Procurement Management

Ans 1.
A new awareness atmosphere has evolved in regards to the purchasing function and it
is emerging as an important function in many business organizations. In today's
increasingly fierce competitive environment preserving margins is a priority.
Achieving gains in terms of purchasing and productivity has become an increasingly
important strategic focus. ABC Company should be aware of the fact that businesses
have a strong interest in taking advantage of this competitive universe in purchasing
so that they can remain competitive in sales. There are 6 steps in the purchasing
process, and also to identify areas for improvement in this domain.
The important steps for ABC Companyare:
Step one: Identification of the need-- If any company encounters some issues, it
identifies some necessary steps for completing its purchase of a service or product.
Step two: Product description & its characteristics. -- The importance of need
specification allows the company to establish rigorous as well as exhaustive
specifications. These documents are useful and become the important basis for the
next lot of the purchasing process. This process involves many types of questions.
One of them is -- Does the research relate to a complex or a standard product? If the
case relates to a complex product, it becomes important to seek the opinions of third-
party experts to precisely determine the expected characteristics, while prioritizing the
selection criteria, such as longevity, price, lead time, etc. – to move forward towards
the best solution.
Step three: Drafting the specifications -- A good specifications document SOW
(Statement of Work) allows suppliers to come up with several solutions. The SOW
has to specify the expectations that the service or product must meet.
Step four: Supplier sourcing -- It is important to collect all the necessary
information to consolidate good market knowledge.
Submit RFIs, (Requests For Information), to the potential suppliers already identified,
for collecting more information about them.
Step five: Analyzing applications in In-depth -- This step will help you to get
many candidates to meet your demand.
Step six: Preparing for negotiations -- After crossing over the fifth step, you are to
develop a negotiation strategy.
All these steps are helpful to proceed toward step-by-step purchasing and supply
procedures.
Ans 1b.
A purchase order may arise out of an advertisement or past order or offer by the
vendor, or it may even arise out of the parties' negotiation as to the quantity and price.
This means ABC Company must understand that any purchase order is a great way to
concretely record what the vendor and purchaser have agreed upon. Essentially,
purchase orders are contractual offers. When a vendor chooses to agree upon and
accepts a purchase order, the very purchase order turns out as the basis for a contract
between the vendor and the purchaser.

Purchase orders are mainly of four types:

1) Standard purchase orders -- A standard purchase order is typically used for
infrequent or irregular, and one-off procurement.
2) Planned purchase orders -- A purchase order, if properly planned, is considered
relatively comprehensive. A planned purchase order has to have full details of the
goods and services and their costs before the purchase takes place.
To exemplify, a library may require 5,000 disposable furniture. So, in their planned
purchase order, the charge will create quantity and price with a tentative delivery
schedule. The process goes on as per requirements.
3) Blanket purchase orders -- In any blanket purchase order, a purchaser agrees to
purchase particular services and goods not at any specific quantity, but from a specific
vendor.
4) Contract purchase orders -- The vendor's details are set out in a contract
purchase order, along with a potential also payment and delivery terms. In this type of
purchase order, the products to be purchased are not specified. In this type of contract
purchase order, an agreement and terms of supply between a vendor and purchaser
are created as the basis for an ongoing commercial relationship.
To order a product, the purchaser has to refer to any of these contracts before
purchasing the required items or goods, and for this, he has to raise a standard
purchase order.
NGASCE Management Students are to advise ABC Companyon the sourcing
functions of their factories that a vendor is considered as a company, or a group and a
person that distributes services or goods to companies, businesses, and ultimate
customers.
Normally, vendors deal with purchase orders on a contractual basis and they manage
it by a compliance checklist, tools, and quality edits.
Additionally, vendors can be of various types such as B2C, B2B, and B2G. Some
vendors may deal in proper inventories and products, however, some may delay in
their dealings.

The Product Life Cycle & Importance of a Vendor

Just like suppliers, vendors are also a critical part of the product life cycle. They build
horizons and drive new growth to achieve profit as well as development, and help
their sales a successful run.
Every company should take care of its vendors in the same analogous manner as they
manage their customers' clients.
In the domain of product life cycle, the importance of vendors is clear from the
ensuing points:

Product Life Cycle

1. Cost Management -- A purchaser must possess good relations and communication
with his vendors by ensuring timely payments and building trust through regular
orders.
2. Customization Benefits -- As a vendor is indirectly and directly associated with
the market that covers the demography and nature, he can suggest you offer
something unique based on demand and preference.
3. Timely Deliveries -- any business aims to build customer satisfaction and to see its
vendors always help in making its customers satisfied by offering timely delivery of
goods at the right time and in the right place.
4. Customer Satisfaction -- The previous point establishes the fact that customer
satisfaction is possible through timely deliveries.
By managing costs, customizing benefits, timely deliveries, and satisfying customers,
a business can get a chance to lead the orders in bulk and garner the guaranteed
benefits of sales in terms of special offers and heavy discounts for his company. This
will lead a business to become proficient in cost management, inventory management,
and cash flow management.
Ans 2.
Let us discuss "What are KPIs (warehouse key performance indicators)"? Warehouse
KPIs are metrics that measure warehouse performance, by receiving processes and
fulfilling orders.
If warehouse KPIs are set, it makes it easier to monitor OKRs by tracking how
efficiently an eCommerce warehouse can operate while it can also manage risks,
uncover potential problems, and find ways to optimize workflows.
Different aspects are connected with warehouse management, which is why
warehouse KPIs are often broken down into different sections, from the management
of the inventory system to the fulfillment of the orders.

