The document discusses purchasing/procurement management and outlines key concepts. It begins with definitions of purchasing and procurement and their role in supply chain management. It then covers traditional roles and how they have evolved, highlighting how procurement now supports various functions across the organization. The document also outlines the supplier selection process and criteria for evaluating suppliers. It provides an overview of the typical purchase order process flow and documents involved. Finally, it discusses supplier resource management and factors to consider when managing supplier relationships.

1. Purchasing/Procurement Management
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2. Purchasing:
the monetary transaction involved in
procuring supplies of material or service of
the right quality, quantity, at the right time,
right cost and right place.
“Procurement as a function of the Supply Chain
directly delivers overall Cost savings, Quality
improvements and fulfills effective Customer as
well as Supplier Relationship Management”
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3. Purchasing Management:
1. Purpose
2. Traditional Roles & Evolution
3. Process Flow
4. Supplier Resource Management
i. Supplier selection
ii. Selection Process
5. Purchasing the Toyota way
6. Contracts
7. Sourcing Strategy
8. SRM Global
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4. Purchasing Management : 1. Purpose
Amount
($)
Amount
($)
Amount
($)
Total
Sales
:
Revenue
1,000,000
Cost
of
Purchases
700,000
Salaries
:
Expenses
200,000
Overheads
:
Expenses
50,000
Profit
50,000
ABC
Company
LLC
Income
Statement
For
the
Year
Ending
Dec
2015
The CEO has been asked by the board of directors to Increase
the PROFIT by 100% in the next financial period or else!!
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5. Option 1 – Decrease Salaries by 25%
Option 2 – Eliminate Overheads to zero
Option 3 – Double the sales (which means double
everything including capacity but… that
only depends market demand as well as
product life cycle)
Option 4 – How about decreasing the cost of purchases
by a mere 7.14%? which in turn is translated
into a massive 100% increase in overall Profit
Amounts?
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6. Purchasing Cost Control is important but!!,
“To be effective and efficient, it has been understood that the
procurement role has to evolve from single entity cost control
(company view) to a key component aligned with the entire supply
chain strategy”
Product
Process
Informa4on
Flow
Customer
Service
Informa4on
Flow
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7. Traditional view of Procurement & SCM
v Buy “materials” from the local market (focus on -
high Volumes /Lowest prices – not bothered
about lead time, Inventory waste, hidden costs,
etc.)
v Receive, Store & Issue (Over sufficient safety
stocks, Huge storage facilities, Huge Handling
Equipment, Labor intensive, etc.)
v Maximize machine utilization (large Batches,
Work in process, high Inventory)
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8. Outcome of Traditional Procurement & SC
v Back office department with piles of Orders,
Invoices, process documents, etc.
v Disintegrated activities between Procurement,
storage, logistics & distribution
v Inventory levels are always in disequilibria
v Inconsistent supply and demand levels
v Lack of comprehensive information sharing even
between internal processes
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9. Evolving nature & roles of Procurement in SCM
v Sales & marketing
§ Forecast & demand planning requirements
§ Early view into new product ideas
v Finance & Accounting
§ Project material cost forecasting & budgeting
§ Strategic procurement decision support
§ Supplier credit relationships Vs Cash flow
sustenance support
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10. Evolving nature & roles of Procurement in SCM
v Engineering support
§ Evolving product & process technology
requirements
§ Early insight into material specifications
(availability, quality, cost…)
v Operations support
§ Insight into supplier performance
§ Requirements in cost, quality, logistics, cycle
time
§ Insight into capacity, material and service needs
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11. Supply
Chain
Director
Logis&cs
Manager
Logis&cs
Officer
Logis&cs
Assistants
Procurement
Manager
Buyer
Raw
material
Buyer
Supplies
Buyer
Spares
Store
Manager
Store
Keeper
Store
Assistants
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12. Func4ons Process
Start Process
Process
Process
Process
End
Purchasing
2) RFQ, Supplier
Price/Value
Comparison,
Quality / warranty
Docs, Supplier -
Selection, Prepare
PO or Contract
4) Issue approved PO,
Receive Confirmation
of Order from
Supplier
8) Follow up
on material
readiness as
per PO terms,
Monitor
Supplier
performance
12) Close PO,
Archive PO,
Review Supplier
performance
Logistics
5) Initiate Transport
Plans depending on
PO Incoterms
9) Transport support
if
required as per PO
conditions
Stores
6) Material/Space /
Manpower planning
based on PO terms.
