The document discusses the procurement process. It begins by defining procurement as the process of sourcing and acquiring goods and services needed by a company. It then outlines the various steps in the procurement process, which includes need recognition, defining specifications, soliciting bids, issuing a purchase order, delivery and payment. The document also discusses the importance and objectives of procurement, as well as goals such as improving competitiveness and maintaining quality suppliers.

1. IN THE NAME OF ALLAH
THE MOST MERCIFUL
AND COMPASSIONATE

2. LEC 1

3. PROCUREMENT

4. 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/acqusition, and payment processing, which
usually involves several areas of a company.
 Competitive bidding is usually a part of most large scale
procurement processes involving multiple bidders.

5. 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”

6. IMPORTANCE OF PROCUREMENT
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:
 Payroll and employee benefits
 Cafeteria and food services
 Facilities maintenance, and janitorial services
 Information technologies
 Logistics and transportation services

7. IMPORTANCE OF PROCUREMENT
 Increase in material costs
 Reduced profit margins,
 Free market competition
 Growth of internet
 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
 Keeping the core competence in-house and outsourcing
all other functions
 Keep inventories low for maintaining or achieving high
turnover ratios, yet always have material ready for
production use. To achieve optimum performance
procurement must balance these conflicting requirements

8. IMPORTANCE OF PROCUREMENT
No other function is involved in more interrelationships than
Procurement (in both the buyer and supplier organization)
Involved in resolving disputes between the requesting
departments and suppliers
Responsible for adjusting rejected purchases, controlling
costs, and making replacements
For operating effectively the Procurement must become a
coordinator representing the interests of the company, and
not solely those of purchasing

9. OBJECTIVES OF PROCUREMENT
Purchasing is responsible for spending the largest portion of
an organizations revenues
For maximizing its contribution to the overall performance of
the organization it must establish the following two objectives
:
 Assure the economic supply through the procurement of
goods, supplies, and services to keep the company in
operation
 Contribute to profits by efficiently controlling the total cost
to the operation

10. GOALS OF PROCUREMENT
1. Improve the Organization's competitive position
 Should be focused on contributing to the overall
organizational strategy, goals, and objectives.
 Identify and exploit opportunities in the supply chain to
improve revenue, asset management, and cost reduction
 Secure the lowest total cost source of supply, 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.
 Constantly look for opportunities in the supply chain to
provide a superior value proposition for the customers

11. GOALS OF PROCUREMENT
2. Provide uninterrupted flow of materials, supplies,
and services required to operate the organization
3. Keep inventory investment and loss at a minimum
4. Maintain and improve quality
5. Find or develop best-in-class suppliers

12. GOALS 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
Constantly strive to standardize capital equipment,
materials, MRO (maintenance, repair, and operating
supplies), and services purchases
Supply management process standardization results in
shortened cycle time, lower transaction costs, etc.

13. GOALS OF PROCUREMENT
7. Purchase required items and services at lowest total cost
of ownership
8. Achieve harmonious, productive internal relationships.
9. Accomplish supply objectives at the lowest possible
operating costs.
Supply should strive to achieve it’s objectives by operating
as efficiently and as economically as possible
Inefficiencies represent waste, and lead to excessive
operating costs and unnecessarily high total cost of
ownership

14. PROCUREMENT PROCESS
 Step 1: Need Recognition
The business must know it needs a new product,
whether from internal or external sources. The product may
be one that needs to be reordered, or it may be a new item
for the company.

15. PROCUREMENT PROCESS
Step 2: Specific Need
 The right product is critical for the company. Some
industries have standards to help determine
specifications. Part numbers help identify these for some
businesses. Other industries have no point of reference.
 The company may have ordered the product in the past.
 If not, then the business must specify the necessary
product by using identifiers such as color or weight.
Reduced profit margins.
 Requirement Specification is prepared by User
Department.
 Requisition (written order for goods or supplies)

16. PROCUREMENT PROCESS
Step 3: Source Options
 The business needs to determine from where to obtain
the product.
 The company might have an approved vendor list.
 If not, the business will need to search for a supplier using
purchase orders or research a variety of other sources
such as magazines, the Internet or sales representatives.
 The company will Qualify the suppliers to determine the
best product for the business.

