Done by,

Boniya P Bochan
MBA - A
 PURCHASING
Purchasing is responsible for the
procurement process. This means it
ensures the supply of goods,
production materials and equipment
so that a smooth production and
sales process can take place. For this,
goods must be procured at the right
time, in the right quantity, and of the
right quantity.
If the purchasing process falls down, there's a risk that the business will
not be able to manufacture products or keep the shelves stocked with
sufficient volume to meet customer demand.
 TYPES OF PURCHASES
On the basis of purchase type:
• Personal Purchases.
• Mercantile Purchasing.
• Industrial Purchasing.
• Institutionalized or government purchasing.
On the basis of size and requirements of the organization:
• Centralized
• Decentralized
Type of Purchase Description Examples

Raw materials Items with a lack of processing by the supplier into a Petroleum, coal, lumber, copper, zinc, gold, and silver
newly formed product. Often these raw materials are not
of equal quality and are purchased by “grade.”

Semi-finished products and components All items purchased from a supplier required to support Components, subassemblies, assemblies, subsystems, and
an organization’s final that are production. systems (seat assembly, steering assembly, doors, and
posts)

Finished products Products for internal use or products that require no Furniture, computers, cars, and carts
major processing before resale to the end customer.

Maintenance, repair, and operating items (MRO) Items that do not go directly into an organization’s Spare parts, office and cleaning supplies
product but are required to run the business.

Production support items Materials required for packaging and shipping. Tape, bags, inserts, and shrink-wrap

Services Services required to support the facility or the business. Customer support, temporary labor, facilities, and legal

Capital equipment Assets intended to be used for more than one year. Machinery, computer systems, and material-handling
equipment

Transportation and third-party purchasing A specialized type of service buying to manage inbound Rail, truck, ocean, 3PL, and multimodal
and outbound material flows.
METHODS OF PURCHASING
1. Purchasing by Requirement:
2. Market Purchasing
3. Speculative Purchasing
4. Purchasing for Specific Future Period:
5. Contract Purchasing:
6. Scheduled Purchasing:
7. Group Purchasing of Small Items:
8. Co-operative Purchasing:
 TYPES OF METHODS OF
PURCHASING
• Keep Petty Cash on Hand
• Formalized Purchase Orders
• Convenient Purchase Cards
• Barter for Goods or Services
• Save with Bulk Purchases
• On-Demand Purchasing and Zero Inventory
  
PROCUREMENT

Purchasing is the overarching

process of obtaining necessary
goods and services on behalf of
an organization, procurement
describes the activities involved
in obtaining them. The
procurement process in an
organization is unique to its
context and operations.
 Procurement Purchasing

Activities related to acquiring goods and services Functions associated with buying goods and services

Steps that happen before, during, and after purchase Straightforward process of purchasing commodities

Used in a production environment (internal process) Used in a wholesale environment (external process)

Puts more importance on an item’s value than its cost Tends to focus more on the item’s price than its value

Refers to a set of tasks that spot and fulfill needs Refers to the specific task of committing expenditure

Includes need recognition, sourcing, and contract closure Includes ordering, expediting, and payment fulfillment

Follows a proactive approach to spot and fulfill needs Follows a reactive approach to satisfy internal needs

Relational–focuses on creating long-term vendor Transactional–focuses on transactions than vendor

relationships relationships
3 P’s
 AUTOMATION OF PROCUREMENT MANAGEMENT
PROCESS

• Minimizes the chaos made by paperwork

• Shortens the procurement lifecycle
• Reduces human dependency intervention and errors
• Lessens the workload of all stakeholders
• Keeps the process accurate and consistent
• Injects transparency into the process flow
• Sticks to the predefined procurement cycle
 E-PROCUREMENT
e-Procurement or electronic
procurement refers to the process of
purchase and sale of goods or
services through electronic methods,
primarily the Internet. It is an
alternative to the manual process of
procurement, and is certainly
superior to the latter in many
respects. Organizations are
increasingly opting for e-Procurement
platforms, realizing its potential to
curb irregularities and unnecessary
costs.
 E-PROCUREMENT VALUE CHAIN
E-procurement value chain consists of :
• indent management
• e-Informing
• e-Tendering
• e-Auctioning
• vendor management
• catalogue management
• Purchase Order Integration
• Order Status
• Ship Notice
• E- invoicing
• E- payment
• contract management
 E TENDERING
An internet based process
wherein the complete tendering
process; from advertising to
receiving and submitting tender-
related information are done
online. This enables firms to be
more efficient as paper-based
transactions are reduced or
eliminated, facilitating for a more
speedy exchange of information.
 BENEFITS OF EFFECTIVE
PURCHASING IN PROCUREMENT
Unlike companies that usually focus
on sales for profit most famous
companies like McDonalds, Coco
Cola, etc survive in the long run
mainly because of their effective
purchasing models from reliable and
local suppliers. It is those kinds of
suppliers that offer raw materials at
reasonable rates thereby helping
firms to offer cost effective products
with good quality to their customers.
In case of companies like small retail shops
that only see profits, they tend to purchase
from cheap sources thereby offering low
quality products to customers. Hence even
if such small companies manage in the
short period, it is the big companies like
Walmart, Ben & Jerry that ensures
maintaining brand reputation and buyer
confidence by involving calculated ricks in
their business. Calculated risk refers here to
fixed price in acquiring raw materials from
suppliers whereby even if prices fall, as per
the contract no changes can be done.
CASE EXAMPLE: FORD - E-
PROCUREMENT IN A
MANUFACTURING COMPANY
Ford spends an estimated
$15.5 billion each year on
non-production goods and
services, making it one of
the largest purchasers of
such goods world-wide.
• With Ford's continuing
quest to cut costs, Ford
utilises an e-procurement
solution, with the
intention of cost cutting
from the everyday tasks
such as purchasing office
supplies, and filing
expense reports.
Ford has revised the purchasing process, instead
of receiving catalogues, and having employees
complete purchase orders that must be approved
by management, which often takes days or
weeks. Employees now log onto an Internet
system, browse manufacturers catalogues, order
from a pre-approved group of suppliers, and
obtain purchasing approval in minutes. Ford
anticipates to cut spending and transaction costs
by as much as thirty percent.
Ford also uses procurement applications for
processing the more than one million travel and
expense accounts that employees submit each
year. It is estimated that large corporations
spend about $36 on processing each expense
report. As this example illustrates, the focus of
procurement automation is not so much on
production-related raw materials but on non-
production goods.
 MCDONALDS E-PROCUREMENT
SYSTEM
• McDonalds E-Procurement
System is basically a main reason
for their successful supply chain
management
• It is so efficient that is provides
the backbone not only to all the
logistics but the whole
McDonalds supply chain
management.
• E-MAC Digital(internet procurement site designed for McDonald’s
Corporation’s 34,000 franchises)
•   E-MAC Digital Company is E-Procurement website which is jointly
owned by McDonalds and Accel-KKR Internet Co.
•  It is a procurement hub launched in 2001 allow all of McDonald’s
franchise across the globe to buy everything needed to un their
restaurants.