Confirm availability
of Safety stock
10) Delivery
confirmation as per
PO Quality & Qty
specifications,
Stock Update
Finance
3) Approve Supplier/
PO/Contract based
on Budget, Value &
Credit Terms
11) Confirm GRN
with
PO terms, Stock
update data, start
payment process
Production
1) Issue request for
material with
exact quantity,
time required and
quality specs
7) Production
scheduling
& Manpower resource
planning based on PO
terms
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13. 12
Purchasing Management : 3. Process Flow
Documents applicable to a Purchase Cycle;
1. Material Requisition Note : this document identifies the need
of the specified material, exact quantity, quality
specifications, and most importantly the required date usually
issued internally.
2. Request For Quotation (RFQ) : sent to suppliers asking for
detailed information about a specific product or service like
availability, mode of delivery, quality standards, price, etc.
3. Price Comparison : prepared by the purchaser (buyer) as an
aid to internal procurement decisions, budgeting and monitor
product price movement. It is a summary of all the responses
to the RFQs for the particular product or service.
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14. 13
Purchasing Management : 3. Process Flow
Documents applicable to a Purchase Cycle; Cont’d
4. Purchase Requisition (PR) : A purchase requisition is a
statement of organizational need for procurement. The information
contained in a purchase requisition will be used to create a
purchasing document.
5. Purchase Order (PO or LPO) : A purchase order is a legally
binding document (signed & stamped by the authorized purchase /
finance personnel) and is used as an independent purchasing
document to obtain commodities against the agreed prices in the
final RFQ. Common, minimum quantity, low cost items are
usually ordered periodically by the stores function against a
Master Order (long term standing contract).
6. Material Test Certificate : applicable to raw material sourcing
(manufacturing, construction, biotech industries, etc) to ascertain
that the material is of the required chemical composition as well as
origin.
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15. 14
Purchasing Management : 3. Process Flow
Documents applicable to a Purchase Cycle; Cont’d
7. Bill of Materials (BOM) : while creating a subcontract order, the
BOM specifies in detail the information about the raw materials,
parts, items, assemblies and sub-assemblies required to
manufacture or construct a particular product.
8. Delivery Note (DN) : A document accompanying a shipment of
goods that lists the description, condition and quantity of the goods
delivered. A copy of the delivery note, signed by the buyer or
consignee, is returned to the seller or consignor as a proof of
delivery as per the terms of the PO.
9. Goods Received Note (GRN) : Issued internally by the Stores
function as a confirmation ( and for stock updates) of having
received all the specified goods in the right quantity and condition
as per PO terms from the vendor.
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16. 15
Purchasing Management : 3. Process Flow
Documents applicable to a Purchase Cycle; Cont’d
10. Credit Application : The supplier may sometimes request the
buyer (first time purchase) to fill out a credit application form
detailing the required period, amount, banking information,
authorized check signatory, payment terms & vendor
references
11. Invoice : A non negotiable commercial document issued by
the supplier to the buyer requesting for payment against
goods or services rendered as per PO and related supporting
documents
12. Vendor Performance review: Information relative to the
capabilities, flexibility and performance can be recorded by
the responsible buyer for future evaluation insights.
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17. Supplier Resource Management : disciplined practice of
strategically planning for, managing, and coordinating all interactions with
people, companies and organizations that supply goods and/or services in
order to maximize the mutually beneficial value of those interactions.
Gone are the days where simply managing spending and finding the
best deal possible within your supply base is enough – or easy.
SRM Considerations;
1. Focus on relationship strengthening : honest communication,
listening to their concerns and involving them in your processes
2. Changing Expectations : greater emphasis on qualitative and
quantitative supplier data analysis will be able to quickly and
succinctly identify weak spots, risks and opportunities in the
global supply chain
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18. SRM Considerations;
1. Mutually Beneficial : successful alignment with key suppliers
improves supplier capabilities of innovation, quality, reliability
and costs/price reductions and agility to reduce risk factors
2. Greater Opportunity : Successful SRM yields a faster time to
market, transactional efficiency, competitiveness, risk
management, and financial benefits - all of which not only
contribute to your bottom line, but also allow you to deliver a
quality and cutting edge product, putting you ahead of the market
3. Technology : having a system in place that provides you with
unparalleled visibility into your supplier base, and plan for risk
mitigation. Specialized software by SAP, Oracle, Microsoft, etc. is
readily available for the same purpose.
