
hat
,pur
chasi
ngdepar
tmenthel
psi
nthe
f
oll
owi
ng:

Cont
rol
l
ingt
hecost
s

Thepur
chasi
ngmanagementhast
oanal
yzeanddeci
det
hebestsuppl
i
ersaspert
he
qual
i
tyofpr
oduct
sandmostr
easonabl
ecost
.Theyal
sor
evi
ewmanyot
herf
act
orsl
i
ke
i
fthev
endororsuppl
i
ercanguar
ant
eet
imel
yshi
pment
s,what
’st
hei
rreput
ati
oni
nthe
i
ndust
ryandr
elev
antexper
ience.Changi
ngt
hev
endor
sagai
nandagai
nisexpensi
ve;
t
her
efor
e,f
indi
ngt
hebestandr
eli
abl
evendori
sver
yimpor
tantf
orcont
rol
l
ingcost
s.

St
abi
l
izi
ngt
hepr
ices

Anot
heri
mpor
tantr
olet
hatpur
chasi
ngmanagementhast
oachi
evepr
icest
abi
l
ity
.In
caset
hepr
oduct
ioncostgoesupanddown,
otherf
unct
ionsf
acer
oadbl
ocks.For
exampl
e,t
hemar
ket
ingf
unct
ionget
sconf
usedaboutwhatpr
iceshoul
dbechar
gedt
o
t
hecust
omer
s,t
hef
inancedepar
tmentf
acespr
obl
em i
ncal
cul
ati
ngpr
ofi
tsandt
he
account
scannotgauget
hecompany
’scashf
low.Pur
chasi
ngmanager
sar
etheones
whoar
eresponsi
blef
orst
abi
l
izi
ngt
hepr
oduct
ioncostbynegot
iat
ingwi
thsuppl
i
ersand
maki
ngl
ongcont
ract
sformut
ual
benef
it
.Theyal
sohedgesomei
temswi
thbanksi
n
t
hef
orm ofaf
orwar
dcont
ract
.

Suppl
yChai
nManagement

Buy
ersal
soensur
ethatt
hemat
eri
alorsuppl
i
esar
erecei
vedont
imeandar
eoft
he
expect
edqual
i
ty.I
ncaset
heshi
pmenti
sdel
ayedori
snotoft
heexpect
edst
andar
d,i
t
woul
daf
fectt
hecompl
etepr
oduct
ionchai
n.Hence,
thi
sfunct
ioni
sofut
most
i
mpor
tanceacr
ossal
li
ndust
ri
es.

Cust
omerSat
isf
act
ion

Wonder
inghowpur
chasi
ngdepar
tmenti
srel
atedt
ocust
omersat
isf
act
ion?Pur
chase
managementi
sresponsi
blef
orcust
omersat
isf
act
ioni
nthef
oll
owi
ngway
s:wor
king
t
owar
dst
hebestqual
i
tyoft
hepr
oduct
sandensur
ingon-
ti
medel
i
ver
ies.Whent
he
pur
chasedepar
tmentopt
sforhi
ghestqual
i
tyofsuppl
i
esori
ngr
edi
ent
satr
easonabl
e
cost
s,i
tresul
tsi
ncostsav
ings,
whi
char
efur
therpassedont
othecust
omer
s.
Ther
efor
e,pur
chasi
ngmanagementhasacr
it
ical
rol
etopl
ayi
ncust
omer
’sexper
ience
wi
tht
hef
inal
product
sandt
heor
gani
zat
ion.

Manager
elat
ionshi
ps

Pur
chasi
ngi
snotonl
yaboutshar
ingr
isk,
iti
sal
soaboutshar
ingbenef
it
s.

Passi
ngonr
iskt
oasuppl
i
erorout
sour
cingaser
viceof
tenr
equi
resmor
emanagement
oft
hesuppl
ychai
n,notl
ess.Thechal
l
engeoft
hepur
chasi
ngdepar
tmenti
stogett
he
suppl
i
eri
nter
est
edi
nwor
kingwi
thy
ourbusi
ness,
get
ti
ngt
hem t
oinv
esti
nthel
ong-
ter
m
r
elat
ionshi
p.

Thedepar
tmental
sohast
omanager
elat
ionshi
pswi
thi
nyourcompany
.Ithast
owor
k
wi
thi
nter
nal
stakehol
der
ssuchasmar
ket
ing,
finance,
logi
sti
csanddi
str
ibut
iont
o
ensur
ethatt
heyar
eal
lal
i
gned.
Pur
sueI
nnov
ati
on

Becauset
hepur
chasi
ngdepar
tmenti
sal
way
sincont
actwi
thav
ari
etyofout
side
busi
nesses,
iti
sinani
deal
posi
ti
ont
osour
cei
nnov
ati
vegoodsandser
vicest
hatcan
pr
ovi
deacompet
it
iveadv
ant
aget
oyourbusi
ness—anedgei
nei
therpr
ice,
qual
i
tyor
conv
eni
ence.

Thepur
chasi
ngdepar
tmentwi
l
lal
sopl
ayani
mpor
tantr
olei
nhel
pingy
ousour
ce
suppl
i
esf
ori
nnov
ati
vepr
oduct
sorser
vicesdev
elopedbyy
ourownf
ir
m.
Commer
cial
i
zingR&Dcanof
tenr
equi
recl
osecooper
ati
onwi
thsuppl
i
ers

Lev
erageTechnol
ogy

Pur
chasi
ngdepar
tmentshoul
dident
if
ytechnol
ogysol
uti
onst
oaddr
essy
oursuppl
y
chai
npr
obl
ems.Thepur
chasi
ngdepar
tmentshoul
dal
sopl
ayani
mpor
tantr
olei
nthe
sel
ect
ionandi
mpl
ement
ati
onofERPsy
stems,
inv
ent
orycont
rol
syst
emsandot
her
t
echnol
ogyt
hatai
mst
oimpr
ovet
heef
fi
ciencyofy
oursuppl
ychai
nmanagement
.

I
mpr
ovequal
i
ty

Pur
chasi
ngdepar
tment
scanhel
ptoi
mpr
ovequal
i
tybyest
abl
i
shi
ngt
argetper
for
mance
l
evel
sforqual
i
tyandt
hent
racki
ngper
for
manceagai
nstt
hoset
arget
s.Cr
it
ical
toqual
i
ty
char
act
eri
sti
csi
sat
ypi
cal
met
ri
cusedt
omeasur
ethi
ngssuchasdur
abi
l
ity
,thel
ook
andf
eel
oft
hepr
oductort
het
imel
i
nessofdel
i
ver
y.

ROLESOFPURCHASI
NGDEPARTMENT

Ther
oleofpur
chasedepar
tment
scan’
tbei
gnor
edf
oror
gani
zat
ionst
ost
ayf
inanci
all
y
heal
thy
.Theypr
ocur
egoodsandser
vicesst
reaml
i
nedwi
tht
heoper
ati
onal
needsofa
f
ir
m whi
l
epr
ovi
dingt
hehi
ghestpossi
blev
alue.Wi
tht
hei
rest
abl
i
shedpr
ocur
ement
pol
i
ciesandpr
ocedur
es,
organi
zat
ionsoper
atewi
thi
ntegr
it
y.Thef
unct
ionofpur
chase
depar
tment
sal
soext
endst
osuppl
ychai
nmoni
tor
ingwhi
l
etaki
ngcar
eofst
renuous
t
asksl
i
kenegot
iat
ingcont
ract
swi
thv
endor
s.Thesi
zeofacompanyi
sthedet
ermi
ning
f
act
orwheni
tcomest
other
oleofapur
chasi
ngdepar
tment
.

Theov
eral
lfunct
ionofpur
chasi
ngdepar
tmenti
stopr
ovi
degoodser
vicet
ouser
depar
tment
sint
hecompanyandal
sohel
pthecompanyt
omaxi
mizepr
ofi
t.Wemayl
i
st
t
hef
unct
ionsofpur
chasi
ngdepar
tmentasf
oll
ows:

Cor
por
atePl
anni
ng

Pur
chasi
ngi
soneoft
hef
unct
ionswhi
chhast
hecl
osestcont
actwi
tht
hef
ir
m'sex
ter
nal
env
ironment
.Itt
her
efor
ehasapr
omi
nentr
olet
opl
ayi
nthecor
por
atePl
anni
ngpr
ocess
bypr
ovi
dingessent
ial
suppl
ymar
keti
nfor
mat
iont
otopmanagementanduser
depar
tment
ssuchasmar
ket
ing,
product
ionandengi
neer
ing/
desi
gn.

Pur
chasi
ngmustbeawar
eoft
heef
fect
sofchangi
ngi
ntechnol
ogyont
hemat
eri
als
andcomponent
sitbuy
s,wat
chf
oroppor
tuni
ti
esf
orsubst
it
uti
ngmat
eri
als,
trendsi
n
mar
ketpr
iceandav
ail
abi
l
ity
.

Pur
chasi
ngneedst
opr
ovi
dei
nfor
mat
ionofcompet
it
iveact
ivi
tyi
nthesuppl
ymar
ket
.
Thenumberofsuppl
i
ersent
eri
ngorl
eav
ingt
hemar
ket
,mer
ger
sandacqui
sit
ionsaf
fect
compet
it
ionandt
her
efor
ethepr
icespai
dformat
eri
als.

Pol
i
tical
unr
esti
nCount
ri
esf
rom wher
emat
eri
alsar
eimpor
tedneedst
obef
oll
owed
cl
osel
y.Pol
i
tical
unr
estr
esul
tsi
nunst
abl
esuppl
ysi
tuat
ion.I
nthehomeordomest
ic
mar
ketpur
chasi
ngshoul
dwat
chf
ori
ndust
ri
alunr
est
sinkeysuppl
i
eri
ndust
ri
es
becausei
ncr
easedi
ndust
ri
alunr
estr
esul
tsi
nuncer
tai
nsuppl
ysi
tuat
ion.

NewPr
oductDev
elopment

Pur
chasi
ngpl
aysani
mpor
tantr
olei
npl
anni
ngf
ornewpr
oduct
stobepr
oducedand
sol
dbyt
hecompany
.Asar
esul
toft
hef
astr
ateoft
echnol
ogi
cal
dev
elopmentt
hel
i
fe
spanofmanypr
oduct
shav
eshor
tened.Thef
ir
mther
efor
eneedsear
lyi
nfor
mat
ionon
at
tr
act
ivedev
elopment
sint
hesuppl
ymar
keti
nor
dert
otakeadv
ant
ageoft
hem.Thi
sis
pr
ovi
dedbypur
chasi
ngbysear
chi
ngf
ori
nnov
ati
ons.

I
. Bypr
ovi
dingcommer
cial
inf
ormat
ionaboutsuppl
ypossi
bil
i
ties

I
I.Bysuggest
ingnewandal
ter
nat
ivemat
eri
alsandspeci
ali
zat
ions

I
II
.Byf
indi
ngnewsuppl
i
ers
I
V.Byef
fect
ivepar
ti
cipat
ioni
nval
ueengi
neer
inganddesi
gnt
eams.

Pur
chaseResear
ch

Toper
for
mthef
oregoi
ngt
hreef
unct
ionswel
l
,pur
chasi
ngshoul
dengagei
n
pur
chaser
esear
chwhi
chi
sdescr
ibedas,
thesy
stemat
iccol
l
ect
ion,
col
l
ati
onand
anal
ysi
sofsuppl
ymar
keti
nfor
mat
ionasabasi
sforgoodpur
chasi
ngdeci
sions.

Speci
fi
cat
ion

Pur
chasi
nghel
pst
heuserdepar
tment
stodet
ermi
net
henat
ureandt
imeofneedf
or
mat
eri
alsandsuppl
i
esbyr
evi
ewi
ngspeci
fi
cat
ionsandal
sopr
ovi
dingcommer
cial
i
nfor
mat
ionr
elat
ingt
opr
ices,
alt
ernat
ivemat
eri
als,
avai
l
abi
l
ity
,et
c.

Budget
ing

Thepur
chasi
ngdepar
tmentoper
atesonabudgeteachquar
ter
.Theymustr
esear
ch
v
ari
oussuppl
i
ersi
nor
dert
ofi
ndt
hebestdeal
sonqual
i
typr
oduct
s.Theyal
sohav
e
t
oest
imat
ethequant
it
ythati
sneededsot
hatt
hest
ocknei
thersi
tst
ool
ong
(
essent
ial
l
yawast
eofmoney
)norget
susedt
ooqui
ckl
y.

Ev
aluat
ion

Notev
eryi
tem orr
esour
ceneedst
obeor
der
edwi
tht
hesamef
requency
.Thi
s
r
equi
rest
hepur
chasi
ngdepar
tmentt
oev
aluat
etheneedandpr
ior
it
izewhatt
o
pur
chaseandwhent
opur
chasei
t.Al
so,
somei
temsmaynotbev
eryef
fi
cientanda
di
ff
erentmodel
orbr
andmaybet
terser
vet
hebusi
ness.Thepur
chasi
ngdepar
tment
makest
heseev
aluat
ionsandseeksi
nputf
rom ot
herdepar
tment
saboutwhatt
hey
needi
nor
dert
odot
hei
rjobs.
RELATI
ONSHI
P OF PURCHASI
NG WI
TH OTHER FUNCTI
ONAL AREA I
N THE
ORGANI
ZATI
ON

Pur
chasi
ngandFi
nance

Ther
elat
ionshi
pbet
weeny
ourpur
chasi
ngdepar
tmentandf
inancedepar
tmentr
equi
res
ongoi
ngf
eedbacki
nbot
hdi
rect
ions.Yourpur
chasi
ngdepar
tmentneedst
oknowabout
t
hepossi
bil
i
tiesandconst
rai
ntst
haty
ourf
inancedepar
tmenthandl
es.Thesei
ncl
ude
newsour
cesofcapi
tal
thatmakei
tpossi
blet
omakeadv
ant
ageousi
nvent
ory
pur
chasesandcashf
lowdi
ff
icul
ti
est
hatl
i
mitpur
chasi
ngpower
.Int
urn,
yourf
inance
depar
tmentneedst
oknowwhenpur
chasi
ngandsuppl
yiswor
kingt
owar
dsan
upcomi
ngex
pendi
tur
esuchasanewpi
eceofequi
pmentorashi
pmentofst
ockt
o
keepy
oursal
esdepar
tmentsuppl
i
ed.Al
thought
her
emaynotbebount
if
ulf
unds
av
ail
abl
e,i
fther
eisanoppor
tuni
tyt
obuyabul
kamountofakeyi
tem atan
adv
ant
ageouspr
ice,
itmaybewor
thwhi
l
eforf
inancet
ogetcr
eat
iveandf
indt
hemoney
ev
eni
fcashi
sti
ght
.Si
mil
arl
y,y
ourpur
chasi
ngdepar
tmentmayoptt
obuyi
nsmal
l
er
quant
it
iesorst
aggeror
der
stocoor
dinat
ewi
thy
ourf
inanci
ngdepar
tment
'st
imel
i
ne.

Pur
chasi
ngandPr
oduct
ion

Smoot
hieandt
imel
ypr
oduct
iondependsofhav
ingneededpar
tsonhand.Or
der
ing
t
hesepar
tsi
sther
esponsi
bil
i
tyoft
hepur
chasi
ngdepar
tment
.Int
urn,
manuf
act
uri
ng
manager
sar
eresponsi
blef
orcommuni
cat
ingt
opur
chasi
ngandsuppl
yst
affabout
whatt
heyneed,
wit
henoughl
eadt
imef
orpur
chasi
ngt
opr
ocur
ewi
thoutbr
ingi
ng
pr
oduct
iont
oast
andst
il
l.Thi
sef
fect
ivecommuni
cat
iondependsonbot
hpur
chasi
ng
andmanuf
act
uri
ngst
affknowi
nghowmucht
imei
ttakest
oor
derandr
ecei
vedi
ff
erent
par
ts,
andal
sohav
ingcl
earandcur
renti
nfor
mat
ionaboutwhi
chpar
tsar
emostcr
it
ical
t
ohav
eonhandandwhi
chcanbeor
der
edf
rom mul
ti
plesour
cesi
fther
eisani
ssue
wi
thy
ourpr
imar
ysuppl
i
er.I
fyourpr
oduct
ioncan'
tpr
oceedwi
thoutaspeci
fi
cty
peof
gl
uet
hati
sonl
yav
ail
abl
efr
om asi
ngl
emanuf
act
urer
,it
'sespeci
all
yimpor
tantt
oav
oid
r
unni
ngout
.Pr
oduct
ionmustpr
oact
ivel
yinf
orm pur
chasi
ngi
fyou'
rer
unni
ngl
ow,
and
pur
chasi
ngmustt
reatl
owi
nvent
oryl
evel
swi
thappr
opr
iat
eur
gency
.

I
nvent
oryandpur
chasi
ngsof
twar
ecanbei
ndi
spensabl
eforf
aci
l
itat
ingt
hef
lowof
i
nfor
mat
ionbet
weenpur
chasi
ngandpr
oduct
ion.Notonl
ywi
l
lpur
chasi
ngaut
omat
ical
l
y
r
ecei
veupdat
eswhenpar
tsandmat
eri
alsar
eused,
butasy
stem canbesetupwi
th
bui
l
t-i
nor
derpoi
ntst
hatcor
respondt
other
hyt
hm ofeachi
tem'
susage,
aswel
lasi
ts
t
imel
i
nef
oror
der
inganddel
i
ver
y.

Pur
chasi
ngandEngi
neer
ingdepar
tment

Thi
sdepar
tmenti
sresponsi
blef
ordesi
gn,
dev
elopmentandmai
ntenanceaswel
las
pr
epar
ingt
echni
cal
speci
fi
cat
ionsf
ort
hecompany
'spr
oduct
s.Toensur
ethi
s,t
he
depar
tmentl
i
aseswi
thpur
chasi
ngdepar
tment
.Thet
wodepar
tment
swor
ktoget
her
whenbuy
ingt
echni
cal
l
ycompl
i
edpl
ant
s,equi
pment
sormat
eri
als,
especi
all
yift
he
speci
fi
cat
ionswoul
dnotal
l
owt
hepur
chasert
ogetgoodor
der
.Al
so,
pur
chasi
ng
depar
tmenteducat
eandt
rai
ntheengi
neer
ingst
affi
nhowt
obef
lexi
blei
n
speci
fi
cat
ionst
oal
l
owf
orunder
-sour
cing.

Pur
chasi
ngandQual
i
tyCont
rol
depar
tment

Theor
gani
zat
iondeser
vest
hev
erybestofal
lequi
pmentandmat
eri
alst
oenabl
ethem
comeupwi
thqual
i
tygoodsandser
vices.

