Prof. Jorge, Here is my NU12 for May 22, 2012. Regards, Michael T. Ligayo ---------- Oftentimes, the purchasing process is one of the most bureaucratic processes in a company. This is since there are a lot of chances that this process can be abused. However, the numerous steps is also taking a lot of time and causing a lot of delays that may not be beneficial to the company. In this presentation, a really tedious purchasing process was overhauled through a combination of waste identification and elimination and automation.

1. What pisses me off in the
company?
Michael T. Ligayo, ENTREP, S63, Tue, 6:00pm-9:00pm

2. Background
What is PR – PO – Sourcing Process?
• A part of Purchasing activity wherein a requestor interacts or
communicates with Purchasing to obtain items for the Company
that may either be new or replenishment
What goes into the PR – PO – Sourcing
process?
• Any request that will cost from PHP2,500 and above will go
through this process.
• Items involved range from new / replenishment spare parts, bulk
order of office supplies, one-time order of production materials
and many others.
• Purchasing receives at least 10 requests each day

3. Current Process
An item to be
Requestor prepares
START purchased is
the PR
Identified
D
No
Is there
Requestor forwards the an
Requestor to fill-out
RFQ and Incomplete estimated
an RFQ
PR to Purchasing price
available?
Purchasing returns the
Purchasing incomplete PR to the Yes
conducts sourcing Requestor together with
A
to get the estimated document (email, faxed
price quote, etc.) bearing the
estimated price

4. Current Process
Requestor attaches the Requestor secures the
document (email, faxed approval of the following:
A quote, etc) bearing the department manager,
estimated price to the finance manager and plant
Purchase Request manager
H
Urgent Yes
B Approved?
requirement?
No
END

5. Current Process
Requestor seeks approval
from Finance Manager
B Approved?
and Plant Manager for
Urgent Release
Yes
No
Request will be treated
Requestor forwards as normal (with normal
all documents (PR, lead time)
C Quote, Urgent
Release) Approval to
Purchasing Request will be
treated as urgent

6. Current Process
Purchasing checks if
Complete
C information in Purchase
Info?
Request is complete
No
Yes
Purchasing will advice the
PR number to the
Purchasing returns the
Requestor
PR and other
documents to the
Purchasing will update the Requestor
PR to PR monitoring sheet
D
E

7. Current Process
Purchasing to send
Purchasing to look for
E RFQ to identified
potential sources
potential sources
>/= 3 Purchasing consolidates all
quotes? quotes provided
No
Yes
Is this a Purchasing to F
single prepare a Single
E G
source Source Approval
No item? Yes Sheet

8. Current Process
F
Purchasing to pick lowest
Yes quote
G Approved?
No
E
Is there a
No discrepancy
Purchasing prepares the
between
PO
estimated and
quoted price?
I H
Yes

9. Current Process
Yes Purchasing requests the
New
I Supplier to fill the Vendor
Supplier?
Information Sheet
No
No
Purchasing enters the following
into the Finance System: Yes Complete
2.Vendor Information (if new) Info?
3.Purchase Request Details
Purchasing prints the PO J

10. Current Process
Purchasing routes PO for
approval to the following:
J Approved?
Supply Manager, Finance
Manager and Plant Manager
Yes
No J
Purchasing and make the Purchasing and Requestor to
necessary adjustments / evaluate reason for
corrections on the Request disapproval

11. Current Process
Purchasing confirms
Purchasing issues the
J estimated date of delivery and
PO to the Supplier
informs this to the Requestor
Purchasing files the PO with Purchasing updates the PR to
all attachments PO monitoring sheet
END

12. Current Process
Leadtime to complete the process are as follows:
• Forurgent or emergency PR’s, a minimum of 3 days is required
to complete the PO alone, PR completion varies depending on
availability of signatories
• For general requests, PO may be released within 20 – 25 days
alone, PR completion varies depending on availability of
signatories
Note:
• Approvals alone of the different forms may take up to 6 days due
to availability of signatories

13. Identified Wastes
The following were identified as WASTE during the
process review:
• Transferring from PR to PO
• Use of different forms and seeking approval for each (same
approving person but for different forms only)
• Purchase Request
• Purchase Order
• Single Source Approval
• Request for Urgent Release
• During quoting, Purchasing already held the PR but it is only on
succeeding steps that Purchasing will verify the content /
completeness of the form

14. Identified Wastes
The following were identified as WASTE during the
process review:
• Requestor will have to re-do the process in case of incomplete
PR information and/or price discrepancies in estimated vs. quoted
• Use of estimated cost
• High-level management have to approve regardless of the
amount involved in the request
• Two sourcing activities are done – to get estimated cost and
actual sourcing
• Use of PR number and PR to PO monitoring sheet
• Excess inventory to cope with the leadtime

15. Proposed Actions
The proposals are:
• Review the items that go into the process – do all of them have
to really go into the process?
Examples:
1. Do regularly requested office supplies have to go
through the process?
2. Is it possible to use other means to replenish supplies –
like a Kanban system?
• Requestors to fill directly a PO, instead of a PR
• The form to be used should be revised to incorporate all
requirements of the process (to eliminate all other forms)
• Change in the process flow so that checking for completeness
and approvals will only be done once

16. Proposed Actions
The proposals are:
• Create a signatory matrix so not all PR/PO would go through all
the managers
• Automate – create a database for all PO, vendor information, etc
used in the process (this can automatically eliminate the
monitoring sheet)
• Outsource sourcing

17. Proposed Actions
Matrix of Signatories
Value (in PHP) Signatories
1 – 5,000 No need to use PO, Use Petty Cash
5,000 – 50,000 Department Manager, Purchasing
Manager
50,000 – 1,000,000 Head, Corporate Logistics with
recommending approval of
Department Head, Purchasing
Management
1,000,000 – 2,000,000 CFO with recommending approval of
Head Corporate Logistics
Above 2,000,000 CFO and President with
recommending approval of head,
Corporate Logistics

18. Proposed Actions
Revised Process Flow:
Requestor goes into a
An item that needs to be
START system to file the
purchased is identified
purchase order
Purchasing finishes
the PO by indicating
Purchasing obtains an Purchasing receives the
the amount from the
RFQ from suppliers. request.
winning RFQ (lowest
cost).
Purchasing can
Approval for the PO is Upon approval, Purchasing
generate report
sent to approving sends an electronic PO to
of performance at
personnel (electronically). the supplier.
time intended.
END

19. Proposed Actions
Features of the Automated System are:
• The system is linked directly to Purchasing who processes the
requests and keeps a database of the suppliers.
• It enables the requestor to choose whether the request is urgent or not
(urgent is defined to be needed within a week)
• It sends an email notification to approving persons upon completion of
the purchase order. (Approval will be dependent on the amount –
approval matrix.)
• An email notification to the requestor is also sent if the approval is
completed.
• An RFQ can automatically be created by Purchasing. This is done
through a link to the information given by the requestor in the Purchase
Order. The RFQ can be sent to the supplier using the link to the supplier
database.
• The system is designed to create reports of the performance of the
purchasing process.