dps 304 : purchasing procedures traditional procedures modern procedures

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DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

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Page 1: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

DPS 304 : Purchasing Procedures

Traditional proceduresModern Procedures

Page 2: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

DPS 304 : Purchasing Procedures

A procedure – a system of sequential steps or techniques for getting a task or job done. Also are the formal arrangements by means of which policies linking strategies are implemented.

Page 3: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Traditional Purchasing Procedures

Purchasing has traditionally involved three main phases each requiring specific documents & considerable transactional activity.

Identification PhaseNotification of the need to buy by;A requisition issued by stores, stock control or potential userA bill of materials issued by the drawing office or production control

Page 4: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Traditional Purchasing Procedures

Ordering PhaseOn receipt the requisition or bill of materials will be checked by the buyer for accuracy, conformity to specifications & purchase records for ‘rebuy’ or new buyIf standard rebuy & supplier has been meeting expectations , repeat order may be issued.For a new buy, steps to follow;Enquires or request for quotations (RFQs) – will be send to possible suppliers accompanied by drawings, specifications etc

Page 5: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Traditional Purchasing Procedures

Ordering PhaseFor a new buy, steps to follow;Quotations will be received in response to the enquires & details of price, quality, delivery, tool costs etc & terms of business compared When quantities are substantial & quality or delivery of great importance, further negotiations with suppliers will be done – eg capacityPurchase order will be issued to the vendor that gave the quotation amended where necessary by subsequent negotiation that was most acceptable. Copies of order will be given to eg user dept, production control, stores etc

Page 6: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Traditional Purchasing Procedures

Ordering PhaseAn order acknowledgement should be required from the vendor. Ensure order has been accepted on the terms & conditions defined by the buyer & subsequently agreed between the parties.

Post-ordering PhaseIt may be necessary to expedite the order to ensure that delivery dates are met An advice note – goods have been dispatched or are ready for collection will be issued by supplier

Page 7: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Traditional Purchasing Procedures

Post-ordering PhaseOn receipt goods will be checked for quantity and quality by stores & inspection dept. goods received note will be filled & sent to purchasing deptAn invoice of the value of goods will be received from supplier. This will be compared with purchase order & goods received note.On completion, the order will be transferred to a completed orders file.

Page 8: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Traditional Purchasing ProceduresInefficiencies of traditional proceduresA sequence of non-value adding clerical activitiesExcessive documentation – for a new buy a minimum of 7 e.g requisition, enquiry, quotation, order acknowledgment, advice note, goods received note & invoiceExcessive time in processing orders both internally & externallyExcessive cost of purely transactional activities

Page 9: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Traditional Purchasing ProceduresInefficiencies of traditional proceduresDue to the inefficiencies, many organizations are increasingly recognizing that administrative paperwork often serves merely to document a chain of events or to provide logistical trailLeading-edge purchasing organizations need to transform this administrative function into value-added processes by reducing, eliminating or combining steps wherever possibleAll organizations are therefore being forced to embrace the strategic implications of IT & e-procurement

Page 10: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Modern Procedures – E-commerce, e-business, e-SCM & e-procurementE-commerce – Any form of business transaction carried out electronically over public telephone systems (buying & selling via the internet & www)E-business – e-commerce is a subset of e-business. E-business incorporates a wide range of production, customer and internal processes that are only indirectly related to commercial transactions;

Production-focused processesCustomer-focused processesInternal or management focused processes

Page 11: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Modern Procedures – E-commerce, e-business, e-SCM & e-procurement

Benefits of e-businessProvision of 24/7 information accessAggregation of information from several sourcesAccurate audit trails of transactions enabling businesses to identify areas offering the greatest potential for efficiency, improvements & cost reductionPersonalization & customization of information

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Modern Procedures – E-commerce, e-business, e-SCM & e-procurement

E-SCMConcerned with streamlining & optimizing the whole chain by means of internal applications, with the aim of ensuring maximum sales growth at the lowest possible cost.Includes setting up an internal online purchasing system, joining an industry wide electronic marketplace & implementing e-SCM across the entire value chain

Page 13: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Modern Procedures – E-commerce, e-business, e-SCM & e-procurement

E-SCMPurchasers & Suppliers benefits of e-SCMAbility to purchase both directly & indirectly materials at lower cost primarily due to price transparency & competitionAchievements of greater efficiency when purchasing goods & services & ultimately lowering the overall cost of transactionsPurchasers being able to form strong ties with suppliers in forecasting, scheduling & planning production data & sharing product data designs to develop supplier collaboration

Page 14: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Modern Procedures – E-commerce, e-business, e-SCM & e-procurement

E-ProcurementCIPS def:- using the internet to operate the transactional aspects of requisitioning, authorizing ordering, receiving & payment processes for the required services or productsAreas of buying process covered by e-procurement Requisition against agreed contract Authorization Order Receipt Payment

Page 15: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Modern Procedures – E-commerce, e-business, e-SCM & e-procurement

E-Procurement AdvantagesAutomated purchase processAutomation of p-card purchasingElectronic payment of invoicesLower prices by means of strategic sourcingAverage inventory reductionReduced head countSupply base rationalization

Page 16: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Modern Procedures – E-commerce, e-business, e-SCM & e-procurement

E-Procurement soft benefitsFreeing up of purchasing timeReduction of maverick buyingImproved monitoring of supplier performanceImproved order tracking & tracingImproved availability of management information & accountingCulture changeReduced corruption

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Evolution of e-procurement models