Ti
sel
ectamongt
hesuppl
i
ers,
thet
wodepar
tment
sneedt
owor
ktoget
heraswel
las
wheni
nspect
ingsuppl
i
ersorv
endor
sfaci
l
iti
esorsel
ect
ingt
hemat
eri
alssuppl
i
ers

Pur
chasi
ngandSal
esDepar
tment

Yoursal
esdepar
tmentdependsony
ourpur
chasi
ngdepar
tmentt
ohav
ethei
nvent
oryi
n
pl
acet
oful
fi
ll
compl
etedsal
es.Yourpur
chasi
ngdepar
tmenti
ntur
ndependsony
our
sal
esdepar
tmentt
oal
l
owenoughl
eadt
imebet
weent
het
imeanor
deri
spl
acedand
t
hepr
omi
sedf
ulf
il
lmentdat
e.Pr
ocur
ementst
affcanmaket
hispr
ocesseasi
erby
cl
ear
lycommuni
cat
inghowl
ongi
ttakest
oobt
aint
hei
temsbei
ngsol
d.Sal
esst
affcan
i
ntur
nmaket
hispr
ocesseasi
erbypr
omi
singcust
omer
sonl
ywhati
scomf
ort
abl
y
possi
blef
ort
hepr
ocur
ementdepar
tment
.Ify
ousel
lfur
nit
ureandi
ttakest
woweekst
o
obt
aint
hemat
eri
alsf
oracust
om or
der
,it
'
scount
erpr
oduct
ivet
opr
omi
seacust
omer
t
haty
ourcompanywi
l
lhav
eanor
derr
eadyi
naweekandahal
f.
CONCLUSI
ON

Thi
spaperdi
scussest
her
olesandobj
ect
ivesofpur
chasi
ngwi
thi
nanor
gani
zat
ionand
i
nsuppl
ychai
noper
ati
ons.Thi
spaperdescr
ibespur
chasi
ng’
srol
eint
heor
gani
zat
ion
andt
hei
nter
act
ionwi
thot
heror
gani
zat
ional
funct
ions.

Thekeypoi
ntsf
rom t
hispaperi
ncl
ude

 Under
standi
ngt
hei
mpor
tantr
oleofpur
chasi
ngi
nanor
gani
zat
ion

 Assessi
ngt
hepur
poseandgoal
soft
hesuppl
ymanagementor
gani
zat
ionandi
ts
cont
ri
but
iont
opr
ofi
tabi
l
ityandt
hebot
tom l
i
ne

 I
dent
if
yingt
her
elat
ionshi
pbet
weent
hepur
chasi
ngf
unct
ionandot
herf
unct
ional
ar
ea
REFERENCES

1.Pr
inci
pleofpur
chasi
ngbyJohnOl
ufemi
Ayanda(
2011)

2.ht
tps:
//medi
um.
com/
rawker
ysoci
al/
what
-i
s-t
he-
impor
tance-
of-
pur
chasi
ng-
management
-acr
oss-
all
-i
ndust
ri
es-
f5bf
dca10e55

3.www.
bdc.
ca/
en/
art
icl
es-
tool
s/oper
ati
ons/
pur
chasi
ng/
pur
chasi
ng-
depar
tment
s-
obj
ect
ives

4.
www.
googl
e.com/
amp/
s/pr
ocur
ement
andsour
cinghub.
wor
dpr
ess.
com/
2020/
05/
16/
r
ol
es-
dut
ies-
and-
responsi
bil
i
ties-
of-
the-
pur
chasi
ng-
depar
tment
/amp/

5.ht
tps:
//www.
your
art
icl
eli
brar
y.com/
pur
chase-
management
/pur
chasi
ng-
obj
ect
ives-
and-
types-
of-
pur
chasi
ng/
53166
GROUP3:
-ORGANI
ZATI
ONOFPURCHASI
NG

I
NTRODUCTI
ON

Thepur
chasi
ngf
unct
ioncompr
isest
heessent
ial
act
ivi
ti
esassoci
atedwi
tht
he
acqui
sit
ionoft
hemat
eri
als,
ser
vices,
andequi
pmentusedi
ntheoper
ati
onofan
or
gani
sat
ion.

Thepur
chasi
ngpr
ofessi
oni
say
oungone.I
tdi
dnotcomei
ntoexi
stenceunt
ili
ndust
ry
gr
ewsol
argeandcompl
ext
hatt
heowner
sorpl
antmanager
snol
ongercoul
d
super
visebuy
ingper
sonal
l
y(t
hrought
hati
sst
il
ldonei
nsmal
lbusi
nesses)
.Today
,ther
e
i
sagr
owi
ngr
eal
i
zat
ionoft
hespeci
ali
sednat
ureoft
hepur
chasi
ngf
unct
ion.Nol
onger
i
spur
chasi
ngl
i
ket
hebuy
ingoft
heol
denday
s.Pur
chasi
nghasdev
elopedi
ntoasci
ence
andhasi
tsownr
ules,
conv
ent
ionsandpr
act
icesandusesal
lthepr
ocessesof
managementt
hatmakei
tcont
ri
but
eef
fect
ivel
ytot
hecompany
’spr
ofi
ts.

DEFI
NITI
ONOFPURCHASI
NGORGANI
ZATI
ON

Pur
chasi
ngor
gani
zat
ioni
sanor
gani
zat
ionuni
twhi
chpr
ocur
esar
ti
clesandnegot
iat
e
gener
alpur
chasi
ngpr
icecondi
ti
onswi
thv
endor
s.i
tisr
esponsi
blef
orpur
chasi
ng
t
ransact
ionsi
nthecompany
.Apur
chasi
ngt
ransact
ionsi
spr
ocessedcompl
etel
ybyone
si
ngl
epur
chasi
ngor
gani
zat
ion.I
tisal
sousedt
oident
if
yandsel
ect
.

CHARACTERI
STI
CSOFPURCHASI
NGORGANI
ZATI
ON

1.I
nor
gani
zat
ions,
manyi
ndi
vi
dual
sar
einv
olv
edi
nmaki
ngbuy
ingdeci
sions.

2.Theor
gani
zat
ional
buy
eri
smot
ivat
edbybot
hrat
ional
andquant
it
ati
vecr
it
eri
a
domi
nanti
nor
gani
zat
ional
deci
sions;
thedeci
sionmaker
sar
epeopl
e,subj
ectt
omany
oft
hesameemot
ional
cri
ter
iausedi
nper
sonal
pur
chases.

3.Or
gani
zat
ional
buy
ingdeci
sionsf
requent
lyi
nvol
vear
angeofcompl
ext
echni
cal
di
mensi
ons.Apur
chasi
ngagentf
orVol
voAut
omobi
l
es,
forexampl
e,mustconsi
dera
numberoft
echni
cal
fact
orsbef
oreor
der
ingar
adi
otogoi
ntot
henewmodel
.The
el
ect
roni
csy
stem,
theacoust
icsoft
hei
nter
ior
,andt
heshapeoft
hedashboar
dar
ea
f
ewoft
heseconsi
der
ati
ons.

4.Theor
gani
zat
ional
deci
sionpr
ocessf
requent
lyspansaconsi
der
abl
eti
me,
creat
inga
si
gni
fi
cantl
agbet
weent
hemar
ket
er'
si
nit
ial
cont
actwi
tht
hecust
omerandt
he
pur
chasi
ngdeci
sion.Si
ncemanynewf
act
orscanent
ert
hepi
ctur
edur
ingt
hisl
agt
ime,
t
hemar
ket
er'
sabi
l
ityt
omoni
torandadj
ustt
othesechangesi
scr
it
ical
.

5.Or
gani
zat
ionscannotbegr
oupedi
ntopr
eci
secat
egor
ies.Eachor
gani
zat
ionhasa
char
act
eri
sti
cwayoff
unct
ioni
ngandaper
sonal
i
ty.

TYPESOFPURCHASI
NGORGANI
ZATI
ON

1.Cent
ral
i
zedPur
chasi
ng

Lar
gercompani
esof
tencr
eat
ecent
ral
i
zedpur
chasi
ngst
ruct
ures,
wher
eapur
chasi
ng
execut
ivel
eadsat
eam ofi
ndi
vi
dual
s,housedi
nacent
ral
locat
ion.Wi
tht
hishub
appr
oach,
acompanywi
thsev
enpl
ant
sacr
osst
heUSwoul
dbuymat
eri
alsf
oral
lpl
ant
s.
Thi
sgi
vespur
chaser
stheadv
ant
ageofbuy
ingi
nbul
k,f
orl
owerov
eral
lcost
s.
Cent
ral
i
zedpur
chasi
ngal
sogi
vespr
ofessi
onal
sti
ght
ercont
rol
overt
hepur
chasi
ng
pr
ocess.

2.
2.Decent
ral
i
zedPur
chasi
ng

Wi
thmul
ti
plel
ocat
ionsmanv
yadoptadecent
ral
i
zedpur
chasi
ngmodel
,thatl
etseach
f
aci
l
ityoragr
oupoff
aci
l
iti
escar
ryoutt
hei
rownpur
chasi
ngact
ivi
ti
es.Thi
smodel
can
benef
itor
gani
zat
ionswi
thmul
ti
plepr
ofi
tcent
ersandv
ari
ousbusi
nessl
i
nes.Thi
ssy
stem
i
sal
soadv
isedf
orcompani
est
hatacqui
rebusi
nessesdi
ver
gentf
rom t
hei
rcor
e
oper
ati
ons.Decent
ral
i
zedpur
chasi
nghel
pscompani
esdeal
wit
hlocal
vendor
s,whocan
makesuddendel
i
ver
iesatamoment
'
snot
ice,
inor
dert
okeept
hemanuf
act
uri
ng.
DI
FFERENCEBETWEENCENTRALI
ZEDANDDECENTRALI
ZED

1.I
ncent
ral
i
sedpur
chasi
ngl
argescal
epur
chasei
spossi
blewhi
l
eindecent
ral
i
zed
pur
chasel
argescal
ebenef
it
sar
enotav
ail
abl
e.

2.I
nCent
ral
i
zedpur
chasepur
chasi
ngspeci
ali
sat
ioni
sobt
ainedwhi
l
eindecent
ral
i
zed
pur
chasepur
chasi
ngspeci
ali
sat
ioni
snotobt
ained.

3.I
nCent
ral
i
zedpur
chasest
andar
dmat
eri
alar
epur
chasewhi
l
eindecent
ral
i
zed
pur
chasequal
i
tyofmat
eri
ali
squest
ionabl
e.

4.
Incent
ral
i
sedpur
chasel
essf
inancei
senoughbuti
ndecent
ral
i
zedpur
chasemor
e
f
inancei
srequi
red.

5.I
nCent
ral
i
zedpur
chaseest
abl
i
shmentcosti
shi
ghbuti
ndecent
ral
i
zedpur
chase
est
abl
i
shmentcosti
slow.

FACTORSAFFECTI
NGORGANI
ZATI
ONPURCHASEDECI
SION

1.env
ironment
alf
act
or

2.or
gani
zat
ional
fact
or

3.i
nter
per
sonal
fact
or

4.per
sonal
fact
or

Env
ironment
alFact
ors

Env
ironmentf
act
orsaf
fector
gani
zat
ional
buy
ingbehav
ior
.Thi
sincl
udeseconomi
c,
t
echnol
ogi
cal
,pol
i
tical
-l
egal
,soci
alr
esponsi
bil
i
tyandcompet
it
ion.

1.Economi
cFact
ors

Economi
cfact
orsaf
fector
gani
zat
ional
buy
ingbehav
ior
.Thi
sincl
udesl
evel
ofdemand
andeconomi
cheal
th.Thel
evel
ofdemandi
ncl
udescapaci
tyanddesi
ref
orbuy
ing
goods.Thi
sisaf
fect
edbyi
ncomedi
str
ibut
ionandpr
iceofpr
oduct
.Pr
osper
it
y,
r
ecessi
onandr
ecov
eryar
eincl
udedi
neconomi
cheal
th.Thepr
osper
it
ycondi
ti
oni
s
economi
cal
l
ygoodcondi
ti
on.Recessi
oni
seconomi
cal
l
ybadcondi
ti
on.

2.Technol
ogi
cal
Fact
ors

Technol
ogi
cal
fact
orsal
soaf
fector
gani
zat
ional
behav
ior
.Thi
sincl
udesl
evel
of
t
echnol
ogy
,paceoft
echnol
ogy
,technol
ogyt
ransf
eret
c.

E-
commer
ceaswel
lasi
nfor
mat
iont
echnol
ogyhasgotr
evol
uti
onar
ychange.I
thas
di
rect
lyaf
fect
edor
gani
zat
ional
buy
ingbehav
ior
.

3.Pol
i
tical
andLegal
Fact
ors

Pol
i
tical
andl
egal
fact
orsal
soaf
fector
gani
zat
ional
buy
ingpr
ocessdi
rect
ly.Pol
i
tical
f
act
orsi
ncl
udepol
i
tical
syst
em,
pol
i
tical
sit
uat
ion,
andpol
i
tical
thought
,gov
ernment
pol
i
cieset
c.wher
easconst
it
uti
on,
laws,
rul
esandr
egul
ati
onset
c.ar
eincl
udedi
nlegal
f
act
ors.

4.Soci
alResponsi
bil
i
ty

Abusi
nessor
gani
zat
ionshoul
dconsi
dersoci
alr
esponsi
bil
i
tywhi
l
ebuy
inganygoodsor
ser
vices.
Indi
genousgoodsshoul
dbegi
venpr
efer
encei
nbuy
ingandi
nter
estofsoci
ety
shoul
dbepr
otect
ed.
Int
erestofdi
ff
erentpr
essur
egr
oupoft
hesoci
etyal
soshoul
dbe
consi
der
edwhi
l
ebuy
inggoodsor
ser
vices.

5.Compet
it
ion

Compet
it
ional
soaf
fect
sbuy
ingbehav
ior
.Thi
scompet
it
ioni
ncl
udespur
e
compet
it
ion,
monopol
i
sti
ccompet
it
ionandol
i
gopol
ycompet
it
ion.

Or
gani
zat
ional
Fact
ors

Or
gani
zat
ional
fact
orsal
soaf
fector
gani
zat
ional
buy
ingbehav
ior
.Thi
sincl
udes
obj
ect
ives,
pol
i
cies,
procedur
es,
organi
zat
ional
str
uct
ureandsy
stem.

1.Obj
ect
ives

Buy
ingobj
ect
ivei
sdet
ermi
nedaccor
dingt
oor
gani
zat
ional
goal
.Goodsshoul
dbe
pur
chasedaccor
dingt
oor
gani
zat
ional
obj
ect
ive.Asgoodsor
ser
vicesneedt
obe
pur
chasedaccor
dingt
oor
gani
zat
ional
goal
,buy
ingi
saf
fect
edbyobj
ect
ive.

2.Pol
i
cies

Pur
chasi
ngorbuy
ingpol
i
cyal
soef
fect
sor
gani
zat
ional
buy
ingbehav
ior
.Goodsshoul
d
bepur
chasedaccor
dingt
obuy
ingpol
i
cyoft
heor
gani
zat
ion.I
ftheor
gani
zat
ionhast
he
pol
i
cyofbuy
ingi
ndi
genousgoods,
thebuy
ercannotbuyf
orei
gngoods.I
fthe
pur
chasi
ngpol
i
cyi
ssi
l
enti
nthi
smat
ter
,whi
chev
ergoods,
for
eignori
ndi
genous,
canbe
pur
chasedasdesi
red.

3.Pr
ocedur
es

Themet
hodsandpr
ocessadopt
edbyanor
gani
zat
iont
obuygoodsorser
vicesi
scal
l
ed
pr
ocedur
e.Goodsorser
vicescanbepur
chaseddi
rect
lyt
hroughagr
eement
,ort
hrough
t
ender
,demandi
ngcat
aloget
c.Anyoft
hemet
hodcanbeadopt
edt
obuygoodsor
ser
vices.Whi
chev
erpr
ocedur
etheor
gani
zat
ionhasadopt
ed,
thebuy
ershoul
dfol
l
owi
t.

4.Or
gani
zat
ional
Str
uct
ure

Or
gani
zat
ional
str
uct
uredef
inesaut
hor
it
yandr
elat
ionswhi
chdi
rect
lyaf
fect
sbuy
ing
behav
ior
.Insomeor
gani
zat
ion,
goodsorser
vicesar
epur
chasedbydi
rector
derofchi
ef
execut
ivewhi
l
einsomeot
heror
gani
zat
ions,
goodsorser
vicesar
eboughtt
hrough
pur
chasedepar
tment
.So,
buy
ingbehav
iori
saf
fect
edbyor
gani
zat
ional
str
uct
ure.

5.Sy
stem

Pur
chasi
ngsy
stem al
sodi
rect
lyaf
fect
sbuy
ingbehav
ior
.Anor
gani
zat
ioncanadoptany
oneormor
esuchascent
ral
i
zedsy
stem,
decent
ral
i
zedsy
stem,
hugequant
it
ypur
chase
sy
stem andot
her
s.

I
nter
per
sonal
Fact
ors

I
nter
per
sonal
fact
orsal
soaf
fectbuy
ingbehav
ior
.Thi
sincl
udesaut
hor
it
y,st
atus,
int
erest
et
c.

1.Aut
hor
it
y

Theper
sonnel
whom t
heor
gani
zat
ional
str
uct
uregi
vesaut
hor
it
ytoor
derf
orpur
chase,
nogoodscanbepur
chasedwi
thouthi
sor
der
.Buy
ingdeci
sionofsuchaut
hor
it
ypl
ays
ani
mpor
tantr
olei
nbuy
ing.

2.St
atus

Theper
sonst
opur
chasegoodsorser
vicesandt
ogi
veor
derf
orpur
chasemaybe
di
ff
erenti
nanor
gani
zat
ion.Asmucht
hebehav
ioroft
heper
soni
ssui
ngpur
chaseor
der
af
fect
sbehav
ioroft
hebuy
er.I
fthest
atusorl
evel
oft
hebuy
eri
shi
gh,
hisbuy
ing
deci
si
onbecomesr
ati
onal
andqui
ck.Hi
s/herbehav
iorbecomesmat
ure.

3.
Int
erest

User
s,i
nfl
uencer
s,buy
ers,
deci
derandgat
ekeeperar
einv
olv
edi
nor
gani
zat
ional
buy
ing
pr
ocess.
Thei
rint
erestaf
fect
sor
gani
zat
ional
buy
ingpr
ocess.
Ast
hei
rint
erestbecomes
di
ff
erent
,buy
ingpr
ocessmaybecompl
i
cat
ed.

Per
sonal
Fact
ors

Per
sonal
fact
orsal
soaf
fectbuy
ingbehav
ior
.Thi
si
ncl
udesageofper
son,
educat
ion,
l
evel
ofj
ob,
per
sonal
i
tyet
c.

1.Age

Ageofper
sonal
soaf
fect
ssel
ect
ionandpr
ior
it
y.Youngerper
sonsmakebuy
ingdeci
sion
andsuppl
i
ersel
ect
ionqui
ckert
hanol
deragedper
sons.
Simi
l
arl
y,t
hey
oungerper
sons
t
ryt
ofi
ndnewsuppl
i
erswher
easol
derper
sonst
ryt
ogi
vecont
inuat
iont
othesame
whoi
ssuppl
yi
ng.Sot
hisal
soaf
fect
sbuy
ingpr
ocess.

2.Educat
ion

Educat
ionmakesper
sonabl
etoanal
yzegoodorbad.So,
aneducat
edper
sont
akes
buy
ingdeci
sionr
ati
onal
l
ywher
easuneducat
edper
sonmakesbuy
ingdeci
sionathi
tand
mi
ssorhunch.Educat
edper
sonsel
ect
sgoodsorser
vicescar
eful
l
y.So,
buy
er’
s
educat
ional
soaf
fect
sor
gani
zat
ional
buy
ingbehav
ior
.

