1. Purchasing & SCM

2. Purchasing “Musts” Right “stuff” Right price Right quality
Right quantity
Right time
Right place
Right source (?)

3. 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

4. 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

5. Typical Purchasing Cycle
Using Purchasing Inventory Inspection Receiving Accounting Supplier
Step Activity department department control department department department
department
1 Using (or control) department
issues P.R., MRPS, or B/M
1a Check to see if material is in stock
File
2 Investigate and qualify potential sources;
negotiate, determining price, terms, and
conditions; then select supplier. Issue
P.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 material
against packing slip and P.O., and issues
R.R. (This step is omitted in some JIT
and partnership purchases.)
7 In cases requiring technical inspection,
inspection department inspects material
and issues I.R.
8 Purchasing department closes order
9 Supplier issues invoices in multiple copies
10 Accounting department checks invoices
against P.O., R.R., and I.R. and issues
voucher 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. #1 1 1a
P.R. #2
P.O. #5
P.O. #1 and acknowledgment form #2
P.O. #6
Follow-up inquiry
Follow-up response
P.O. #7
& P.R. #1
Material and packing slip
Working
file
Follow-up
P.O. #4
R.R. #1, #2, #3
Acknowledgment form
Material 2
P.O. #3 3 4 5 6 7
Use
R.R. #3 and I.R. #3
to using or control dept.
Closed
order file 9 10 8
P.O. #6,#7
Acknowledgement
R.R. #1 & I.R. #1
Other Correspondence
R.R.#1 & I.R. #1
R.R.#2 & I.R. #2
I.R.#4
Invoice
R.R.#2
I.R. #2
Voucher

6. 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

7. The Purchasing System 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

8. The Purchasing System Handling Small Orders (continued)
Establish electronic linkage
Adjust authority levels
Use integrated suppliers
Low-value order placement is outsourced to 3rd party
Users place orders directly

9. The Purchasing System 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

10. The Purchasing System 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

11. The Purchasing System 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

12. The Purchasing System 2. Accurate description of desired commodity
or service
Information that should be included on the requisition:
Date
Identification number
Originating department
Account to be charged
Complete description of material desired and quantity
Date material needed
Any special shipping instructions
Signature of authorized requisitioner

13. The Purchasing System 2. Accurate Description (continued)
Blanket and open-end orders – cover a variety of items
Stockless Buying or Systems Contracting – more sophisticated:
Periodic billing procedures
Allow non-purchasing personnel to issue order releases
Employ special catalogues
Require suppliers to maintain minimum inventory levels
Do not specify volume of contract items
Improve inventory turnover rates
Third-party consolidator (e.g., MRO)

14. The Purchasing System 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

15. The Purchasing System 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

16. The Purchasing System 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

17. The Purchasing System 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

18. The Purchasing System 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

19. The Purchasing System 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

20. The Purchasing System 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

21. The Purchasing System 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

22. The Purchasing System 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

23. Purchasing Documents Purchase Requisition Request for Quotation
Purchase Order
Receiving Report Form
Systems Contracting
Blanket Purchase Order

24. Typical Purchase Requisition Form

25. Typical Request for Quotation Form

26. Typical Purchase Order Form

27. Receiving Report Form