Professional Documents
Culture Documents
Course Index
1- Introduction 2- Management of Organizations 3- Purchasing Management
A- Definition B- Importance/ Fundamentals C- Objectives D- Role and Duties
Introduction
In modern management, organizations have to operate within a structured system in order to be successful, effective and profitable. This integrated system which is showing in the coming slide includes four important elements that must operate as a cohesive system for any activity in the organization to insure continuity and existence. 7
2 Management of Organizations
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Inputs
Processing
Transformation of inputs
Outputs
Products Services
Feedback
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The concept of management is as old as old ages during Sumerian, Ancient Egyptians and Slave Owners when the need to get the job done was important for all. At the end of 18th century TAYLOR introduced the Classic / Traditional Theory when people were managed in a very bossy and dictatorship way. This theory was called The Boss is Everything Then management developed through several stages to reach to current Modern System Theory applied by most organizations nowadays. 10
What is Management?
Management is both Science and Art where it requires Knowledge at the same time it requires Skills and Abilities to Get the Job Done Through People. Management is the process of utilizing all input factors through proper and effective process to produce required outputs to achieve the organization goals .(see slide no. 4) 11
Management Functions:
1- Planning: means setting SMART goals
Stages of Planning:
STATE GOALS/OBJECTIVES
COLLECT EFFORTS LIST ALTERNATIVES CHOOSE BEST ALTERNATIVE PUT PLANS INTO ACTIONS
EVALUATE
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towards right direction through proper, efficient and effective coordination of inputs to optimize outputs for the achievement of goals. HOW?
Build Organization Structure. Assign major tasks and assignments. Create subtasks. Allocate resources and link to plans. Evaluate to insure proper Feedback. Design proper policies and procedures.
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HOW?
Build Organization Culture. Exercise true leadership. Identify lines of authority. Develop Employee Relations. Determine span of supervision. Enforce Work Ethics.
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insure that all Plans and Tactics developed are implemented effectively. HOW?
Tie objectives to specific measures of Performance (KPI). Check quality of Outputs. Analyze results. Link results to the Big Picture WHAT WENT WRONG?
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History of Purchasing
Since ancient times, human beings needed to exchange goods as important means of their survival. Therefore, Barter deals were created to serve the purpose where people w exchanged goods and commodities they had with the ones they did not have. With the invention of Money such practice developed to allow people fulfill their needs through the exchange of money which laid the basic principles of Modern Purchasing which will be explored in this presentation. 18
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Purchasing Management:
A- Definition B- Importance/ Fundamentals C- Objectives D- Role and Duties
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A- Definition
Purchasing refers to a function in business whereby the enterprise obtains the Inputs for what it produces, as well as other goods and services it requires. In larger businesses, the function is frequently carried out in a Purchase Department, headed by a Purchasing Manager Purchasing is the informal name of the department in Procurement responsible for issuing Purchase Orders for goods, including material and equipment. In most US Corporations, Purchasing Agents are typically referred to as Purchasing Specialists or simply as Buyers.
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B- Importance/ Fundamentals
Major cost center Affects quality of final product Aids strategy of low cost, response, and differentiation
Fundamentals
Understand the Requirement Perform Analysis Prepare for Negotiations Execute Always Document
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C- Objectives
Help identify the products and services that can be best obtained externally; and Develop, evaluate, and determine the best supplier, price, and delivery for those products and services Develop and implement purchasing plans for products and services that support operations strategies
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Negotiating contracts
Maintaining a database of suppliers Obtaining goods and services Managing supplies
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The Purchasing Chain:
A- Focus B- Interfaces C- Cycle D- Centralized VS Decentralized E- Work Process
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A- Focus
Materials Management -High transportation cost -High inventory costs Purchasing Management -Commodity items -Standard products Supply Management -High costs -Scarcity: national or international
B- Interfaces
Legal
Operations
Accounting
Purchasing
Data processing
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C- Cycle
1.Requisition received
Operations Legal
Accounting
2.Supplier selected
3.Order is placed
Purchasing Data Processing
4.Monitor orders
5.Receive orders
Receiving Suppliers 28 Design
D- Centralized VS Decentralized
Centralized Purchasing
Purchasing is handled by one special department. (Recommended to exercise proper control)
Decentralized Purchasing
Individual departments or separate locations handle their own purchasing requirements
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E- Work Process
Customer
Purchase Order Receivables Report Accounts Payable Mail Receiving Dock
Supplier
Order Processing
Reconcile
Check
Accounts Receivable
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The formal request for a quotation is known as an Request for Quotation (RFQ) or Request for Proposal (RFP), depending on the complexity of the material or service.
