PURCHASING AND SUPPLY MANAGEMENT

UNIT 1
DELPHIN JAMEELA D J
INTRODUCTION

 BUSINESS AND GOVERNMENT AROUND THE

WORLD ENTERED NEW ERA OF
UNPRECEDENTED OPENNESS.
 3 POWERFUL FORCES UNDERLIE THIS TREND.
1.ECONOMICS
2.TECHNOLOGY
3.CONTEXT – SPIRIT OF THE TIME
 INTRODUCTION

 GLOBAL ECONOMIES HAVE BECOME TIGHTLY

INTEGRATED
 FASTER ECONOMIC GROWTH
 WTO LISTS 295 RTA PRESENTLY IN FORCE
 INTERNET REVOLUTIONIZED THE POWER OF DATA
ANALYSIS AND DISSEMINATION
 DATA PRIVACY AND DATA OWNERSHIP ARE THE NEW
TO CONCERNS
 BUSINESS WORLD HAS BECOME HIGHLY
INTERCONNECTED
 INTRODUCTION
 GLOBAL UNCERTAINITY
 EXAMPLE
 DIRECT INVESTMENT – FREE FLOW OF LABOUR, MATERIALS, CAPITAL,
SERVICES, ETC…
 US AND CHINA – IN EUROPEAN UNION
 US HAD MANY SUBSIDARIES IN UK
 2016 UK DECIDED TO LEAVE EU AND THIS ACTION IS CALLED BREXIT OR
BRITISH EXIT
 AFFECTED US,UK , EU AND ALL OTHER COUNTRIES SUPPLY CHAIN
 TO MANAGE SUPPLY RISK WE MUST FIRST DETERMINE THE RISK EXISTS
IN SUPPLY CHAIN
 IN THIS VULNERABLE OR CHANGING WORLD WE SHOULD DEVICE
QULIFYING ALTERNATIVE SUPPLU CHAIN RELATIONSHIPS
 KEEPING WATCHFUL EYE ON INVENTORY LEVELS AND CONDUCTING SITE
VISITS IS HIGHLY RECOMMENTED
 TODAY US IS A GIANT CONSUMER BASE WITH AN ENARMOUS COMMAND
OF TECHNOLOGY BUT ONE STEADILY LOSING INFRASTRUCTURE NEEDED
 INTRODUCTION

 all of these changing economic & political

environment, emerging technology versus labor
and the changing nature of purchasing as a
discipline - influence the role of purchasing &
Supply management
 To become a Competitive strategic weapon,
Purchasing and supply management must
abandon fragmented approaches
 Innovative sourcing requires companywide
strategies with strong executive engagement
that is internally driven and customer focused
 Purchasing Managers, Buyers &
Purchasing agents
 Purchasing Managers -buy goods & Services for use by the business
organization.
 Buyers –the buying staff negotiates and processes purchase orders
providing assistance to end users. Their mission is to support the
departments in obtaining the best products for the best price their role
in the procurement processes can include trouble shooting , vendor,
invoice and payment problems where appropriate
 Purchasing agent -implements the purchasing process by forwarding
the orders to suppliers & monitoring the documentation for their
business organization
 →Purchasing Managers → Buyers, purchasing Agents evaluate suppliers
based on price, qualities, service Support, availability, reliability and
selection.→ review catalogs, Industry & company publications
directories & trade Journals. Much Info available in Internet
 Once all of the necessary information on suppliers is gathered, orders
are placed and contracts are awarded to those suppliers who meet the
purchaser's needs.
THE EVOLUTION OF THE PURCHASING AND
SUPPLY MANAGEMENT FUNCTION

 To become a competitive organization in today's

global economy, the purchasing and supply
management function must become world class.
 The supply management function is the key to unlock
the value within the organization. Organizations must
optimize sourcing assets
 there are three stages in the optimization of an
organization's sourcing assets.
 THE EVOLUTION
OF THE
PURCHASING AND
SUPPLY
MANAGEMENT
FUNCTION