Some warehouse KPI examples are:

Inventory KPIs – Inventory needs to be delicately balanced, too much money is
involved for the sold goods and also there might be too much money attached to the
unsold inventory. In case it is too little money is seen in some cases, dangerously,
there may be a risk of a stockout. Monitoring inventory KPIs can help keep the
balance of stocks.
Put-away KPIs -- This has reference to a warehouse's ability to put products they
receive away in a certain amount of time and a certain location. This is especially
crucial for those items which are perishable and their shelf lives are shorter.
Receiving KPIs -- It is important to make sure that a business gets what it is paid for
and accordingly it has to make sure the goods arrive when they are needed, which is
the first step in the warehousing process. In case the measures are not in place, a lot
can go wrong.
Picking KPIs – After an order is placed it is the responsibility of the picking teams to
pick the right product that too in a time-efficient manner. Monitoring of picking up
KPIs can pose potential setbacks during this process.
Safety KPIs -- Businesses, with a finger on the pulse of safety, can reduce the
amount of work-related injuries before they can take place.
Performance KPIs -- If these metrics can be considered equivalent to a record for a
sports team, performance KPIs show your overall losses & wins, and thus they can be
invaluable to your business' growth.
Efficiently managing a supply chain critically depends upon measuring the warehouse
KPIs, which also correctly provides guidelines on what to look for at the time of
conducting a warehouse audit.

The importance of tracking warehouse KPIs can be brought down as below:

Warehouse efficiency improves warehouse KPIs -- Tracking warehouse KPIs helps
in improving warehouse efficiency. Performance tracking helps you to identify areas
to focus on, invest in and there-on improve upon. The efficiencies of a warehouse
depend on many determining factors that play some unique roles, upon which you can
identify any areas of strength & weaknesses, so you can optimize and improve
accordingly.
For example, digital warehousing has developed phenomenally and that is why it has
become easier to cut out mundane tasks by automating them, eliminating time-
enormous manual work, and saving thousands of man-hours. However, it can be
presumed that it's not that many inefficiencies in which your team has been operating
and that's causing inefficiencies. You need to upgrade your current warehouse setup.
This suggests that you are to track the right KPIs, and being saddled on it you might
find that technology is helping you to optimize your storage, and also streamlining
your workflow orders' fulfillment.
The overall scenario is by tracking warehouse KPIs can help you to improve
efficiency, whether it's by improving internal processes or implementing technology.

Retailers money can be saved by Warehouse KPIs

Not only improvements in your efficiencies, optimization in the areas of your
warehouse operations that need improvement can also help you to optimize your
logistics costs. For most e-commerce businesses, saving money remains at the top of
their mind — but in earlier times it's never been that within their reach. Due to high
demand for warehouse expansion and construction, in 2021 alone, logistics warehouse
tenants have experienced a 10% rate hike. This suggests that just the cost of renting a
warehouse can hugely cut into your profit margins.
It can help you to a great extent if you take the time to find ways to optimize
workflows and efficiency — and better yet, you need to identify how much
warehouse space you need. This might also include taking an overall picture of how
to optimize inventory levels so that you can meet demand and cut back on holding
costs.

Improvement in customer satisfaction

Whether it's finding ways to fast-track the process of returns management or
improving fulfillment workflows so that accuracy can be ensured, much of how your
e-commerce warehouse operations can impact the satisfaction of customers.
That's why it entails tracking certain eCommerce KPIs that identify how one's
warehouse operation is impacting the experience of customers, such as shipping times
and order accuracy.
Warehouse location has its crucial functions in setting up your warehouse(s) for
meeting your customer expectations. For example, you might plan for moving your
warehouse to a more centralized location nearer to more of your customers can enable
more affordable and faster shipping.

Ensure safety and better workplace satisfaction

The more engaged and safe your team feels the more skillful your warehouse will be.
According to the US Bureau of Labor Statistics, in 2019, the warehousing and
transportation worker injury rate per 100 full-time workers was 4.4. Unfortunately,
fatality rates and warehouse injuries continue to rise.

Although speed is a top priority, an unsafe environment will only decelerate your
team's speed. By looking at safety KPIs, you can be sure of whether or not your
internal processes encourage a safe environment for your employees, and also
whether they can thus lead to higher productivity.
Ab example can be cited, such as, not leaving any equipment or trash in the middle of
the floor both make getting around on a forklift easier and safe. Further to these,
creating a one-way workflow can be an efficient way of setting up warehouse
workstations as it helps to eliminate congestion and ensure safety.
Ans 3a.
Reporting the details of managing any global logistic system needs a careful
understanding of the entire subject. The importance of effective global supply chain
management is growing up each year, as nearly 10-12% of global GDP is contributed
by logistics activities. 1

Additional Statistical Reports

This increasing global GDP percentage shows that people tend to consume more and
more every passing day. This apart, customers need to get the deliveries on time, so
they seek a superfast and seamless shopping experience. Among the businesses
worldwide, 30% of them stated that their primary objective is to satisfy the rapidly
changing customer requirements, which can result in the success of the company.
Companies with high-performing supply chains are capable enough of earning more
revenues, compared to the average logistics performers.

