purchase management course materials
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Welcome to
DUBAI INSTITUTE OF
BUSINESS MANAGEMENT
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Purchasing & StrategicProcurement
Bassam Hameidi
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Course Index1- Introduction
2- Management of Organizations3- Purchasing Management
A- DefinitionB- Importance/ FundamentalsC- ObjectivesD- Role and Duties
4- The Purchasing ChainA- FocusB- InterfacesC- CycleD- Centralized VS DecentralizedE- Work Process
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5- Purchasing Strategy &Forecasting and Research
A- Types of StrategiesB- Make or Buy DecisionC- Strategic PartneringD- ForecastingE- Research Techniques
6- Purchasing and Supply Chain Management
A- Purchasing in the Supply ChainB- Objectives and StrategiesC- Functions and activitiesD- Benefits of SCM to Purchasing
Course Index Cont.
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Course Index Cont.
7- Supplier Analysis and SelectionA- Price AnalysisB- Identifying Cost DriversC- Cost Effective Programs
D- Vendor Selection StepsE- Negotiations Strategies/Skills
8- Supplier Relationship Management
A- What is SRM?B- How to Build SRM?C- SRM Tool SetD- Supplier as a Partner
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9- Purchasing Key Skills
10- Purchasing Problems and Control Methods
11-The Evolving Purchasing Role
12- E- Procurement &Strategic Sourcing
Course Index Cont.
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Introduction In modern management, organizationshave to operate within a structured systemin order to be successful, effective andprofitable. This integrated system which isshowing in the coming slide includes four
important elements that must operate as acohesive system for any activity in theorganization to insure continuity and
existence. 7
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Management ofOrganizations
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An Organization As A Structured System
Labor Money Materials Equipment
Inputs Transformationof inputsProcessingProducts Services Outputs
Feedback
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The concept of management is as old as old
ages during Sumerian, Ancient Egyptians andSlave Owners when the need to get the job donewas important for all.
At the end of 18 th century TAYLOR introduced
the Classic / Traditional Theory when peoplewere managed in a very bossy and dictatorshipway. This theory was called The Boss isEverything
Then management developed through severalstages to reach to current Modern SystemTheory applied by most organizationsnowadays.
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What is Management?
Management is both Science and Art where itrequires Knowledge at the same time itrequires Skills and Abilities to Get the JobDone Through People.
Management is the process of utilizing all
input factors through proper and effectiveprocess to produce required outputs toachieve the organization goals .(see slideno. 4)
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Management Functions:1- Planning: means setting SMART goals
and exercising mental efforts to predictand control future.
Why Plan?
To determine the overall Direction.
To Consolidate Efforts. To be Protective: Avoid or reduce related RISK. To be Affirmative: Insure and achieve SUCCESS.
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Stages of Planning:
STATE GOALS/OBJECTIVES
COLLECT EFFORTS
LIST ALTERNATIVES
CHOOSE BEST ALTERNATIVE
PUT PLANS INTO ACTIONS
EVALUATE
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- Ignorance of the importance of Planning.- Poor Planning Skills.
- Getting absorbed with surroundings.
- Fear of unknown.
- Surrendering to LOGIC.
Remember that:No one plans to fail, but we all fail to
plan.
WHY DO WE FAIL TO PLAN?
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2- Organizing: Insuring that Plans are movingtowards right direction through proper,efficient and effective coordination ofinputs to optimize outputs for theachievement of goals.
HOW? Build Organization Structure. Assign major tasks and assignments.
Create subtasks. Allocate resources and link to plans. Evaluate to insure proper Feedback. Design proper policies and procedures.
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3- Directing: Alignment of inputs and
resources towards goals.HOW?
Build Organization Culture. Exercise true leadership. Identify lines of authority. Develop Employee Relations. Determine span of supervision. Enforce Work Ethics.
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4- Controlling: It is an ongoing process toinsure that all Plans and Tacticsdeveloped are implemented effectively.
HOW?
Tie objectives to specific measures of Performance(KPI).
Check quality of Outputs.