17. PROCUREMENT PROCESS
Step 4: Price and Terms
The business will investigate all relevant information to
determine the best price and terms for the product. This will
depend on if the company needs commodities (readily
available products) or specialized materials.
Usually the business will look into three suppliers before it
makes a final decision.
Request For Quotation (commercial offer; statement of price,
offer of a price; price that has been stated or offered)
Bid evaluation and negotiation

18.  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.

19. 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)

20. PROCUREMENT PROCESS
 Step 6: Delivery
The purchase order must be delivered, usually by fax,
mail, personally, email or other electronic means. Sometimes
the specific delivery method is specified in the purchasing
documents.
The recipient then acknowledges receipt of the purchase
order.
Both parties keep a copy on file

21. Procurement Process:
 Step 7: Expediting
Expedition of the purchase order addresses the timeliness
of the service or materials delivered.
It becomes especially important 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
Once the sending company delivers the product, the
recipient accepts or rejects the items.
Acceptance of the items obligates the company to pay for
them.

22. Procurement Process:
 Step 9: Invoice Approval and Payment
Three documents must match when an invoice requests
payment - 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.

23. 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.
Purchase records reference future purchases as well..
Close out document - ensure that contractors performed in
accordance with the terms, conditions, and specifications of
their contracts or purchase orders.

24. 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).

25. 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.
 Along with the stated quantity and the quality of the
purchase this can be the basis for approving payment
and must be easy for third parties such as receiving
personnel, finance, and auditors to understand the
transactionafter it is completed.

26. UNDERSTANDING AND CONVEYING REQUIREMENTS
b) SPECIFICATION.
 A specification contains a technical description of the
material being purchased. In its simplest terms, 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.
 In the case of chemicals and other formulated and
processed materials, the specification can be tendered
as a recipe or in compositional format.

27. UNDERSTANDING AND CONVEYING REQUIREMENTS
(c) STATEMENT OF WORK (SOW).
 Unlike a specification, 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
 (KPIs) and are often used to determine the level of
performance requiring corrective

28. UNDERSTANDING AND CONVEYING REQUIREMENTS
(d) TIME OF PERFORMANCE.
 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 dates so that the supplier understands
precisely what is required.

29. 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.
 A discount period may be included where the supplier
specifies the amount of the discount as well as the
number of days the buyer can make payments and still
earn the discount.

30. 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.
 The document must clearly state delivery or work
completion dates so that the supplier understands
precisely what is required.

31. UNDERSTANDING AND CONVEYING REQUIREMENTS
(f) SHIPPING DESTINATION, METHOD, AND TERMS.
 If you’re procuring materials and intend to use a specific
carrier to transport the purchased material, you should
include this in your requirement as well. You’ll need to
specify the 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.
 In your instructions, include the exact destination of the
shipment and the point at which the ownership of the
goods, or title, transfers from the seller to the buyer.

32. VERSION 2

33. PROCUREMENT

34. 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/acqusition, and payment processing, which
usually involves several areas of a company.
 Competitive bidding is usually a part of most large scale
procurement processes involving multiple bidders.

35. 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”

36. IMPORTANCE OF PROCUREMENT
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:
 Payroll and employee benefits
 Cafeteria and food services
 Facilities maintenance, and janitorial services
 Information technologies
 Logistics and transportation services

37. IMPORTANCE OF PROCUREMENT
 Increase in material costs
 Reduced profit margins,
 Free market competition
 Growth of internet
 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
 Keeping the core competence in-house and outsourcing
all other functions
 Keep inventories low for maintaining or achieving high
turnover ratios, yet always have material ready for
production use.To achieve optimum performance
procurement must balance these conflicting requirements

38. IMPORTANCE OF PROCUREMENT
No other function is involved in more interrelationships than
Procurement (in both the buyer and supplier organization)
Involved in resolving disputes between the requesting
departments and suppliers
Responsible for adjusting rejected purchases, controlling
costs, and making replacements
For operating effectively the Procurement must become a
coordinator representing the interests of the company, and
not solely those of purchasing

