IN THE NAME OF ALLAH

THE MOST MERCIFUL

AND COMPASSIONATE
SOURCING AND PROCUREMENT
 PROCUREMENT
 Procurement is the process of sourcing and
acquiring the goods and services a
company needs to fulfill its business model.
 Business procurement requires preparation,
solicitation/acquisition, and payment
processing, which usually involves several
departments/areas of a company.
 Competitive bidding is usually a part of
most large scale procurement processes
involving multiple bidders.
 PROCUREMENT
Procurement is sometimes referred to
as “the five rights”,
“getting the right quality,
in the right quantity,
at the right time,
for the right price,
from the right source”
 IMPORTANCE OF PROCUREMENT
1. Whenever an organization takes a decision to
stop performing a function, it is the responsibility
of Procurement to buy certain goods or services
that were previously produced by the firm in-
house
Examples include:
 Cafeteria and food services
 Facilities maintenance, and janitorial services
 Information technologies
 Logistics and transportation services
 IMPORTANCE OF PROCUREMENT

2. Involved in resolving disputes between the

requesting departments and suppliers
3. Responsible for adjusting rejected
purchases, controlling costs, and making
replacements.
4. For operating effectively the Procurement
must become a coordinator representing the
interests of the company, and not solely
those of Ordering Department.
 IMPORTANCE OF PROCUREMENT

5. Increase in material costs

6. Reduced profit margins
7. Free market competition
8. Growth of internet
9. Emergence of extended enterprise concept,
where the organization’s success is seen resulting
from not only it’s own efforts but also from the
effectiveness of all participants in the supply chain
10. Keeping the core competence in-house and
outsourcing all other functions
11. Keep inventories low for maintaining or achieving
high turnover ratios, yet always have material ready
for production use.
 OBJECTIVES OF PROCUREMENT
1.Provide uninterrupted flow of materials,
supplies, and services required to operate the
organization
2. Assure the economic supply through the
procurement of goods, supplies, and services
to keep the company in operation.
3. Contribute to profits by efficiently
controlling the total cost to the operation
4. Keep inventory investment and loss at a
minimum.
5. Maintain and improve quality.
 OBJECTIVES OF PROCUREMENT
6. Standardize, where possible, the items
bought and the processes used to procure
them.
 Standardization refers to agreeing on a
common specification or process e.g., across
an organization, an industry, a nation, or the
world.
 Standardize capital equipment, materials,
MRO (maintenance, repair, and operating
supplies), and services purchases.
 Standardization results in shortened cycle
time, lower transaction costs, etc.
 OBJECTIVES OF PROCUREMENT
7. Purchase required items and services at
lowest total cost of ownership.
8. Accomplish supply objectives at the
lowest possible operating costs.
9. Achieve harmonious, productive internal
relationships.
10. Operate as efficiently and as
economically as possible. Inefficiencies
represent waste, and lead to excessive
operating costs and unnecessarily high total
cost of ownership
 OBJECTIVES OF PROCUREMENT
11. Improve the Organization's competitive
position.
 Contributing to the overall organizational strategy,
goals, and objectives.
 Identify opportunities in the supply chain to
improve revenue, asset management, and cost
reduction
 Provide access to new technologies, and design
flexible delivery arrangements, fast response
times, access high quality products or services,
and product design and engineering assistance.
 OBJECTIVES OF PROCUREMENT

12. Constantly look for opportunities in the supply

chain to provide a superior value proposition for the
customers
PROCUREMENT PROCESS
Step 1: Need Recognition
Step 2: Specific Need
 standards to help determine specifications. Part
numbers.
 Business must specify the necessary product by
using identifiers such as color or weight.
 Requirement Specification is prepared by User
Department.
 Requisition (written order for goods or supplies)
PROCUREMENT PROCESS
Step 3: Source Options
 Vendor list.
 Search for a supplier using purchase orders or
magazines, the Internet or sales representatives.
 The company will Qualify the suppliers to
determine the best product for the business.
PROCUREMENT PROCESS
Step 4: Price and Terms
 Usually the business will look into three
suppliers before it makes a final decision.
 Request For Quotation
 Bid evaluation and negotiation
 REQUEST FOR QUOTATION (RFQ) 
 Request For Quotation (RFQ) is a competitive bid
document used when inviting suppliers or contractors to
submit a price bid products or services where the
requirements are standardized or produced in repetitive
quantities. An RFQ is often used for high-volume/low-
value items and should be completed more quickly than
an RFP.
 The buyer must provide a technical specification as
well as his commercial requirements.  The document
may sometimes be referred to as an Invitation to Bid or
Invitation to Tender.
PROCUREMENT PROCESS
 Step 5: Purchase Order
The purchase order is used to buy materials between a
buyer and seller.
It specifically defines the price, specifications and terms
and conditions of the product or service and any
additional obligations.
Purchase order (a commercial document and first official
offer issued by a buyer to a seller, indicating types,
quantities, and agreed prices for products or services the
seller will provide to the buyer)
PROCUREMENT PROCESS
Step 6: Despatching PO
 The purchase order must be delivered, usually
by fax, mail, personally, email or other
electronic means.
 The recipient then acknowledges receipt of the
purchase order.
 Both parties keep a copy on file
Procurement Process:
Step 7: Expediting
Expedite if there are any delays.
The issues most often noted include payment
dates, delivery times and work completion.

Step 8: Receipt and Inspection of Purchases

The recipient accepts or rejects the items.
Acceptance of the items obligates the company to
pay for them.
Procurement Process:
Step 9: Invoice Approval and Payment
Three documents must match - the invoice itself, the

receiving document and the original purchase order.