Stage 1 involves leveraging through volume discounts. It can easily lead to

significant reductions in the total purchasing costs.
Stage 2 involves focusing on the value proposition throughout the supply
chain among customers and suppliers.
Stage 3 is necessary for sustaining the successes in the previous top stages,
Practice and high-quality feedback allow the purchasing professional the
ability to make adjustments to Stages 1 and 2. The organizations that produce
excellence are those that continuously improve.
In general the purchasing and supply management function has evolved from
a pure cost management function to a competitive advantage
THE EVOLUTION OF THE PURCHASING AND SUPPLY MANAGEMENT FUNCTION
 PURCHASING
 There is no doubt that each and every firm have their
purchasing department/professionals.
 Purchasing is the process a business organization uses to
acquire goods or service to accomplish its goals
 Purchasing is the process of acquiring materials,
components, and services from another firm.
 Purchasing is the part of the procurement process that
involves making the actual purchase
 Purchasing is the foundation of supply management,
which tends to have a wider scope of activities
 The focus shifts from price to the total cost of ownership.
 Definition of supply management
 “The process of obtaining and managing of materials,
components or services needed to operate a business or
other type of firm. The elements of supply management
contain the actual materials/components, budgets,
information, and employees. The key purpose of this
procedure is to keep costs stable and use resources
effectively to increase the efficiency of the business and
profits”
 DIFFERENCES BETWEEN PURCHASING
AND SUPPLY MANAGEMENT
 Purchasing is a functional group  supply management is a strategic approach to
(i.e., a formal entity on the planning for and acquiring the organization’s
organizational chart) as well as a current and future needs through effectively
managing the supply base, utilizing a process
functional activity (i.e., buying
orientation in conjunction with cross-functional
goods and services). teams (CFTs) to achieve the organizational
 Purchasing has been referred to as mission.
doing “the five rights”: getting the  Supply management is cross-functional, meaning
right quality, in the right quantity, at it involves purchasing, engineering, supplier
the right time, for the right price, quality assurance, the supplier, and other related
from the right source. functions working together as one team, early
on, to further mutual goals.
 Narrower concept  Broader concept
 The purchasing group performs  Supply management requires pursuing strategic
many activities to ensure it delivers responsibilities, which are those activities that
maximum value to the organization. have a major impact on longer-term performance
 Examples include supplier of the organization.
identification and selection, buying,  These strategies exclude routine, simple, or day-
negotiation and contracting, supply to-day decisions that may be part of traditional
purchasing responsibilities. The routine ordering
market research, supplier
and follow-up of basic operational supplies is not
measurement and improvement, and a strategic responsibility.

Purchasing and procurement
Purchasing and procurement are the most often misused pair of words.
 Purchasing is a part of procurement that happens after the sourcing stage.
It includes activities like ordering, expediting, receiving, and fulfilling
payments.
 Purchasing focuses on transactions rather than vendor relationships.
 While procurement has a proactive approach that begins with determining
business needs, purchasing is a reactive approach that simply aims to
acquire what is already decided to buy.
 Supply and Logistics

 “Logistics management is that part of supply chain

management that plans, implements, and controls the
efficient, effective forward and reverse flow and
storage of goods, services, and related information
between the point of origin and the point of
consumption in order to meet customers’
requirements.”
 includes inbound, outbound, internal, and external
movements.
 Components of the supply chain
 Supply chain management is a complex system made up of several key components.
Understanding these components is vital for an efficient and responsive supply chain that
adapts to the needs of businesses and their customers. Here’s a rundown of the core
components:
 Suppliers:
 They provide the raw materials, components, or services that are essential for the
production process. Strong relationships with reliable suppliers are fundamental for
maintaining product quality and uninterrupted supply.
 Manufacturers:
 This is where raw materials are transformed into products. Manufacturers are at the heart of
the supply chain, tasked with producing high-quality goods in the most efficient way
possible.
 Warehousing:
 Storage facilities play a crucial role in balancing supply and demand. They allow for the
management of surplus goods and ensure products are available when needed.
 Distribution Centers:
 Often acting as hubs, distribution centers control the movement of goods to various
destinations, sorting and consolidating products to streamline delivery.
 Transportation:
 This component covers the logistics of moving products from one location to another,
whether it’s by truck, ship, plane, or train. It’s essential for connecting all the other
components of the supply chain.
 Components of the supply chain

