Purchasing

A functional group (i.e. a formal entity on the

organization chart) as well as a functional
activity (i.e. buying goods and services).
The word purchasing is not used
interchangeably with the word
procurement, since procurement typically
includes Expediting, Supplier Quality, and
Traffic and Logistics (T&L) in addition to
Purchasing.

Purchasing & Supply Chain

Management, 4e 1
 Supply Management
Is a strategic approach to:
Planning for and acquiring the organizations
current.
Future needs through effectively managing the
supply base.
Utilizing a process orientation in conjunction with
cross-functional teams to achieve the
organizational mission.

Purchasing & Supply Chain

Management, 4e 2
 Institute of Supply Managements
(ISM) Definition
The identification, acquisition, access,
positioning, and management of resources
and related capabilities an organization needs
or potentially needs in the attainment of its
strategic objectives.

Purchasing & Supply Chain

Management, 4e 3
A Brief History of Purchasing Terms
Purchasing Obtaining merchandise, capital
equipment; raw materials, services, or
maintenance, repair, and operating (MRO)
supplies in exchange for money or its
equivalent.
Merchants Wholesalers and retailers who
purchase for resale.
Industrial Buyers Purchase raw materials for
conversion, services, capital equipment, &
MRO supplies.
A Brief History of Purchasing Terms
Institute of Supply management defined supply
management as the Identification,
acquisition, access, positioning, and
management of resources an organization
needs or potentially needs in the attainment
of its strategic objectives.
The Role of Supply Management in an
Organization
The primary goals of purchasing are:
Ensure uninterrupted flows of raw materials at the lowest total cost.
Improve quality of the finished goods produced.
Optimize customer satisfaction.

Purchasing contributes to these objectives by:

Actively seeking better materials and reliable suppliers.
Work closely with and exploiting the expertise of strategic suppliers
to improve quality and materials.
Involving suppliers and purchasing personnel in new product design
and development efforts.
 Difference between Purchasing &
Supply Management
The purchasing group performs many
activities to ensure it delivers maximum value
to the organization.
Examples include :
Supplier identification and selection.
Buying, negotiation and contracting.
Supply market research.
Supplier measurement and improvement.
Purchasing systems development.
 Difference between Purchasing &
Supply Management
Purchasing has been referred to as doing the
five rights (correct actions):
1. Getting the right quality.
2. In the right quantity.
3. At the right time.
4. For the right price.
5. From the right source.
 Difference between Purchasing &
Supply Management
Supply Management is a strategic approach to
planning for and acquiring the organizations
current and future needs through:
1. Effectively managing the supply base.
2. Utilizing a process orientation in conjunction
with cross-functional teams (CFTs) to achieve
the organizational mission.
 SM Managerial Perspective
Various views exist suggesting that Supply
Management should be taken up as a:
Strategic Responsibility
Broader concept
Process approach
Cross functional
 The Evolution of Purchasing and Supply
Chain Management
Period 1: The Early Years (18501900)
Charles Babbage (1830s) suggested the concept of material man
Period 2: Growth of Purchasing Fundamentals (19001939)
Period 3: The War Years (19401946)
Period 4: The Quiet Years (1947Mid-1960s)
Period 5: Materials Management Comes of Age (Mid-
1960sLate 1970s)
Period 6: The Global Era (Late 1970s1999) The global era,
and its effect on the importance, structure, and behavior
Period 7: Integrated Supply Chain Management (Beyond
2000)
 Purchasing Process
This is the process used to:
Identify user requirements.
Evaluate the need effectively and efficiently.
Identify suppliers.
Ensure payment occurs promptly.
Ascertain that the need was effectively met.
Drive continuous improvement.
The Purchasing Process Manual Purchasing (older
system)

Step 1- Material Requisition/Purchase Requisition

Stating product, quantity, and delivery date. May originate as a
planned order release from the MRP system. Traveling requisition
used for recurring orders.
Step 2- The Request for Quotation (RFQ)
Buyer identifies suppliers & issues a request for quotation (RFQ) for
routine items or a Request for Proposal (RFP) for more demanding
products. Supplier Development is used to develop supplier
capabilities.
Step 3- The Purchase Order (PO)
Is the buyers offer & becomes a binding contract when accepted by
supplier. When initiated by the supplier on their own terms, the
document is a sales order. The Uniform Commercial Code (UCC)
governs transactions in the U.S., except Louisiana.
 The Purchasing Process e-Procurement

Step 1- Material user inputs a materials requisition

Relevant information such as quantity and date needed.

Step 2- Materials requisition submitted to buyer

At purchasing department (hardcopy or electronically).

Step 3- Buyer assigns qualified suppliers to bid

Product description, closing date, & conditions are given.

Step 4- Buyer reviews closed bids & selects a supplier.

 Purchase to Pay Process
Consider high level process map.
This section presents the purchasing process
as a cycle consisting of six major stages:
1. Forecast and plan requirement.
2. Need clarification/ requisition.
3. Supplier identification/selection.
4. Contract Approval /purchase order generation.
5. Receipt of material or service and documents.
6. Settlement, payment, and measurement of
performance.