Analyze results. Link results to the Big Picture
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History of PurchasingSince ancient times, human beings needed toexchange goods as important means of theirsurvival. Therefore, Barter deals werecreated to serve the purpose where people wexchanged goods and commodities they hadwith the ones they did not have. With theinvention of Money such practice developed
to allow people fulfill their needs through theexchange of money which laid the basicprinciples of Modern Purchasing which will be
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Purchasing Management:
A- DefinitionB- Importance/ Fundamentals
C- ObjectivesD- Role and Duties
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A- Definition
Purchasing refers to a function in business wherebythe enterprise obtains the Inputs for what itproduces, as well as other goods and services itrequires. In larger businesses, the function is
frequently carried out in a Purchase Department ,headed by a Purchasing Manager
Purchasing is the informal name of the department inProcurement responsible for issuing Purchase Ordersfor goods, including material and equipment. In mostUS Corporations, Purchasing Agents are typicallyreferred to as Purchasing Specialists or simply asBuyers.
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Other Definitions Cont.
Purchasing for personal consumption asultimate users is called Shopping
Purchasing for Industrial and Commercialpurposes is called Purchasing
Purchasing for Government and otherauthorities is called Procurement
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B- Importance/ Fundamentals Major cost center Affects quality of final product Aids strategy of low cost, response, and
differentiationFundamentals Understand the Requirement
Perform Analysis Prepare for Negotiations Execute
Always Document 22
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C- Objectives
Help identify the products and servicesthat can be best obtained externally; and
Develop, evaluate, and determine the bestsupplier, price, and delivery for thoseproducts and services
Develop and implement purchasing plansfor products and services that supportoperations strategies
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D- Role and Duties
Identifying sources of supply
Negotiating contracts
Maintaining a database of suppliers
Obtaining goods and services
Managing supplies
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The Purchasing Chain:A- FocusB- InterfacesC- CycleD- Centralized VS DecentralizedE- Work Process
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A- Focus
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Materials Management-High transportation cost-High inventory costs
Supply Management-High costs-Scarcity: national or
international
Source Management-Unique items-Custom-made items-High technology items
PurchasingManagement-Commodity items-Standard products
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B- Interfaces
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Purchasing
Legal
AccountingOperations
Dataprocessing
Design
ReceivingSuppliers
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C- Cycle
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1.Requisition received
2.Supplier selected
3.Order is placed
4.Monitor orders
5.Receive orders
Purchasing
Legal
AccountingOperations
DataProcessing
Design
ReceivingSuppliers
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D- Centralized VS Decentralized
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Centralized Purchasing Purchasing is handled by one special
department. (Recommended to exerciseproper control)
Decentralized Purchasing
Individual departments or separate locationshandle their own purchasing requirements
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Advantages of Centralized Purchasing
More influence with suppliers --> greater supplycontinuityBuy in large quantities --> better prices
Larger purchasing department --> buyerspecializationCombine small orders --> less order cost
duplicationCombine shipments --> lower transportation costsBetter overall control
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E- Work Process
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ReceivingDock
PurchaseOrder
PackingList
OrderProcessing
Invoice
ReceivablesReport
Check AccountsReceivable
Accounts
Payable
Mail
MailReconcile
Mail
Customer Supplier
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BASIC WORK PROCESS:
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Purchasing Agent receives a requisition.
The Purchaser then evaluates the requisition to determinewhich suppliers would best supply the material andincludes those suppliers on the List of Bidders, or thosewho will be solicited to submit quotation.
The formal request for a quotation is known as an Requestfor Quotation (RFQ) or Request for Proposal (RFP),depending on the complexity of the material or service.
The RFQ/RFP can be as simple as text written in an email,to a complex document requesting engineered drawings,manufacturing locations, multiple points of contact at eachbranch location, and financial statements.
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The Purchaser will also determine the validity period ofthe Solicitation of Bids known as the "Bid due Date", thedate when the window to submit proposals ends.
After the bids are received the Buyer will evaluate theproposals and tabulate the bids, usually on a
spreadsheet. A bid tabulation is essentially aspreadsheet with categories used to informally compareeach supplier's proposals to determine which proposalbest meets the Buyer's needs.