 Retailers:
 They sell the finished products to end customers, whether through physical stores
or online platforms. Retailers are often the face of the supply chain for most
consumers.
 Customers:
 The end-users of the product, whose demands and expectations drive the supply
chain’s performance and strategies.
 Return Management:
 Also known as reverse logistics, this involves the handling of returns, exchanges,
and recycling. It is becoming increasingly important for maintaining customer
satisfaction and sustainability practices.
 Information Technology Systems:
 These systems enable the communication and data flow between all components
of the supply chain. They are essential for planning, executing, and tracking all
activities in real-time.
 Human Resources:
 The individuals who manage and execute the supply chain processes, from
planning to delivery. Their skills, motivation, and coordination are critical for the
smooth operation of the entire chain.
 Purchasing process
 Every business will have its own unique purchasing process, but the purchasing proces
below is a standard that many companies can follow, and is a great place for any
company to start. The purchasing process is the sequence of activities and steps a
company undergoes through when purchasing goods and services.
1. Identifying needs
2. Requisition
3. Vendor selection
4. Request for quotation RFQ/RFP
5. EVALUATION AND COMPARISION
6. SUPPLIER NEGOTIATION
7. PURCHASE ORDER NEGOTIATION
8. APPROVAL AND AUTHORIZATION
9. PURCHASE CONFIRMATION
10. ORDER FULFILLMENT
11. INVOICE AND PAYMENT
12. RECEIPT AND RECORD KEEPING
13.SUPPLIER PERFORMANCE
EVALUATION
 PURCHASING PROCESS
 Step 1: Identifying Needs:
 The process begins with identifying the need for a product or
service. This could be triggered by various factors, such as
depleted inventory, changing business requirements, or new
projects.
 Step 2: Requisition:
 A requisition is created to formalize the need. This document
outlines what is needed, the quantity required, and any specific
requirements
 Step 3: Vendor Selection:
 After the requisition is approved, the organization identifies
potential suppliers or vendors. This might involve researching,
soliciting bids, or using pre-approved vendor lists
 step 4: Request for Quotation (RFQ) or Request for Proposal
(RFP):
 Depending on the complexity of the purchase, an RFQ or RFP
may be issued to vendors An RFQ typically requests pricing
 Purchasing process
Step 5: Evaluation and Comparison:
The organization evaluates the responses from vendors, considering
factors like price, quality, reputation, and delivery times. This often
involves a cross functional team or a procurement department.

Step 6: Supplier Negotiation:

Negotiations with the selected vendor(s) may take place to finalize terms
and conditions, pricing, and any other contractual details.

Step 7: Purchase Order (PO) Generation:

Once negotiations are complete, a purchase order is generated. This
document formalizes the agreement and specifies the product or service,
quantity, price, and delivery terms

Step 8: Approval and Authorization:

The PO is reviewed and approved by relevant parties, ensuring it aligns
with the organization& budget and procurement policies.
Purchasing process
Step 9: Purchase Confirmation:
The supplier receives the PO and confirms their ability to fulfill the order
Any discrepancies or issues are resolved at this stage

Step 10: Order Fulfilment:

The supplier delivers the products or services as specified in the P), and
the organization receives and inspects them to ensure they meet the
agreed upon quality standards

Step 11: Invoice and Payment:

The supplier sends an invoice for the delivered goods or services. The
organization processes the invoice and makes payment as per the
agreed terms

Step 12: Receipt and Record Keeping:

The organization keeps records of the purchase order, invoice, and other
relevant documents for accounting and auditing purposes.

Step 13: Supplier Performance Evaluation:

After the purchase, the organization may assess the supplier&
 total cost of ownership (TCO)—i.e., the purchase price of goods combined
with the operating costs it carries—into your calculations.
 Three way matching - always match the invoice against the purchase order
and receipt. This ensures that you’re paying the correct price, not paying a
duplicate invoice, and are paying for the correct items.
 When evaluating potential suppliers, pay attention to their compliance
history and environmental and social reputation. If you choose suppliers that
match your company’s ethics, you’ll minimize the chance of violating them.
 How to Get The Best Value from Your
Purchasing Process
 Extracting the maximum value from the purchasing process requires care and
skill—especially in a competitive and fast-moving global marketplace.
 Along with following the best practices above, using the right tools to automate
and streamline the purchasing process will help you derive the most value.
 Choosing a complete procure-to-pay software solution like Planergy can help
you:
 Standardize processes for every purchase
 Reduce labor through automation
 Create more value at every step of the process
 Speed up your approval and purchasing flows
 Help you build better supplier relationships
 Improve spend visibility and reporting
 Identify savings opportunities with spend analytics
 Automate three-way matching and invoice processing
 Objectives for purchasing and supply

