Purchasing & SCM. Purchasing “Musts” Right “stuff” Right price Right quality Right quantity...

Purchasing & SCM

Purchasing “Musts”

Right “stuff” Right price Right quality Right quantity Right time Right place Right source (?)

The Purchasing Cycle

1. The Identification of a Purchasing Need

2. Potential Supply Source Evaluation

3. Supply Source Selection

4. The Release and Receipt of Material Requirements

5. The Continuous Performance Measurement and

Management of Suppliers

Note: Material with Established Suppliers Consists of Steps 4&5

Steps in a Purchase

1. Recognition of need

2. Accurate description of desired commodity or service

3. Selection of possible sources of supply

4. Determination of price and terms

5. Preparation and placement of the purchase order

6. Follow up and/or expedite the order

7. Receipt and inspection of goods

8. Clear the invoice and pay the supplier

9. Maintenance of records

Using Purchasing Inventory Inspection Receiving Accounting SupplierStep Activity department department control department department department

department

1 Using (or control) departmentissues P.R., MRPS, or B/M

1a Check to see if material is in stockFile

2 Investigate and qualify potential sources;negotiate, determining price, terms, and conditions; then select supplier. IssueP.O. (This may involve a sourcing team.)

3 Supplier acknowledges order

4 Follow up activity (as needed)

5 Supplier ships material

6 Receiving department checks materialagainst packing slip and P.O., and issuesR.R. (This step is omitted in some JITand partnership purchases.)

7 In cases requiring technical inspection,inspection department inspects materialand issues I.R.

8 Purchasing department closes order

9 Supplier issues invoices in multiple copies

10 Accounting department checks invoicesagainst P.O., R.R., and I.R. and issuesvoucher and/or check

P.R. = purchase requisition; MRPS = materials requirements planning schedule; B/M = bill of materials; P.O. = purchase order;R.R. = receiving report; I.R. = inspection report

P.R. #11

1a

P.R.#2

P.O. #5 P.O. #1 and acknowledgment form #2

1a

P.O. #6

Follow-up inquiry

Follow-up response

File

P.O. #7& P.R. #1

Material and packing slip

Workingfile

Follow-upfile

P.O. #4

R.R. #1, #2, #3

Acknowledgment form

Material

2

P.O. #3

3

44

File5

6

7UseR.R. #3 and I.R. #3

to using or control dept.File

File

Closedorder file

9

10

8P.R. #1P.O. #6,#7AcknowledgementR.R. #1 & I.R. #1Other Correspondence

R.R.#1 & I.R. #1 R.R.#2 & I.R. #2

I.R.#4

InvoiceP.O. #3R.R.#2I.R. #2Voucher

Typical Purchasing Cycle

The Purchasing System

1. Need Identification

•Know individual requirements: what, how much, when needed

•Supply department responsible for helping to anticipate needs

•Place forward orders

•Supplier can contribute more in the need-recognition stage

than later in acquisition process

•Emergency and rush orders


1. Need Identification (continued)

•Small orders (Pareto’s law; Transaction costs)

•Handling Small Orders

•Standardization

•Hold until accumulation

•Establish a requisition calendar

•Stockless buying/systems contract

•Procurement credit card

•Blanket orders


Handling Small Orders (continued)

1. Establish electronic linkage

2. Adjust authority levels

3. Use integrated suppliers

4. Low-value order placement is outsourced to 3rd party

5. Users place orders directly


1. Need Identification (continued); Methods:

Purchase Requisition - internal document completed by user

that informs purchasing of a specific material need

Contains:

•Description of material

•Quantity and date required

•Estimated unit cost

•Operating account to be charged

•Date

•Authorized signature


Methods (continued)

Traveling Purchase Requisition - Printed card filed for each

item controlled in a manually operated system

Contains:

•Description of item

•List of approved suppliers and addresses

•Last price paid to suppliers

•Reorder point

•Record of usage


Methods (continued)

Reorder Point System - Uses information regarding quantity

and demand forecasts. When inventory is depleted to a given

level, the system signals the material control department to

request inventory replenishment.

Stock Checks - The physical checking of inventory to verify

that system records match actual on-hand inventory levels.

Cross-Functional Teams - Teams to identify material purchase

requirements; often for new products


2. Accurate description of desired commodity

or serviceInformation that should be included on the requisition:

1. Date

2. Identification number

3. Originating department

4. Account to be charged

5. Complete description of material desired and quantity

6. Date material needed

7. Any special shipping instructions

8. Signature of authorized requisitioner


2. Accurate Description (continued)

Blanket and open-end orders – cover a variety of items

Stockless Buying or Systems Contracting – more sophisticated:

oPeriodic billing procedures

oAllow non-purchasing personnel to issue order releases

oEmploy special catalogues

oRequire suppliers to maintain minimum inventory levels

oDo not specify volume of contract items

oImprove inventory turnover rates

Third-party consolidator (e.g., MRO)


3. Selection of Possible Sources of Supply

•Locating qualified sources

•Assessing performance before and after sale

4. Determination of Price and Terms

•Analyze bids, price list, negotiations


5. Preparation and Placement of the Purchase

Order (PO)

Written order should be made

Form of the PO:

1. Contain provisions to guard buyer from damage suits

caused by patent infringement

2. Contain provisions concerning price

3. Clause stating no charges allowed for boxing, crating, etc.

4. Acceptance is contingent on inspection and quality


Form of the PO (continued):

5. Require in case of rejection that the seller receive a new order

before replacement is made

6. Precisely describe quality requirements and method for

quality assurance/control

7. Provide for order cancellation if deliveries not received on

specified date


Form of the PO (continued):

8. Contain conditions that the buyer refuses to accept drafts

drawn against the buyer

9. Mention quantity (under and over-shipments)

10. Matters of special interest


6. Follow-Up and/or Expedite the Order

Follow-Up - The routine tracking of an order to ensure

that the supplier will be able to meet

delivery promises; often by phone or

computer

Expediting - Application of pressure on a supplier to get

it either to meet the original delivery

promise, deliver ahead of schedule, or

speed up delivery of a late order


7. Receipt and Inspection of Goods

Receiving - very close to purchasing; may be bypassed for

small purchases

Purposes of Receiving:

1. Confirm order placed some time ago has arrived

2. Check that shipment has arrived in good condition

3. Ensure correct quantity

4. Forward shipment to next destination

5. Ensure proper documentation is registered and forwarded

to appropriate parties


7. Receipt and Inspection of Goods (continued)

Reasons to Withhold Payment Until Goods Arrive

1. Invoice does not reach buyer until late in discount period

2. Inspection

3. Date invoices as of date of shipment or receipt of invoice;

whichever is later, for discount period

Reasons to Process Payment Before the Goods Arrive

1. Financial consideration

2. Credit standing of buyer

3. Relationship with supplier


8. Clear the Invoice and Pay the Supplier

Varies according to firm

Purchasing or Accounting

Why Purchasing - where original agreement was made

Accounting - process where invoice mailed to accounts

payable, checked, and certified for payment;

refer to purchasing department if variance exists


9. Maintenance of Records

1. PO log identifies all POs by number and status

2. PO file, copy of all POs, filed numerically

3. Commodity file; by major commodity

4. Supplier history file

Purchasing Documents

•Purchase Requisition

•Request for Quotation

•Purchase Order

•Receiving Report Form

•Systems Contracting

•Blanket Purchase Order

Typical Purchase Requisition Form

Typical Request for Quotation Form

Typical Purchase Order Form

Receiving Report Form

Purchasing & SCM. Purchasing “Musts” Right “stuff” Right price Right quality Right quantity...

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