3.JobPosi
ti
on

Jobposi
ti
onal
soshowsaper
son’
sst
atus.Buy
er’
sposi
ti
onorst
atusal
soaf
fect
shi
s
buy
ingbehav
ior
.Buy
er’
sst
atusmaybel
oworhi
gh.

4.Per
sonal
i
ty

Per
sonal
i
tyofper
sonwor
kingi
nanor
gani
zat
ionmaybedi
ff
erent
.Per
sonal
i
tyaf
fect
s
sel
ect
ionofqual
i
ty,
brand,
pri
ceet
c.So,
buy
er’
sper
sonal
i
tyal
soaf
fect
sor
gani
zat
ional
buy
ingbehav
ior
.

5.Ri
skAt
ti
tude

Ri
skbear
ingcapaci
tyofmenbecomesdi
ff
erent
.Somecanbearmor
eri
skandot
her
s
l
i
ket
otakel
essr
isk.Si
mil
arl
y,somel
i
ket
oav
oidr
iskandsomeot
her
sli
ket
oface.The
capaci
tyandat
ti
tudet
obearr
iskal
soaf
fectbuy
ingbehav
ior
.Thebuy
ershav
ingt
he
capaci
tyt
otakehi
ghr
iskbecomeaggr
essi
ve.Butt
hosehav
ingl
essr
iskbear
ing
capaci
tyandhav
ingnor
iskbear
ingcapaci
tydonotdoso.
GROUP4:
-PURCHASI
NGPROCEDURE,
DOCUMENTATI
ONANDRECORDS

PURCHASI
NGPROCEDURES

Whati
spur
chasi
ng?
Pur
chasi
ngi
sthef
ormal
processofbuy
inggoodsandser
vices.

Whati
spr
ocedur
e?
Apr
ocedur
eisapar
ti
cul
arwayofdoi
ngsomet
hing,
especi
all
yonet
hati
susual
l
y
r
epeat
edi
nthesamewayeacht
ime.Thepr
ocedur
edescr
ibest
hesequenceofst
eps
l
eadi
ngt
othecompl
eti
onofani
dent
if
iedspeci
fi
ctask.

Whati
sthePur
chasi
ngPr
ocedur
e?
Pur
chasi
ngpr
ocedur
edescr
ibest
hesequenceofst
epsbywhi
chapur
chasef
unct
ioni
s
car
ri
edt
hroughf
rom i
tsi
ncept
iont
oit
scompl
eti
on.I
tcanal
sov
aryf
rom one
or
gani
zat
iont
oanot
her
.Iti
sof
tenconsi
der
edi
nter
changeabl
ewi
tht
het
erm
pr
ocur
ementpr
ocess.Pur
chasi
ngpr
ocedur
eisal
soknownast
hePr
ocur
e-To-
Pay(
P2P)
pr
ocedur
e.
Thepur
chasi
ngpr
ocedur
eisati
tsmostbasi
c,assi
mpl
easconduct
ingaTr
ansact
ion.
Muchi
nthesamewayaconsumermi
ghtr
esear
chandpur
chaset
hebestappl
i
ancef
or
t
hei
rhome,
yourpr
ocur
ementt
eam usest
hepur
chasi
ngpr
ocedur
etor
equi
regoods
andser
vicest
hroughy
oursuppl
ychai
n.

GENERALPURCHASI
NGPROCEDUREI
NACOMPANY

 Det
ermi
ngPur
chaseBudget
 Recei
ptofPur
chaseRequi
sit
ion
 Det
ermi
ngsour
ceofsuppl
y
 Pl
aci
ngofPur
chaseOr
der
  Fol
l
owUpofPur
chaseOr
der
 Recei
ptandI
nspect
ionofMat
eri
als
 Checki
ngofI
nvoi
ces

Det
ermi
ngPur
chaseBudget
Pur
chaseManagerpr
epar
esapur
chasebudgetf
ort
hef
ort
hcomi
ngf
inanci
aly
ear
.
Pur
chasebudgeti
spr
epar
edwi
tht
hehel
pofpr
oduct
ionpl
anni
ngdepar
tment
.It
cont
ainsdet
ail
edi
nfor
mat
ionr
egar
dingquant
it
ytobepur
chased,
qual
i
tyofmat
eri
al,
t
imeofpur
chaseandt
hesour
ceofpr
ocur
ement
.Aschedul
eofmat
eri
alsand
component
sneededf
orv
ari
ousj
obs,
knownasBi
l
lofMat
eri
als,
isal
sopr
escr
ibedf
or
wor
kingoutdet
ail
sofpur
chasebudget
.Abi
l
lofmat
eri
ali
sal
sousef
uli
nexer
cisi
ng
cont
rol
overt
heut
il
izat
ionofmat
eri
als.
Recei
ptofPur
chaseRequi
sit
ion
Thepur
chaseof
fi
ceri
nit
iat
esact
ionf
ort
hepur
chaseofmat
eri
alsonl
ywhenhe
r
ecei
vesar
equestf
ort
hesame.Thest
orekeeperanddepar
tment
alheadssend
r
equi
sit
ionsl
i
pst
opur
chasedepar
tmentgi
vi
ngdet
ail
sofmat
eri
alsr
equi
redbyt
hei
r
depar
tment
set
c.apur
chaser
equi
sit
ioni
saf
orm usedasaf
ormal
requestt
othe
pur
chasi
ngdepar
tmentt
opur
chasemat
eri
als.
Det
ermi
ngsour
ceofsuppl
y
Pur
chasemanagerr
emai
nsi
ntouchwi
thv
ari
oussuppl
i
ersofmat
eri
als.Thequot
ati
ons
ar
einv
itedf
ort
hepur
chaseofspeci
fi
cit
ems.Af
terr
ecei
vi
ngquot
ati
onsa
compr
ehensi
vest
udyi
smader
egar
dingt
ermsandcondi
ti
onsof
fer
ed.Thef
act
orst
obe
consi
der
edi
ncl
udepr
ice,
quant
it
y,t
imeofdel
i
ver
y,t
ermsofpay
ment
,tr
adedi
scount
andr
eput
ati
onofsuppl
i
ers.Af
terl
ooki
ngatv
ari
ousf
act
orsaf
inal
deci
sioni
staken
aboutt
hesuppl
i
erofgoods.
Pl
aci
ngofPur
chaseOr
der
Af
tersel
ect
ingasuppl
i
er,
afor
mal
pur
chaseor
deri
ssentf
ort
hesuppl
yofgoods.A
pur
chaseor
deri
ssentonapr
int
edf
orm andi
sdul
yaut
hor
izedbyt
hepur
chase
manager
.Thi
sor
dershoul
dcont
aindet
ail
saboutt
hequant
it
y,qual
i
ty,
pri
ce,
modeof
del
i
ver
y,t
ermsofpay
mentet
c.Thepur
chaseor
deraut
hor
izest
hev
endort
odespat
ch
goodsspeci
fi
edi
nit
.Itest
abl
i
shesacont
ract
ual
elat
ionbet
weent
hebuy
erandt
he
v
endor
.
Fol
l
ow-
UpofPur
chaseOr
der
Apur
chaseor
dernor
mal
l
ybear
sadat
ebywhi
cht
hegoodsmustbedel
i
ver
ed.I
tisi
n
t
hei
nter
estoft
heor
gani
zat
iont
hatgoodsar
erecei
vedi
nti
mef
orkeepi
ng
uni
nter
rupt
edf
lowofmat
eri
als.Thesuppl
i
ersmayber
emi
ndedoft
hedat
eofdel
i
ver
y
ofgoods.Af
oll
ow-
upofpur
chaseor
deri
snecessar
ytor
ecei
vest
ocki
nti
me.
Recei
ptandI
nspect
ionofMat
eri
als
I
nbi
gconcer
nthet
askofr
ecei
vi
ngmat
eri
alsi
sassi
gnedt
othepur
chasedepar
tment
wher
easi
nsmal
lconcer
nst
hiswor
kisdonebyt
hest
orekeeper
.Af
terunpacki
ng
goodst
hei
rquant
it
yiscompar
edt
othatgi
veni
ndel
i
ver
ychannel
.Anydi
scr
epancyi
n
i
temsi
srepor
tedt
othepur
chasedepar
tment
.Thespeci
fi
cat
ionsandqual
i
tyofgoods
i
sal
socheckedatt
hisst
age.
Checki
ngofI
nvoi
ces
Last
lypur
chasedepar
tmentcheckst
hei
nvoi
cesuppl
i
edbyt
hev
endorwi
tht
hatofi
ts
ownr
ecor
ds.Thequant
it
y,qual
i
ty,
pri
ce,
ter
ms,
etc.ar
ecompar
edwi
tht
hosegi
veni
n
pur
chaseor
der
.Af
termaki
ngf
ull
checki
ngt
hei
nvoi
cear
esentt
oaccountdepar
tment
f
orpay
ment
.

PURCHASI
NGDOCUMENTATI
ON

Def
ini
ti
on
Pur
chaseDocument
ati
onmeansabi
l
lofsal
e,cont
ractofsal
e,r
ecei
pt,
inv
oice,
orot
her
Document
ati
onwhi
chi
dent
if
iest
hebuy
er,
sel
l
er,
pur
chasepr
ice,
item(
s)pur
chased,
and
t
hedat
eofpur
chase[
proper
tyt
axnot
icewhi
chi
dent
if
iest
hebusi
nessent
it
yanddat
e
i
ssued]
.
Someoft
hepur
chasi
ngdocument
sar
eli
stedbel
ow
 Requestf
orPr
oposal
(RFP)
  Requestf
orQuot
ati
on(
RFQ)
 Requestf
orI
nfor
mat
ion(
RFI
)
 I
nvi
tat
ionf
orBi
d(I
FB)
 Requestf
orBi
d(RFB)
 Pur
chaseOr
der(
PO)
 Cont
ract
orAgr
eement
 Sel
l
erPr
oposal
Requestf
orPr
oposal
(RFP)
Thi
sisaf
ormal
documentwhi
chi
susedbyt
hebuy
ert
ocl
ear
lyspeci
fyt
hei
rpur
chasi
ng
needsandt
hesuppor
ti
ngr
equi
rement
swhi
chwi
l
lenabl
epr
ospect
ivesel
l
ert
o
under
standt
heneedsoft
hebuy
er.Forexampl
e,i
fthebuy
erwi
shest
ogetanERP
sy
stem i
mpl
ement
edi
nthei
ror
gani
zat
ion,
theywi
l
llookf
orcapabl
etechni
cal
par
tner
s
whocanf
ull
yimpl
ementt
heERPf
ort
hem.I
nsuchcase,
thebuy
erwi
l
lpr
epar
ea
documentwhi
chwi
l
ldet
ail
outt
hei
rrequi
rement
soft
heERPsy
stem.Thi
sdocumenti
s
r
efer
redasanRFP.Basedont
heRFP,
thepr
ospect
ivet
echni
cal
impl
ement
ati
on
agenci
eswi
l
lpr
ovi
deadet
ail
edpr
oposal
expl
aini
ngt
hei
rsol
uti
on,
impl
ement
ati
on
t
imel
i
ne,
pri
cinget
c.
Requestf
orQuot
ati
on(
RFQ)
RFPi
saf
ormal
documentwhi
chi
susedt
ospeci
fycl
ear
lyt
her
equi
rement
sofcer
tai
n
pur
chasesandr
equest
ingf
orapr
icequot
ati
on.RFQi
susedf
orst
andar
dpur
chases
suchashar
dwar
e,of
f-
the-
shel
vesofsof
twar
epr
oduct
,lapt
opsoranyot
herequi
pment
.
RFQi
srel
ati
vel
yver
ysmal
ldocumentv
is-
à-v
isaRFP,
onl
ypr
ovi
dingt
hespeci
fi
cat
ionof
t
hei
temst
obepur
chasedandr
equest
ingf
oraquot
ati
on.Thesel
l
erwi
l
lsubmi
tapr
ice
quot
ati
onandot
hert
ermsi
nresponset
oaRFQ.
Requestf
orI
nfor
mat
ion(
RFI
)
RFIi
susedt
oseeki
nfor
mat
iononv
ari
ousaspect
sfr
om t
hepr
ospect
ivebi
dder
s.RFI
canseeki
nfor
mat
ionaboutbi
dder
ssuchast
hei
rfi
nanci
alst
atement
sforl
astt
eny
ear
s,
det
ail
soft
hei
rpr
ocessesi
ntheor
gani
zat
ion,
cer
ti
fi
cat
ionst
heyhol
d,l
i
stoft
hei
rcl
i
ent
s,
cl
i
entr
efer
ences,
anddet
ail
oft
hei
rpastaccompl
i
shment
s,casest
udi
esandmany
mor
e.RFIi
spr
imar
il
yusedt
ofi
l
teroutf
rom ahugel
i
stofbi
dder
sandsel
ectal
i
stof
pot
ent
ial
suppl
i
erswi
thwhom f
inal
l
yaRFPorRFQwi
thact
ual
requi
rement
scanbe
shar
ed.
I
nvi
tat
ionf
orBi
d(I
FB)
I
nvi
tat
ionf
orbi
daf
ormal
documentwhi
chi
susedf
ori
nvi
ti
ngpot
ent
ial
bidder
stocome
andpar
ti
cipat
eint
hebi
ddi
ngpr
ocess
Requestf
orBi
d(RFB)
RFBi
susedt
osol
i
citf
inanci
albi
dsf
orspeci
fi
edpur
chasesf
rom asel
ect
edpool
of
suppl
i
ers.
Pur
chaseOr
der(
PO)
Apur
chaseor
dercanber
aisedf
avour
ingasuppl
i
erf
orr
egul
arpur
chases.Gener
all
yan
or
gani
zat
ionwi
l
lhav
eal
i
stofsel
ect
edandpr
efer
redsuppl
i
erswi
thamast
er
agr
eement
.Forexampl
e,anor
gani
zat
ionhas2sel
ect
edsuppl
i
ersf
orl
apt
opsandot
her
el
ect
roni
char
dwar
ewi
thnegot
iat
edr
atesf
ort
hey
ear
.Insuchcases,
ther
eisnoneed
f
orf
reshbi
ddi
ng.Thebuy
ercansi
mpl
yrai
seapur
chaseor
derf
avour
ingt
hesuppl
i
erf
or
t
hequant
it
yofi
temst
obepur
chased.POi
sref
err
edasauni
l
ater
alcont
ractwhi
chi
s
r
aisedbybuy
er.I
tbecomesbi
ndi
ngt
othesel
l
eroncet
hesel
l
eraccept
si.
t
Cont
ract
orAgr
eement
Cont
ract
oragr
eementi
samut
ual
agr
eementbet
weent
hebuy
erandt
hesel
l
er.Al
egal
bi
ndi
ngcont
ractwi
l
lhav
eanof
fer
,anaccept
anceandsuf
fi
cientconsi
der
ati
onf
orbot
h
t
hebuy
erandsel
l
er.Thecont
ractoncef
inal
i
zedwi
l
lincl
udet
hedet
ail
edst
atementof
wor
k(SOW)andot
hert
ermsandcondi
ti
ons.
Sel
l
erPr
oposal
Sel
l
erpr
oposal
isadet
ail
edof
ferf
rom t
hesel
l
eri
nresponset
othebuy
er’
srequestf
or
pr
oposal
orbuy
er’
srequestf
orquot
ati
on.Thepr
oposal
wil
li
ncl
udev
ari
oussect
ions
suchasunder
standi
ngoft
hebuy
er’
sneeds,
proposedt
echni
cal
sol
uti
ons,
proposed
i
mpl
ement
ati
onpl
an,
pri
cing,
war
rant
yet
c.
I
MPORTANCEOFPURCHASI
NGDOCUMENTATI
ONS

Theyhel
pyouAv
oidDupl
i
cat
eOr
der
s:
I
foneper
soni
nyourcompanyi
sinchar
geofmaki
ngpur
chases,
keepi
ngt
rackof
or
der
smaybeeasy
.Butasy
ouscal
eup,
pur
chaseor
der
scankeept
rackofwhat
’s
or
der
ed,
bywhom andwhen.

They
’reRequi
redf
orSomeFi
nanci
alAudi
ts
Cer
tai
nfi
nanci
alaudi
tsr
equi
reev
idencet
hatmanager
sappr
ovedy
ourcompany
’s
pur
chasi
ngdeci
sions.Pur
chaseor
der
sar
ethei
deal
document
sfort
heseaudi
ts

TheyCanHel
pYouAv
oidSur
pri
sePr
iceI
ncr
eases
I
fasuppl
i
erchangespr
icesbet
weent
hedat
eofor
deranddat
eofdel
i
ver
yori
nvoi
ce,
a
pur
chaseor
dercl
ari
fi
est
heagr
eeduponpr
icef
orbot
hpar
ti
esandcl
ear
suppot
ent
ial
mi
scommuni
cat
ion.

TheyHel
pYouKeepTr
ackofI
ncomi
ngOr
der
s
I
tmayseem obv
ious,
buthav
ingawel
l
-or
gani
zedpur
chaseor
dersy
stem makesi
teasy
t
oident
if
ywhatpr
oduct
sar
ecomi
ngi
natanyt
ime,
maki
ngi
nvent
oryandshi
ppi
ng
managementsi
mpl
er.

TheyHel
pKeepYourI
nvoi
cesi
nCheck
Whenmaki
ngr
epeator
der
sofi
dent
ical
orsi
mil
arpr
oduct
s,mat
chi
ngi
nvoi
cest
oor
der
s
canbet
edi
ouswi
thoutdocument
ati
on.I
ncl
udi
ngapur
chaseor
dernumberont
he
i
nvoi
ceav
oidst
hisconf
usi
on.

TheyEnsur
eCl
earCommuni
cat
ion
Att
hecor
e,pur
chaseor
der
scl
ear
lycommuni
cat
eal
lthedet
ail
sofapur
chase.By
hav
ingev
erydet
ail
clar
if
ied,
lai
doutanddocument
ed,
youav
oidpot
ent
ial
conf
li
ctor
conf
usi
oni
nthef
utur
e.
PURCHASI
NGRECORDS

DEFI
NITI
ON
Pur
chaser
ecor
dsi
ncl
udeal
ldocument
srel
evantt
othepr
e-t
ender
ing,
tender
ingand
cont
ract
admi
nist
rat
ionphases.I
tisal
socr
eat
edwhenapar
tort
ool
ispur
chased,
bor
rowed,
l
eased,
repai
red,
orexchangedf
rom av
endor
.
Oneoft
hekeyr
esponsi
bil
i
tiesofabusi
nessowneri
stokeepaccur
ater
ecor
dandt
o
ensur
ethaty
ourf
il
esanddocument
sar
eal
lupdat
ed,
notonl
yfort
axt
imebutal
sof
or
t
hel
ongert
ermi
ncaseofanaudi
tandal
sof
orcompl
i
ance.Wheny
oukeepgood
r
ecor
ds,
youcanmoni
torhowy
ourbusi
nessi
sper
for
ming.