The RFQ/RFP can be as simple as text written in an email, to a complex document requesting engineered drawings, manufacturing locations, multiple points of contact at each branch location, and financial statements.
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Purchasing Strategy & Forecasting and Research
A- Types of Strategies B- Make or Buy Decision C- Strategic Partnering D- Forecasting E- Research Techniques
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Vertical Integration
Choosing between making or buying an item is largely dependent on the vertical integration strategy of A company.
By vertical integration, we mean developing the ability to produce goods or services that are previously purchased.
It can take the form of forward or backward integration
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RAW MATERIAL
CURRENT PRODUCTION
BUYERS
STEEL
AUTOMOBILE
DEALERS
SILICON
CURCUIT BOARDS
COMPUTERS
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C- Strategic Partnering
Who is going to supply your need? How many suppliers will you work with? Many business firms in the world borrowed the Japanese concept of extremely close supplier interactions and cooperation. This strategic partnering involves
Selecting the best suppliers, Working closely with them, and Entering into long-term relationship based on mutual need and trust.
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D- Forecasting
How much and what time are you going to buy?
Some of the major forecasting areas are (1) Economic Forecasting, (2) Technological Forecasting, and (3) Demand Forecasting.
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Economic Forecast
Economic forecast is a prediction of what general business conditions will be in the future. Some examples of economic forecasting are: inflation rates, gross national product, personal income, tax revenues, level of employment, and so on.
Economic forecast is usually made by government agencies, banks, and econometric forecasting services.
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Technological Forecast
Technological forecast predicts the probability and significance of possible future developments in technology.
What technology will the firms competitors incorporate into their products and processes? Are there any technological advances with which the firm can create a competitive advantage?
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Technological Forecast
For example, development of electric cars seems like a challenging shift for car manufacturers. But what time and how will they be in the market is a concern of technological forecasting.
The forward-thinking 2005 gas/electric Prius with Hybrid Synergy Drive offers fuel economy and cutting-edge available features like Bluetooth technology -- all with the performance of a conventional car. Plus, you never need to plug-in for recharging.
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Demand Forecast
Demand Forecast predicts the quantity and timing of demand for a product or material.
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Forecasting Methods
A forecast can be developed through either a subjective approach or an objective approach. Subjective approaches are qualitative in nature and they are usually based on the opinions of people (that is why they are subjective). Objective approaches involve quantitative methods and mathematical formulations. (They can also be referred as statistical forecasting)
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E- Research Techniques
Supplier investigation: competencies, capacities, credit rating, service quality Our dependency on particular suppliers Competitor information Advising suppliers on how to meet our quality requirements Economic forecasting & the supplier Purchase targets & their attainment Financial targets & our profit plan Value analysis - of buying processes & items we buy Our quality/service requirements & control methods
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Purchasing and Supply Chain Management
A- Purchasing in the Supply Chain B- Objectives and Strategies C- Functions and activities D- Benefits of SCM to Purchasing
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Market Assessment
Supplier Selection Requirement Definition Proposal Evaluation Contract preparation System Development
Bid Evaluation
Business Need
Procurement Strategy
Contract Management
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Plan
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Performance Parameters
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Suppliers Analysis and Selection
A- Price Analysis B- Identifying Cost Drivers C- Cost Effective Programs D- Vendor Selection Steps E- Negotiations Strategies/Skills
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Risk
Most cost estimates include a "point estimate" In most cases, the point estimate is one of a range of possible costs There are usually variances between projected and actual costs
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Cost Risk
Increases when market prices are unstable or cost information is lacking There are a variety of methods for reducing and controlling contract cost, among the most important are the appropriate use of:
An appropriate contract type Clear technical requirements Public body furnished property Other contract terms and conditions
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Vendor development
Integrating buyer & supplier
Example: Electronic data exchange
Negotiations
Results in contract Specifies period of agreement, price, delivery terms etc.