After the bids are tabulated, the Buyer will make adecision in regards to which supplier will berecommended and will award the order and the Sellerwill proceed in supplying the material in accordance with
the agreed upon terms. 33
BASIC WORK PROCESS: Cont.
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Purchasing Strategy &Forecasting and Research
A- Types of StrategiesB- Make or Buy Decision
C- Strategic PartneringD- ForecastingE- Research Techniques
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A- Types of Purchasing Strategies
1- Just In Time Purchasing (JIT): This strategy isused when the need arises for certain goods andservices.
2- Advance Purchasing: In large and economicalquantities to meet future needs of the organization
3- Speculative Purchasing: excess quantities tosell at later stage when prices are higher
4- Reciprocal Purchasing: agreement betweenbuyer and sellers to exchange goods and services
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B- Make or Buy Decision
1. Maintain corecompetencies and protect
personnel from layoff2. Lower production cost3. Unsuitable suppliers4. Assure adequate supply
5. Utilize surplus labor andmake a marginalcontribution
1. Frees management todeal with its primary
business2. Lower acquisition cost3. Preserve supplier
commitment
4. Obtain technical ormanagement ability
5. Inadequate capacity
Reasons for Making Reasons for Buying
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Make or Buy Decision.. cont
6. Obtain desired quantity7. Remove supplier control
8. Obtain a unique item thatwould entail a expensivecommitment from supplier
9. Protect proprietary designor quality
10. Increase or maintain size ofcompany
6. Reduce inventory costs7. Ensure flexibility and
alternate source of supply8. Inadequate managerial or
technical resources9. Reciprocity
10. Item is protected by patentor trade secret
Reasons for Making Reasons for Buying
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Vertical Integration
Choosing between making or buying anitem is largely dependent on the verticalintegration strategy of A company.
By vertical integration, we meandeveloping the ability to produce goods or
services that are previously purchased.
It can take the form of forward orbackward integration
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Forward vs. BackwardIntegration
CURRENTPRODUCTIONRAW MATERIAL BUYERS
BACKWARDINTEGRATION
FORWARDINTEGRATION
STEEL AUTOMOBILE DEALERS
COMPUTERSSILICON CURCUIT BOARDS
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C- Strategic Partnering
Who is going to supply your need?
How many suppliers will you work with?
Many business firms in the world borrowed the Japaneseconcept of extremely close supplier interactions andcooperation.
This strategic partnering involves Selecting the best suppliers, Working closely with them, and Entering into long-term relationship based on mutual need and
trust.
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D- Forecasting How much and what time are you going to buy?
When demand is uncertain, Someone should forecastthe quantity to be purchased.
A forecast is an Inference of what is likely to happen infuture.
Forecast can be wrong.
Businesses may use Forecasts in several subjects.
Some of the major forecasting areas are(1) Economic Forecasting,(2) Technological Forecasting, and(3) Demand Forecasting .
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Economic Forecast
Economic forecast is a prediction of what generalbusiness conditions will be in the future.
Some examples of economic forecasting are:inflation rates, gross national product, personalincome, tax revenues, level of employment, andso on.
Economic forecast is usually made bygovernment agencies, banks, and econometricforecasting services.
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Technological Forecast
Technological forecast predicts the probabilityand significance of possible future developmentsin technology.
What technology will the firms competitorsincorporate into their products and processes?
Are there any technological advances with whichthe firm can create a competitive advantage?
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Technological Forecast For example, development
of electric cars seems like achallenging shift for carmanufacturers.
But what time and how will
they be in the market is aconcern of technologicalforecasting. Toyota Prius: A hybrid
(electric + oil) car
The forward-thinking 2005 gas/electric Prius with Hybrid SynergyDrive offers fuel economy and cutting-edge available featureslike Bluetooth technology -- all with the performance of aconventional car.Plus, you never need to plug-in for recharging.
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Demand Forecast
Demand Forecast predicts the quantityand timing of demand for a product ormaterial.
Factors affecting the forecast are: Status of the general economy,
Time of the year, Competitors actions, Advertising and sales promotions,
New product entries to the market, etc.
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Forecasting Methods
A forecast can be developed through either asubjective approach or an objective approach.