management personnel
to support the firm’s operations with an uninterrupted flow of materials
and services:•
 to buy competitively and wisely (achieve the best combination of price, quality and
service);•
 to minimize inventory investment and loss;•
 to develop reliable and effective supply sources;•
 to develop and maintain healthy relations with active suppliers and the supplier
community;•
 to achieve maximum integration with other departments, while achieving and
maintaining effective working relationships with them;•
 to take advantage of standardization and simplification;
 to keep up with market trends;•
 to train, develop and motivate professionally competent personnel;•
 to avoid duplication, waste, and obsolescence;•
 to analyze and report on long-range availability and costs of major purchased
items;•
 to continually search for new and alternative ideas, products, and materials to
 Supply Management vs. Supply Chain Management

 The terms supply management and supply chain management are sometimes used
interchangeably.
 But there is a difference.
 Supply chain management actually refers to the management of how goods and
services flow through the production process—from raw material to finished
goods that end up in the hands of consumers.
 This includes shipping, production, and distribution of products, goods, and
services.
 Supply management personnel within a company or institution are generally
responsible for the following:
 Identifying, sourcing, negotiating, and procuring a service or good that is
essential to a company's ongoing operations according to the wishes of the
organization's leaders and supervisors
 Formulating a strategy for developing and maintaining relationships with
suppliers—and then executing on it—as well as holding suppliers accountable
 Utilizing technology and procedures that facilitate the procurement process
 Considering the theories of supply and demand and what influence they have on
supply management
 Purchasing policy
 A purchasing policy is a strategic document that outlines a
company's purchasing strategy and intensions
 It provides a clear framework for the acquisition of goods
and services, detailing procedures, assigning
responsibilities, and establishing procurement standards.
 This document acts as a guide for the procurement
process, ensuring that all activities are conducted
efficiently and in alignment with the organization's
business goals, addressing inefficient processes along the
way.
 It also help the company to operate smoothly without
supply chain disruptions or dormant goods
 Purchasing policy-Importance
 Cost Savings and Improved Efficiency: A good purchasing policy
leads to significant cost savings and better operational efficiency.
It ensures transparent budget management and systematic
vendor evaluations, helping to minimize waste and improve
financial health.
 Enhancing Transparency and Accountability: Transparency is key
to trust, both internally and externally. A purchasing policy
requires detailed documentation and reviews of all procurement
activities, like ordering and transactions. This enhances trust and
accountability, ensuring ethical practices and preventing
unauthorized purchases.
 Risk Reduction and Compliance: A strong purchasing policy is
crucial for managing risks and complying with laws. It helps meet
internal and external legal standards, reducing the chances of
legal and ethical issues. Compliance with the policy protects the
organization's reputation and financial stability by preventing
risks associated with non-compliance.
Definition
 A purchasing policy is a strategic document that outlines
procedures assigns responsibilities and sets standards
for acquiring goods and services
Key elements of purchasing
policy
 Developing and Implementing Effective
Purchasing Policies - Step-by-Step Guide
 Step 1: Establish a Baseline for Your Organization’s Needs
 Before creating or revising procurement policies, it’s crucial to understand your
organization’s specific needs and constraints:
 Operating Model: Choose a centralized, decentralized, or hybrid model for your
procurement operations. This decision will shape how activities are organized and who
performs them.
 Procurement Volume: Evaluate how much your organization purchases, including the
number of transactions, total spending, and frequency.
 Types of Goods and Services: Identify and categorize the products and services your
organization needs. Different categories might need different procurement strategies.
 Regulatory Requirements: Understand the legal and regulatory environment
relevant to your industry and location.
 Internal Resources: Assess the capabilities of your procurement team, including the
number of personnel and their expertise, as well as available financial resources.
 Developing and Implementing Effective Purchasing Policies -
Step-by-Step Guide

 Step 2: Define Clear Objectives

 With a clear understanding of your needs, establish specific,
actionable objectives for your procurement policies. Typical goals
include:

 Cost Savings: Focus on reducing costs while maintaining quality.