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Service
Delivery on time Condition on arrival Technical support Training
Product
Quality Price
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E- Negotiation Strategies
Negotiation Types:
Cost-based price model - supplier opens its books to purchaser; price based upon fixed cost plus escalation clause for materials and labor Market-based price model - published price or index Competitive bidding - potential suppliers bid for contract
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Negotiation skills:
Researching sources, assessing sources, customer relationships management, win-win & mutual respect. Methods to keep costs down such as tendering Negotiate: preparation, the negotiation, completing the buy. Attention to detail Humor, patience, self-control, Avoid dramatics Analytical approach to problems Questioning & listening Verification - contract formulation & testing
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Pre-negotiation Documentation
Draft elements of a Price Negotiation Memorandum (PNM) before negotiations:
Purpose of the negotiation Description of the acquisition Exception's) used and its basis
Additional Documentation
Document important aspects of the procurement situation that affected pre-negotiation objectives, such as:
The items or services and quantities being purchased The place of contract performance The delivery schedule or period of performance Differences between the proposed delivery schedule and the objective schedule
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Suppliers Relationship Management
A- What is SRM? B- How to Build SRM? C- SRM Tool Set D- Supplier as a Partner
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Involve appropriate personnel Assess the relationship from your perspective Supplier assesses relationship independently Assessments form basis for initial conversations Focus on areas of agreement and disagreement Identify gaps Evaluate the leakage caused by these gaps Develop action plans to remedy the gaps Supplement existing metrics to evaluate progress Schedule periodic assessments 76
Strategic Sourcing
Demand Mgt
SRM
Processes were viewed as linear and separate. A separate dedicated SRM team was envisioned.
All processes are interrelated. Our Commodity Managers bear primary responsibility. No separate COE to hand off to.
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D- Supplier as a Partner
Aspect
Number of suppliers
Adversary
Many
Partner
One or a few
Length of relationship
Low price Reliability Openness
May be brief
Major consideration May not be high Low
Long-term
Moderately important High High
Quality
Volume of business Flexibility Location
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Purchasing Problems and Control Methods
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Purchasing Problems
How goods are received can be a headache Receiving problems are credit/payment problems Errors & confusions cause delays & more processing Transactions on goods received:
correct Order Ref, quantity, specification & pricing Items shipped match PO & invoiced quantity? split shipments - item consolidation? How? reaction to shortage
What % of invoices are paid via auto-pay? When do we have to pay? If it is valuable someone will steal it !!!!
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Control Methods
Procurement procedures, processes & policies (incl. ethical code re-transparency & declaration of interest). Risk analysis. Random audits of different contracts & procurement projects. Financial limits e.g. open-to buy, how much each buyer can commit Disciplinary how to comply with policies Rotations: buyers not too close to favorite 86 suppliers
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What is e-procurement?
The combined use of information and communication technology through electronic means to enhance internal and external purchasing and supply management processes.
Resolving the issue of the long tail low value paper Purchases
Why e-procurement ?
Quick, easy, internet-based access to vendors to negotiated agreements. Maximizes the total value of the suppliers relationship. Targets high-transaction users, traditionally. Allows further development of the relationship between suppliers and consumers.
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SERVICES Supplier connectivity Extensive product taxonomy Centralized e-Catalogs Price/content management Transaction integrity Transaction tracking
TRANSACTION DATA
Purchase Order Advanced Ship Notification Invoicing Receipt notification Contract data Payment data
Reduction
Shorten requisition to order cycle for term-contract purchases Shorten bid-to-award cycle time for competitive bidding process
costs:
Reduction in Vendor Management administrative efforts Reduction in competitive bidding administrative efforts Reduction in term-contract creation and distribution administrative efforts
More
Better
Components of E-Procurement
E-Procurement Functional Requirements:
1. VENDOR MANAGEMENT
Integrated, Internet-based, self-service Vendor Management System.
3. E-CATALOGS
Graphical Internet-based Electronic Catalog System on every desktop with current, negotiated pricing and approved vendors.
Vendors in-line
Existing Procurement Application
Manual / Paper
Manual / Paper
Manual / Paper
Buyers
Future Process
Organization
FIREWALL
External Vendors
Vendors on-line
Administrative Time
Manual / Paper
Procurement Application
Vendors
FIREWALL
Procurement Personnel
Vendor Organizations
Intranet
Intranet
WFD Field Operators
HTML
Bids
Internet
Responses
Solicitation Automation EProcurement Module
FIREWALL
Time
Strategic Sourcing
e Procurement Implementation
Time
At the End..
Thank you