The document outlines the importance of strategic supply chain management, emphasizing the role of purchasing policies and procedures in achieving organizational objectives. It discusses the advantages and disadvantages of implementing these policies, characteristics of effective policies, and the integration of purchasing functions within organizations. Additionally, it explores the differences between centralized and decentralized purchasing structures, detailing their respective benefits and challenges.

1. Strategic Supply Chain Management
Purchasing Policy & Procedure
FACULTY OF BUSINESS ADMINISTRATION
PRESENTED BY:
TONY MSISKA

2. Purchasing Policy and Procedures
Understand why purchasing policies are important
 Understand the different types of purchasing policies
 Understand the different types of purchasing procedures

3. Procurement Function
Procurement is the business management function that ensures
identification, sourcing, access and management of the external
resources that an organisation needs or may need to fulfil its
strategic objectives.
Procurement exists to explore supply market opportunities and to
implement resourcing strategies that deliver the best possible supply
outcome to the organisation, its stakeholders and customers.
Procurement applies the science and art of external resource and
supply management through a body of knowledge interpreted by
competent practitioners and professionals.

4. POLICY
The term policy includes all the directives, both explicit and
implied, that designate the aims and ends of an organization and the
appropriate means used in their accomplishment.
Policy refers to the set of purposes, principles, and rules of action
that guide an organization.
Rules of action refer to standard operating procedures along with
any rules and regulations. Although policies are usually documented
in writing, unwritten or informal policies can also exist. Informal
policies are understood over time and eventually become part of an
organization’s culture.

5. Advantages
Having written and implied policies is an opportunity to define and
clarify top management objectives. a means for executive
management to communicate its leadership and view, provide
guidance.
Policies provide a framework for consistent decision making and
action. In fact, one of the primary objectives of a policy is to ensure
that personnel act in a manner consistent with executive or
functional management’s expectations.
Finally, an effective policy provides an additional advantage by
defining the rules and procedures that apply to all employees.

6. Disadvantages
First, a policy is often difficult to communicate throughout large
organizations.
Second, employees might view policies as a substitute for effective
management. Policy statements are guidelines that outline
management’s belief or position on a topic. They are not a set of
how-to instructions designed to provide specific answers for every
business decision.
Third, policy development can also restrict innovation and
flexibility. Too many policies accompanied by cumbersome
procedures can become an organization’s worst enemy.

7. What makes an effective policy
An effective policy is relevant (avoiding trivial or unimportant
issues) and concise (stating a position with a minimum number of
words). An effective policy is unambiguous, allowing personnel little
doubt as to how to interpret the policy’s intent and direction.
Policies that are subject to different interpretations will, over a
period of time, result in several possible outcomes. This can lead to
inconsistent behavior, as people will simply ignore the policy because
it is so difficult to interpret.

8. Characteristics of effective policies
 • Action oriented
• Relevant
• Concise
• Unambiguous/well understood
• Timely and current
• Guide problem solving and behavior
In other words: SMART – Specific, Measurable, Accurate, Realistic,
Timely

9. Policy Categories
• Policies defining the role of purchasing
• Policies defining the conduct of purchasing personnel
• Policies defining social and minority business objectives
• Policies defining buyer-seller relationships
• Policies defining operational issues

10. Purchasing Procedure
the operating instructions detailing functional duties or tasks, and a
procedure manual is really a how-to manual. A large purchasing
department may have hundreds of procedures detailing the
accepted practice for carrying out an activity.
A procedure is a system of sequential steps or techniques for
getting a task or job done. Procedures are also the formal
arrangements by means of which policies linking strategies are
implemented. A cluster of reliable procedures, each comprised of a
number of operations that, together, provide information enabling
staff to execute and managers to control those operations, is called a
system. E.g. Purchasing Cycle

11. Purchasing Integration
The process of incorporating or bringing together different groups,
functions, or organizations, either formally or informally, physically or
by information technology, to work jointly and often concurrently on a
common business-related assignment or purpose.
Integration can occur in many forms. It can occur through functions,
such as in sourcing or new-product development teams. It can also
occur through cross-location teams, where people from different
business units are brought together. Finally, the most difficult and
challenging form is cross-organizational teams, which involves working
with suppliers, customers, or even both concurrently

12. Integration Benefits
 Information
About their markets and bout their own plans and requirements
 Knowledge and expertise
Product and service knowledge and technology Process knowledge
and understanding of how to make it work
 Business advantages
Favorable cost structures that can benefit customers and Economies
of scale, which can also help reduce costs

13. Purchasing organisation
Organizational design refers to the process of assessing and selecting
the structure and formal system of communication, division of labor,
coordination, control, authority, and responsibility required to achieve
organizational goals and objectives, including supply management
objectives.

14. Factors Affecting Purchasing’s Position in
the Organizational Hierarchy
History
established organizations, early purchasing history emphasized the
gradual development of the policies and procedures defining proper
purchasing from an operational perspective.
Type of Industry
In rapidly changing industries or those where purchased goods and
services comprise a larger portion of product or service costs,
management usually recognizes the need to place purchasing in a
higher position within the organizational hierarchy.

15. Cont’d
Total Value of Goods and Services
A service organization spending 10 to 20% of its sales dollar for
purchased goods and services will, on average, view purchasing
differently compared with a firm spending over 60%.

16. Purchasing Department Activities
Buying
Expediting
Inventory Control
Transportation
Managing Countertrade Arrangements
Insourcing/Outsourcing
Value Analysis
Purchasing Research/Materials Forecasting

17. Supply Management
A progressive approach to managing the supply base that differs
from a traditional arm’s-length or adversarial approach with sellers.
Supply management involves purchasing, engineering, supplier
quality assurance, the supplier, and other related functions working
together to further mutual goals.

18. Separating Strategic and Operational
Purchasing
Strategic
Manage relationships with critical suppliers.
Develop electronic purchasing systems.
Implement companywide best practices.
Negotiate companywide supply contracts.
Manage critical commodities

19. Operational
 Manage transactions with suppliers.
 Use E-Systems to obtain standard or indirect items through
catalogs.
 Source items that are unique to the operating unit.
 Generate and forward material releases.
 Provide supplier performance feedback.

20. Placement of Purchasing Authority
Centralized
When a supply executive at corporate headquarters has the authority
for the majority of the organization’s purchase expenditures
Decentralized
When purchasing authority for the majority of purchase expenditures
is at the divisional, business unit, or site level

21. Factors Influencing Centralized/Centrally
Led or Decentralized Structures
The type of company;
The nature or complexity of the product or service produced;
The physical number of items that must be purchased;
The scope of the purchasing responsibility, including involvement in
activities such as strategic sourcing and market research and
analysis, and the extent of involvement in services.

22. Cont’d
The Firm’s Overall Business Strategy
Similarity of Purchases
The Overall Philosophy of Management
Total Purchase Dollar Expenditures

23. Advantages of Centralized/Centrally Led
Purchasing Structures
Consolidate Purchase Volumes
Reduced Duplication of Purchasing Effort
Ability to Coordinate Purchasing Plans and Strategy
Ability to Coordinate and Manage Companywide Purchasing
Systems
Developing Expertise
Managing Companywide Change

24. Advantages of Decentralized Purchasing
Speed and Responsiveness
Understanding Unique Operational Requirements
Product Development Support
Ownership

25. QUESTIONS??