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19. i. Supplier Selection : the quality of the suppliers and the
righteousness of the selection process will have direct
implications on the supply chain’s long term efficiency and
competitiveness.
What do we need in a supplier (as a business partner);
v Quality & Consistency
Market will always
Demand continuous flow
of Value
v Value for money :
you pay for
reliability, utility, and
Quality, but does this
mean maximized
Value?
v Reliability – letting you down
means breaking down the
whole Supply Chain with a
ripple effect…
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20. i. Supplier Selection :What do we really need in a supplier ;
v Financial security :
Confidence that the
supply partner has got the
“financial muscle” to
deliver all the way
v Strong Service & Transparent Communication – honest & straight
forward, communicating any pitfalls in their own Supply Chain and
listening out for your needs and concerns
Flexibility :
towards product
configuration and
delivery schedule
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21. Assessment criteria for supplier capability ;
v Total Quality management policy : customer focused,
systematic management approach/principles geared
towards competitive advantage, market dominance
and overall business success. Key tenets include;
• Total employee involvement
• Fact based (Current status audit data)
• Continuous improvement focused
• Business process centered
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22. Assessment criteria for supplier capability (cont’d);
v Implementing latest techniques e.g. JIT (Just In Time
delivery tenet, EDI (Electronic data interchange is the
inter-computer exchange of business information/
documents in an electronic format between business
partners)
v In-house Design capabilities
v Ability to supply locally or globally as appropriate
(Logistics capability and proven market reach)
v Consistent delivery performance, service standards and
product quality
v Willingness to change, flexible management and
workforce attitude
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23. Assessment criteria for supplier capability (cont’d);
v ISO 9000 certification or equivalent - set of international
standards that define, establish, document and maintain
regulatory plus statutory product or service quality
management principles for increase in efficiency and
customer satisfaction.
• ISO 9000:2015 (definitions)
• ISO 9001:2015 (requirements)
• ISO 9004:2009 (continuous improvement)
Certification companies include; SGS, TUV, Bureau Veritas, Ukas…
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24. The Selection process;
a) Identify prospects by product type, location and
accreditations
§ Customer Recommendations; Business Referrals,
Original Equipment Manufacturers(OEMs), etc.
§ B2B market places – globalsources.com, EC21.com,
Alibaba.com)
Reliable
exporters:
find
them
and
meet
them
Provides
consumer-­‐to-­‐consumer,
business-­‐to-­‐
consumer
and
business-­‐to-­‐business
sales
services
via
web
portals
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25. The Selection process;
a) Identifying prospects cont’d;
§ Industry specific Trade Associations- Big 5, Adipec,
Philtrex, Franchise Asia Philippines, CineAsia Hong
Kong, Singapore Airshow, K show
Advantages Include;
• Meet supplier representatives face to face (product
specialists)
• Live demonstrations of equipment models
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26. The Selection process;
Advantages cont’d;
• New product development and Improvements
• Potential of low cost, long term, partnerships with
high quality suppliers because of Customer focused
Vendor competitiveness
• Training on product usage, maintenance and efficient
utility
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27. The Selection process cont’d;
b) Price level Quotations & Price movement Comparison Charts
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28. The Selection process cont’d;
c) Prequalification and Evaluation : for critical, complex,
high value business activities
§ Basic review including but not limited to setup, production
capacity, manpower, machinery and audited financial
reporting.
§ Customer sales references and verifications
§ Manufacturing process, Process wise Quality Assurance Plans
and Quality records
§ Plant Inspection, Asset Verification, Resource Audits and
Product sampling
§ HSE – Health, Safety & Environment protection policies/
practices
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29. The Selection process cont’d;
d) Delivery /Logistics Capabilities for sustainable competitive
advantage:
§ Material handling and packing procedures
§ Shipping and transportation process
§ Communication for reliable Quality delivery
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Credit:Velmoinc
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30. Toyota’s Philosophy on Suppliers
“We at Toyota have always made it a fundamental principle
to develop open, fair and equitable purchasing policies inline
with mutual trust, transparency, long term continuous
improvement relationships and contribution to local economic
vitality
(good corporate citizenship)”.
We pursue supply partnerships with suppliers who
possess world-class competitiveness in terms of
Quality, Cost, Delivery and Technological capabilities.
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31. Toyota’s Philosophy on Suppliers (Key Tenets)
v Quality : Since defective products lead to complaints and
even
recalls therefore we count on our suppliers to
pursue
quality levels that beat our minimum standards.
