Need Identification and Specification Chapter 6 Need Identification and Specification ©McGraw-Hill Education. All rights reserved.

Key Questions Addressed in Chapter 6 How do we determine organizational needs? How do we translate and communicate these needs to (potential) suppliers?

Need Identification Criteria Strategic e.g., mission critical, total spend, risk reduction, access to new technology or new markets, assurance of supply in tight markets, etc. Traditional supply criteria quality, quantity, delivery, price and service Additional current criteria financial, risk, environmental, innovation, regulatory compliance and transparency, social and political factors ©McGraw-Hill Education. All rights reserved.

©McGraw-Hill Education. All rights reserved. Categories of Needs Category Description Resale Resellers comprise retailers, wholesalers, distributors, agents, brokers and traders. What they can resell covers the full range of the remaining categories. Raw and Semi-Processed Materials Most users of materials are converters, such as factories, and this category includes commodities, agricultural and industrial. Parts, Components and Packaging Assemblers use parts and components produced by their suppliers to create a finished product. Parts and components may be standard or special depending on the decision of the designer of the finished product. ©McGraw-Hill Education. All rights reserved.

©McGraw-Hill Education. All rights reserved. Categories of Needs Category Description MRO and SVP Every organization has MRO requirements and SVP’s. The availability of MRO suppliers is critical to maintain continued uninterrupted operation of the office, factory, facility, etc. Because many MRO requirements are relatively small in dollar value, SVP’s are also included in this category. For SVP’s assuring availability at minimum acquisition cost is a challenge. Capital Assets Any requirement that accountants classify as capital, and, therefore, an investment, becomes a capital item. Equipment, IT, real estate and construction are included in this category. Capital items can be depreciated, are often bought under a separate budgetary allocation and may require special financing arrangements. ©McGraw-Hill Education. All rights reserved.

©McGraw-Hill Education. All rights reserved. Categories of Needs Category Description Services Services are intangible and nonmanufactured. Every organization acquires a variety of services. Other Anything not covered by the above categories falls into this last one. Major requirements could be energy and water. This category would also include unusual and infrequent requirements, probably better dealt with on an ad hoc or project basis. ©McGraw-Hill Education. All rights reserved.

Opportunity to Affect Value High Opportunity to affect value Low 1. Need recognition 2. Description 3. Potential suppliers 4. Selection 5. Receipt Acquisition Process Steps ©McGraw-Hill Education. All rights reserved.

Methods of Description By brand “Or Equal” By specification Physical or chemical characteristics Material or method of manufacture Performance By engineering drawing By miscellaneous methods Market grades Sample By a combination of two or more methods ©McGraw-Hill Education. All rights reserved.