Subjective approaches are qualitative in natureand they are usually based on the opinions ofpeople (that is why they are subjective).
Objective approaches involve quantitativemethods and mathematical formulations.
(They can also be referred as statisticalforecasting)
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E- Research Techniques Supplier investigation: competencies, capacities,
credit rating, service quality Our dependency on particular suppliers Competitor information
Advising suppliers on how to meet our qualityrequirements Economic forecasting & the supplier Purchase targets & their attainment
Financial targets & our profit plan Value analysis - of buying processes & items we buy Our quality/service requirements & control methods
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Purchasing and SupplyChain Management
A- Purchasing in the Supply ChainB- Objectives and Strategies
C- Functions and activitiesD- Benefits of SCM to Purchasing
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A- Purchasing Link in the Chain
MarketAssessment
BusinessNeed
ProposalEvaluation
Procurement
Strategy
SupplierSelection
RequirementDefinition
BidEvaluation
Contractpreparation
ContractManagement
SystemDevelopment
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Plans to help achieve company mission Affect long-term competitive position Strategic options
Many suppliers Few suppliers Keiretsu network
Vertical integration Virtual company
Plan
B- Objectives and Strategies
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Objectives and StrategiesCont
Negotiate with many suppliers; play one supplieragainst another
Develop long- term partnering arrangements with afew suppliers who will work with you to satisfy theend customer
Vertically integrate; buy the actual supplier Keiretsu - have your suppliers become part of a
company coalition Create a virtual company that uses suppliers on an
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Many sources per item Adversarial relationship Short-term Little openness Negotiated, sporadic POs High prices Infrequent, large lots Delivery to receiving dock
Many Suppliers Strategy
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1 or few sources per item Partnership (JIT) Long-term, stable On-site audits & visits Exclusive contracts Low prices (large orders) Frequent, small lots Delivery to point of use
Few Suppliers Strategy
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C- Functions and Activities
Forecasting Purchasing Inventory management
Information management Quality assurance Scheduling Production and delivery Customer service
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D- Benefits of SCM to Purchasing
Lower inventories Higher productivity Greater quickness
Shorter lead times Higher profits Greater customer loyalty Integrates separate organizations into
a cohesive operating system
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Successful Supply Chain will Build:
Trust among trading partners Effective communications
Supply chain visibility
Event-management capability The ability to detect and respond to
unplanned events Performance Parameters
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Suppliers Analysis and Selection
A- Price AnalysisB- Identifying Cost DriversC- Cost Effective Programs
D- Vendor Selection StepsE- Negotiations Strategies/Skills
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A- Evaluate Overall PriceReasonableness With Price Analysis
Price analysis - process of examining and evaluatinga proposed price to determine if it is fair and reasonable
Cost analysis - not a substitute for price analysis Perform a price analysis whenever there is a valid base for
analysis Cost analysis - insight into what it will cost the firm Cost analysis does not necessarily provide a picture of what
the market is willing to pay
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Basis for Price Analysis
Select the basis for comparison in determiningif a price is fair and reasonable, such as:
Proposed prices received in response to the solicitation
Commercial prices Previously proposed prices and contract prices for the sameor similar end items
Parametric estimates or estimates developed using rough
yardsticks Independent public body estimates Prices obtained through market research
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Price Reasonableness Decision
Price analysis is a subjective evaluation Resolving differences between cost and price analysis:
If price analysis does not support the cost analysis,reexamine the cost analysis result
Consider alternative methods of contract completion If the results of cost analysis and price analysis
cannot be reconciled, refer thecontract action to the next level
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B- Identifying Cost Drivers
Cost drivers - aspects of proposal orcontract requirements that if changed wouldhave a major impact on contract price
What are some possible cost drivers?