 Efficiency: Aim to make procurement processes faster and more
streamlined.
 Compliance: Ensure that all procurement activities meet legal
requirements and internal policies.
 Developing and Implementing Effective
Purchasing Policies - Step-by-Step Guide
 Step 3: Document Procurement Processes, Roles, and Responsibilities
 Create detailed procedures that provide step-by-step guidance for each part of the
procurement process, tailored to your organization's size and complexity:
 Procurement Planning: Outline the steps to identify needs, set budgets, and develop
procurement plans.
 Bidding and Negotiation: Describe the procurement methods your organization will
use, such as competitive bidding, direct purchases, or negotiations.
 Supplier Selection: Detail how suppliers are evaluated and selected, including criteria
and evaluation processes.
 Purchase Requisition and Approval: Define how purchase requests are initiated,
reviewed, and approved.
 Risk Assessments: Set out methods for identifying and mitigating risks before
finalizing contracts.
 Contract Management: Provide rules for managing contracts, including execution,
monitoring, and renewal or termination.
 Record-Keeping and Documentation: Explain the documentation required for each
 Developing and Implementing Effective Purchasing Policies - Step-
by-Step Guide

 Step 4: Establish Procurement Policies and Standards

 Once the initial planning is complete, it's time to establish the procurement policies
that will guide the organization. These policies set the standards for what is expected
from employees in procurement roles.
 Applicability: Clearly define any vendors or types of procurement that are excluded
from the policy.
 Purchasing Authority: Detail who is authorized to initiate, approve, and finalize
purchases and procurement actions.
 Sourcing Methods: Lay out the preferred sourcing methods, such as competitive
bidding through RFQs and RFPs, or non-competitive methods like sole sourcing in
specific scenarios.
 Risk Management: Describe the process for identifying, evaluating, and mitigating
risks associated with new vendors or procurement activities.
 Related Policies: Link to other relevant policies, such as ethical standards, conflict
of interest policies, and guidelines on confidential information.
 Policy Governance: Specify the oversight body responsible for policy enforcement,
and identify the executive accountable for compliance.
 Developing and Implementing Effective
Purchasing Policies - Step-by-Step Guide
 Step 5: Document Detailed Procedures
 With policies established, the next step is to document detailed procedures that provide
clear, step-by-step instructions for all procurement activities. This documentation should be
thorough and tailored to fit the size and complexity of your organization.
 Areas to cover in your procedures include:
 Procurement Planning: Procedures for identifying procurement needs, setting budgets,
and planning purchases.
 Bidding and Negotiation: Guidelines on different procurement methods and how to
conduct them.
 Supplier Selection: Steps for evaluating and choosing suppliers.
 Purchase Requisition and Approval: Processes for initiating and approving purchase
requests.
 Risk Assessments: Methods for assessing risks prior to contract agreements.
 Contract Management: Instructions for managing contracts throughout their lifecycle.
 Record-Keeping: Requirements for documenting procurement transactions, including
orders and contracts.
 Developing and Implementing Effective
Purchasing Policies - Step-by-Step Guide

