DPS 304 : Purchasing Procedures

1. DPS 304 : Purchasing Procedures Traditional procedures Modern Procedures

2. DPS 304 : Purchasing Procedures A procedure – a system of sequential steps or techniques for getting a task or job done. Also are the formal arrangements by means of which policies linking strategies are implemented.

3. Traditional Purchasing Procedures Purchasing has traditionally involved three main phases each requiring specific documents & considerable transactional activity. Identification Phase Notification of the need to buy by; A requisition issued by stores, stock control or potential user A bill of materials issued by the drawing office or production control

4. Traditional Purchasing Procedures Ordering Phase On receipt the requisition or bill of materials will be checked by the buyer for accuracy, conformity to specifications & purchase records for ‘rebuy’ or new buy If standard rebuy & supplier has been meeting expectations , repeat order may be issued. For a new buy, steps to follow; Enquires or request for quotations (RFQs) – will be send to possible suppliers accompanied by drawings, specifications etc

5. Traditional Purchasing Procedures Ordering Phase For a new buy, steps to follow; Quotations will be received in response to the enquires & details of price, quality, delivery, tool costs etc & terms of business compared When quantities are substantial & quality or delivery of great importance, further negotiations with suppliers will be done – eg capacity Purchase order will be issued to the vendor that gave the quotation amended where necessary by subsequent negotiation that was most acceptable. Copies of order will be given to eg user dept, production control, stores etc

6. Traditional Purchasing Procedures Ordering Phase An order acknowledgement should be required from the vendor. Ensure order has been accepted on the terms & conditions defined by the buyer & subsequently agreed between the parties. Post-ordering Phase It may be necessary to expedite the order to ensure that delivery dates are met An advice note – goods have been dispatched or are ready for collection will be issued by supplier

7. Traditional Purchasing Procedures Post-ordering Phase On receipt goods will be checked for quantity and quality by stores & inspection dept. goods received note will be filled & sent to purchasing dept An invoice of the value of goods will be received from supplier. This will be compared with purchase order & goods received note. On completion, the order will be transferred to a completed orders file.

8. Traditional Purchasing Procedures Inefficiencies of traditional procedures A sequence of non-value adding clerical activities Excessive documentation – for a new buy a minimum of 7 e.g requisition, enquiry, quotation, order acknowledgment, advice note, goods received note & invoice Excessive time in processing orders both internally & externally Excessive cost of purely transactional activities

9. Traditional Purchasing Procedures Inefficiencies of traditional procedures Due to the inefficiencies, many organizations are increasingly recognizing that administrative paperwork often serves merely to document a chain of events or to provide logistical trail Leading-edge purchasing organizations need to transform this administrative function into value-added processes by reducing, eliminating or combining steps wherever possible All organizations are therefore being forced to embrace the strategic implications of IT & e-procurement

10. Modern Procedures – E-commerce, e-business, e-SCM & e-procurement E-commerce – Any form of business transaction carried out electronically over public telephone systems (buying & selling via the internet & www) E-business – e-commerce is a subset of e-business. E-business incorporates a wide range of production, customer and internal processes that are only indirectly related to commercial transactions; Production-focused processes Customer-focused processes Internal or management focused processes

11. Modern Procedures – E-commerce, e-business, e-SCM & e-procurement Benefits of e-business Provision of 24/7 information access Aggregation of information from several sources Accurate audit trails of transactions enabling businesses to identify areas offering the greatest potential for efficiency, improvements & cost reduction Personalization & customization of information

12. Modern Procedures – E-commerce, e-business, e-SCM & e-procurement E-SCM Concerned with streamlining & optimizing the whole chain by means of internal applications, with the aim of ensuring maximum sales growth at the lowest possible cost. Includes setting up an internal online purchasing system, joining an industry wide electronic marketplace & implementing e-SCM across the entire value chain

13. Modern Procedures – E-commerce, e-business, e-SCM & e-procurement E-SCM Purchasers & Suppliers benefits of e-SCM Ability to purchase both directly & indirectly materials at lower cost primarily due to price transparency & competition Achievements of greater efficiency when purchasing goods & services & ultimately lowering the overall cost of transactions Purchasers being able to form strong ties with suppliers in forecasting, scheduling & planning production data & sharing product data designs to develop supplier collaboration

14. Modern Procedures – E-commerce, e-business, e-SCM & e-procurement E-Procurement CIPS def:- using the internet to operate the transactional aspects of requisitioning, authorizing ordering, receiving & payment processes for the required services or products Areas of buying process covered by e-procurement Requisition against agreed contract Authorization Order Receipt Payment