Kalakota & Robinson have identified seven basic types of e-procurement trading models;

Trading Model Characteristics

EDI networks •Handful trading partners & customers•Simple transactional capabilities•Batch processing•Reactive & costly value-added network charges

Business-to-employees requisition applications

Make buying fast & hassle-freeAutomated approves routing & standardization

Page 18: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Evolution of e-procurement models

Trading Model Characteristics

Corporate procurement portals

•Provide improved control over the procurement process•Custom, negotiated prices posted in a multisupplier catalogue•Spending analysis and multisupplier catalogue management

First-generation trading exchanges: community catalogue & storefronts

•Industry content, job postings & news•Storefronts for distributors & manufacturers•Product content & catalogue aggregation services

Page 19: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Evolution of e-procurement models

Trading Model Characteristics

Second-generation trading exchanges: transaction-oriented trading exchanges

•Automated requisition process & purchase order transactions•Supplier, price & product/service availability discovery•Catalogue & credit management

Third-generation trading exchanges: Collaborative supply chains

•Enable partners to closely synchronize operations & enable real-time fulfillment•Process transparency leading in restructuring of demand & the supply chain•Substitute information for inventory

Industry consortia: Buyer & Supplier led

•The next step in the evolution of corporate portals

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Purchasing Manual

This is a medium for communicating information regarding purchasing policies, procedures, instructions & regulations.Policies may be general or consequential:

General policies state in broad terms the objectives & responsibilities of the purchasing function.Consequential policies state, in expanded form, how general policies are applied in specific activities & situations, eg. In selection of suppliers.

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Purchasing Manual

Procedures prescribe the sequence of activities by which policies are implemented, such as receipt of bought-out goods.Instructions give detailed knowledge or guidance to those responsible for carrying out the policies or procedures.Regulations detail rules regarding the conduct of purchasing & ancillary staff in the various situation arising in the course of their duties, such as receiving gifts from suppliers.

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Purchasing Manual

Advantages of Purchasing manuals.Writing one down helps with precision & clarity.It is useful in training & guiding staffA manual can help the audit staff.A manual may enhance the status of purchasing by showing that top management attaches importance to the procurement function.A manual coordinates policies & procedures & ensures uniformity & continuity of purchasing principles as well as providing a reference point against which such principles can be evaluated.

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Purchasing Manual

Advantages of Purchasing manuals.The preparation of a manual provides an opportunity for consultation between purchasing & other departments to critically look at existing policies & procedures and, where necessary, change them.Procedures are described in terms of activities undertaken or controlled by purchasing, thus, promoting consistency & reducing the need for detailed supervision of routine tasks.

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Purchasing Manual

Format – hardcopy or operational database

Organization-Charts i.e organization centrally & locally

-Possibly job descriptions for all posts

-Teams relating to purchasing & supply chain activities

-Admin information eg hours of work, travelling expenses etc

Policy-Statements of policy, setting out the objectives, responsibilities and authority of the purchasing function

-Statements of general principles relating to price, quality & delivery

-Terms & conditions of purchase

-Ethical relationships with suppliers, especially regarding gifts & entertainment

-Supplier appraisal & selection

-Employee purchases

-Reports to management

Page 25: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Purchasing Manual

Format – hardcopy or operational database

Procedures-Descriptions, accompanied by flow charts of procedures relating to requisitioning, ordering, expediting, receiving, inspecting, storing & payment with special reference to procurement

-Procedures relating to the rejection & return of goods

-Procedures regarding the disposal of scrap & obsolete or surplus items

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Supplier Manual

A supplier manual is an organizational or institutional document that provides the requirements and expectations that are placed upon a supplier who wants to do business with the said entityIt provides a guideline on processes for submitting requests for quotations, proposals, delivery and packaging amongst other terms and conditions governing the organization- supplier relationship.

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Supplier Manual

Each supplier wishing to do business with any organization that publishes a supplier manual is required to meet the guidelines indicated therein otherwise they will be disqualified and RFP’s), their supplies rejected, penalized etc. Other responsibility may be outlined to suppliers within the relevant RFQ, purchase order or separate supply agreement.

Page 28: DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

Supplier Manual

Each supplier wishing to do business with any organization that publishes a supplier manual is required to meet the guidelines indicated therein otherwise they will be disqualified and RFP’s), their supplies rejected, penalized etc. Other responsibility may be outlined to suppliers within the relevant RFQ, purchase order or separate supply agreement.

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Supplier Manual

Importance of a supplier manualSpecify requirements to ensure supplier methods, systems, products and services meet or exceed customers’ expectations.Outlines specific expectations of suppliers and the systems they use.Ensures good relationship with suppliers to provide continuous quality improvement in compliance to ISO and productivity improvement.Specify quality requirements therefore commitment to quality for success.

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Supplier Manual

Importance of a supplier manualHelps integrate suppliers into company processes at an early stage.Defines and explains company expectations to suppliers.It reviews existing supplier related procedures and identifies company’s best practices. Develops supplier performance measurement, rating, reporting system, monitoring and development.Provides a system of feedback.

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Supplier Manual

FormatIntroduction Conditions of purchasePreorder requirementsRedelivery requirementsTransportation & delivery requirementsPost delivery requirementsPolicies & qualityAppendicesAgreements (to be signed & returned)Questionnaire (to be completed & returned)

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Supplier Manual

The essentials of a contractIntentionAgreementConsiderationForm eg in writing onlyDefinite termsLegality