 Step 6: Develop Supporting Tools and Templates

 After defining your procedures, create supporting tools and
templates to facilitate the implementation of these processes.
These tools should help streamline operations and ensure
compliance with your procurement policies.
 Essential tools and templates to develop include:
 RFx Templates: Standard forms for RFQs, RFPs, and RFIs.
 Evaluation Checklists: Checklists to help evaluate proposals
systematically.
 Requisition and Purchase Order Templates: Standard forms
for initiating and documenting purchases.
Developing and Implementing Effective
Purchasing Policies - Step-by-Step Guide
 Step 7: Evaluate and Adjust to Your Capabilities
 Finally, critically review your newly developed policies and
procedures to ensure they align with your organization’s
capabilities and goals. Consider whether your team can realistically
execute these policies effectively.
 Key considerations for this evaluation include:
 Resources: Assess whether you have sufficient staff and budget to
manage the procurement processes.
 Skills: Determine if your team has the necessary expertise or if
additional training or hiring is needed.
 Technology: Evaluate if current technology supports your
procurement activities or if new investments are required.
 Governance: Confirm that there is a robust governance structure to
oversee and ensure compliance with procurement practices.
Challenges
 Strategies for Effective Rollout and Adoption
of Purchasing Policies
 Identify Key Players: Determine who will be impacted by the policies, including
managers, procurement staff, and policy users.
 Gather Input: Organize meetings to listen to their concerns and suggestions. This
feedback can help improve the policies.
 Keep Everyone Updated: Regularly share progress and changes to keep all stakeholders
in the loop.
 Training and Communication Make sure everyone understands the new policies by
organizing training sessions. Tailor the training to meet the needs of different groups within
the organization. Use various methods like workshops, online seminars, and user manuals
to spread the information. Keep the lines of communication open for questions and
feedback, ensuring everyone knows who to contact for help.
 To ensure everyone understands their role and the new policies:
 Tailor Training: Customize training sessions for different groups to address specific needs.
 Use Multiple Formats: Deliver information through workshops, webinars, and written
guides to cater to different learning preferences.
 Open Communication Channels: Establish clear points of contact for ongoing support
and questions, making it easy for stakeholders to get help when needed.
 Challenges in Policy
 Implementation
Resistance to Change and Adoption Barriers
 A big obstacle is that people are used to how things are done and might not want to switch to
a new buying policy. It’s natural to stick with what you know. To deal with this, it's important
to explain why the new policy is happening and how it will help. Getting input from employees
can make them feel part of the process. Training and support can make the change easier,
helping everyone get on board with the new approach.
 Need for Clear Rules
 If the buying policy isn’t written well, it can lead to confusion and mistakes. A policy that’s
easy to understand and follow is key. It should clearly explain what to do and not leave room
for guesswork. Training and regular updates can help everyone stay on the right track. The
policy should be the same for everyone, every time, to avoid different interpretations.
 Making Sure Suppliers Follow the Policy
 Getting suppliers to stick to your new policy can be tough, especially if they’re used to their
own ways. It's important to have a strategy for dealing with suppliers. This includes setting
out clear expectations from the start and checking regularly to make sure they’re following
the rules. Good communication can solve many problems, making it easier to work together.
 Getting It Right
 While there are clear benefits to having a specific buying policy, putting it into practice comes
with challenges. Overcoming resistance, making sure the policy is clear and consistent, and
ensuring suppliers stick to it are all crucial steps. By tackling these issues head-on, a
company can make its buying policy work well, leading to better decisions and stronger
relationships in the long run.
Key Advantages of Implementing Documented
Procurement Policies and Procedures

 Cost Savings and Efficiency

 Transparency and Accountability
 Risk Reduction and Compliance
 Fostering Innovation and Teamwork
 Enhanced Supplier Relations
 Consistency and Standardization Across the Board
 Proactive Risk Management
 Enhanced Cost Control
 Ensured Legal and Regulatory Compliance
 SUPPLY MANAGEMENT
INTEGRATION
SUPPLY MANAGEMENT IS A STRATEGIC APPROACH TO PLANNING AND
ACQUIRING ORGANISATIONAL NEEDS THROUGH EFFECTIVELY MANAGING
SUPPLIERS
The supply chain integration work on principles of collaboration, shared decision making,
open communication, shared vision, shared technology and high level of trust between the
producer and their customers.
 FORCES DRIVING INCREASED INTEGRATION
 Increased cost competitiveness. Having substantially improved the efficiencies of internal
operations, OEMs are seeking further cost reductions by improving efficiency and synergy
within their supply chains.
 Shorter product life cycles. The Model-T Ford, for example, was competitive for many
years. A personal computer (PC) is state of the art for less than a year, and the trend
toward shorter product life cycles continues
 Faster product development cycles. Companies must reduce the development cycle times
of their products to remain competitive. Early introduction of a new product is often
rewarded with a large market share and sufficient unit volumes to drive costs down
rapidly.
 Globalization and customization of product offerings. Customers the world over can
increasingly afford and are demanding a greater variety of products that address their
specific needs. Mass customization has become the new marketing mantra.
 Higher overall quality. Increasing customer affluence and tougher competition to supply
 COSTS OF INTEGRATION

 devoted to managing, training, and support

 effort devoted to becoming a better customer investment in
supply chain
 integration software and compatible information systems
throughout the chain
 Opportunity costs (i.e., investments in supply chain
integration may necessitate foregoing other business
opportunities)
 risks of production stoppages
SUPPLY MANAGEMENT
INTEGRATION

1.Information integration
2.Coordination and resource sharing
3.Organizational relationship linkage
Integrated purchasing and
supply management process
 SUPPLY MANAGEMENT
INTEGRATION FOR COMPETITIVE
 SUPPLY MANAGEMENT INTEGRATION CAN HELP ORGANISATION IN GAINING
ADVANTAGE
COMPETITIVE ADVANTAGE BY MANAGING AND OPTIMISING THE ACTIVITIES
INVOLVED IN SOURCING PROCUREMENT PRODUCTION AND DISTRIBUTION
 THIS CAN HELP COMPANIES CREATE A UNIQUE AND SUSTAINABLE
ADVANTAGE OVER COMPETITION
 BETTER CUSTOMER SERVICE
 FASTER DELIVERY SYSTEM
 LOWER PRICES
 STRONG SUPPLIER RELATIONSHIPS
 FLEXIBILITY
 REDUCED WASTE
 LOWER COST
 ACCURATE FINANCIAL TRACKING
 How to Use Your Supply Chain to Gain
Competitive Advantage

