Professional Documents
Culture Documents
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Learning Objectives and
Outcome
• The supply Management Process
• Strategy and Goal Alignment
• Ensuring Process Compliance
• Information Flows
• Steps in the Supply Process
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Learning Objectives and
Outcome
• A Supply Process Flowchart
• Rush and Small – Value Orders
• Information Systems and the Supply
• Policy and Procedure Manual
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The Supply Management Process
A Process:
A set of activities that has a beginning and an end, occurs in a specific
sequence, and has inputs and outputs
Process-orientated person: considers the flow of information, materials,
services, and capital throughout the process no matter how many functions or
departments touch it.
Functional-orientated person: considers the steps for which his/her
department is responsible.
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Need for Robust Supply Processes
1. Large number of items
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Strategy and Goal Alignment
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Ensuring Process Compliance
Process compliance: The rate at which process users adhere to the dictates of the process
Maverick buying: When non-supply staff make unauthorized buying decisions, also known
as rogue buying or off-contract buying
Consequences of Maverick Buying
• Higher total cost of ownership (due to missing or badly lead negotiations and smaller
quantities) and undermine supply credibility internally and externally
• Multitude of different suppliers( multiple suppliers for the same goods and services
with disparate prices, terms and conditions )
• Missing framework agreements
The root causes of noncompliance must be identified and eliminated.
Information system may compel compliance by eliminating alternative purchasing paths,
reducing process cycle time and instilling confidence in user that delays will be minimal
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Potential Benefits of Information
Systems Technology
• Cost reduction and efficiency gains
• Data accessibility
• Speedier communication
• Dedicate resources to strategic issues
• Data accuracy
• Systems integration
• Monetary control
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Information Flows
There are four basic information flows involving supply.
Inward flows
1) Information from within the organization is sent to supply including statement of
need for materials and services.
2) Information from external sources is sent to supply (e.g. prices and deliveries) or
from other sources (e.g. general market conditions and import duties)
Outward flow
3) Information from within supply is sent to others within the organization. This
include the supplier pricing, market conditions and supply forecasts for cash flow
budgeting.
4) Information such as request for quotes or proposals, is sent from supply to
external sources(suppliers).
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Internal Information Flows to Purchasing
Inward flows within the organization
sales
forecasting engineering
production control planning
inventory control
Purchasing budgeting
(supply)
quality control financial control
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4 - 11
general
sources market product
of conditions information
supply new product
information
suppliers’ capacity
Purchasing transportation
(supply) availability
suppliers’
production rates transportation rates
sales and prices and
labor conditions
use taxes, discounts
customs
4 - 12
General
Management Product
Engineering
Development
Source, product, Economic Product and
price information conditions price information
and quality
Budget
commitments
Contracts
Costs, prices
Legal Orders adjustments Finance
placed
Stores Accounting
Essential Steps in the Purchasing Process
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1-Recognition of need
• Early supply and supplier involvement provides information that may lead
competitiveness
•
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2-Description of need
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2-Description of need
Purposes and flow of a Requisition
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3-Description of need
Requisition
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Description of need
Type of Requisitions
1-Standard Requisitions: common document used to request supply of
goods or services.
1. Date
2. Number (identification)
3. Originating
4. Account to be charged
5. Complete description of materials or service desired and
quantity
6. Date materials or service needed.
7. Any special shipping or service-delivery instructions.
8. Signature of authorized requisitioner
2-Traveling Requisition Innovation used for recurring requirements & standard
parts to reduce operating expenses.
(in a manual purchasing process )
3-Bill of materials(BOM): includes all materials and parts, including allowance for
Simplifies the requisitioning process for scrap, to make one end unit,
frequently needed line items in
organizations that make a standard item
for example one two-slice toaster
over a relatively long period of time.
2. Assessing the probability that a purchase agreement would result in on-time delivery of
satisfactory product/service with appropriate before and after sale service at lowest total cost
of ownership.
3-Issue an RFx:
options for soliciting business from potential suppliers
Request for x, where x may be Information (RFI), quotation (RFQ), Proposal (RFP) or bid (RFB).
The three types of solicitations are (1) request for quotation (RFQ), request for proposal
(RFP), and request or invitation for bid (RFB or IFB)
A request for information ( RFI) Is NOT a solicitation; a solicitation may follow after
information has been received. There is no such thing as a request for price or a request for
confirmation.)
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3-Identification of Potential Sources
Request for
solicitations
Request or
Request for Request for
invitation for
quotation (RFQ) proposal (RFP)
bid (RFB or IFB
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identification of potential source
Issue an RFx
issued to gather information about potential suppliers'
1. Request for information (RFI) products and services.
An RFI is NOT a solicitation for business or an offer to do
business.