Contract terms and conditions
Delivery requirements Technical requirements
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Identify Sources of Cost Risk
Most cost estimates include a "pointestimate"
In most cases, the point estimate isone of a range of possible costs
There are usually variances betweenprojected and actual costs
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Cost Risk
Increases when market prices are unstable orcost information is lacking
There are a variety of methods for reducing and
controlling contract cost, among the mostimportant are the appropriate use of: An appropriate contract type Clear technical requirements
Public body furnished property Other contract terms and conditions
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C Cost Efficiency Programs
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C- Cost Efficiency Programs Qualify current suppliers and contractors
Search for new alliancesQualify current products and servicesQualify current prices keep updatingQualify delivery, receiving and issuancemethodsImplement annual and semi annual purchaseplansCompare purchases to budgetGroup purchases and services (centralizedPurchases)Minimize cash purchases
This Will Lead To
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This Will Lead To
Reduce high percentage of lossesControl pricesGet best quality service
Control cash flowAvoid cash paymentsExtend payment terms
Build high market profileBuild strong relationship withalliances
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Vendor evaluation Identifying & selecting potential vendors
Vendor development
Integrating buyer & supplier Example: Electronic data exchange
Negotiations
Results in contract Specifies period of agreement, price,
delivery terms etc.
D- Vendor Selection Steps
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Company Financial stability
Management Location
Product
Quality Price
Service Delivery on time Condition on arrival Technical support Training
Supplier Selection Criteria
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Vendor Selection Rating Form (Example)
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Vendor Selection Rating Form (Example)
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The Evaluation Team
Criteria:EmpoweredEstablish reporting
relationshipFull timeTeam roomFlexibleShared goalsShared loyalties 69
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E- Negotiation Strategies
Negotiation Types:
Cost-based price model - supplier opens itsbooks to purchaser; price based upon fixedcost plus escalation clause for materialsand labor
Market-based price model - published price
or index Competitive bidding - potential suppliers bid
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Negotiation skills:
Researching sources, assessing sources,customer relationships management, win-win &mutual respect.
Methods to keep costs down such as tendering
Negotiate: preparation, the negotiation,completing the buy. Attention to detail Humor, patience, self-control, Avoid dramatics
Analytical approach to problems Questioning & listening Verification - contract formulation & testing
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Pre-negotiation Documentation
Draft elements of a Price NegotiationMemorandum (PNM) before negotiations: Purpose of the negotiation Description of the acquisition
Exception's) used and its basis
The extent to which the purchasing agent: Relied on the data submitted Recognized any submitted data as inaccurate,
incomplete, or non-current Determined that an exception
applies and will not requirecertification
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Additional Documentation
Document important aspects of the procurementsituation that affected pre-negotiation objectives,such as:
The items or services and quantities being purchased The place of contract performance The delivery schedule or period of performance Differences between the proposed delivery schedule and
the objective schedule
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Suppliers RelationshipManagement
A- What is SRM?B- How to Build SRM?C- SRM Tool SetD- Supplier as a Partner
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A Wh i S li R l i hi
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A- What is Supplier RelationshipManagement?
Supplier Relationship Management(SRM) involves defining and managingall aspects of supplier relationships,from information sharing andcollaboration to sourcing, negotiating
and streamlining purchasing activities.
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B- How to Build SRM?
Select the right firms Involve appropriate personnel Assess the relationship from your perspective Supplier assesses relationship independently Assessments form basis for initial conversations Focus on areas of agreement and disagreement Identify gaps
Evaluate the leakage caused by these gaps Develop action plans to remedy the gaps Supplement existing metrics to evaluate progress Schedule periodic assessments
C SRM T l S t
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C- SRM Tool Set
Processes were viewed as linear andseparate.
A separate dedicated SRM team wasenvisioned.
All processes are interrelated. Our Commodity Managers bear
primary responsibility. No separateCOE to hand off to.