39. OBJECTIVES OF PROCUREMENT
Purchasing is responsible for spending the largest portion of
an organizations revenues
For maximizing its contribution to the overall performance of
the organization it must establish the following two objectives
:
 Assure the economic supply through the procurement of
goods, supplies, and services to keep the company in
operation
 Contribute to profits by efficiently controlling the total cost
to the operation

40. GOALS OF PROCUREMENT
1. Improve the Organization's competitive position
 Should be focused on contributing to the overall
organizational strategy, goals, and objectives.
 Identify and exploit opportunities in the supply chain to
improve revenue, asset management, and cost reduction
 Secure the lowest total cost source of supply, 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.
 Constantly look for opportunities in the supply chain to
provide a superior value proposition for the customers

41. GOALS OF PROCUREMENT
2. Provide uninterrupted flow of materials, supplies,
and services required to operate the organization
3. Keep inventory investment and loss at a minimum
4. Maintain and improve quality
5. Find or develop best-in-class suppliers

42. GOALS 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
Constantly strive to standardize capital equipment,
materials, MRO (maintenance, repair, and operating
supplies), and services purchases
Supply management process standardization results in
shortened cycle time, lower transaction costs, etc.

43. GOALS OF PROCUREMENT
7. Purchase required items and services at lowest total cost
of ownership
8. Achieve harmonious, productive internal relationships.
9. Accomplish supply objectives at the lowest possible
operating costs.
Supply should strive to achieve it’s objectives by operating
as efficiently and as economically as possible
Inefficiencies represent waste, and lead to excessive
operating costs and unnecessarily high total cost of
ownership

44. PROCUREMENT PROCESS
 Step 1: Need Recognition
The business must know it needs a new product,
whether from internal or external sources. The product may
be one that needs to be reordered, or it may be a new item
for the company.

45. PROCUREMENT PROCESS
Step 2: Specific Need
 The right product is critical for the company. Some
industries have standards to help determine
specifications. Part numbers help identify these for some
businesses. Other industries have no point of reference.
 The company may have ordered the product in the past.
 If not, then the business must specify the necessary
product by using identifiers such as color or weight.
Reduced profit margins.
 Requirement Specification is prepared by User
Department.
 Requisition (written order for goods or supplies)

46. PROCUREMENT PROCESS
Step 3: Source Options
 The business needs to determine from where to obtain
the product.
 The company might have an approved vendor list.
 If not, the business will need to search for a supplier using
purchase orders or research a variety of other sources
such as magazines, the Internet or sales representatives.
 The company will Qualify the suppliers to determine the
best product for the business.

47. PROCUREMENT PROCESS
Step 4: Price and Terms
The business will investigate all relevant information to
determine the best price and terms for the product. This will
depend on if the company needs commodities (readily
available products) or specialized materials.
Usually the business will look into three suppliers before it
makes a final decision.
Request For Quotation (commercial offer; statement of price,
offer of a price; price that has been stated or offered)
Bid evaluation and negotiation

48.  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.

50. 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)

51. PROCUREMENT PROCESS
 Step 6: Delivery
The purchase order must be delivered, usually by fax,
mail, personally, email or other electronic means. Sometimes
the specific delivery method is specified in the purchasing
documents.
The recipient then acknowledges receipt of the purchase
order.
Both parties keep a copy on file

52. Procurement Process:
 Step 7: Expediting
Expedition of the purchase order addresses the timeliness
of the service or materials delivered.
It becomes especially important 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
Once the sending company delivers the product, the
recipient accepts or rejects the items.
Acceptance of the items obligates the company to pay for
them.

53. Procurement Process:
 Step 9: Invoice Approval and Payment
Three documents must match when an invoice requests
payment - 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.

54. 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.
Purchase records reference future purchases as well..
Close out document - ensure that contractors performed in
accordance with the terms, conditions, and specifications of
their contracts or purchase orders.

55. 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).

56. 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.
 Along with the stated quantity and the quality of the
purchase this can be the basis for approving payment
and must be easy for third parties such as receiving
personnel, finance, and auditors to understand the
transactionafter it is completed.

57. UNDERSTANDING AND CONVEYING REQUIREMENTS
b) SPECIFICATION.
 A specification contains a technical description of the
material being purchased. In its simplest terms, 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.
 In the case of chemicals and other formulated and
processed materials, the specification can be tendered
as a recipe or in compositional format.