PLANNI
NGANDMANAGI
NGPURCHASI
NGRECORDS:

Youcanuset
hef
oll
owi
ngr
ecor
dst
opl
an,
gat
heri
nfor
mat
ion,
andmanaget
het
ermsof
y
ourpur
chases:

VendorCer
ti
fi
cat
ion
Ar
ecor
dthatspeci
fi
est
hecer
ti
fi
cat
iont
hatqual
i
fiest
hev
endor
stosuppl
ythepar
ts
t
haty
our
equi
re.I
ntheCompanyappl
i
cat
ion,
yout
rackv
endorcer
ti
fi
cat
ionst
oensur
e
t
hatbusi
nessoper
ati
onsar
ecompl
i
antwi
thr
egul
ator
yrequi
rement
s.Onpur
chase
or
derl
i
nes,
youcanr
equestcer
ti
fi
cat
esf
rom speci
fi
edaut
hor
it
iessot
hatt
hev
endor
cansendt
hem wi
tht
heshi
pment
.
VendorAppr
oval
Ar
ecor
dthatspeci
fi
est
heser
vicet
ype,
par
tty
pe,
andpar
tst
atust
hatav
endori
s
aut
hor
izedt
osel
ltot
hecompany
.Wheny
ouor
derapar
torser
vice,
thev
endorappr
oval
r
ulesar
echeckedandt
hepar
tst
atusi
supdat
edi
ntheor
derl
i
nest
ohi
ghl
i
ghtanynon-
aut
hor
izedt
ransact
ion.
Pur
chaseCont
ract
Ar
ecor
dthatspeci
fi
est
hedet
ail
sofapur
chasecont
ractwi
thext
ernal
vendor
s.I
nthe
Pur
chaseCont
ract
sappl
i
cat
ion,
ont
heScopet
ab,
youcandef
ineandr
evi
ewt
hescope
oft
hepur
chasecont
ract
,whi
chi
ncl
udest
hef
leet
s,ai
rcr
aft
,pi
ecesofequi
pment
,or
par
tst
hatar
ecov
eredbyt
hecont
ract
.Youcannotchanget
hedet
ail
sont
hist
abaf
ter
t
hecont
racti
sappr
oved.
Pur
chaseRequi
sit
ion
Ar
ecor
dthatspeci
fi
est
hepar
tort
ool
thaty
ouneed.Thepur
chaser
equi
sit
ionmustbe
appr
ovedbef
oreapur
chaseor
dercanbecr
eat
edandsentt
ovendor
s.
Requestf
orQuot
ati
on
Ar
ecor
dthati
susedt
omanager
equest
sforquot
ati
ons.I
ntheRequestf
orQuot
ati
ons
appl
i
cat
ion,
youcanspeci
fyt
hei
tems,
requi
reddel
i
ver
ydat
es,
andot
hercondi
ti
onst
hat
y
ouwantt
hev
endort
omeetf
ort
hedel
i
ver
yofapar
torser
vice.Af
tery
our
ecei
ve
quot
ati
onsf
rom v
endor
s,y
oucanaddt
hem t
otheQuot
ati
onLi
nest
abl
eont
he
Quot
ati
onst
ab.I
fyour
equest
edquot
ati
onsf
rom v
endor
s,i
ntheRequestf
orQuot
ati
on
appl
i
cat
ion,
youcancompar
ethequot
ati
onsi
ntheQuot
ati
onLi
nest
abl
ebef
orey
ou
assi
gnl
i
nei
temst
ovendor
sandcr
eat
epur
chaseor
der
s.

MAKI
NGPURCHASES
Wheny
ouar
ereadyt
ocompl
etet
hepur
chases,
youcancr
eat
ethef
oll
owi
ngr
ecor
ds:

Pur
chaseOr
der
Ar
ecor
dthatspeci
fi
est
hedet
ail
sofapar
tort
ool
thati
spur
chasedf
rom av
endor
.You
cr
eat
eapur
chaseor
deri
nthePur
chaseOr
der
sappl
i
cat
ion.Forexampl
e,wheny
oubuy
anengi
nef
rom av
endor
,youcr
eat
eapur
chaseor
derf
ort
hatpar
tandspeci
fyt
he
t
ransact
iondet
ail
s,suchasser
vicet
ypeandst
orer
oom.
Bor
rowOr
der
Ar
ecor
dthatt
racksapi
eceofequi
pmentt
hati
sbor
rowedf
rom av
endor
,ty
pical
l
yfor
nochar
ge,
foraspeci
fi
eddur
ati
onoft
ime.Forexampl
e,i
fyouhav
eanengi
net
hati
s
bor
rowedf
rom av
endoratnochar
ge,
int
hePur
chaseOr
der
sappl
i
cat
ion,
yousel
ect
Bor
rowPar
torBor
rowTool
fort
heser
vicet
ypeandspeci
fyt
heengi
nedet
ail
s.Whent
he
t
erm oft
hebor
rowor
derends,
int
heRecei
vi
ngandI
nspect
ionappl
i
cat
ion,
youspeci
fy
t
hesendbackdet
ail
s.
LeaseOr
der
Ar
ecor
dthatt
racksapi
eceofequi
pmentt
hati
sleasedf
rom av
endor
,foraspeci
fi
ed
dur
ati
onoft
imeandcost
,whi
chi
sty
pical
l
ydescr
ibedi
nacont
ract
.Forexampl
e,i
fyou
l
easeanengi
nef
rom av
endorataspeci
fi
edcost
,int
hePur
chaseOr
der
sappl
i
cat
ion,
y
ousel
ectLeasePar
torLeaseTool
ast
heser
vicet
ypeandspeci
fyt
heengi
nedet
ail
s.
Whent
het
erm oft
hel
easeends,
int
heRecei
vi
ngandI
nspect
ionappl
i
cat
ion,
you
speci
fyt
hesendbackdet
ail
s.
Repai
rOr
der
Ar
ecor
dthatt
rackst
her
epai
rofapi
eceofequi
pment
.Thev
endori
nvoi
cest
her
epai
r
or
der
’scostasaser
vicel
i
ne.Forexampl
e,whenanengi
neneedsr
epai
r,i
nthe
Pur
chaseOr
der
sappl
i
cat
ion,
yousel
ectRepai
rPar
torRepai
rTool
ast
heser
vicet
ype.
ExchangeOr
der
Ar
ecor
dthatt
rackst
heexchangeofapi
eceofequi
pmentwi
thav
endor
.Whena
nonconf
ormi
tyi
sdet
ect
edi
npar
tort
ool
,youcancr
eat
eanexchangeor
dert
osenti
t
backt
othev
endorandr
ecei
vear
epl
acement
.Forexampl
e,i
fyouexchangeanengi
ne
wi
thav
endor
,int
hePur
chaseOr
der
sappl
i
cat
ion,
yousel
ectExchangePar
torExchange
Tool
ast
heser
vicet
ypeandspeci
fyt
heengi
nedet
ail
s.
GROUP5:
-RI
GHTSOFPURCHASI
NG

I
NTRODUCTI
ON

Pr
ocur
ementi
sanactofobt
aini
nggoodsandser
vices,
typi
cal
l
yforbusi
nesspur
poses.

Accor
dingt
oJohn,Chandr
a,Ti
m(2008)def
inedt
hat
,pr
ocur
ementi
ncl
udessour
cing
andpur
chasi
ngandcov
ersal
loft
heact
ivi
ti
esi
nvol
vedi
nthepr
oduct
/ser
vicesour
cing,
pur
chasi
nganddel
i
ver
yfr
om suppl
i
ert
othecust
omer
.

Thef
iver
ight
sar
eat
radi
ti
onalf
ormul
aexpr
essi
ngt
hebasi
cobj
ect
ivesofpr
ocur
ement
,
andt
hegener
alcr
it
eri
abywhi
chpr
ocur
ementper
for
mancei
smeasur
ed.Ev
eni
fthey
ar
enotcal
l
ed‘
fi
ver
ight
s’,t
heyar
eof
tencov
eredi
npr
ocur
ementl
i
ter
atur
eas"
key
per
for
mancev
ari
abl
es"or"
procur
ementf
act
ors"
;essent
ial
l
y,wear
eal
ltal
ki
ngaboutt
he
samet
hing.

I
nthi
sar
ti
cle,wewi
l
ldi
scusst
hepr
imar
ytaskofpr
ocur
ement
,whi
chi
spr
ovi
dingt
he
“
Right
”input
sfort
heor
gani
sat
ion’
spr
ocesses.

The“
Right
”input
sar
etr
adi
ti
onal
l
ydescr
ibedasf
oll
ows:

I
nput
soft
her
ight“
Qual
i
ty”
.

Del
i
ver
edi
nther
ight“
Quant
it
y”.

Tot
her
ight“
Place”
.

Att
her
ight“
Time”
.

Fort
her
ight“
Pri
ce”
.

Thesear
eof
tencal
l
edt
he“
Fiv
eRi
ght
s”ofpr
ocur
ementandsuppl
y.

Whi
l
eit
’sat
adsi
mpl
i
sti
c(commonSuppl
ychai
niswaymor
ecompl
i
cat
edt
hant
hat
)it
conv
eyst
hef
undament
alsofwhatgoodpr
ocur
ementcanbemeasur
edby
.Whi
l
stI
agr
eePr
ocur
ementi
snuanced,
toexpl
aini
tsucci
nct
lyt
he5R’
shi
tst
henai
lont
hehead.
Thecr
uxoft
hisi
s,ofcour
se,i
sthatt
hesuppl
ychai
nfunct
ion,andpr
ocur
ement
,in
par
ti
cul
ar,needst
oaddv
alue.Pr
ocur
ementof
tenget
sabadpr
ess,cost
sescal
ate,t
he
wr
ongsuppl
i
ersgetsel
ect
ed,
ser
vicemaybeshoddysoi
t’
sthe5r
ight
s i
saneatand
si
mpl
ewayofr
emi
ndi
ngy
ouwhatpr
ocur
ementshoul
dbedoi
ng.

Buthowdoy
oumeett
hecr
it
eri
aoft
he5Ri
ght
s,i
sitbyani
ndi
vi
dual
,byagr
ouporbya
pr
ocess?The5r
ight
stendt
obet
heaci
dtestofaf
unct
ioni
ngpr
ocur
ementt
eam and
howy
oumeett
he5R’
stendst
obeami
xofpr
ocessandper
sonnel
.

The5R’
scanbeseeni
nbot
hdi
rectandi
ndi
rectpr
ocur
ement
.Ther
emostpr
ocur
ement
t
eamswoul
dagr
eet
hatt
her
emostbuy
ersf
aceabal
anci
ngactt
opl
aybet
weent
he5
cr
it
eri
a.Forexampl
e,Ri
ghtQual
i
tymi
ghtdet
ermi
net
hepr
icet
obepai
d(whi
chmaynot
bepal
atabl
ewi
thbudgethol
der
s).Youmayhav
easuppl
i
ert
hatcanonl
ypr
ovi
dea
cer
tai
neconomi
cor
derquant
it
yinor
dert
osat
isf
yanot
hercr
it
eri
a.Thet
ri
cki
stogett
he
5cr
it
eri
awor
kingi
nhar
monyt
osat
isf
ythebusi
ness.

Ef
fect
ivepr
ocur
ementdependsonpl
anni
ng,desi
gn,execut
ion,andcont
rolov
ert
he
mi
l
li
onmov
ingpar
tsi
nthesuppl
ychai
n.Nott
oment
ionr
iskmi
ti
gat
ion,
in-
dept
hmar
ket
knowl
edge,
andst
ri
ki
ngt
heper
fectbal
anceofpowerwi
thsuppl
i
ers.
RI
GHTQUALI
TY

TheRi
ghtqual
i
tyr
efer
stoasui
tabi
l
ityofani
tem f
ort
hepur
posei
tisr
equi
red.

"
Obt
aini
ngGoodsofhi
gh/
sui
tabl
est
andar
dandonet
hatsat
isf
iest
hecust
omer
sneeds
ef
fect
ivel
y"

The pur
sui
toft
his obj
ect
ivei
sto(
ri
ghtqual
i
ty)ensur
ethatt
he speci
fi
cat
ion of
r
equi
rement
sandqual
i
tyst
andar
dsar
eaccur
atel
ydone.

Howev
er,t
her
ightQual
i
tyi
sdependentont
heQual
i
tyofGoodsbei
ngpr
oducedi
tsel
f.
Forpr
oduci
ngt
hegoodsofbestqual
i
ty,
thebestgr
adeofr
awmat
eri
almaybet
her
ight
qual
i
tywher
easf
orpr
oduci
ngi
temsofmedi
um qual
i
ty,t
heav
eragel
owestgr
ademay
bet
her
ightqual
i
ty.
..
.

Ther
ear
eDi
mensi
oni
nPr
oductqual
i
ty.

Consumer
slookoutf
orcer
tai
nChar
act
eri
sti
cspr
esenti
napr
oductsai
dtohav
ebeen
madei
nar
ightqual
i
ty.Thesear
ethepr
oductper
for
mance,t
hef
eat
ure,howr
eli
abl
eis
t
hepr
oduct
?,howl
ongcant
hepr
oductl
ast
,theper
cei
vedqual
i
tyoft
heet
c.

TheI
nabi
l
ityoft
hePur
chaset
eam t
opr
ovi
depr
oduct
smanuf
act
uredwi
tht
heRi
ght
qual
i
tymaycausecer
tai
nSi
tuat
ionst
oar
ise.I
fther
ightqual
i
tyofgoodsi
snotachi
eved;

-St
ockmayhav
etober
eject
edorscr
apped

-Fi
nishedpr
oduct
smaybedef
ect
iveand,
int
urn,
hav
etobescr
appedorr
ewor
kedon.

-Def
ect
ivepr
oduct
smayr
eachcust
omer
s,r
esul
ti
ngi
nrecal
l
s,r
etur
ns,compensat
ion
cl
aims,
lostgoodwi
l
landadamagedr
eput
ati
on
-Thef
ir
m wi
l
lincurhi
ghcost
sinpr
oduct
ionandRef
urbi
shment

Ther
ear
eTwomaj
orar
easmosti
mpor
tantt
oBuy
ersandev
enpr
oducer
swhenmaki
ng
pur
chasesmadewi
tht
her
ightqual
i
ty

Theyar
e:-

*Fi
tnessf
orpur
pose

*Conf
ormancet
ospeci
fi
cat
ions

Fi
tnessofpur
pose

Fi
tness f
orpur
pose i
s an ev
aluat
ion ofhow wel
la pr
oductorser
vice f
ulf
il
lsa
cust
omer
’sdesi
resbasedont
heor
gani
zat
ion’
sgoal
sorr
easonf
orexi
stence.

Conf
ormancet
ospeci
fi
cat
ions

Conf
ormancet
ospeci
fi
cat
ionsi
stheabi
l
ityofapr
oduct
,ser
vice,
orpr
ocesst
omeeti
ts
desi
gnspeci
fi
cat
ion.Desi
gnspeci
fi
cat
ionsar
eani
nter
pret
ati
onofwhatt
hecust
omer
needsshowcasedi
napr
oductorser
vice.

CONCLUSI
ON

Qual
i
tyt
radi
ti
onal
l
yref
err
edt
othequal
i
tyoft
hepr
oductorser
viceor
der
edandt
he
st
andar
dsr
equi
red.Al
thought
hequal
i
tyoft
hepr
oductorser
vicei
srel
evant
,today
’s
appr
oachconsi
der
sgr
eat
eraspect
sofqual
i
tyi
ncl
udi
ngt
heneedf
orTot
alQual
i
ty
Management(
TQM)
. Thephi
l
osophybehi
ndqual
i
tyi
nthepr
omot
est
het
heor
ythat
qual
i
tyshoul
dper
meat
eev
eryar
eaofanor
gani
sat
ionandi
tssuppl
ychai
n.Moder
n
t
heor
ybehi
ndt
hef
iver
ight
sofpr
ocur
ementsuppor
tst
hisv
iew andopensupawi
de
r
angeofar
east
hatneedt
obeconsi
der
ed.
RI
GHTQUANTI
TY

Ther
ightquant
it
ysi
mpl
ymeanspur
chasi
nggoodsi
nsuf
fi
cientamount
satat
imewi
th
t
hemi
nimum t
otalcost
,tomeetdemand,el
i
minat
esshor
tageofmat
eri
als,mai
ntai
n
ser
vicel
evel
sandmi
nimi
zeexcessst
ockhol
ding.

Ensur
ingandmai
ntai
ningar
egul
arf
lowofmat
eri
alsf
orcar
ryi
ngt
hepr
oduct
ionact
ivi
ty
i
sthev
italai
m ofanypur
chaseor
gani
sat
ion.Thepur
chasedepar
tmentmustbuyt
he
mat
eri
alsi
nther
ightquant
it
ytoensur
ethatt
her
eisnost
oppageofpr
oduct
ion.

Two(
2)Concept
scanbeusedt
ocal
cul
atehowt
oknowt
her
ightQuant
it
yofst
ockt
o
bepur
chased.Theyar
e;

1.EOQ:Economi
cOr
derQuant
it
yref
erst
otheopt
imum amountofani
tem t
hatshoul
d
beor
der
edatanygi
venpoi
nti
nti
me,sucht
hatt
het
otalannualcostofcar
ryi
ngand
or
der
ingt
hati
tem i
smi
nimi
zed.

2.BOQ:Bul
kOr
derQuant
it
yist
hepur
chaseofmuchl
argerquant
it
iest
hant
heusual
,
f
orauni
tpr
icet
hati
slowert
hant
heusual
ther
ebymi
nimi
zi
ngt
otal
cost

Fact
orst
hatneedt
obeconsi
der
edwhendeci
dingt
her
ightnumberofQuant
it
ytobe
pur
chased:
-

1)Mar
ketcondi
ti
ons.

2)Thenat
ureofmat
eri
alt
obeused.

3)Pr
evai
l
ingmar
ketcondi
ti
onsi
.e.changesi
nthet
ast
esandpr
efer
encesoft
hepeopl
e

4)Costofmat
eri
alst
obepur
chased

5)Costofpossessi
onandst
ori
ngcapaci
tyoft
heor
gani
sat
ion.

6)Quant
it
iesspeci
fi
cal
l
yrequest
edbyuserdepar
tment
.
7)I
nvent
orypol
i
cyoft
heor
gani
sat
ion.

8)Demandf
orpr
ocur
edf
ini
shedi
tem.

Whyhol
dst
ocki
nther
ightQuant
it
y?

1.I
tensur
escont
inui
tyofsuppl
yfr
om unf
oreseenev
ent
s.

2.I
tal
soReduceswai
ti
ngl
ongl
eadt
ime.(
i.
eLeadt
imei
stheamountoft
imet
hat
passesf
rom t
hest
artofapr
ocessunt
ili
tsconcl
usi
on)
.

3.Qui
ckr
epl
eni
shmentofgoodsbei
ngonhand.

4.Pot
ent
ial
bul
kdi
scount
s.

5. Pr
otectagai
nstpr
icei
ncr
eases.

6.Pr
epar
edf
orsuddenpeaksi
ndemand.

7.St
ockupscanbepr
epar
eddur
ingper
iodofsl
owdemand.

Hol
dingst
ocki
nthewr
ongquant
it
ycoul
dleadt
o;

* Cost
sassoci
atedt
obui
l
dandmai
ntai
nandst
ockoper
ati
ngsy
stem

* Hol
dingcost
s;capi
tal
,space,
obsol
escenceet
c.