Strategic Sourcing
Demand Management
Buy, Pay, Track
Supplier Relationship Mgt
Strategic
Sourcing
Demand
Mgt
Buy,Pay,Track SRM
How we used to think about SRM How we think today
P R O C E S S E S
SRM is not a separate process. It is a set of competencies,tools and techniques that support the overall Procurementprocess
D Supplier as a Partner
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D- Supplier as a Partner Aspect Adversary PartnerNumber of suppliers Many One or a few
Length ofrelationship
May be brief Long-term
Low price Major consideration Moderately important
Reliability May not be high HighOpenness Low High
Quality May be unreliable;buyer inspects
At the source;vendor certified
Volume of business May be low HighFlexibility Relatively low Relatively high
Location Widely dispersed Nearness isimportant
Supplier Partnerships cont
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Ideas from suppliers could lead to improved competitiveness:
1.Reduce cost of making the purchase2.Reduce transportation costs3.Reduce production costs4.Improve product quality5.Improve product design6.Reduce time to market7.Improve customer satisfaction8.Reduce inventory costs9.Introduce new products or services
Supplier Partnerships cont
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PurchasingKey Skills
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Purchasing - Key Skills1. Business awareness and strategic
procurement2. Developing & managing procurement
systems3. Purchasing techniques and methods4. Supplier evaluation and selection5. Risk and value management
6. Contract management Legal aspects ofprocurement (contracts) 81
P h i K Skill
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Purchasing - Key Skills ..cont.
7. Purchasing negotiations8. Quality management9. Service level agreements10. Ethical behaviors in procurement11. Relationship management (client-server)
12. Performance evaluation of suppliers & self13. Change management
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PurchasingProblems and
Control Methods83
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Purchasing Problems
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Purchasing Problems How goods are received can be a headache Receiving problems are credit/payment problems Errors & confusions cause delays & more processing Transactions on goods received:
correct Order Ref, quantity, specification & pricing Items shipped match PO & invoiced quantity? split shipments - item consolidation? How? reaction to shortage
What % of invoices are paid via auto-pay? When do we have to pay? If it is valuable someone will steal it !!!!
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Segregation of Duties & Fraud
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Segregation of Duties & FraudNo one individual can influence purchasing
outcomes to own advantage or hasresponsibility for more than one of
Specification/requisition process & authorization
Supplier selection : tender lists & receipt, short-listing, negotiation parties Contract award: deciding the supplier; authorizer
of contract/order Goods received: checking exact order received
& to be paid for Payment authorization: signing off invoices &
setting system tolerances 85
Control Methods
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Control Methods Procurement procedures , processes &policies (incl. ethical code re-transparency& declaration of interest).
Risk analysis. Random audits of different contracts &procurement projects.
Financial limits e.g. open-to buy, howmuch each buyer can commit
Disciplinary how to comply with policies Rotations: buyers not too close to favorite
suppliers86
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The EvolvingPurchasingRole
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Developing the Competency
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Developing the CompetencyThe Evolving Procurement Role
Knowledgeable aboutprocurementDisconnected frombusiness strategy
Less technologyknowledge
TransactionalNegotiation/T&C skills
One-dimensional
supplier relationshipsShort term benefits
Priorities driven by technicalcommunity
Multi-dimensionalknowledge manager
Center of Expertise onbusiness/markets
Understands evolution oftechnology
Acts as consultant
Holistic relationshipmanagement
Strong analytic/financial/cash
management understandingComplex deals
Influence/lead change
TRADITIONAL PROCUREMENT THE NEW PROFESSIONAL
This Evolving Role will Enable
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This Evolving Role will Enablethe Organization to:
Identify new expectations and corresponding skills
Communicate expectations repeatedly
Retrain procurement employees
Train employees outside of procurement organization
Provide job aids
Set the example
Consider outside help to enable fast start
Staff appropriately
Make the tough decisions
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E-Procurement& StrategicSourcing
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What is e-procurement?The combined use of information and
communication technology throughelectronic means to enhance internal and
external purchasing and supplymanagement processes.
Resolving the issue of the longtail low value paper Purchases
Why e-procurement ?
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Why e procurement ?
Quick, easy, internet-based access tovendors to negotiated agreements.
Maximizes the total value of the suppliers
relationship. Targets high-transaction users, traditionally.
Allows further development of the relationshipbetween suppliers and consumers.
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How Does e Procurement Work?
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SERVICES
Supplier connectivity Extensive product taxonomy Centralized e-Catalogs Price/content management Transaction integrity Transaction tracking
TRANSACTION DATA
Purchase Order Advanced Ship Notification Invoicing Receipt notification Contract data Payment data
Internet buying at the users desktop. Catalog-style concept to accesspreloaded vendor deals.Configurable to organization needs foroversight.Automates the buying experience.
