1. Diploma in Procurement & Supply Business needs in Procurement & Supply Session 1 Business Needs and Procurement Decisions

2. Session Learning Outcomes On completion of this session you should be able to:  Analyse how business needs influence procurement decisions  Explain the criteria that can be applied in the creation of a business case Syllabus references 1.1., 1.3.

3. What are business needs?  Organisation’s needs certain inputs (things) in order to perform their activities and achieve their objectives  These things may be classed as goods or services  Procurement are notified of the need for these inputs in a variety of ways  The task of procurement is to meet these needs through achieving what is called the “5 Rights” of Procurement.

4. The five rights of procurement Products of the right quality, supplied  in the right quantity  to the right place  at the right time  for the right price

5. Development of procurement Reck and Long identify four strategic stages of the development of a procurement function  Passive  Independent  Supportive  Integrative

6. The procurement cycle

7. Identifying needs Someone in the organisation needs something That need cannot be met Procurement are notified

8. Notifying Procurement  Requisition form  Bill of Materials (BOM)  Feasibility study / cost benefit analysis / business case

9. Bill of Materials

10. Business Case A Business Case:  aims to gain approval for a project or activity requiring significant organisational commitment by clearly demonstrating how it meets the needs of the business / its business benefits We will be discussing Business Cases in more detail later.

11. Defining needs  Specifications  Service level agreements (SLA’s)  Contract terms  Key performance indicators (KPI’s)

12. Types of purchases Below are three generally accepted categories of business to business (B2B) purchases.  Straight re-buy  Modified re-buy  New buy

13. New buy A new buy offers procurement the opportunity to:  undertake purchasing research  undertake value engineering  promote early buyer involvement (EBI)  promote early supplier involvement (ESI)  develop specifications, SLA’s, contract terms, KPI’s, etc

14. Procurement categories  Capital procurements  Production materials  Maintenance report and operating (MRO) supplies  Commodities  Goods for resale

15. The Kraljic procurement portfolio matrix

16. The Business Case in more detail The main objectives of the Business Case Process include:  Fostering strategic, business-focused thinking  Improving the efficiency and quality of decision-making  Enabling management to evaluate proposals for feasibility, suitability and acceptability  Enabling management to compare alternatives and options  Establishing measurable yardsticks by which the subsequent performance, deliverables or outcomes of projects can be evaluated  Is the project or asset achieving the business case benefits anticipated?  Are the assumptions made in the business case turning out to be accurate?  Is the business case justification for the project still valid?

17. An informal business case structure

18. A formal business case structure  Executive summary  Reference  Context  Value proposition  Scope  Deliverables  Impacts  Work planning  Resource requirements  Risk management and contingency plans  Commitments

19. Cost benefit analysis Costs£ Computer equipment: 8 PCs @ £1,0008,000 1 server @ £1,2001,200 2 printers @ £400 800 Installation and technical support1,800 Purchasing management software3,200 Staff training: Introductory computing (6 people × £200)1,200 Purchasing management system (8 people × £400)3,200 Other costs: Lost time (20 person days @ £100 per day)2,000 Cost of errors/wastage through initial inefficiencies (estimate)5,000 Total cost 26,400 Benefits (estimate, per year)£ Improved efficiency of ordering and expediting 20,000 Improved supplier selection and management 10,000 Improved planning and control through supply information 15,000 Total benefit (per year) 45,000 Benefit/cost ratio: 45,000/26,400 = 1.70 (positive) Payback time: 26,400/45,000 = 0.59 year = approximately 7 months

20. Lease or buy?

21. Corporate and purchasing objectives

22. Tactical objectives and timescales A business case must also ensure that the procurement will for example:  Secure supply within the timescales required by wider production, marketing or project plans  Secure adequate levels of performance and process control within the timescales required by wider organisational and project plans  Be feasible within existing resource constraints  Be capable of fulfilling agreed specifications and achieving agreed objectives, standards, targets and KPIs