* St
oppagei
npr
oduct
ion

* Excessst
ockHol
ding

CONCLUSI
ON

Quant
it
yal
way
sdi
ctat
edt
hatt
hebuy
ershoul
dbuyt
her
ightquant
it
yofpr
oductor
ser
vice.Toomuchort
ool
i
ttl
ecoul
dresul
tinhi
ghercost
sorunf
ulf
il
ledor
der
s.Thi
sst
il
l
r
ingst
rue,y
ett
her
ear
emor
easpect
stoquant
it
ythatt
hepr
ocur
ementpr
ofessi
onal
needst
oconsi
der
.Wi
tht
hef
ocusont
het
ri
plebot
tom l
i
ne,
(al
soknownast
het
hreeP’
s:
Peopl
e,Pr
ofi
t,Pl
anet
),t
her
ear
eanumberofconsi
der
ati
onst
hatneedt
obet
akeni
nto
account
.Iti
snotj
ustt
hepr
oductt
hatmustbeoft
her
ightquant
it
y.

RI
GHTPLACE

TheRi
ghtPl
acei
stheopt
imum r
ecei
ptanddel
i
ver
ypoi
ntf
orgoodsandser
vices.
Besi
desobt
aini
ngt
hemat
eri
alsoft
her
ightqual
i
tyandquant
it
y,i
tshoul
dbeensur
ed
t
hatt
hemat
eri
alsar
eav
ail
abl
eatt
her
ightpl
ace.

TheRi
ghtpl
acebei
ngoneoft
heRi
ght
sofpur
chasi
ngi
snol
ongerappl
i
edexcl
usi
vel
yto
t
hedel
i
ver
yofgoodst
othef
inall
ocat
ion.I
tal
soi
ncl
udeswher
ethemat
eri
alsar
e
sour
cedf
rom,ot
herpl
ayer
sint
hesuppl
ychai
n,t
hel
ocat
ionoft
heendconsumer
,and
t
hel
ocat
ionofanyaddi
ti
onal
act
ivi
ti
esi
nvol
vedwi
thget
ti
ngt
hispr
oductf
rom poi
ntAt
o
poi
ntB.

Tobesuccessf
ul,t
hepur
chaset
eam needt
ofact
ori
nthef
oll
owi
ngi
temsdur
ingt
he
sel
ect
ionpr
ocess:

Di
str
ibut
ionpl
anni
ng

Tr
anspor
tpl
anni
ng

Whoi
sresponsi
blef
ori
nsur
ance,
frei
ghtcost
s?Wher
ewi
l
lfr
eightbedel
i
ver
ed?

Howar
eit
emspackaged?Wher
ear
esuppl
i
ersl
ocat
ed–wi
l
lcust
omsbeani
ssue?

Whataboutcommuni
cat
ionsacr
osst
imezones?

I
fther
ightpl
acei
snotachi
eved:

 Goodsmaybedel
i
ver
edt
othewr
ongpl
ace,
creat
ingdel
ayandcor
rect
ioncost
s.

 Goodsmaybesubj
ectt
ounnecessar
ytr
anspor
tandhandl
i
ng(
andr
elat
edcost
s).
  Goodsmaybedamaged,cont
ami
nat
edorst
oleni
ntr
ansi
twhi
chwi
l
lint
urn
i
ncur
smor
ecost
s

 Tr
anspor
tmaycauseunnecessar
yenv
ironment
aldamage.

Mov
ingt
heGoodspur
chasedwi
l
lrequi
ret
hepur
chasi
ngdepar
tmentt
othi
nkabout
whatmodeoft
ranspor
tat
ioncanbeusedt
oei
thermakepur
chasef
rom t
her
ightst
ore
orgett
hef
ini
shedgoodst
otheConsumer
.

Modeoft
ranspor
tat
ionl
i
ke

 Wat
er

 Ai
r

 Road

 Rai
l

Thesef
act
orsi
nfl
uencet
heont
hemodeoft
ranspor
ttoadopt
.Thesear
e;

1) Poi
ntofdepar
tur
eanddest
inat
ion

2) Lengt
hoft
hej
our
ney

3) Nat
ureoft
hegoods

4)Si
zeandwei
ghtoft
hegoods

5)Ti
mescal
erequi
red

6)Env
ironment
ali
mpact

7)Av
ail
abi
l
ityofst
andar
disat
ion

8)Secur
it
yoft
hegoods
Thi
soccur
swhenmor
ethanonet
ranspor
tmodei
susedt
oenabl
ethemov
ementoft
he
goodst
other
ightpl
aceasseaml
essaspossi
ble

CONCLUSI
ON

Pl
acehasusual
l
yref
err
edt
ogoodsandser
vicesbei
ngdel
i
ver
edt
other
ightpl
ace.‘
Last
mi
l
e’i
sa t
erm used i
n suppl
ychai
n managementand t
ranspor
tat
ion pl
anni
ng t
o
descr
ibet
hemov
ementofgoodsandser
vicesf
rom at
ranspor
tat
ionhubt
oaf
inal
dest
inat
ion.Thi
semphasi
zest
hef
ocusont
her
ightpl
acei
ntoday
’ssuppl
ychai
ns.But
i
t’
snotj
ustwher
ethegoodsandser
vicesar
egoi
ngt
o.Ther
ear
emor
epl
acest
o
consi
der
.
RI
GHTTI
ME

I
thast
odealwi
thsecur
ingt
hedel
i
ver
yofgoodsatt
her
ightt
imet
omeetdemandbut
notsoear
lyhast
oincurunnecessar
yinv
ent
scost

Get
ti
ngt
het
imer
ightal
l
owspr
ocur
ementt
oav
oiddel
ays,bot
tl
enecks,ear
lydel
i
ver
y,
andhol
dingcost
s.

Ti
mingi
mpact
sev
ery
onef
rom f
rontl
i
nepr
oduct
ionst
afft
osal
esandmar
ket
ing,and
ev
enwhet
hery
ourcl
i
ent
scont
inuet
ogi
vey
ourbusi
ness.

Thet
imeatwhi
cht
hepur
chasesar
etobemadei
sofv
itali
mpor
tance.I
ncaseofi
tems
usedr
egul
arl
y,r
ightt
imemeanst
het
imewhent
hest
ockr
eachest
hemi
nimum l
evel
.
Ther
eor
derl
evel
ofmat
eri
ali
sfi
xedf
oreachi
tem undert
hepr
inci
pleofr
ightt
ime.

Thei
nabi
l
ityf
ort
hepur
chasi
ngt
eam t
oaccompl
i
shmaki
nggoodspr
ocur
ementatt
he
r
ightTi
memayl
eadt
olat
edel
i
ver
y,l
ossofcust
omer
,unduer
iskcausebyear
lydel
i
ver
y.

Anot
heri
mpor
tantf
act
ort
obeconsi
der
edi
sthedel
i
ver
yofmat
eri
alsf
rom st
orest
o
pr
oduct
iondepar
tment
s.Anyunderdel
ayi
nsuppl
yi
ngt
hemat
eri
alsondi
ff
erentj
obs
del
ayst
hepr
oduct
ion.

CONCLUSI
ON

Ti
mewai
tsf
ornoman.Andwenol
ongerwai
ttoconsi
dert
het
imeofdel
i
ver
yast
he
onl
yaspectoft
imet
hatneedst
obeconsi
der
ed.Ti
meandmoneyar
eof
tenconsi
der
ed
t
oget
herandi
nmoder
nti
mest
hisi
snoexcept
ion.Ti
mespentonanal
yzi
ngt
imei
s
nev
erwast
ed.Ther
efor
e,t
hepr
ocur
ementpr
ofessi
onal
needst
othi
nkaboutot
herar
eas
oft
ime.
RI
GHTPRI
CE

Secur
ingal
loft
heabov
eatapr
icewhi
chi
sreasonabl
e,f
air
,compet
it
iveandaf
for
dabl
e.

Whatact
ual
l
yist
her
ightpr
iceandf
orwhom?

‘
Thev
alueofacommodi
tyorser
vicemeasur
esi
nter
msoft
hest
andar
dmonet
aryuni
t’

I
sther
ightpr
iceal
way
sthecheapest
?

Fort
hesel
l
er

 Apr
icet
hatt
hemar
ketwi
l
lsust
ain

 Apr
icet
hatt
hesel
l
erwi
nsbusi
nessov
erot
hersuppl
i
ers

 Apr
icet
hatt
hesel
l
ercancov
eri
tscost
s

Fort
hebuy
er

 Apr
icet
hati
saf
for
dabl
e

 Apr
icet
hati
sfai
randr
easonabl
e

 Apr
icet
hatgi
vessomeki
ndofv
alue(
cost
/qual
i
ty)ov
eri
tscompet
it
ors

 Apr
icet
hatshowsgoodpr
ocur
ementpr
act
iceshav
ebeenf
oll
owed.

Pr
ici
ngSt
rat
egi
es

1.Costbasedpr
ici
ng:
–Tot
alcost
spl
usmar
gincal
cul
atedf
orpr
ofi
t(mar
gin/mar
k
-
up)

2.Mar
ket
/demandbasedpr
ici
ng:
–Pr
ici
ngt
hatst
imul
ateddemandf
orapr
oduct
.
Thi
ngst
hati
nfl
uencebuy
ingdeci
sionsonpr
ice:
-

 Bar
gai
ningpowerofbuy
er
  Numberofsuppl
i
ersi
nmar
ket

 Ty
peofpr
ocur
ement

 Pr
icespai
dbycompet
it
ors

 Tot
alpackageofbenef
it
sfort
hepr
ice

 Amountofmoney
/cr
edi
tthebuy
erhas

 Whati
sar
easonabl
epr
ice.

Anal
ysi
ngquot
edpr
ices

a)Pr
iceanal
ysi
s:–Compar
ingpr
icesof
fer
edbysuppl
i
ers;
tender
set
c

b)Costanal
ysi
s:–Looksatbr
eakdownoft
hecost
s,pot
ent
ial
l
yrev
eal
i
ngmar
gins
§Costt
ranspar
ency:
–Ni
cei
dea,
butdoesi
str
ulyhappen?

Poi
ntsofnot
e

 Lowerpur
chasepr
icecanl
eadt
oahi
gherTCOpr
ice

 Notal
lcat
egor
iesofpr
ocur
ementhasaTCO.

Wher
epr
ocur
ementcanaddv
alue

1.Anal
ysi
ng pr
icesand cost
susi
ng anal
yti
cal
,mar
ketand pr
oductknowl
edge
§Cr
eat
ingt
ender
ingcr
it
eri
arel
evantt
oeachcat
egor
yint
ermsofpr
ici
ng

2.Suppl
i
ernegot
iat
ion

3.Bei
ngknowl
edgeabl
eoft
het
otal
costofowner
shi
pandl
owpr
ices.
CONCLUSI
ON

Pr
icei
simpor
tantt
oev
ery
oneandnotl
eastt
opr
ocur
ement
.Pr
ocur
ementpr
ofessi
onal
s
ar
etaughtt
oai
mforacompet
it
ivepr
ice.Pr
icei
nvol
vescost
swhi
chneedt
obet
aken
i
ntoaccount
.Butnotonl
ythecost
sincur
redbyt
hepr
oductorser
vice.Ther
ear
ethe
cost
sinv
olv
edi
nmov
ingt
hepr
oduct
sorser
vicet
hrought
hesuppl
ychai
nal
ongwi
th
t
hepr
icewepayt
otr
anspor
tthem t
hrought
heenv
ironment
.

SUMMARY

Basedont
hisanal
ysi
s,i
tisespeci
all
ywor
thnot
ingt
hatt
he‘
fi
ver
ight
s’f
ormul
adoesnot
i
ncl
udet
he"
ri
ghtsuppl
i
er"–al
thoughsel
ect
ionoft
her
ightsuppl
i
erwi
l
lbecr
uci
ali
n
achi
evi
ngt
heot
herpr
ocur
ementobj
ect
ives.

Ar
guabl
y,t
he‘
ri
ghtsuppl
i
er’i
sonewhocandel
i
vert
her
ightquant
it
yandqual
i
tyt
othe
r
ightpl
ace,att
he r
ightt
ime,att
he r
ightpr
ice.Howev
er,t
her
e may be ot
her
consi
der
ati
onsi
nthechoi
ceofsuppl
i
er,suchast
hesuppl
i
er’
scompat
ibi
l
itywi
tht
he
buy
ing or
gani
sat
ion;i
ts cr
edi
bil
i
ty and r
eli
abi
l
ity
;it
s pot
ent
ialf
ori
nnov
ati
on and
dev
elopment
;it
swi
l
li
ngnesst
ocommi
ttocont
inuousi
mpr
ovementandr
elat
ionshi
p
dev
elopment
;it
set
hical
andenv
ironment
alper
for
mance;
andsoon.

Eachoft
hef
iver
ight
sofpr
ocur
ementmustbev
iewedf
rom abr
oaderangl
etaki
ngi
nto
accountt
hewi
deri
mpl
i
cat
ionsofqual
i
ty,quant
it
y,pr
ice,pl
aceandt
ime.Onl
ythenwi
l
l
weachi
evet
hegr
eat
estsuccessandunder
standt
het
ruemeani
ngoft
hef
iver
ight
s.
GROUP6:
-NEGOTI
ATI
ON

TABLEOFCONTENTS
1.ConceptofNegot
iat
ion
2.Obj
ect
ivesofnegot
iat
ion
3.St
epsi
nnegot
iat
ion
4.Ty
pesofnegot
iat
ion
5.Necessar
yPr
epar
ati
onsbef
oreNegot
iat
ion

CONCEPTOFNEGOTI
ATI
ON

Negot
iat
ioni
stoconf
erwi
thav
iew t
oar
ri
vi
ngatmut
ual
l
yaccept
abl
eter
msf
ora
cont
ractoragr
eement(
Oxf
ord,(
2009)
.Thef
avor
edt
echni
quef
orr
esol
vi
ngconf
li
cti
s
negot
iat
ion.Thus,
negot
iat
ioncanbeexami
nedasamanagementmechani
sm t
hatcan
al
l
ow bot
h par
ti
es t
o benef
itf
rom t
he exper
ience and mov
etowar
d a st
ronger
r
elat
ionshi
p(At
kinandRi
nehar
t2006)
.Resear
cht
hatexpl
orest
hei
mpactofnegot
iat
or
char
act
eri
sti
csonnegot
iat
ionswi
l
l,webel
i
eve,f
aci
l
itat
ethecr
eat
ionoft
hesest
rong
r
elat
ionst
hrought
hepr
agmat
icunder
standi
ngoft
hei
mpactoft
hesei
ndi
vi
duall
evel
char
act
eri
sti
cs.

Wal
l(1985)ci
tedi
nJack&Samuel
,(2003,p.299)def
inesnegot
iat
ionas“
thepr
ocess
t
hroughwhi
cht
woormor
epar
ti
esseekanaccept
abl
erat
eofexchangef
ori
temst
hey
ownorcont
rol
”.Negot
iat
ioni
nanot
herv
aini
sdef
inedasaf
iel
dofknowl
edgeand
endeav
ort
hatf
ocusesongai
ningt
hef
avorofpeopl
efr
om whom wewantt
hings”
(
Cohen,
1980,
cit
edi
nJack&Samuel
2003,
p.298)
.
Outofal
lthecommuni
cat
ionski
l
ls,negot
iat
ionski
l
lisempl
oyedmost
lybysal
es
manager
sbutt
heonet
hati
sthel
eastdi
scussed.Negot
iat
ionski
l
lseemst
obet
he
mosti
mpor
tantski
l
lneededbysal
esf
orceast
het
oolt
oconv
inceapr
ospect
ivebuy
er
t
obuyi
nthei
dea,pr
oductorser
vice.Negot
iat
ioni
simpor
tantbecause,pr
operand
accur
atenegot
iat
iont
akesonepr
otabl
ythr
ought
het
ransact
ionpr
ocess,ot
her
wisei
t
maynegat
ivel
yimpactont
hebusi
nessdeal
.
I
nsomesel
l
ingsi
tuat
ions,t
hesal
esper
sonorsal
est
eam hav
eadegr
eeofdi
scr
eti
on
wi
thr
egar
dtot
het
ermsoft
hesal
e.Negot
iat
ionmayt
her
efor
eent
eri
ntot
hesal
es
pr
ocess.Sel
l
ersmaynegot
iat
epr
ice,cr
edi
tter
ms,del
i
ver
yti
mes,t
rade-
inv
aluesand
ot
heraspect
s oft
he commer
cialt
ransact
ion.I
tisi
mpor
tantt
hatnegot
iat
ion i
s
pr
ecededwi
thpr
epar
ati
onssuchas:
 Hav
ingadequat
epr
oductknowl
edgeandbenef
it
s
 Hav
ingadequat
eknowl
edgeofcompet
it
ors'
product
sandt
hei
rbenef
it
s
 Sal
espr
esent
ati
onpl
anni
ng
 Set
ti
ngsal
esobj
ect
ives
 Sal
escy
cle
 Under
standi
ngbuy
erbehav
ior
 Assessmentoft
hebal
anceofpower
;thenumberofopt
ionsav
ail
abl
etoeach
par
ty,
thequant
it
yandqual
i
tyofi
nfor
mat
ionhel
dbyeachpar
ty,
needr
ecogni
ti
on
andsat
isf
act
ionandt
hepr
essur
esont
hepar
ti
es

OBJECTI
VESOFNEGOTI
ATI
ON

1.Af
airandr
easonabl
epr
ice.
2.Neededquant
it
iesandqual
i
ty.
3.Ti
mel
yper
for
mance.
4.Cont
rol
overhowt
hecont
racti
sper
for
med.
5.Suppl
i
ercooper
ati
on.
6.Soundandcont
inui
ngr
elat
ionshi
pswi
tht
hesuppl
i
er.

STEPSI
NNEGOTI
ATI
ON

Thenegot
iat
ionpr
ocesscanessent
ial
l
ybeunder
stoodasaf
our
-st
agepr
ocess.The
f
ourst
agesoft
henegot
iat
ionpr
ocessar
epr
epar
ati
on,
openi
ng,
bar
gai
ning,
andcl
osur
e
St
ep1:
Prepar
ati
on

Pr
epar
ati
oni
sinst
rument
alt
othesuccessoft
henegot
iat
ionpr
ocess.Bei
ngwel
l
-
pr
epar
ed gener
ates conf
idence and gi
ves an edge t
othe negot
iat
or.Pr
epar
ati
on
i
nvol
vest
hef
oll
owi
ngact
ivi
ti
es:

Gat
her
ingi
nfor
mat
ion:oneneedt
olear
nasmuchasonecanaboutt
hepr
obl
em and
ascer
tai
nwhati
nfor
mat
ioni
sneededf
rom t
heot
hersi
de.Under
standi
ngcl
ear
lyt
he
i
ssuesi
nvol
vedi
sal
soneeded.

Lev
erageEv
aluat
ion:Ev
aluat
ionofone’
slev
erageandt
heot
herpar
ty’
slev
erageatt
he
out
seti
simpor
tantbecauset
her
emaybeanumberoft
hingsonecandot
oimpr
ove
one’
slev
erageordi
mini
sht
hel
ever
ageoft
heot
hersi
de.

Under
standt
hepeopl
einv
olv
ed:I
tisi
mpor
tantt
oknow t
hepeopl
ewi
thwhom t
he
negot
iat
ioni
stot
akepl
ace.Anunder
standi
ngoft
hei
robj
ect
ives,r
olesandt
hei
ssues
l
i
kel
ytober
aisedbyt
hem wi
l
lfaci
l
itat
ebet
terhandl
i
ngoft
hesi
tuat
iondur
ingt
he
negot
iat
ionpr
ocess.