How Does e Procurement Work?
Benefits of E-procurement Technologies
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p gCost Reduction
Significant cost reduction on externally procuredgoods and services through increased use ofvolume buying, better negotiated pricing and
reduced off-contract (or maverick) buying
Reduction in Procurement Cycle Time
Shorten requisition to order cycle for term-contractpurchases
Shorten bid-to-award cycle time for competitive
bidding process
Benefits of E procurement Technologies
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Benefits of E-procurement Technologies.
Reduced administrative workload andcosts:
Reduction in Vendor Management administrativeefforts
Reduction in competitive bidding administrative
efforts
Reduction in term-contract creation anddistribution administrative efforts
Benefits of E- procurement Technologies
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Benefits of E procurement Technologies.
Increased Control with simultaneous end-user freedom
Tighten control over off-contract or maverick
purchasing by empowering end users with desktopgoods/services catalogs and using technology tosimplify the procurement process
Establish a controlled yet non-restrictiveprocurement process
Ability of users to easily comparison shop online96
Benefits of E- procurement Technologies.
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Enhanced negotiation of reduced goods/
services costs- Improved data gathering and reporting on all procurementprocesses
More efficient business model- Re-assign procurement professional from administrative tostrategic
Better leveraging of vendor Base
- Ensures contract compliance and increases negotiation leverage
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Components of E-Procurement
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Integrated, Internet-based Bid/Quote Auction
System.
Graphical Internet-based Electronic Catalog System onevery desktop with current, negotiated pricing and
approved vendors.
Integrated, Internet-based, self-service VendorManagement System.
E-Procurement Functional Requirements:
1. VENDOR MANAGEMENT
2. BID / QUOTE & AUCTION
3. E-CATALOGS
Typical As-Is or Existing Process
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Typical As Is or Existing Process
Existing ProcurementApplication
Buyers
Organization External Vendors
Manual / Paper
Manual /Paper
Manual /Paper
Vendors in -line
Future Process
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Future Process
Web-enabled
ProcurementApplication
AdministrativeTime
Organization External Vendors
Vendors on- line F I R E WA L L
Manual /PaperX X
Internet
Current Procurement Scenario
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Traditional Procurement Process
ProcurementApplication
Buyers manually assemblepaper bid package
Procurement Office Vendors
PaperBid Package
Vendors in -line Users CreateRequisitions
PaperBid Package
PaperBid
Response
PaperBid
Response
Buyers manually enterresponses from paper
Future E -Procurement Example
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pInternet-enabled Solicitation Process
SolicitationAutomation E-ProcurementModule
University Procurement Vendors
ProcurementPersonnel
F I R E WA L L
Bids
Responses
HTML
WFD Fie ld Operators
WFD Users
Intranet
Campus
Personnel
Internet Intranet
F I R E WA L L
Vendor Organizations
Goals of Strategic Sourcing
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Goals of Strategic Sourcing
Reduce to total cost of goods and services Rationalize the supply base Optimize the companys supply chain Increase requisition- through- payment
process
Saving from strategic sourcing:
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Saving from strategic sourcing:
It can be 5% to 20% or more dependson:
Type of products and services Market palace factors Current purchase practices Implementation of automated system Execution of sound sourcing strategy
Steps in Strategic Sourcing:
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p g g
1- Analysis of spending patterns2- Assessment of requirements3- Identification of potential Suppliers4- Development of Sourcing Strategy
5- Execution of Sourcing Strategy6- Monitoring and reporting
Strategic Sourcing is an ongoing process Not a one time job
Role of Strategic Sourcing in E-
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procurement:
Why do savings tend to erode without
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Why do savings tend to erode withoutan e- procurement solutions?
Employees tend to forget or ignoreEmployees come and go
Suppliers back off promises of lowerpricesWithout actual spending data,customers cannot leverage full buyingpower
When should strategic
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When should strategic
sourcing be performed?
Strategic Sourcinge ProcurementImplementation
Time
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Strategic Sourcing
e ProcurementImplementation
Time
Why? To shorten the time to savings!
At the End
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At the End..
Is not this what
we are alllooking for?
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Thank you