 Utilize Supply Chain Technology that Adds Value- Implementing disruptive

technology could lead to improvements in the supply chain
 Enable supply chain automation through robotics: Industry giants like Amazon
are using robotics to automate the supply chain, cutting overhead from
operations and labor. Amazon “employs” more than 750,000 robots, according
to Government Technology.
 Leverage smart supply chains: Organizations can capitalize on big data sets
mined from machines tagged with sensors to move supply chain planning from
reactive to proactive.
 Automate orders: Errors are less likely to occur in automated processes that
aren’t subject to human delays or errors and automating routine orders can
help to avoid financial loss in the form of over- or under-stocking a retailer.
 Employ artificial intelligence (AI): AI applications can tackle customer service
payment processing, IT support, or operations, eliminating overhead costs.
 Develop a collaborative supply chain strategy-Building and maintaining strong
relationships with suppliers is equally as important as maintaining customer
relations.
 BENEFITS OF INTEGRATION
 reduced friction, fewer barriers, and less waste of resources on
procedures that do not add value
 increased functional and procedural synergy between participants
 faster response to changing market demand
 slower cost manufacturing operation
 slower capital investment in excess manufacturing capacity
 shorter product realization cycles and lower product development costs
 increased competitiveness and profitability.
Barriers to Supply Chain
Integration
 Lack of information Technology
 Lack of information sharing
 Lack of trust
 Demand distortion-bullwhip
 System incompatibility
 Lack of knowledge
 Cost of integration
 Purchasing and supply
management organization
 Supply coordination involves both structure and design of the organization.
Purchasing organizational structure is the sum total of the ways in which an
organization divides its labor into distinct tasks and then coordinates among
them. Organizational design is concerned with bringing together a group of
interrelated tasks for a common goal. However, organization design alone does
not ensure effectiveness or efficiency. Most companies’ organizational charts do
not reflect true lines of authority and responsibility that flow through managers.
Too much detail can lead to micromanagement. On the other hand, a loosely
designed organizational structure can lead to a greater risk.
 In any purchasing organization, two major problems must first be considered. The
first issue: Where should the purchasing functions be located in the organization?
Second, what level of authority should the purchasing function have? Given the
evolution of outsourcing, the purchasing function is expected to gain more
authority in the corporate hierarchy.
Centralized purchasing
involves coordinating all purchasing activities for the entire plant through one central location. That purchasing department is the only place in the firm where requisitions are processed and suppliers are selected.
Advantages:
Better budget control: The purchasing team has a better understanding of the company's overall budget and can help ensure that purchasing decisions align with the company's financial goals.
Strong vendor relationships: With centralized purchasing, the purchasing team has more opportunities to develop strong relationships with vendors, which can lead to better pricing and service agreements.
Standardization: Centralized purchasing can help establish and enforce standard procurement processes and procedures across the company, which can lead to greater consistency and efficiency.
Disadvantages:
Less autonomy: In centralized purchasing, individual departments or project managers may have less input into purchasing decisions, which can lead to frustration and lack of ownership.
Slower decision-making: With centralized purchasing, purchasing decisions may need to go through multiple levels of approval, which can slow down the procurement process.

Centralized purchasing & Decentralized purchasing

 Decentralized purchasing

Advantages
• Empowerment: Decentralized structures can encourage accountability and ownership of
work.
• Innovation: Decentralized structures can foster innovation and open exchange of ideas.
• Talent development: Decentralized structures can enable talent development and
leadership skills.