Rappor
t:I
tishel
pfult
oest
abl
i
shar
appor
twi
tht
heopponentdur
ingt
heear
lyst
ages,
t
hati
s,bef
oret
hebar
gai
ningpr
ocessbegi
nsi
shel
pful
.Thi
swas,onecandet
ermi
ne
ear
lyonhowcooper
ati
vet
heopponenti
sgoi
ngt
obe.

Know y
ourobj
ect
ives:Cl
ari
tyofobj
ect
ivesi
sabsol
utel
yessent
ial
.Itneedst
o be
deci
dedi
nadv
ancehowmuchy
ouar
ewi
l
li
ngt
oconcedet
otheopponentandwhaty
our
pr
ior
it
iesar
e.Al
lar
gument
sandj
ust
if
icat
ionsshoul
dber
eady
.

Ty
peofnegot
iat
ion:Ant
ici
pat
ethet
ypeofnegot
iat
ionexpect
ed,t
hati
s,ascer
tai
n
whet
heri
twi
l
lbehi
ghl
ycompet
it
ive,cooper
ati
veorsomet
hingunusual
;whet
hert
he
negot
iat
ionwi
l
lbef
acet
oface,
byf
ax,
thr
oughamedi
ator
,ori
nsomeot
hermanner
.

Pl
an:
Deci
deont
henegot
iat
ionappr
oachandpl
anaccor
dingl
y.

St
ep2:
Openi
ngPhase
Her
ethet
wosi
descomef
acet
oface.Eachpar
tyt
ri
est
omakeani
mpr
essi
onont
he
ot
hersi
deandi
nfl
uencet
hei
rthi
nki
ngatt
hef
ir
stoppor
tuni
ty.Psy
chol
ogi
cal
l
y,t
his
phasei
simpor
tantbecausei
tset
sthet
onef
ort
henegot
iat
iont
oal
argeext
ent
.It
i
nvol
vesbot
hnegot
iat
ingpar
ti
espr
esent
ingt
hei
rcasest
oeachot
her
.

St
ep3:
Bar
gai
ningPhase

Thebar
gai
ningphasei
nvol
vescomi
ngcl
osert
otheobj
ect
ivey
oui
ntendedt
oachi
eve
wheny
oust
art
edt
henegot
iat
ion.I
nthi
sphase,t
hebasi
cst
rat
egyi
stoconv
incet
he
ot
hersi
deoft
heappr
opr
iat
enessofy
ourdemandsandt
henper
suadi
ngt
heot
herpar
ty
t
oconcedet
othosedemands.Fort
his,oneneedst
obel
ogi
cali
none’
sappr
oachand
f
ramecl
ear
ly-
thought
-outandpl
annedar
gument
s.

St
ep4:
Closur
ePhase

Thecl
osi
ngphaseofanegot
iat
ionr
epr
esent
stheoppor
tuni
tyt
ocapi
tal
i
zeonal
loft
he
wor
kdonei
ntheear
li
erphases.Ther
esear
cht
hathasbeendonei
nthepr
epar
ati
on
phase,
combi
nedwi
thal
loft
hei
nfor
mat
iont
hathasbeengai
nedi
susef
uli
nthecl
osi
ng
phase.I
tal
soi
nvol
vest
heseal
i
ngoft
heagr
eementi
nwhi
chbot
hpar
ti
esf
ormal
i
zet
he
agr
eementi
nawr
it
tencont
ractorl
ett
erofi
ntent
.Rev
iewi
ngt
henegot
iat
ioni
sas
i
mpor
tantast
henegot
iat
ioni
tsel
f.I
tteachesl
essonsonhow t
oachi
eveabet
ter
out
come.Ther
efor
e,oneshoul
dtaket
het
imet
orev
ieweachel
ementandf
indoutwhat
wentwel
landwhatneedst
obei
mpr
oved.

TYPESOFNEGOTI
ATI
ON

Ther
ear
etwoopposi
tet
ypesorschool
sofnegot
iat
ion:i
ntegr
ati
veanddi
str
ibut
ive.Thi
s
exposi
ti
oni
ntr
oducest
hei
mpor
tantdi
ff
erencesbet
weeneachnegot
iat
ingt
ypeand
gi
vesadv
iceonwhi
chonemayber
ightf
ory
ournegot
iat
ion.
Negot
iat
ioni
sapar
tofourev
ery
dayl
i
vesandourhi
stor
y f
rom t
radi
ngcar
dsaski
ds
t
oaski
ngourbossf
orasal
aryr
aiseorbar
gai
ningapur
chaseasadul
ts.Sal
est
rai
ning
t
eacheshowt
onegot
iat
epr
icei
ncr
easesandt
oaskf
ordi
scount
swhenwebuy
.
Ournegot
iat
ionski
l
lsar
eal
sof
requent
lyusedt
omai
ntai
nourper
sonalr
elat
ionshi
ps.
Mostofushav
efami
l
yandf
ri
endsweor
gani
zet
hingswi
th,budgetwi
th,andbar
gai
n
aboutbedt
imewi
th.Atsomel
evel
,weof
tennegot
iat
ewi
thoutev
enr
eal
i
zingi
t.
Manypeopl
edon’
tli
ket
onegot
iat
e,v
iewi
ngt
hepr
ocessasahassl
e.Wemi
ghtt
hink
we’
reav
oidi
ngt
henegot
iat
ionpr
ocess.Howev
er,
weusual
l
yendupnegot
iat
ingany
way
,
wi
thoutr
eal
i
zingi
t.So,wemayaswel
llear
nhowt
onegot
iat
ewel
l
.Lear
ningaboutt
he
t
wo mai
n negot
iat
ion t
ypes i
s one ef
fect
ive wayofl
ear
ning t
he f
oundat
ions of
negot
iat
ion.
The t
wo di
sti
nct
ive negot
iat
ion t
ypes ar
e di
str
ibut
ive negot
iat
ions and i
ntegr
ati
ve
negot
iat
ions.TheNegot
iat
ionExper
ts’
sal
escour
seandpur
chasi
ngnegot
iat
iont
rai
ning
t
eachbot
hmet
hods.Bot
hty
pesar
eessent
ial
tonegot
iat
ingsuccessf
ull
yinbusi
ness.

Di
str
ibut
iveNegot
iat
ions-TheFi
xedPi
e

Thet
erm di
str
ibut
ivemeansagi
vi
ngoutorascat
ter
ingofv
alue.Byt
henat
ureoft
he
busi
ness,t
her
eisal
i
mit
edamountofwhat
’sbei
ngdi
str
ibut
edordi
vi
ded.So,t
hist
ype
ofnegot
iat
ioni
sof
tenr
efer
r oas“
edt TheFi
xedPi
e.”Ther
eisonl
ysomucht
ogo
ar
ound,
andt
hepr
opor
ti
ont
obedi
str
ibut
edi
sli
mit
edandv
ari
abl
e.
Howof
tenhassomebodyshout ,“
edout Whowant
sthel
astpi
eceofpi
zza?
”Ev
ery
one
l
ooksateachot
her
,andt
hent
woormor
ehandsr
usht
ogr
abt
hel
astsl
i
ce.
I
nther
ealwor
ldofnegot
iat
ions,
twot
eamsent
erdi
scussi
onswi
tht
hegoalofcl
aimi
ng
asmuchv
alueaspossi
ble.Thesel
l
erwant
stogoaf
tert
hebestpr
icet
heycanobt
ain.
Thebuy
erwant
stopayt
hel
owestpr
icet
oachi
evet
hebestbar
gai
n.I
t’
sgoodol
d-
f
ashi
onedhaggl
i
ng.
Adi
str
ibut
ivenegot
iat
ionusual
l
yinv
olv
esst
art
ingt
alkswi
thnopr
e-exi
sti
ngr
elat
ionshi
p.
Al
ong-
ter
mrel
ati
onshi
pisal
sounl
i
kel
ytodev
elop.Ev
ery
dayexampl
esi
ncl
udebuy
ing
orsel
l
ingacarorahouse.Thepur
chasi
ngofpr
oduct
sorser
vicesi
sasi
mpl
ebusi
ness
exampl
e.Her
e,di
str
ibut
ivenegot
iat
ionbar
gai
ningi
sof
tenempl
oyed.
Let
’s say we’
re deal
i
ng wi
th someone unknown t
o us,and i
t’
s a one-
ti
me-
onl
y
occur
rence.Exceptf
ort
hedeali
tsel
f,t
her
eisno r
ealbenef
iti
ninv
est
ing i
nthe
r
elat
ionshi
p.So,wear
egener
all
ylessconcer
nedwi
thhow t
heot
herper
sonper
cei
ves
us.Wear
eal
sol
essconcer
nedabouthowt
heot
herper
sonmi
ghtv
iewourr
eput
ati
on.
Ouri
nter
est
sandt
heot
hersi
de’
sint
erest
sar
eusual
l
ysel
f-
ser
ving.

I
ntegr
ati
veNegot
iat
ion-Ev
ery
bodyWi
nsSomet
hing(
Usual
l
y)

I
ntegr
ati
venegot
iat
ionsneedamor
edev
elopedt
ypeofbusi
nessnegot
iat
ionski
l
ls.For
t
hisr
eason,wet
ypi
cal
l
yst
artournegot
iat
ionski
l
lst
rai
ningwi
thsi
mpl
edi
str
ibut
ive
bar
gai
ning r
ole-
play
s.We t
hen bui
l
d up t
o mor
e compl
ex t
eam-
based i
ntegr
ati
ve
negot
iat
ionr
ole-
play
s.
di
Thewor nt
egr
ati
ve meanst
ojoi
nsev
eralpar
tsi
ntoawhol
e.I
ntegr
ati
oni
mpl
i
es
cooper
ati
on,oraj
oini
ngoff
orces,t
oachi
evesomet
hingt
oget
her
.Itusual
l
yinv
olv
esa
hi
gherdegr
eeoft
rustandaf
ormi
ngofar
elat
ionshi
p.Bot
hteamswantt
owal
kaway
f
eel
i
ng t
hey
’veachi
eved somet
hing t
hathasv
alue.I
deal
l
y,t
hismeanseach t
eam
achi
evi
ngwhatt
heywant
.
I
nther
ealwor
ldofbusi
ness,t
her
esul
tsof
tent
il
tinf
avorofonesi
deov
ert
heot
her
.
Thi
sisbecausei
t’
sunl
i
kel
ythatbot
hsi
deswi
l
lcomet
othet
abl
eatequalst
rengt
h
whent
alksbegi
n.
Nonet
hel
ess,
ther
ear
emanyadv
ant
ageswhenbot
hteamst
akeacooper
ati
veappr
oach.
Ski
l
lfulmut
ualpr
obl
em-
sol
vi
nggener
all
yinv
olv
essomef
orm ofmaki
ngv
alue-
for
-val
ue
concessi
ons.Thi
sisusual
l
yinconj
unct
ionwi
thcr
eat
ivepr
obl
em-
sol
vi
ng.
Gener
all
y,i
ntegr
ati
venegot
iat
ionsar
efut
ure-
focused,wi
thl
ong-
ter
mrel
ati
onshi
psi
n
mi m ofouron-
nd.Theai sit
enegot
iat
iont
rai
ningi
stocr
eat
eongoi
ngmut
ualgai
ns.Thi
s
mut
ual
l
ybenef
ici
alt
ypeofnegot
iat
ionout
comei
sof
tendescr
ibedast
hewi
n-wi
n
scenar
io.
NECESSARYPREPARATI
ONSBEFORENEGOTI
ATI
ON

Topr
epar
eforasuccessf
ulnegot
iat
ion,
youneedt
ogot
hrough4mai
nst
eps:

Cl
ari
fyObj
ect
ives

Resear
chI
nfor
mat
ion

Pl
ananAgi
l
eSt
rat
egy

I
dent
if
yPot
ent
ial
Concessi
ons

1.Cl
ari
fyObj
ect
ive

Cl
ari
tyi
spower
.Ify
ou’
renotcl
earaboutwhaty
ouwant
,you’
regoi
ngt
obecomesof
ton
y
ourobj
ect
ives,
andy
ou’
remor
eli
kel
ytogi
vei
nonkeygoal
s.I
not
herwor
ds,
ify
oudon’
t
knowwhaty
ouwant
,theot
herpar
tywi
l
lgetwhatt
heywant
.

That
’swhyy
oushoul
dal
way
sst
artwi
thcl
ari
fyi
ngy
ourobj
ect
ivesofnegot
iat
ion.

Li
stal
lthaty
ouar
etr
yingt
ogetf
rom t
henegot
iat
ion,got
hrougheachi
tem ont
hel
i
st,
andasky
our
sel
f,i
sthi
s:

Awi
sh(
i.
e.ani
ce-
to-
hav
e)?

Ani
ntent(
i.
e.ar
eal
i
sti
cex
pect
ati
on)
?

Oranon-
negot
iabl
e(i
.
e.amust
-hav
eormust
-av
oid)

I
fani
tem ony
ourl
i
sti
snon-
negot
iabl
e,pr
otecti
twi
thy
ourdy
ingbr
eat
hwheny
ou’
re
negot
iat
ing.Don’
tlety
ouropponentt
empty
oui
ntogi
vi
ngt
heseup!

Howev
er,
bei
ngcl
eardoesn’
tmeant
haty
oucan’
tbecr
eat
ive.I
tisi
mpor
tantt
oconsi
der
ot
herpot
ent
ial
cat
egor
iesofbenef
it
syoucangai
nfr
om t
henegot
iat
ion.

Forex
ampl
e,i
fyoushow upt
oyourdi
nnerr
eser
vat
ionandf
indoutt
haty
ourt
abl
eis
goi
ngt
obeanhourl
ate,askf
orsomet
hingcr
eat
ivel
i
keabot
tl
eofwi
neandr
oseson
y
ourt
abl
e.Youmayj
ustgeti
t(t
hisi
sanr
eal
-l
i
fest
oryf
rom Mar
ty)
!
Last
ly,
alsoconsi
dert
heot
hersi
de’
spot
ent
ialobj
ect
ives.I
t’
simpossi
blet
oal
way
sknow
ex
act
lywhatt
heot
herpar
tywant
s,buty
oucancr
eat
esomeeducat
edhy
pot
hesest
hat
y
oucant
estwi
thquest
ionsdur
ingt
henegot
iat
ion.

2.Resear
chI
nfor
mat
ion

We’
veal
lhear
dthatknowl
edgei
spower
,buti
t’
sespeci
all
ytr
uei
nnegot
iat
ions.

Thepar
tywi
thl
essi
nfor
mat
ioni
slessequi
ppedt
omakear
ati
onaldeci
si
onabouthow
mucht
heyshoul
daskf
orandwhatt
heycanr
eal
i
sti
cal
l
yex
pectf
rom t
henegot
iat
ion.

Ther
efor
e,i
tismi
ssi
on-
cri
ti
calt
odoy
ourhomewor
kthor
oughl
yandl
ear
nasmuchas
y
oucanaboutt
heot
herpar
ty.

Thef
ir
stt
hingy
ouneedt
opaycl
oseat
tent
iont
oist
hepowerbal
ancebet
weeny
ouand
t
heot
herpar
ty.

I
fyouar
easmal
lfoodsuppl
i
ernegot
iat
ingwi
thWal
mar
t,y
ouwi
l
lhav
eal
otl
essl
eeway
f
ordemandst
hani
fyouwer
eont
heot
hersi
deoft
henegot
iat
ingt
abl
e.

That
’swhy
,ify
oucan,
tryt
odoy
ourr
esear
chaheadoft
imeonf
act
orssuchas:

Mar
ketshar
e

Budget

Al
ter
nat
ives

Dependenci
es

Ri
skoff
ail
ure

Cost
sofchange

Ti
ming

Af
teri
dent
if
yingt
hepowerbal
ance,
youneedt
othi
nkt
hroughwhati
nfor
mat
iony
ouneed
f
rom t
henegot
iat
ion,
andpr
epar
ethequest
ionsy
oucanaskt
otestt
heaccur
acyofy
our
assumpt
ionsandposi
ti
ons.Youal
soneedt
othi
nkt
hroughwhati
nfor
mat
iony
oushoul
d
gi
veandnotgi
vet
otheot
herpar
ty.Fori
nst
ance,
onepi
eceofi
nfor
mat
iony
oumaywant
t
odr
aw outf
rom t
heot
herpar
tyi
sthei
rsuppl
i
erconcent
rat
ion— t
hati
s,whatot
her
v
endor
sist
heot
herpar
tyusi
ngbesi
desy
ourcompany
,andwhatar
ethei
rot
heropt
ions?
I
fyoul
ear
nthaty
ou’
ret
hei
rmai
nvendorandt
hei
rot
herv
endoropt
ionsar
esi
gni
fi
cant
ly
mor
eex
pensi
ve,
thatwi
l
lgr
eat
lyi
mpr
ovey
ournegot
iat
ingposi
ti
on.Al
ter
nat
ivel
y,y
ouar
e
on t
heot
hersi
deoft
het
abl
e,t
hen y
ou wantt
o makesur
enott
o di
scl
oset
hat
i
nfor
mat
ioni
fit
’snotnecessar
y.

3.Pl
ananAgi
l
eSt
rat
egy

Topar
aphr
aseThomasJef
fer
son,“
Inmat
ter
sofst
rat
egy
,swi
m wi
tht
hecur
rent
;in
mat
ter
sofnon-
negot
iabl
e,st
andl
i
kear
ock.
”

Tosucceedi
nyournegot
iat
ion,ev
ent
houghy
oushoul
dpl
anouty
ourst
rat
egyt
ofocus
onachi
evi
ngy
ourobj
ect
ives,
youneedt
okeepi
tsi
mpl
eandf
lex
ibl
e.

Her
ear
esomet
ipst
ocr
eat
eanef
fect
ivest
rat
egyf
ory
ourt
eam:

Keepi
tsi
mpl
esoev
ery
bodyunder
standst
hest
rat
egy

Keepy
ourst
rat
egyf
lex
ibl
e—don’
tconf
usey
ourobj
ect
iveswi
thy
ourst
rat
egy

Al
l
owy
our
sel
ftoadj
usty
ourst
rat
egydur
ingt
henegot
iat
ion

I
fyour
epr
esentasmal
lbusi
nessorst
art
up,
yourdeci
si
on-
maki
ngf
lex
ibi
l
itycanbey
our
adv
ant
age,r
elat
ivet
olar
ge ent
erpr
ises t
hatar
e mor
e const
rai
ned by count
less
st
akehol
der
sandbur
eaucr
ati
crul
es.Butwhati
fyourst
rat
egydoesn’
twor
k?I
fthi
ngsar
e
notgoi
ngt
opl
an,bepr
epar
edt
otakea“
ti
meout
.”Youshoul
dst
rongl
yconsi
dert
aki
ng
anadj
our
nmentdur
ingt
henegot
iat
ioni
f:

Yourobj
ect
ivest
urnoutt
obeunr
eal
i
sti
c

I
fimpor
tantnewi
nfor
mat
ionhasemer
ged

I
fyouneedt
imet
othi
nk

Forex
ampl
e,i
f,i
nthemi
ddl
eoft
henegot
iat
ion,
yourt
eam l
ear
nedsomesur
pri
si
ngnews
f
rom t
heot
herpar
tyt
haty
oudi
dn’
tpr
epar
efor
,youmaywantt
oconsi
dert
aki
ngashor
t
br
eakt
oreadj
usty
ourst
rat
egywi
thy
ourt
eam.