The agreement of these documents provides

confirmation from both the receiver and supplier.

Any discrepancies must be resolved before the

recipient pays the bill.

Usually, payment is made in the form of cash,

check, bank transfers, credit letters or other types of

electronic transfers.
PROCUREMENT PROCESS:
Step 10: Record Maintenance
 In the case of audits, the company must
maintain proper records. These include
purchase records to verify any tax information
and purchase orders to confirm warranty
information.
Close out document - ensure that contractors
performed in accordance with the terms,
conditions, and specifications of their contracts
or purchase orders.
UNDERSTANDING AND CONVEYING
REQUIREMENTS
 Unless you can describe to a supplier
exactly what you need, the procurement
process will not be successful.
 Specification for materials or a statement of
work (SOW) for services.
 Most commonly, it is the Internal user who
generates requirement —and it is the
procurement professional’s responsibility to
ensure that it is properly conveyed to the
supplier in the procurement document (such
as the purchase order or contract).
 UNDERSTANDING AND CONVEYING
REQUIREMENTS
1.MATERIAL OR SERVICE.
 This describes what it is you expect to
receive from the supplier. This description
can be provided in the form of a specification
or an SOW, a drawing, a part number, or the
nomenclature of an off-the-shelf or brand-
name part.
 Quantity and the quality of the purchases is
basis for approving payment and must be
easy for third parties such as receiving
personnel, finance, and auditors to
understand the transaction
 UNDERSTANDING AND CONVEYING
REQUIREMENTS
b) SPECIFICATION.
 A specification contains a technical description of
the material being purchased. It can be a
reference to a supplier’s stock number or a brand
name.
 It can also refer to an engineering drawing (or a
set of drawings) provided by the user that shows
the part or assembly with call-outs for the type of
materials required and all necessary dimensions
to produce the part.
 UNDERSTANDING AND CONVEYING
REQUIREMENTS
b) SPECIFICATION.
 In the case of chemicals and other formulated and
processed materials, the specification can be
tendered as a recipe or in compositional format.
 UNDERSTANDING AND CONVEYING
REQUIREMENTS
(c) STATEMENT OF WORK (SOW).
 The SOW describes the requirements for a service.
It may be stated in detailed and prescriptive
format, describing not only what needs to be done
but the method to be used and how often the
service must be done as well. Or it may simply be
stated in terms of expected outcomes.
 Frequently, the SOW also contains a set of metrics
describing the level of performance required.
These are called key performance indicators
 UNDERSTANDING AND CONVEYING
REQUIREMENTS
(d) TIME
 This indicates the date when you expect to
receive the product or service you’re procuring
in the procurement document.
 The document must clearly state delivery or
work completion date.
 UNDERSTANDING AND CONVEYING
REQUIREMENTS
(e) PRICE AND PAYMENT TERMS.
 You’ll need to include exactly how much your
organization has agreed to pay for the specified
product or service in the requirement so that you
avoid misunderstandings and can clearly
determine your organization’s financial
obligation.
 The procurement document should also specify
when payment is due. This is usually expressed
as a net number of days, such as Net 30 or Net
45.
 UNDERSTANDING AND CONVEYING
REQUIREMENTS
(e) PRICE AND PAYMENT TERMS.
 The discount period is often expressed as a
formula: 2/10 Net 45 This means that if payment
is made within 10 days, a 2 percent discount can
be taken, but the total balance is nevertheless
due in 45 days. This indicates the date when you
expect to receive the product or service you’re
procuring in the procurement document.
 UNDERSTANDING AND CONVEYING
REQUIREMENTS
(f) SHIPPING DESTINATION, METHOD, AND
TERMS.
 Specific carrier to transport
 Level of service—overnight air, second-day air,
ground, and so on—and indicate if the supplier is to
bill your account, pay for it, and then bill your
organization or absorb the freight cost outright.
 Exact destination of the shipment and the point at
which the ownership of the goods, or title, transfers
from the seller to the buyer.
 AUTOMATING YOUR PROCUREMENT
STRATEGY WITH E-PROCUREMENT
E-Procurement
 A mobile app that helps you request,
approve and receive goods.
 Vendor management and vendor
performance tracking.
 Data exporting into your accounting system
 AUTOMATING YOUR PROCUREMENT
STRATEGY WITH E-PROCUREMENT
E-Procurement
Procurement requesting function for everyone in
the team
Procurement workflows.
Purchase order creation, approval, and storage.
Approved vendor catalogues that every team
member can access online.
Approval system based on locations, departments
and dollar thresholds, that are easy for employees
and procurement managers to follow.
 PROCUREMENT – DUTIES SPAN OF
CONTROL
1. Following are the decision areas of
Procurement Department:
a. Evaluate and select suppliers
b. Review specifications
c. Act as the primary contact with suppliers
d. Determine the method of awarding
purchase contracts
 PROCUREMENT – DUTIES SPAN OF
CONTROL
2. Evaluate and select suppliers
3. Review specifications
 This helps avoid developing material
specifications that only a user’s favorite
supplier can satisfy
 Review of different requisitions may reveal
that different users actually require the same
material
 By combining purchase requirements,
purchasing can often achieve a lower total
cost
 PROCUREMENT – DUTIES SPAN OF
CONTROL
4. Act as the Primary Contact with Suppliers
5. Determine the method of awarding purchase
contracts
6. Impact on profitability. in improving the
profitability of an organization, as it is responsible
for 50-85% of the of the total amount spent in
manufacturing firms and up to 35% in firms
providing services.
7. Calculate ROI