2. Request for quotation (RFQ) a price comparison tools that is issued when there is a clear
(the price is really the main and unambiguous description of the need, for example a
decision point) grade of material, a stock-keeping unit (SKU), or other
commonly accepted terminology
3. Request for proposal (RFP) used for more complex requirements where price is only one
of several key decision factors, and bidders are invited to use
their expertise to develop and propose one or more
solutions.
Request or invitation for bid used in a competitive bid process with or without the
(RFB or IFB): opportunity to negotiate after bid receipt.
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4-Supplier selection and determination of terms
Reading
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5-Preparation and placement of the
purchase order
Must Know:
A purchase order is used unless the supplier’s sales agreement or a release against a
covers a variety of items such as maintenance, repair and operating (MRO) supplies and
production line requirements, and reduces costs by reducing the number of purchase orders
issued)
Failure to use the proper contract form may result in serious legal complications or
improper documentation.
Even where an order is placed by telephone a confirming written order should follow.
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5-Preparation and placement of the purchase order
1. -Purchase order (PO): Buyer-generated document that authorizes a purchase
transaction
2. Blanket purchase order: covers a variety of items such as maintenance, repair and
operating (MRO) supplies and production line requirements, and reduces costs by
reducing the number of purchase orders issued
3. Open-end purchase order: allows for additional items and/or extension of time.
4. Blank check purchase order: a signed, blank check is sent to the supplier along with
the PO, the supplier ships the full order, completes the check, and deposits it
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Purchase Order
Format
The essential requirements are:
The serial number, date of issue,
name and address of the supplier,
the quantity and description, date
of delivery, shipping directions,
price, terms of payment, and
conditions governing the order.
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6-Follow-up and/or expediting
Follow-up: is routine order tracking to ensure the supplier can meet delivery
promises.
–Progress inquiries may be made by phone, e-mail, fax or in-person.
–Early notification of problems such as production scheduling, quality, or
delivery enables appropriate action.
Expediting: is the application of pressure on a supplier
1- to meet the original delivery promise,
2- to deliver a head of schedule
3- or to speed up delivery of delayed order. Threats of order cancelation or loss of
future business may be used.
Frequently, expediting is caused by poor planning inside the buying
organization.
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7-Receipt and inspection of goods
Shortages may occur because materials has been lost in transit, short-shipped, damaged
in transit.
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8-Invoice clearing and payment
• Invoice: a claim against the buying organization
• Management may put account payable and supply into one department to force
goal alignment.
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9. Maintenance of Records and Relationships
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A Supply Process Flowchart
improve efficiency and effectiveness
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Supply terms
Maintenance Repair Operating Supply (MRO)
• A supply management term that refers to various commodities that are generally of
low value, purchased frequently and available from multiple sources.
A typical examples include fuel oil, cleaning materials, hand tools, office supplies, &
repair parts
Vendor/supplier-managed inventory (VMI/SMI): inventory management
system in which the supplier manages the inventory at the buyer's location(s); typical
for MRO items.
• Strategic Spend
Are goods or services critical to the mission of the organization.?
In this type of management, effectiveness is favored over efficiency.
• Nonstrategic Spend
Dollar value and repetitiveness drive process decisions. First, a small dollar threshold
is established and efficiency tools, especially electronic ones, are used. Second,
suppliers are pre-qualified and tools for efficient order placement are used.
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Rush and Small – Value Orders
Small value order
A Pareto analysis of annual spend reveals that roughly 70 to 80 percent of
transactions account for only 10 to 15 percent of spend. These are C items(C-
class items are indispensable components in the production of goods.)
For some goods fall into this category it might be possible that the cost of
processing the order and delivering the goods/service may be greater than
the value of the purchasing.
(Small dollar value purchases often cost more administratively than the price
paid for the item(s).
The problem is resolved by simplifying or automating the process or
consolidating purchases to reduce the acquisition cycle time, administrative
cost and free up the buyer’s time for higher value or more critical purchasing.
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Small value order
If the system is designed to procure from properly vetted suppliers then the
process may also be effective in getting the right quality, quantity, delivery,
price and terms.)
• Corporate purchasing cards (also called procurement cards or( P-cards) are
credit cards issued to internal customers (users) in the buying organization
to purchase low-dollar-value, high-volume goods and services.)
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Types of Information Systems
For Supply
MIS provide reports and information to
management to support planning,
controlling, and decision making.
DSS assist in decision making , transfer
the info to utilizing techniques such as
simulations, mathematical
relationship, or other algorithms.
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Policy and Procedure Manual
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Questions for Review and Discussion
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