4.I
dent
if
yPot
ent
ial
Concessi
ons

Justasy
ouwr
it
eouty
ourobj
ect
ivesaheadoft
ime,y
oushoul
dal
sowr
it
eouty
our
possi
bleconcessi
onst
otheot
herpar
ty.

I
fyoudon’
t,
youmayf
indy
our
sel
fof
fer
ingconcessi
onst
hatar
eunwi
set
ogi
veaway(
e.g.
gi
vi
ngawaymust
-hav
esorgi
vi
ngawayt
oomuch)
.It
’smucheasi
ert
omakegoodt
radi
ng
deci
si
onswheny
ou’
recl
earwhatt
het
radabl
ear
e.

Whenconsi
der
ing whatt
o consi
deramust
-hav
eand whatt
o consi
derapossi
ble
concessi
on,
asky
our
sel
fthesequest
ions:

Whatcany
ouof
fert
omaket
hei
rli
feeasi
er?

Wher
edoy
ouhav
efl
exi
bil
i
ty?

Whati
sthev
alueoft
heconcessi
oni
ntheot
herpar
ty’
smi
nd?

Whatwi
l
lyouaskf
ori
nret
urn?

Oneusef
ulr
ule-
of-
thumbi
sto“
tradeev
eryt
ime.
”Inot
herwor
ds,ev
eryt
imesomeone
asksf
orsomet
hingf
rom y
ou,
askf
orsomet
hingi
nret
urn.

Youcansaysomet
hingl
i
ke“
ify
ouagr
eet
ox(
e.g.payus$10,
000)
,thenwe’
l
lagr
eet
oy
(
e.g.makey
ouourex
clusi
veser
vicepr
ovi
der
).Thi
swi
l
lincr
easet
hel
i
kel
i
hoodt
heot
her
par
tywi
l
ltakey
ourdeal
.Av
oid“
sof
t”l
anguagesuchas“
I’
dli
ket
ox.
”
Ref
erences

1.Paperwor
konNegot
iat
ion-I
EM r
esear
chcent
reedi
tedbyDr
.Seei
ngHy
unLee
(
Ph.
DCPM)

2.management
study
hq.
com/
char
act
eri
sti
csandst
epsof
negot
iat
ion.
html

3.Aj
our
nalon'
Theef
fectofnegot
iat
iononsal
esper
for
mancei
nanor
gani
zat
ion-
Dr
.Kabouhetal(
2005)Depar
tmentofBusi
nessAdmi
nist
rat
ionandMar
ket
ing,
BabcockUni
ver
sit
y,Ni
ger
ia.

4.negot
iat
ions.
com/
art
icl
es/
negot
iat
ion-
types/
GROUP7:
-SUPPLI
ERSOURCI
NG

TABLEOFCONTENT

 DEFI
NTI
ONOFSUPPLI
ER,
SOURCI
NGANDSUPPLI
ERSOURCI
NG

 TYPESOFSOURCI
NG

 STEPSI
NVOVLEDI
NSOURCI
NG

 SOURCI
NGSTRATEGI
ES

 DI
FFERENCESBETWEENPROCUREMENTANDSOURCI
NG

 SUPPLI
ERSELECTI
ON

 LI
MITATI
ONSOFSUPPLI
ER
SUPPLI
ERSOURCI
NG

Suppl
i
er

Asuppl
i
eri
sanent
it
ythatsuppl
i
esgoodsandser
vicest
oanot
heror
gani
zat
ion.Thi
s
ent
it
yispar
toft
hesuppl
ychai
nofabusi
ness,
whi
chmaypr
ovi
det
hebul
koft
hev
alue
cont
ainedwi
thi
nit
spr
oduct
s.Somesuppl
i
ersmayev
enengagei
ndr
opshi
ppi
ng,
wher
e
t
heyshi
pgoodsdi
rect
lyt
othecust
omer
soft
hebuy
er.

I
not
herwor
ds,
wecanal
sodef
ine“
SUPPLI
ER”asaper
son,
organi
zat
ion,
orot
herent
it
y
t
hatpr
ovi
dessomet
hingt
hatanot
herper
son,or
gani
zat
ion,orent
it
yneeds.Dur
ing
t
ransact
ions,t
her
ear
esuppl
i
ersandbuy
ers,suppl
i
erspr
ovi
deorsuppl
ypr
oduct
sor
ser
vices,
whi
l
ebuy
ersr
ecei
vet
hem.

Wecommonl
yuset
het
erm‘
vendor
’wi
tht
hesamemeani
ngas‘
suppl
i
er.
’

I
nbusi
ness,f
orexampl
e,ev
erycompanyhasatl
eastonesuppl
i
er.Suppl
i
erssuppl
yor
pr
ovi
det
hecompanywi
thmat
eri
als,
product
s,andser
vice.

Sour
cing

Sour
cing,al
so known as pr
ocur
ementi
sthe pr
act
ice ofl
ocat
ing and sel
ect
ing
busi
nessesori
ndi
vi
dual
sbasedonsetcr
it
eri
a..
..Aspar
toft
heout
sour
cingpr
ocess,
busi
nesseswi
l
ldr
awupal
i
stofpot
ent
ialt
hir
dpar
ti
esandchooset
hemostappr
opr
iat
e
f
ort
hei
rneeds.

Var
iet
yofcont
ext
s,andassuchhasmul
ti
pledef
ini
ti
ons.

I
nsuppl
ychai
nmanagement
,st
rat
egi
csour
cingi
saboutt
hest
rat
egi
cpr
ocur
ement
pr
act
iceofobt
aini
ngt
hemat
eri
als,goods,andser
vicest
hatacompanyr
equi
rest
o
f
unct
ion.St
rat
egi
csour
cingi
nvol
vesact
ionssuchassuppl
i
ermanagement
,cat
egor
y
anal
ysi
sandst
rat
egy
,cont
ractdev
elopment
,suppl
i
ersel
ect
ion,cont
ractnegot
iat
ion,
andmor
e.

Sour
cingcanal
sor
efert
othepr
act
iceofi
dent
if
yingandr
ecr
uit
ingt
alentf
orspeci
fi
c
pur
poses.Exampl
esoft
hisi
ncl
udet
arget
edt
alentout
reachorwor
kingwi
thanexper
t
onapr
oject
.Whi
l
ethi
sisgener
all
yref
erenci
nghi
ri
nganew empl
oyee,i
tcanal
so
i
nvol
vei
nter
nal
staf
fmember
sorext
ernal
ser
vicepr
ovi
der
s.

Whenacompanycont
ract
soutwor
kthatcoul
dbehandl
edbyt
hei
nter
nalt
eam,i
t’
s
cal
l
edout
sour
cing.

Suppl
i
erSour
cing

Looki
ngoutf
orsuppl
i
ersi
sacr
it
icalt
askf
acedbypr
ocur
ementpr
ofessi
onal
s.The
mai
ngoali
stomeett
her
ightsuppl
i
eratt
her
ightt
imeandpl
ace.Ther
ear
esev
eralkey
f
act
orst
hatdet
ermi
ne t
he sel
ect
ion ofsuppl
i
ers.Some oft
hem ar
e Pr
ice or
af
for
dabi
l
ity
,locat
ion,r
eli
abi
l
ity as r
eli
abl
e suppl
i
ers wi
l
ldel
i
verr
equi
red mat
eri
al
ef
fi
cient
ly and mosti
mpor
tant
ly st
abi
l
ity
.The r
ightsuppl
i
ers pr
ovi
de t
he most
appr
opr
iat
epr
oduct
sor
/andser
vicesi
nor
dert
omeett
hebusi
nessneeds.

TYPESOFSOURCI
NGMETHODS

Ther
eisawi
der
angeofsour
cingmet
hodsandoneshoul
dbeari
nmi
ndt
hreekeypoi
nts:
1)sour
cingopt
ionsar
eof
tennotmut
ual
l
yexcl
usi
ve 2)sour
cingmet
hodscanbe
appl
i
ed t
o bot
hfr
ontand back of
fi
ce f
unct
ions and 3)st
rat
egi
c sour
cing as a
pr
ocur
ementpr
ocesscanbeseenasf
indi
ngt
heappr
opr
iat
esol
uti
onf
ory
ourshor
tand
l
ong-
ter
m goal
s.

Af
ewst
rat
egi
csour
cingmet
hodscanbeappl
i
ed:

Low-
costCount
rySour
cing

Amet
hodofsour
cingwhi
chf
ocusesonbenef
it
ingf
rom t
hecompet
it
iveadv
ant
ageof
ot
hercount
ri
eswhi
char
eabl
etoof
ferl
owerl
abourandpr
oduct
ioncost
s.Themet
hod
f
ocusesoncut
ti
ngov
eral
loper
ati
ngexpensesf
oraf
ir
m,andi
sini
tsel
fapr
ocur
ement
st
rat
egy
.Mostcompani
eswhi
chl
ookt
owar
dsChi
naar
efol
l
owi
ngt
hissour
cingmet
hod.
 Gl
obal
Sour
cing

Asi
mil
arsour
cingmet
hodast
othepr
evi
ousl
yment
ionedl
ow-
costcount
rysour
cing;
howev
er,t
hist
ypeofsour
cingi
snotst
ri
ctl
yaboutbenef
it
ingf
rom cheappr
oduct
ion.
Theai
m maybet
ogetat
ast
eoft
hei
nter
nat
ionalmar
ketandt
hewayt
ocar
ryout
busi
nesst
her
e.

Al
ter
nat
ivel
y,t
hef
ocuscoul
dbeont
appi
ngi
ntoanew r
angeofski
l
lsorr
esour
ces
whi
chwoul
dot
her
wisebeunav
ail
abl
edomest
ical
l
y.

Pr
ime/
SubAr
rangement
s

Anout
sour
cingmet
hodi
nwhi
chacl
i
entwor
ksdi
rectwi
thanest
abl
i
shedout
sour
cing
pr
ovi
dert
oar
rangepr
ocur
ement
;theout
sour
cingpr
ovi
dercont
ract
soutt
hewor
ktoa
smal
l
ercompany
.Al
lcont
ract
sar
edeal
tunderof
fshor
elaw,ast
heagr
eement
sar
e
bet
ween2of
fshor
eent
it
ies.

Thi
scanr
educet
hebur
denofdeal
i
ngwi
thi
mpor
tandexpor
trest
ri
cti
onsupont
he
company
,andmaket
hepr
ocessi
tsel
fsmoot
her
.

Capt
iveSer
viceOper
ati
ons

Theseoccurwhent
heout
sour
cedser
vicesbei
ngpr
ovi
dedar
eper
for
medbyacompany
t
hecust
omerownsorar
efr
om wi
thi
nthesamegr
oup.Thi
scr
eat
esagr
eat
erl
evelof
cont
rol
,aswel
lasaddr
essesquest
ionst
hatmayar
iseaboutconf
ident
ial
l
y,secur
it
yand
i
nfr
ingementr
ight
s.Howev
er,t
he same l
evelofeconomi
es ofscal
e maynotbe
achi
evedaswel
last
heoppor
tuni
tyt
otakeadv
ant
ageofsuppl
i
er’
sexper
ti
se.

Pr
ofessi
onal
Ser
vices

Theseser
vicesar
ethemostcommonl
ythoughtofwhenpeopl
ethi
nkofout
sour
cing.
Depar
tment
sli
kel
egal
,account
ing,humanr
esour
cesandsof
ort
hal
lcomeundert
his
cat
egor
y.Theneedf
orpr
ofessi
onalexper
ti
sei
nthesear
easmayonl
ybeneededat
cer
tai
nti
mes,andbycont
act
inganext
ernalpr
ovi
dery
oucanscal
ethecostal
ongwi
th
t
hegr
owt
hofy
ourcompany
.Thi
susual
l
ymeansov
erheadcost
sar
esi
gni
fi
cant
ly
r
educed.

Pr
ocessSpeci
fi
c

Pr
ocessspeci
fi
cout
sour
cingr
efer
stoauni
quepr
ocessorspeci
fi
cint
ernalpr
ocedur
e.
I
tiscommonl
yfoundi
ntheser
vicei
ndust
ry,f
orexampl
e,anewspapermayout
sour
ce
t
heact
ual
del
i
ver
ytopr
ofessi
onal
cour
iercompani
es.

Thi
scr
eat
esasi
tuat
ionwher
etheor
igi
nalcompanycanf
ocusont
hei
rcor
eoper
ati
ons,
whi
l
ehandi
ngov
ert
her
esponsi
bil
i
tyofani
mpor
tantt
askt
oanot
hercompanyt
hat
speci
ali
zesi
nit
.

STEPSI
NVOLVEDI
NSOURCI
NG

Thef
oll
owi
nghi
ghl
i
ght
s8essent
ialst
epsf
ordev
elopi
nganef
fect
ivest
rat
egyt
hatwi
l
l
hel
pcompani
est
osel
ectandev
aluat
esuppl
i
ersoncost
s,qual
i
tyandser
vicespr
ovi
ded.

 Pr
ofi
l
ecat
egor
y
 Suppl
ymar
ketanal
ysi
s
 Dev
elopt
hest
rat
egy
 Av
ail
abi
l
ityofneedsr
esour
ces
 Sel
ectt
hesour
cingpr
ocess
 Suppl
i
ersel
ect
ionandnegot
iat
ion
 I
mpl
ement
ati
on
 Measur
ingandmoni
tor
ingper
for
mance

1.Pr
ofi
l
ethecat
egor
y

Ensur
eandunder
standsev
ery
thi
ngaboutt
hespendcat
egor
yast
hef
ir
stst
epi
nthe
st
rat
egi
csour
cing.Thet
eam wi
l
lneedt
oident
if
yanddef
inewhati
sthecur
rentquant
it
y
used,t
ypes,si
zes,speci
fi
cat
ion,gr
adeandet
c.Whoar
etheuser
s,wher
ethepr
ocess
act
ivi
ti
esl
ocat
edi
sandwhoel
sei
sinv
olv
ed.
Fol
l
owi
ngt
hecat
egor
ysel
ect
ion,i
t’
sti
met
omeasur
ethecost
simpacti
ncl
udi
ngwho
pr
ovi
des t
he r
esour
ce orser
vice,t
otalcost
sinv
olv
ed,cont
ractl
engt
h and t
erms,
t
ranspor
tat
ionconsi
der
ati
ons,andany
thi
ngel
set
hati
mpact
spr
esentorf
utur
espend.
Al
lthedat
amustbedocument
edi
nasmuchdet
ail
saspossi
ble.

2.Suppl
ymar
ketanal
ysi
s

Concur
rent
lyseeki
ngpot
ent
ialal
ter
nat
ivesuppl
i
erst
oexi
sti
ngi
ncumbent
s.Anal
yzet
he
suppl
i
ers’mar
ket
placedy
nami
csandcur
rentt
rendsf
orr
isksassessment
.Dependi
ng
upont
hef
indi
ngsf
rom t
hemar
ketev
aluat
ion,
theeconomi
coper
ati
onaladv
ant
agesar
e
consi
der
edandcal
cul
ated.

The‘
Fi
veFor
ces’
arecr
eat
edandf
orcest
hatshapeani
ndust
ry.

•Compet
it
iver
ival
ry

•Thr
eat
sofnewent
rant
s

•Thr
eatofsubst
it
utes

•Bar
gai
ningpowerofbuy
ers

•Bar
gai
ningpowerofsuppl
i
ers

‘
Fi
veFor
ces’anal
ysi
srequi
resar
evi
ew ofal
lthedat
acol
l
ect
edf
rom t
hedi
ff
erent
sour
ces.Thet
oolhel
pspr
edi
ctsuppl
i
erandbuy
erbehav
iouri
nthemar
ket
placeandi
sa
cr
it
ical
elementi
nshapi
ngsuppl
yst
rat
egy
.

3.Dev
elopt
hest
rat
egy

Theyar
emanydi
ff
erentway
stoacqui
reapr
oductorser
vice,
anddi
ff
erentr
elat
ionshi
ps
mi
ghthav
ewi
thsuppl
i
ers.Deci
dingonapur
chasewhi
l
stmi
nimi
zi
ngr
iskandcost
swi
l
l
dependonhowt
hesour
cingst
rat
egyi
sdev
eloped.Manager
sof
tenhav
eanunder
lyi
ng
phi
l
osophyt
hati
nfl
uencest
hei
rchoi
ces.Thest
rat
egywi
l
ldependonhow compet
it
ive
t
hesuppl
i
ermar
ket
placei
s.

Thesi
x-st
eppl
ant
osel
ectandev
aluat
egl
obal
suppl
i
ers:

a)Enumer
atet
he“
thi
ngs”y
ouneedt
osour
ce(
funct
ions,
ser
vices,
etc.
).

b)Documentt
hecur
rentsour
cingmodel
.

c)Det
ermi
net
hedesi
redsour
cingmodel
.

d)Cr
eat
evi
sual
i
zat
ion.

e)Ev
aluat
esuppl
i
er

f
)Makeanact
ionpl
an

4.Av
ail
abi
l
ityofneedr
esour
ces

Var
ious r
esour
ces i
nter
fer
e wi
tht
he t
ransl
ati
on ofa gl
obalv
isi
on i
nto ef
fect
ive
pr
act
ices.Theav
ail
abi
l
ityofneededr
esour
ceshast
hepot
ent
ialt
osepar
atemar
ginal
l
y
per
for
ming gl
obalsour
cing or
gani
zat
ions and make t
hem av
ail
abl
e bef
ore gl
obal
i
nit
iat
ives.

Theknowl
edgeandski
l
lsr
equi
redf
orgl
obal
sour
cingdi
ff
erf
rom t
hoser
equi
redf
orsi
te-
based sour
cing.Howev
er,r
equi
res who can suppl
y mar
ket
sfr
om a wor
ldwi
de
per
spect
ivewhi
l
ecol
l
abor
ati
ngacr
ossf
unct
ional
boundar
ies.

5.Sel
ectt
hesour
cingpr
ocess

Wher
eacompet
it
iveappr
oachi
sused,ar
equestf
orpr
oposalpr
ocessf
orbi
dsandi
t
i
ncl
udespr
oductorser
vicespeci
fi
cat
ion,del
i
ver
yandser
vicer
equi
rement
s,ev
aluat
ion
cr
it
eri
a,pr
ici
ngbr
eakdownandl
egalandf
inanci
alt
ermsandcondi
ti
ons.Ensur
ethat
ev
erysuppl
i
eri
sawar
etheyar
ecompet
ingonal
evelpl
ayi
ngf
iel
d.Oncet
heRFPi
ssend
outt
oal
lsel
ect
ivesuppl
i
er,
makesur
etheyar
egi
venenought
imet
orespond.
6.Suppl
i
ersel
ect
ionandnegot
iat
ion

Cr
eat
especi
fi
ccr
it
eri
afort
racki
ngandev
aluat
ingsuppl
i
ersandv
endor
sonar
egul
ar
basi
s – mont
hly
,quar
ter
ly,and/
orannual
l
y.Maki
ng sur
ethatt
hisi
s a mut
ual
l
y
benef
ici
alpar
tner
shi
pwi
l
limpactt
hepr
icey
ouar
enegot
iat
ingt
odayandqual
i
tyof
ser
vicey
ougeti
nfut
ure.