We expect our suppliers to have a defect free quality standard
ingrained in their production processes so we don’t have to
inspect the materials or parts we source.
• Cost : Product appeal is driven by high quality at low prices
but we seek only those that are results of genuine cost
competitiveness (overall process cost reductions
translated into lower prices) 30
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32. Toyota’s Philosophy on Suppliers (Key Tenets) cont’d;
• Delivery : production flexibility and delivery responsiveness
are core components of our commitment towards customer
satisfaction (providing customers with the products they
want when they want them)
• Technological : we endeavor to share new product
development and innovation with our long term partners in
our joint efforts to satisfy entirely the ever-evolving
customer demand. To this technological capability and
advancement play a key role which we demand of our
partnerships.
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33. Credit
:
Toyota-­‐Global
At Toyota, we treat our Suppliers and Distributors the way we treat
our employees; we have a “mutually beneficial trustworthy partnership
with the goal of enriching people’s lives with good Quality products at
the Lowest prices in a Timely manner”
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34. Contract : Agreement between 2 or more entities (individuals,
businesses, organizations or government agencies)
to do, or to refrain from doing, a particular activity,
service, transaction in exchange for something of
value (worth, utility or benefit).
Terms of the contract – the who, what, where, when and how
of the agreement or understanding
define the binding promises as well as
the legal implications (incase of any
breach) of each party to the contract.
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35. Content of a Business contract :
1. General Introduction - concept of need/what/why/who/when
2. Contract document acceptance mode – Electronic, Fax, or
certified mail, etc.
3. Description of Goods/Services – Specifications, Quality,
Quantity, Origin/Content, etc.
4. Price payable for Goods/Service
5. Payment Terms – payment mode, credit terms, and payment
process trigger points
6. Insurance – Goods, Services and/or Third party liability, Risk of
Loss
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36. Content of a Business contract cont’d :
7. Incoterms – international rules of logistics accepted by
governments, legal entities and personalities in the context of Sellers’/
Buyers’ contractual obligations with respect to cost, risk and liabilities
related to logistics “delivery” of goods sold.
8. Inspection/Hold points – in house audits/Third party inspections/
certifications
9. Execution/Delivery period and/or schedules/Warranty/post
completion services/checks
10. Acceptance/Handing over procedure – authorized signatory
11. Improper performance terms – liability clauses/hold harmless
clauses
12. Legal jurisdiction – compliance with Laws/Regulation/Contract
Exit terms – Termination clause
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37. Content of Contracts (Legal aspects)
• Agreements, legal status of enquiries and quotations, expressed
& implied terms, Delivery Terms, Financial clauses, Exemptions
& Disclaimers, Industrial intellectual property (patents,
trademarks, industrial designs, geographic source reveal,
copyrights), force majeure, etc.
• Sale of Goods Act – deals with the actual deliverables and
legalities over the transfer of custody of goods, related
information and responsibilities & liabilities boundaries
• Breach or Termination – specified exit or closure clauses,
penalties and liquidated damages, misrepresentations, duties and
damages of each party under mistakes, errors, etc.
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38. Managing Disputes : in the event of a breach of contract or
understanding as indicated by one party failing to live up his/her part
of the contract, these are the steps as in order;
1. Negotiations are the most simple, ideal, cost effective ways to
reach a settlement for a cause based on mutual agreement
mainly through bargaining or reconciliation
2. Arbitration : dispute resolution is done through non biased,
accredited and pre-accepted third party counselors who make
the arbitration decisions without any court process.
3. Adjudications : Legal process by which a court of law reviews
findings, documentation, legal reasoning determines the rights
and obligations of the parties involved
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39. TCO and Sourcing Strategies
Total Cost of Ownership (TCO) modeling is a tool that
systematically accounts for all the costs related to an investment
decision originally developed by Gartner consultancy for IT
companies but later covered Industrial/Service businesses…
TCO evaluates all costs, direct and indirect, incurred throughout
the lifecycle of an asset, including procurement, acquisition, operations,
maintenance and end of life management. When making comparisons
with products being outsourced, this may appear to be a simple
purchase (make or buy) decision but more often there are many hidden
costs related to many underlying factors that influence the “best choice”
in the long run.