58. UNDERSTANDING AND CONVEYING REQUIREMENTS
b) SPECIFICATION.
 A specification contains a technical description of the
material being purchased. In its simplest terms, 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.
 In the case of chemicals and other formulated and
processed materials, the specification can be tendered
as a recipe or in compositional format.

59. UNDERSTANDING AND CONVEYING REQUIREMENTS
(c) STATEMENT OF WORK (SOW).
 Unlike a specification, 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
 (KPIs) and are often used to determine the level of
performance requiring corrective

60. UNDERSTANDING AND CONVEYING REQUIREMENTS
(d) TIME OF PERFORMANCE.
 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 dates so that the supplier understands
precisely what is required.

61. 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.
 A discount period may be included where the supplier
specifies the amount of the discount as well as the
number of days the buyer can make payments and still
earn the discount.

62. 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.
 The document must clearly state delivery or work
completion dates so that the supplier understands
precisely what is required.

63. UNDERSTANDING AND CONVEYING REQUIREMENTS
(f) SHIPPING DESTINATION, METHOD, AND TERMS.
 If you’re procuring materials and intend to use a specific
carrier to transport the purchased material, you should
include this in your requirement as well. You’ll need to
specify the 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.
 In your instructions, include the exact destination of the
shipment and the point at which the ownership of the
goods, or title, transfers from the seller to the buyer.

64. LECTURE 2

65.  Procurement vs Purchasing: What’s the Difference?

66. Procurement Purchasing
What is the end
goal?
To identify company needs and fulfill the
procurement of those needs.
Strategic, proactive process.
To arrange company expenditure and buy
goods/services for the company.
Reactive process.
How
goods/services
are assessed
Places more importance on an item’s value
than how much it costs.
More focused on price than value.
When it’s
deployed
Involved in the end-to-end activities needed
to acquire all necessary goods and
services.
Gets involved when it’s time to buy goods
and services.
Tasks involved
Everything from need recognition to
sourcing, contract closure, and
recordkeeping.
Ordering, expediting, and payment.
How it deals with
suppliers
Focused on developing long-term, win-win
relationships with suppliers (relational
focus).
Focused on making efficient transactions;
not overly concerned with developing
vendor relations (transactional focus).

67. AUTOMATING YOUR PROCUREMENT AND PURCHASING STRATEGY
WITH E-PROCUREMENT
E-Procurement
 A mobile app that helps you request, approve
and receive goods.
 Vendor management and vendor performance
tracking
 3-way matching (User, Supplier and PD)
 Data exporting into your accounting system

68. E-Procurement
 Purchase 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.
AUTOMATING YOUR PROCUREMENT AND
PURCHASING STRATEGY WITH E-PROCUREMENT

69. PROCUREMENT - SPAN OF CONTROL
Duties that a function performs on behalf of the organisation are it’s
responsibilities or span of control.
Procurement must have legitimate authority to make decisions that
fall within their span of control, which is established through senior
management policies and support.
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

70. 2. Evaluate and select suppliers
The most important duty of purchasing is the right to evaluate and select
suppliers
Specially important to avoid situations in which when sellers contact and
attempt to sell directly to end users (purchasing’s internal customers)
3. Review specifications
Authority to review material specifications is within purchasing’s span of
control
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

71. 4. Act as the Primary Contact with Suppliers
Historically suppliers contact only the purchasing personnel, some firms
have now relaxed the policy
Purchasing personnel may act as the primary contact for the supplier but
other functions may also be able interact with the supplier according to the
need
5. Determine the method of awarding purchase contracts
It is the right of purchasing to determine how to award purchase contracts
Purchasing retains the right to control the overall process, act as an agent
to commit an organization to a legal agreement, and negotiate a purchase
price

72. IMPACT ON PROFITABILITY
Purchasing is the key department 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
For a purchasing department it is not enough to maintain an adequate source
of supply
Calculate ROI
A company can gain more profit by improving its purchasing function which is
not that easy as it requires a competent team of buyers
Similarly, poor purchasing can result in higher costs and decrease in ROI