Communi
cat
ionswi
thmanysuppl
i
ersf
orcl
ari
fi
cat
ionsanddet
ail
swher
eneededand
conductwi
thmul
ti
pler
oundofnegot
iat
ionst
ofi
ndoutwhi
chsuppl
i
ersof
fert
hemost
v
alueandbenef
it
.Thef
inal
sel
ect
ionwi
l
lsendf
orappr
oval
bef
oreawar
dtot
hesel
ect
ed
suppl
i
er.

7.I
mpl
ement
ati
on

Dr
aw upacont
ractf
ort
hewi
nni
ngsuppl
i
ersandnot
if
ythem t
oensur
ethatt
heyar
e
i
nvol
vedi
nthei
mpl
ement
ati
onpr
ocess.I
nthi
sst
age,
aper
for
manceanal
ysi
siscr
eat
ed
wher
ethesour
cingagent
sal
lact
ivi
ti
esper
for
medasperi
mpl
ement
ati
onschedul
e.
Compar
eout
comesi
nter
msoft
otal
val
ueori
mpl
ement
ati
oncostdi
ff
erences.

Thecommuni
cat
ionpl
anwi
l
lincl
udeanyi
mpr
ovementt
ospeci
fi
cat
ionorpr
ocess,
changi
ng i
ndel
i
ver
y,changi
ng i
npr
ici
ng orser
vicer
equi
rement
s.Hav
ing ast
rong
r
elat
ionshi
pwi
thsuppl
i
erof
tenl
eadst
hel
owerr
ate,i
ncr
easedspeed-
to-
mar
kett
imes
andi
mpr
oveser
vicequal
i
ty.

8.Measur
ingandmoni
tor
ingper
for
mance

Per
for
manceofsuppl
i
ersi
smeasur
edi
nresponset
othepr
ocedur
esandr
esour
ces
t
hatar
eappl
i
edbysuppl
ypar
tner
sandi
ndependent
ly.Thi
sper
for
manceshoul
dbe
r
out
inel
ycar
ri
edoutanddocument
edonar
egul
arbasi
s.Addi
ti
onal
l
y,somecompani
es
i
ncor
por
atecur
rentandexpect
edgl
obalsour
cingwi
l
ldev
elopmeasur
ementsy
stems
t
hatl
ookbey
onduni
tcost
.Theobj
ect
iveofper
for
mancemoni
tor
ingi
stomai
ntai
nthe
mostef
fi
cientpr
ocur
ementpr
ocess.Conduct
ing v
alue anal
ysi
s and compet
it
or
benchmar
kingar
ethewayt
oensur
est
ayont
hepat
htoi
mpr
ovement
SOURCI
NGSTRATEGY

Successf
ulsour
cingr
equi
resat
hor
oughunder
standi
ngofacompany
'sbusi
ness
st
rat
egy
,ther
esour
cesr
equi
redt
odel
i
vert
hatst
rat
egy
,andt
hemar
ketf
orcesand
uni
quer
iskswi
thi
nthecompanyassoci
atedwi
thi
mpl
ement
ingspeci
fi
cappr
oaches.

SOMESOURCI
NGSTRATEGI
ESTOCONSI
DER:

Out
sour
cing:
Hav
ingsuppl
i
erspr
ovi
degoodsandser
vicest
hatwer
epr
evi
ousl
ypr
ovi
ded
i
nter
nal
l
y.

I
nsour
cing:
Del
egat
ingaj
obt
osomeonewi
thi
nthecompany
.

Near
-sour
cing:Abusi
nesspl
acessomeoper
ati
onscl
oset
owher
eit
sendpr
oduct
sar
e
sol
dtosav
eti
meandmoney
.

Ver
ti
cali
ntegr
ati
on:Mer
ging compani
es atdi
ff
erentst
ages ofpr
oduct
ion and/
or
di
str
ibut
ioni
nthesamei
ndust
ry.Whenacompanyacqui
resi
tsi
nputsuppl
i
eri
tiscal
l
ed
backwar
dint
egr
ati
on;wheni
tacqui
rescompani
esi
nit
sdi
str
ibut
ionchai
niti
scal
l
ed
f
orwar
dint
egr
ati
on.

Few ormanysuppl
i
ers:A many
-suppl
i
erst
rat
egyi
scommonl
yusedf
orcommodi
ty
pr
oduct
sandpur
chasi
ngi
sty
pical
l
ybasedonpr
ice.Si
ngl
e-sour
cepur
chasi
ngr
efer
sto
pur
chasesf
rom onesel
ect
edsuppl
i
er,ev
ent
houghot
hersuppl
i
erspr
ovi
desi
mil
ar
pr
oduct
s.Sol
e-sour
cepr
ocur
ementr
efer
stopur
chaseswi
thonl
yonesuppl
i
er.Si
ngl
e-
orsol
e-suppl
i
err
elat
ionshi
pscanbehi
ghr
isk,
butr
eapbi
grewar
ds.

Joi
ntv
ent
ures:
Abusi
nessent
it
ycr
eat
edbyt
woormor
epar
ti
es,
gener
all
ychar
act
eri
zed
byshar
edowner
shi
p,shar
edr
etur
nsandr
isks,
andshar
edgov
ernance.

Vi
rt
ualent
erpr
ise:A net
wor
kofi
ndependentcompani
es(
i.
e.,suppl
i
ers,cust
omer
s,
compet
it
ors)l
i
nkedbyi
nfor
mat
iont
echnol
ogyt
oshar
eski
l
ls,cost
s,andaccesst
oone
anot
her
'smar
ket
s.
 DI
FFERENCEBETWEENPROCUREMENTANDSOURCI
NG

Whati
sPr
ocur
ement
?

Pr
ocur
ementi
sthepr
ocessofacqui
ri
ngt
hegoodsandser
vicesanor
gani
zat
ionneeds
f
ori
tsoper
ati
ons.I
tinv
olv
espl
aci
ngor
der
swi
theachsuppl
i
er,
recei
vi
ngt
hegoods,
and
pay
ingf
ort
hem.Pr
ocur
ementi
sanend-
to-
endpr
ocesst
hatcov
ersev
ery
thi
ngf
rom
pl
anni
ngpur
chasest
onegot
iat
ingpr
ici
ng,maki
ngt
hepur
chases,t
ohandl
i
ngi
nvent
ory
cont
rol
andst
orage.

Whati
sSour
cing?

Sour
cingi
sthepr
ocessofv
ett
ing,sel
ect
ing,andmanagi
ngsuppl
i
erswhocanpr
ovi
de
t
he i
nput
s an or
gani
zat
ion needs f
orday
-to-
dayr
unni
ng.Sour
cing i
stasked wi
th
car
ryi
ngoutr
esear
ch,cr
eat
ingandexecut
ingst
rat
egy
,def
ini
ngqual
i
tyandquant
it
y
met
ri
cs,andchoosi
ngsuppl
i
erst
hatmeett
hesecr
it
eri
a.Sour
cingi
saboutf
indi
ngt
he
bal
ancebet
weent
hequal
i
tyofr
awmat
eri
alsandt
heaf
for
dabi
l
ity
.

KeyDi
ff
erencesbet
weenPr
ocur
ementandSour
cing

Pr
ocur
ementandsour
cinghol
dmanysi
mil
ari
ti
es,
butt
ounder
standeachone,
weneed
t
olooki
ntowhatmakest
hem di
ff
erent
,sour
cinghappensbef
orepr
ocur
ementbegi
ns.
Her
ear
ethekeydi
ff
erencesbet
weenpr
ocur
ementandsour
cing:

Pr
ocur
ement Sour
cing

1. Pr
ocur
ement i
nvol
ves pr
ocur
ing Sour
cing compr
ises t
he ent
ir
e body of
goods,i
nput
s,and mat
eri
als and ef
for
tthat
’s necessar
yto bui
l
ding and
or
gani
zat
ion needs f
or t
hei
r mai
ntai
ning v
endor r
elat
ions, v
ett
ing
oper
ati
ons. suppl
i
ers,cr
eat
ing and mai
ntai
ning a
suppl
ychai
nofv
endor
swhoar
eidealt
o
t
heor
gani
zat
ion’
sneeds.
2. Pr
ocur
ementf
ocusesont
he"
what Sour
cingt
akesmor
eai
m att
he"
whot
hat
ofsuppl
i
es"
. makessuppl
i
espossi
ble"
.

3. Pr
ocur
ement i
s concer
ned wi
th Sour
cingguar
ant
eest
hesuppl
ychai
nthat
ensur
ingasmoot
hfl
ow ofi
nput
s, makesi
tpossi
ble.
suppl
i
es,
etc.

4. Pr
ocur
ementf
ocusesonl
ever
agi
ng Sour
cingi
sconcer
nedwi
thbui
l
dingand
suppl
ychai
nst
o ensur
ea st
eady managi
ngsuppl
ychai
ns.
f
low ofi
nput
sandsuppl
i
est
oan
or
gani
zat
ion.

5. Pr
ocur
ement l
ever
ages t
hese Sour
cingbui
l
dssuppl
ychai
nresi
l
ience.I
t
suppl
ychai
nst
odoi
tsj
obbet
ter
.It manages suppl
y chai
ns and bui
l
ds
i
spr
imar
il
yconcer
nedwi
thr
unni
ng al
ter
nat
ivesf
orr
esi
l
ience.
al
readycr
eat
edsuppl
ychai
ns.

6. Pr
ocur
ementi
sthe setoft
asks Sour
cing i
sthe pr
ocess of sel
ect
ing
associ
atedwi
thbuy
ingapr
oductor suppl
i
erst
hatpr
ovi
degoodsorser
vices.
ser
vice.

7. Pr
ocur
ement t
eams handl
e Sour
cing f
ocuses mor
e on suppl
i
er
pur
chasi
ng and acqui
ri
ng t
he r
elat
ionshi
psandmi
ti
gat
ingt
her
isksof
mat
eri
als needed t
o manuf
act
ure t
aki
ngonnewsuppl
i
ers.
goodsf
orsal
e.

SUPPLI
ERSELECTI
ONPROCESS

Choosi
ngt
her
ightsuppl
i
eri
nvol
vesmuchmor
ethanscanni
ngaser
iesofpr
icel
i
sts.
Yourchoi
cewi
l
ldependonawi
der
angeoff
act
orssuchasv
aluef
ormoney
,qual
i
ty,
r
eli
abi
l
ity
,andser
vice.Howy
ouwei
ghupt
hei
mpor
tanceoft
hesedi
ff
erentf
act
orswi
l
l
bebasedony
ourbusi
nesspr
ior
it
iesandst
rat
egy
 Ast
rat
egi
cappr
oacht
ochoosi
ngsuppl
i
erscanal
sohel
pyout
ounder
standhowy
our
ownpot
ent
ial
cust
omer
swei
ghupt
hei
rpur
chasi
ngdeci
sions.

Whatt
olookf
ori
nasuppl
i
ersel
ect
ionwheni
tcomest
oev
aluat
ingy
oursuppl
i
ersy
ou
needt
olookf
ort
hef
oll
owi
ng;

Rel
i
abi
l
ity
Yourcompanycan onl
ybe as r
eli
abl
e as y
oursuppl
i
ers,t
her
efor
e,I
fyour
suppl
i
ersl
ety
oudown,y
our
iskl
ett
ingy
ourcust
omer
sdown.Ther
emaybe
somei
nst
ancei
nwhi
chy
oucanr
ecov
erwi
thoutt
hecust
omernot
ici
ngani
ssue,
buty
oucan’
tal
way
scountont
hatbei
ngapossi
bil
i
tywi
thev
erypr
oductor
ser
vicey
ouof
fer

Suppl
i
erQual
i
ty
Yoursuppl
i
ersneedt
opr
ovi
deconsi
stentqual
i
ty.Yourcust
omerwi
l
lassoci
ate
poorqual
i
tywi
thy
ourcompanynoty
oursuppl
i
ers

Val
ueForTheMoney
Whi
l
ethel
owestpr
icemaybet
empt
ing,i
t’
snotal
way
sthebestv
aluef
ort
he
money
.Ify
ouwantqual
i
tyandr
eli
abi
l
ityf
rom y
oursuppl
i
ers,y
ouwi
l
lneedt
o
deci
dehowmuchy
ouar
ewi
l
li
ngt
opayf
ory
oursuppl
i
esal
ongwi
tht
hebal
ance
y
ouwantt
ost
ri
kebet
weenser
vice,
qual
i
ty,
rel
i
abi
l
ityandcost

Fi
nanci
alSt
abi
l
ity
Dosomer
esear
chi
ntocompanyhi
stor
yandf
inanci
alst
abi
l
ity
,ify
oursuppl
i
er
doesn’
thav
ethenecessar
ycashf
low t
odel
i
verwhaty
ouwantandwheny
ou
needi
t,y
ouwon’
tbeabl
etocountont
hem t
opr
ovi
def
ory
ourcust
omer
.
Consi
derr
unni
ngacr
edi
tcheckt
oreassur
eyout
hatt
heywi
l
lnotgooutof
busi
nesswheny
ouneedt
hem t
hemost

Cl
earCommuni
cat
ionAndSer
vice
 Youneedy
oursuppl
i
ert
obehonestandgi
vey
oupl
ent
yofwar
ningi
fasi
tuat
ion
ar
iseswhent
heycannotdel
i
very
ouror
deront
ime.Thebestsuppl
i
erwi
l
lwantt
o
communi
cat
ewi
thy
ouonar
egul
arbasi
stof
indoutwhaty
ouneedsar
eandhow
t
heycanser
vey
oubet
ter
.

I
dent
if
yingPot
ent
ial
Suppl
i
ers
Youcanf
indsuppl
i
ert
hroughnumer
ouschannelst
artbyaski
ngf
ri
endsand
busi
nessacquai
ntancesf
orr
ecommendat
ions.Youar
emor
eli
kel
ytobegetan
honestopi
nionofabusi
nessst
rengt
handweaknessf
rom someonewhohas
al
readyusedt
hei
rser
vice

LI
MITATI
ONSOFSUPPLI
ERSELECTI
ON

Sour
cingandsuppl
i
esar
eincr
easi
ngl
ybecomi
ngacr
uci
alf
unct
ionofanor
gani
zat
ion’
s
st
rat
egyt
o cutcost
s and i
ncr
ease ef
fi
cienci
es.The sour
cing depar
tment
s bei
ng
r
esponsi
ble f
or cont
ract management
,ri
sk mi
ti
gat
ion, suppl
i
er r
elat
ionshi
p
management
,hav
eav
ari
etyofchal
l
engest
ofaceev
eryday
.

Thef
oll
owi
ngar
eli
mit
ati
onsofsour
cingandsuppl
i
es

Poorsuppl
ychai
ntr
anspar
ency

Lackofv
isi
bil
i
tyofsuppl
ychai
nsi
soneoft
hemaj
orconcer
nsf
acedbyt
hesour
cing
depar
tment
.Vi
si
bil
i
ty acr
oss t
he suppl
y chai
nis an i
mpor
tantt
oolf
ormeet
ing
r
egul
ator
yrequi
rement
sandmi
ti
gat
ingr
isk.Accor
dingt
othe2018Del
oit
te`
sGl
obal
CPO sur
vey
,65% ofsour
cingpr
ofessi
onal
shav
eno v
isi
bil
i
tybey
ondt
hei
rti
er-
one
suppl
i
ers.Lev
eragi
ngt
echnol
ogycanhel
pthesepr
ofessi
onal
sdel
i
verv
alueandr
educe
cost
swhi
l
eachi
evi
ngar
obustv
iewofsuppl
ychai
ns.
 Needf
orbet
terr
iskmanagement

Anot
hermaj
orchal
l
engei
nthesour
cingpr
ocessi
ssuppl
yri
sk.Someoft
hehuger
isks
t
hatf
oll
ow al
ongt
hesuppl
ychai
nincl
udemanagi
ngsol
esuppl
i
ercont
ract
s,mar
ket
r
isks(
avai
l
abi
l
ityofpr
oduct
s,pr
icev
olat
il
it
y),pot
ent
ialf
rauds(
thef
tori
nvoi
cef
raud)
,
cost
,qual
i
ty,del
i
ver
yri
sks,mav
eri
ckspend,anddeal
i
ngwi
thcompl
i
ancer
isksl
i
ke
pol
i
cyadher
ence,
ant
i-
cor
rupt
ioni
ssues.

Sour
cingpr
ofessi
onal
shav
etoi
dent
if
ythebestsuppl
i
erst
oensur
ethest
abl
eand
qual
i
tydel
i
ver
yofgoodsand ser
vices.Theyal
so hav
eto cont
inual
l
ymoni
tort
he
suppl
i
erst
oensur
ethatal
ldel
i
ver
ydemandsandst
andar
dsar
emet
.Ri
skmi
ti
gat
ion
bei
ngakeyconcer
nwi
thi
nthesour
cingf
unct
ioni
sof
tenov
erl
ookedandal
ltheser
isks
exer
tasi
gni
fi
canti
mpactont
hebot
tom-
li
ne.

I
naccur
ateDat
a

I
naccur
atedat
aisoneoft
hemaj
orchal
l
engesf
acedbyt
hesour
cingdepar
tment
s.Wi
th
t
he sour
cing pr
ocess becomi
ng aut
omat
ed,t
her
e ar
e a numberofi
ndependent
pl
atf
ormsandpr
ogr
amst
omanaget
hispr
ocess.Ast
hesepr
ogr
amsar
enotl
i
nked,
dat
aent
ryi
smost
lydonemanual
l
yleadi
ngt
oer
ror
s.Wi
thi
naccur
ateandunr
eli
abl
e
dat
a,or
gani
zat
ionscannotmakesoundsour
cingdeci
sionsorcr
eat
epur
chaseor
der
s
ast
hiscanr
esul
tinex
cessi
nvent
ory
,inv
ent
oryshor
tages,appr
ovalwor
kfl
owsmay
st
agnat
e,andot
hersuppl
ement
arysour
cingchal
l
engeswi
tht
hepot
ent
ialt
odi
rect
ly
i
mpactt
heor
gani
zat
ion`
sbot
tom-
li
ne.

Compl
i
ancet
oCont
ract

Anot
herchal
l
engei
nsour
cing i
ssuppl
i
ers’compl
i
ancet
o cont
ract
.Wi
thso many
di
ff
erentsuppl
i
ers,i
t`
s di
ff
icul
tto check whet
hert
he suppl
i
ers ar
eful
fi
ll
i
ng t
hei
r
obl
i
gat
ions.Keyper
for
mancei
ndi
cat
ors,t
orecor
dsuppl
i
erper
for
mancedet
ail
s,easi
l
y
checkwhet
hersuppl
i
ersar
emeet
ingexpect
ati
onsandkeepi
ngupt
het
ermsofcont
ract
.
I
nit
spur
chasi
ngmodul
e,i
tdi
spl
ayscl
ear
lyt
hegener
ali
nfor
mat
ionaboutsuppl
i
ers,
t
hei
rcont
ract
sandt
erms,
thusmaki
ngi
teasyt
oor
derf
rom t
her
ightsuppl
i
ersandhav
e
compl
i
ancet
rackedi
ntot
hepr
ocess.