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40. TCO and Sourcing Strategies
Some Costs to consider;
• Fixed Costs – Rent, license, Machinery
• Variable Cost – Electric, Telephone, Wages, Salary
• Factory Cost – Warehousing, Inventory
• Operating Cost – Admin, Management
• Transfer Cost – Currency Fluctuations/conversions
• Alternative Cost – Cost of Alternative resources
(Marketing, Branding, Discounting, Recalls, …)
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41. TCO strategies help:
v Provide consistent, systematic framework to compare
alternatives, increase productivity and reduce overall costs
over period of time.
v Establish a standardized way to track and compare costs
over a specified period of time
v Educate and raise awareness about the full costs, showing
that initial procurement cost is a relatively small part of the
full cost of ownership.
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42. International Purchasing Risks & Remedies
Challenges come in different forms and shape like cultural
differences, legislation, communication, currencies, loyalty,
commitment & reliability, etc.
i. Currency Fluctuation Risk – the time interval between
making the order and payment date (if after shipment) is
important when considering the payment currency
because there may be a significant difference in overall
invoice value when done in local rather than international
currency.
Proposed remedies would include;
• A forward contract is one way to agree on an exchange
rate (today’s rate) for a transaction in the future.
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43. International Purchasing Risks & Remedies, cont’d
Proposed Forex remedies would include;
• Currency hedging is the act of entering into a financial
contract in order to protect against unexpected, expected
or anticipated changes in currency exchange rates.
• Foreign-exchange option (FX option or currency
option) is a derivative financial instrument that gives the
right but not the obligation to exchange money
denominated in one currency into another currency at a
pre-agreed exchange rate on a specified date.
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44. International Purchasing Risks & Remedies, cont’d
v Unknown deliverables – Non existence/Company closure,
delivery delays, fraud, Quality, etc.
Remedies;
• Letters of credit (LC) : document interfacing buyer and
seller through a financial institution that undertakes to
make payment upon fulfillment of the predefined
objectives
• Third party Inspection (Lloyds, Bureau Veritas,
SGS…) : act as your local quality commitment team
through international standard and documented inspections
during product manufacture & pre-dispatch
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45. Quality Communication is not defined by the content but
what the audience you are reaching out is hearing or
reading.
Effective communication can make or break a supply
chain and is usually defined by cultural perceptions,
business ethics as well as the foundation of the supplier
relationship.
Alex, a Supply Chain Director for a firm based in Dubai was
sourcing all their products from China. He spent the week to
develop a detailed schedule of urgent products by type &
quantities needed and emailed the list to China on Thursday
(weekend Start in Dxb). 44
8. Global Supplier Relationship Management
INSPIRE ONE CONSULTING
Sustaining Value. Boosting Profits
Cer&fied
Supply
Chain
Manager

46. On Monday, he received the dispatch packing list only to
find out that the entire loaded shipment was wrong!
On reaching out to his contact in China, he was told that “they
had not received the complete email attachment or hadn’t
understood and had assumed that that is what he required!!!”
The more distant the supplier, the more important the
relationship becomes for the sake of sustainability, reliability
and mutual business growth.
45
8. Global Supplier Relationship Management
INSPIRE ONE CONSULTING
Sustaining Value. Boosting Profits
Cer&fied
Supply
Chain
Manager

47. Ø Hmm…what to do?!!!
v Develop Supplier Alignment profile – Audit all relationship
nerves and prioritize opportunities & ease of operating
v Create your own Buyer/Supplier teams to analyze the
specific prioritized “relationship” opportunities and
implement these for value-based results.
v Institutionalize the process between Buyer/Supplier to
assure GSRM becomes a part of the procurement fiber.
v Some “relationship nerves” worth developing include
Transportation execution, Supply Chain structure,
Forecasting and Communications of demand, Packaging &
Labeling requirements, Inventory levels, Lead times, Risk
Management and much more
46
8. Global Supplier Relationship Management
INSPIRE ONE CONSULTING
Sustaining Value. Boosting Profits
Cer&fied
Supply
Chain
Manager

48. What to Remember!
v Know “what you need not what you want”, and
exactly when you need it
v Do as much research as possible sometimes
switching roles to contemplate the reaction of the
other party
v Make supplier communication open and
transparent, demanding but fair
v Think Value over Cost
v Always work towards sustaining the right
Supplier Relationship
47
INSPIRE ONE CONSULTING
Sustaining Value. Boosting Profits
Cer&fied
Supply
Chain
Manager

49. INSPIRE ONE CONSULTING
Sustaining Value. Boosting Profits 48
Cer&fied
Supply
Chain
Manager