Technological Institute of the Philippines

PURCHASING
MANAGEMENT
Today's Agenda

1 Team Check-In and Knowledge Check 4 Formulating Purchasing Strategy

2 Purchasing Decision 5 Ethical Aspects of Purchasing

3 Purchasing Strategy Matrix 6 Question and Answer

Team Check-in
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Knowledge Check 1 0
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Objective: Understanding Purchasing Decision and Strategies

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Purchasing Decision

Quality Speed Efficiency Cost

Purchasing Decision

Insource Outsourcing

PROCESS- PROJECT-
BASED BASED
WORK WORK
Purchasing Decision

Insource
1. Vertical Integration
takes place where the organization performs as many
activities in the supply chain as possible, from the supply
of primary materials to delivery to end customers

PROCESS- Retaining in-house expertise

BASED Reduce risk in confidentiality
WORK increase quality control
Provides management with maximum amount of control
over performance and cost
Purchasing Decision

Outsourcing
2. Outsourcing
practice where an organization focuses on doing what is
does best (its core competencies) and using outside
suppliers to perform and supply all other "non-core"
activities
PROJECT-
Access to supplier expertise
BASED Reduce Capital Employment
WORK Reduced Headcount
Concentrate on core business Activities
Reduced inventory
Purchasing Strategy Matrix

Leverage Items Strategic Items

Non-Critical Items Bottleneck Items

Purchasing Strategy Matrix
Leverage Items
High profit/Low Risk
Standard commodities with abundant
source of supplies
Leverage Items
Utilize purchasing power
Negotiate aggressively
items are absolutely necessary to
complete a product and ideally are
available on short notice from established
suppliers.
Delivery terms can usually be established
on a "call forward" basis from the suppliers,
based on projected annual demand. (In a
call-forward scenario, the supplier
produces and maintains the inventory, and
the buyer places orders for delivery in small
lots as needed.)
Purchasing Strategy Matrix
Strategic Items
High profit/High Risk
Collaboration and Innovation
Goal is to ensure long term availability and
Strategic Items
global suppliers should be developed
Items deserve the most attention because
they typically are the most costly, and they
would have the greatest impact on profits
and the ability to serve customers if there
were an interruption in the flow of available
supply.
Purchasing Strategy Matrix
Non-Critical Items
Low profit/ Low Risk
Easy to source / Abundant Supply
Low value items / Low spend
items are necessary to complete a product
but are readily available, low-cost, and are
not customized for the product

Non-Critical Items
Purchasing Strategy Matrix
Bottleneck Items
Low profit/ High Risk
Items with limited source of supplies
Low control of suppliers
Maintain good relationship with existing
suppliers
Actively develop new suppliers
Items deserve attention to the extent that
they do not have such a strategic impact
on the end product, but they do prevent
the product from being completed.
These items are often custom-made and
Bottleneck Items
are readily available if suppliers are given
enough advance warning of expected
demand.
The lack of some of these items would
delay production, but by themselves, they
add little profitability to the finished item
Formulating Purchasing Strategy

Input Strategy Output

Legal and Ethical Aspects of Purchasing
Execution of Contracts and Purchase Order

Purchasing Manager / Officer routinely sign purchase orders and

contracts committing the company to the specific terms and
conditions of purchase orders and contracts.
They has no personal liability providing that the following
requirements are met:
The name of the principal or company is shown on the
document.
All parties involved know that the purchaser / buyer is acting
on behalf of the company or principal.
The agency relation is shown on the document.
The purchaser / buyer is acting within the scope of his or her
authority for the transaction.
Legal and Ethical Aspects of Purchasing
Purchase Contract can also be defined as
Supply Agreement (SA),
Memorandum of Agreement (MOA)
Service Level Agreement (SLA)

Essentials of Purchase Contract

1. The parties must be capable
2. The subject of the matter must be legal and valid
3. There must be mutual agreement
4. The parties must reach an agreement by offer and
acceptance.
Legal and Ethical Aspects of Purchasing
Sending Request for Quotation (RFQ)

Purchaser/Buyer initiates an invitation to do business.

The purchasing official issues a request for quotation (RFQ)
RFQ is an excellent way for the buying firm to test the market without making a
legal commitment to purchase.

Receiving of Offer/Bid Proposal

Purchasing agents receive numerous offers on a daily basis and must be able to
identify complete legitimate offers.
The three necessary components of an offer are:
1. Intent to make an offer
2. Communication of the offer intent
3. Identification of the specific subject matter
Legal and Ethical Aspects of Purchasing
Counteroffers

The negotiations process between the buyer and the seller usually
leads to many offers and counteroffers.
A counteroffer is legally binding if it contains the components that
institute an offer.

The Time Limits of an Offer

An offer does is no longer valid if

1. The offer becomes outdated
2. The offer is officially rejected
3. The offer is revoked by the seller before the acceptance
4. The offer is accepted by the buyer
Legal and Ethical Aspects of Purchasing
Ethics in Purchasing

Sample of the Illegal Practice in Purchasing

Bribery
Coercion
Extortion
Favoritism
Illegal Sourcing
Question?
 Thank you
for your g
Have a
r e a t
ahead.
d a y

participation! -Prof. Jaemee

 "Success is no accident. It is
hard work, perseverance,
learning, studying, sacrifice and
most of all, love of what you are
doing or learning to do."
Pelé, Brazilian football legend