Further, these leaders have to look out for ways to adapt to growing customer
mandates and transform their global supply chain management. A recent report on the
Future State of Digital Supply Chain Transformation has revealed that over 75% of
companies consider the integration of digital tools as a very important component so
that they can achieve effective SCM (supply chain management).

Generally, SCM refers to all processes regarding a product's lifecycle, starting from
the concept of its creation, proceeding to distribution, and finally to its endpoints.
Global SCM aims to increase the productivity of each stage of this lifecycle, deliver
the products seamlessly and timely, and get rid of inefficiencies. The traditional GSC
(global supply chain) comprises 4 critical stages: A-supplier, B- manufacturer, C-
retailer, and D-end-user.

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The fact of the global supply chain in real life

A real-life fact of the global supply chain may be the case of Nike. The company took
a win as Company of the Year in 2019 for its revolutionary approach to SCM. The
credentials of the company's success were its incorporation of AI, inventory tracking
using QR codes, and RFID and predictive analytics techniques.

This tech-driven decision was useful to them to improve upon forecast fluctuations in
customer demands, which enhanced their quantity of placed orders. Besides, Nike
accomplished the desired levels of visibility throughout its entire supply network.
Nike became the industry leader in this way.

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Global supply chain management & its Market overview

The current pandemic has hugely impacted the global SCM (supply chain
management). For example, in China, in the middle of February 2020,  56% of all
transactions dwindled. The EU, US, and the UK witnessed a combined initial
decrease of 26% at the start of April, followed by a continuing drop of 17% at the end
of April.

One more study by the Institute for Supply Chain Management informs that almost
75% of companies reported they suffered from the novel virus in some way or other.
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Plus, more than 50% of respondents experienced sudden delays in receiving packages
from Chinese suppliers.
To conclude, the need for more predictable, autonomous, and transparent supply chain
management has become an urgent need for international businesses.

Ans 3b.
To start with, the International Chamber of Commerce (ICC) widely published the
International Commercial Terms Rules or Incoterms. It is known to be a series
ofpre-defined commercial terms and is widely used in international commercial
transactions.

The depth of the term Incoterms

A series of three-letter trade terms related to common sales practices, the Incoterms
rules are mainly intended to communicate the tasks, risks, and costs associated with
the transportation as well as delivery of goods. The Incoterms rules are accepted by
legal authorities, governments, and practitioners worldwide as the undisputed
interpretation of the most commonly used terms in international trade. They are
intended to reduce or remove altogether uncertainties that can peep through different
interpretations of the rules in different countries. "Incoterms" is a registered trademark
of the ICC.

The Incoterms rules have been periodically updated, after its first publication in 1936,
followed by its consecutive eighth version—Incoterms 2010—having been published
on January 1, 2011.4

The widely-used terms of sale, Incoterms are a set of 11 internationally recognized

rules which define the responsibilities of both buyers and sellers. Incoterms specify
who is responsible for managing the shipment, customs clearance, insurance,
documentation, and other logistical activities and paying for it.  

An Overview of Incoterms® 2022 

The primary importance of Incoterms is that each of its rules clarifies the costs,
tasks, and risks to be borne by sellers and buyers in these transactions. Getting
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familiarized yourself with Incoterms will help improve smoother transactions as it
clearly defines who is responsible for each step of the transaction and what. The
Incoterms® 2022 rules are updated and grouped into two categories that reflect modes
of transport and other important factors.

Of the 11 rules, there are four for SEA or INLAND WATERWAY transport, or
LAND, and seven for ANY mode(s) of transport.

Incoterms Clarify Parties’ Responsibilities to a Sales Transaction

To exemplify it -- a statement is provided in each Incoterm rule, as to the seller's
responsibility to provide the goods and commercial invoice by adhering to the
contract of sale.

In the same manner, a corresponding statement is furnished, which stipulates that the

buyer pays the price of goods as is incorporated in the contract of sale. Each Incoterm
rule has a stipulated statement, mentioning which party is responsible for carrying out
the customs formalities necessary for the export to proceed and for obtaining any
export license or other official authorization needed for export.
In the same manner, each rule has a corresponding statement as to which party is
responsible for import and also for carrying out the customs formalities required for
the import of goods, and for obtaining any import license or other official

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authorization required. These statements also mention which party is responsible for
bearing the cost of handling these tasks.
Each Incoterm rule specifies the obligations of the seller for the delivery of the cargo
and also clarifies when delivery takes place. The specification of each rule mentions
when the risk of damage or loss to the goods being exported passes from the seller to
the buyer by duly referring to the delivery provider.