Disadvantages

• Higher costs: Decentralized systems can incur higher costs due to duplication of
resources and efforts.
• Duplicate purchases: Decentralized systems can lead to duplicate purchases because
each department is responsible for its budget.
• Difficulty enforcing compliance: Unstandardized processes can create complexity for IT
teams, who are tasked with enforcing compliance and security requirements.
• Decentralized purchasing
DECENTRALISED PURCHASING

CENTRALISED
PURCHASING
CENTRALISED PURCHASING
Purchasing and Supply Management
ORGANISATION

Purchasing and Supply Management (PSM) is an essential organizational function that focuses on
acquiring goods, services, and materials required for a company’s operations. A well-structured
PSM organization ensures the efficient flow of supplies, cost-effective procurement, and strong
relationships with suppliers, contributing to a company’s overall competitiveness and
sustainability. Below is an overview of key components of a typical Purchasing and Supply
Management Organization:
1. Structure
Centralized vs. Decentralized Procurement:
In centralized procurement, purchasing decisions are made from a single point within the
organization, offering control and uniformity.
In decentralized procurement, individual departments or locations have the autonomy to make
purchasing decisions, allowing for greater flexibility.
Hierarchical Roles:
Chief Procurement Officer (CPO): Senior executive responsible for the overall procurement
strategy and function.
Procurement Managers: Oversee procurement activities for specific categories or departments.
Buyers/Purchasing Agents: Handle day-to-day procurement activities, including vendor
selection, price negotiation, and order placement.
Supply Chain Analysts/Coordinators: Analyze and optimize supply chain processes.
 Purchasing and Supply Management ORGANISATION

2. Functions and Responsibilities

Strategic Sourcing: Identifying and selecting suppliers who offer the best value in
terms of quality, cost, and delivery.
Supplier Relationship Management (SRM): Building and maintaining strong,
long-term relationships with suppliers to ensure reliable supply and collaboration.
Contract Management: Drafting, negotiating, and enforcing contracts with
suppliers to ensure compliance with terms and conditions.
Inventory Management: Ensuring that the right quantity of supplies is available
when needed while minimizing excess inventory and storage costs.
Logistics and Distribution: Coordinating the transportation and delivery of goods
from suppliers to the company and within the organization.
Risk Management: Identifying potential risks in the supply chain and developing
strategies to mitigate them, such as diversifying suppliers or regions.
 P u rc h a s in g a n d S u p p ly M a n a g e me
ORGn tA N IS A T IO N

3. Processes
Procurement Cycle:
Needs Identification: Understanding and documenting what the organization
needs.
Supplier Selection: Researching, evaluating, and selecting suppliers.
Purchase Order (PO) Processing: Issuing purchase orders to selected
suppliers.
Order Receipt and Inspection: Receiving and inspecting goods or services
to ensure they meet quality standards.
Payment Processing: Completing payment to suppliers after confirming the
receipt of goods/services.
Just-In-Time (JIT) Procurement: A strategy where materials are ordered and
received just in time for production, minimizing inventory costs.
 Purchasing and Supply Management
ORGANISATION
4. Technology and Tools
Enterprise Resource Planning (ERP) Systems: Integrated software platforms like SAP
or Oracle that manage procurement, supply chain, and finance functions.
e-Procurement Platforms: Online systems that facilitate the electronic procurement
process, from sourcing to payment.
Supplier Portals: Digital platforms where suppliers can interact with the organization,
submit bids, and track orders.
5. Key Metrics
Cost Savings: Measuring reductions in procurement costs through better sourcing,
negotiation, and procurement practices.
Supplier Performance: Evaluating suppliers based on delivery performance, quality,
and cost-effectiveness.
Procurement Cycle Time: Tracking the time taken to complete the procurement cycle,
from needs identification to order receipt.
Inventory Turnover: Monitoring how efficiently inventory is managed, with high
turnover indicating efficient use of resources.
 Purchasing and Supply Management ORGANISATION

6. Sustainability and Ethics

Sustainable Sourcing: Ensuring that procurement practices support environmental
sustainability and social responsibility.
Ethical Procurement: Adopting procurement practices that uphold integrity, fairness, and
compliance with regulations.
7. Challenges
Global Supply Chain Disruptions: Dealing with unexpected events, such as natural
disasters, geopolitical tensions, or pandemics, that disrupt supply chains.
Cost Management: Balancing cost reduction with quality and reliability.
Technological Changes: Adapting to advancements in digital procurement tools and
supply chain analytics.
Supplier Risk: Managing risks related to supplier bankruptcy, quality issues, or non-
compliance.
Conclusion
A robust Purchasing and Supply Management organization is crucial for optimizing costs,
ensuring timely delivery, and maintaining the quality of goods and services. By leveraging
technology, strategic sourcing, and strong supplier relationships, PSM can significantly
contribute to a company’s success.