15. Modern Procedures – E-commerce, e-business, e-SCM & e-procurement E-Procurement Advantages Automated purchase process Automation of p-card purchasing Electronic payment of invoices Lower prices by means of strategic sourcing Average inventory reduction Reduced head count Supply base rationalization

16. Modern Procedures – E-commerce, e-business, e-SCM & e-procurement E-Procurement soft benefits Freeing up of purchasing time Reduction of maverick buying Improved monitoring of supplier performance Improved order tracking & tracing Improved availability of management information & accounting Culture change Reduced corruption

17. Evolution of e-procurement models Kalakota & Robinson have identified seven basic types of e-procurement trading models;

18. Evolution of e-procurement models

19. Evolution of e-procurement models

20. Purchasing Manual This is a medium for communicating information regarding purchasing policies, procedures, instructions & regulations. Policies may be general or consequential: General policies state in broad terms the objectives & responsibilities of the purchasing function. Consequential policies state, in expanded form, how general policies are applied in specific activities & situations, eg. In selection of suppliers.

21. Purchasing Manual Procedures prescribe the sequence of activities by which policies are implemented, such as receipt of bought-out goods. Instructions give detailed knowledge or guidance to those responsible for carrying out the policies or procedures. Regulations detail rules regarding the conduct of purchasing & ancillary staff in the various situation arising in the course of their duties, such as receiving gifts from suppliers.

22. Purchasing Manual Advantages of Purchasing manuals. Writing one down helps with precision & clarity. It is useful in training & guiding staff A manual can help the audit staff. A manual may enhance the status of purchasing by showing that top management attaches importance to the procurement function. A manual coordinates policies & procedures & ensures uniformity & continuity of purchasing principles as well as providing a reference point against which such principles can be evaluated.

23. Purchasing Manual Advantages of Purchasing manuals. The preparation of a manual provides an opportunity for consultation between purchasing & other departments to critically look at existing policies & procedures and, where necessary, change them. Procedures are described in terms of activities undertaken or controlled by purchasing, thus, promoting consistency & reducing the need for detailed supervision of routine tasks.

24. Purchasing Manual Format – hardcopy or operational database Organization -Charts i.e organization centrally & locally -Possibly job descriptions for all posts -Teams relating to purchasing & supply chain activities -Admin information eg hours of work, travelling expenses etc Policy -Statements of policy, setting out the objectives, responsibilities and authority of the purchasing function -Statements of general principles relating to price, quality & delivery -Terms & conditions of purchase -Ethical relationships with suppliers, especially regarding gifts & entertainment -Supplier appraisal & selection -Employee purchases -Reports to management

25. Purchasing Manual Format – hardcopy or operational database Procedures -Descriptions, accompanied by flow charts of procedures relating to requisitioning, ordering, expediting, receiving, inspecting, storing & payment with special reference to procurement -Procedures relating to the rejection & return of goods -Procedures regarding the disposal of scrap & obsolete or surplus items

26. Supplier Manual A supplier manual is an organizational or institutional document that provides the requirements and expectations that are placed upon a supplier who wants to do business with the said entity It provides a guideline on processes for submitting requests for quotations, proposals, delivery and packaging amongst other terms and conditions governing the organization- supplier relationship.

27. Supplier Manual Each supplier wishing to do business with any organization that publishes a supplier manual is required to meet the guidelines indicated therein otherwise they will be disqualified and RFP’s), their supplies rejected, penalized etc. Other responsibility may be outlined to suppliers within the relevant RFQ, purchase order or separate supply agreement.

28. Supplier Manual Each supplier wishing to do business with any organization that publishes a supplier manual is required to meet the guidelines indicated therein otherwise they will be disqualified and RFP’s), their supplies rejected, penalized etc. Other responsibility may be outlined to suppliers within the relevant RFQ, purchase order or separate supply agreement.

29. Supplier Manual Importance of a supplier manual Specify requirements to ensure supplier methods, systems, products and services meet or exceed customers’ expectations. Outlines specific expectations of suppliers and the systems they use. Ensures good relationship with suppliers to provide continuous quality improvement in compliance to ISO and productivity improvement. Specify quality requirements therefore commitment to quality for success.

30. Supplier Manual Importance of a supplier manual Helps integrate suppliers into company processes at an early stage. Defines and explains company expectations to suppliers. It reviews existing supplier related procedures and identifies company’s best practices. Develops supplier performance measurement, rating, reporting system, monitoring and development. Provides a system of feedback.

31. Supplier Manual Format Introduction Conditions of purchase Preorder requirements Redelivery requirements Transportation & delivery requirements Post delivery requirements Policies & quality Appendices Agreements (to be signed & returned) Questionnaire (to be completed & returned)

32. Supplier Manual The essentials of a contract Intention Agreement Consideration Form eg in writing only Definite terms Legality