Steps in the Procurement Process
Materials Management
Follow-Up / Expediting the Oder and Receipt / Inspection
Recognition of Need
Greatest opportunity to affect value exists in this step.
Commodity Management
Identification / Selection of Suppliers and Preparation and Placement of PO
Step 3
Identification of Potential Sources
Receipt and inspection
Inspection may be bypassed for small-value purchases.
Description of need
Internal clarity: is the need described in a proper nomenclature (e.g., SKU)?
Description of need
Internal clearance: review the description before making a purchasing order. Optimality check
Receipt and inspection
Purpose of receiving - confirm arrival, check quality and quantity, forward shipments to destinations, ensure proper documentations
Follow - up and expediting (Follow Up)
Routine order tracking to ensure the delivery
Follow - up and expediting (Expediting)
Use of expediting should be subject to cost and benefit analysis
Recognition of Need
What and how much, and when it is needed: needs of users
Receipt and inspection
When quality is assured though a good supplier selection process and supplier relationship management, inspection may not be necessary
Invoice clearing and payment
When the purchasing order, invoice, and receiving are matched, the accounting issues payment
Recognition of Need
Which step represents the greatest opportunity to affect value?
Identification of potential sources / Supplier selection and determination of terms
Communication with potential suppliers Request for information (RFI) , Request for quotation (RFQ) , Request for proposal (RFP) , Request for bid (RFB) ,
Recognition of Need
Cross - functional sourcing teams and early supplier involvement
Step 2
Description of Need
Administration / Accounting
Invoice Clearing / Payment
Step 8
Invoice and Clearing Payment
Invoice clearing and payment
Lack of alignment between accounting and supply creates delay in payment which harms a good buyer-supplier relationship
Administration / Commodity
Maintenance of Records / Relationships
Step 9
Maintenance of Records and Relationships
Preparation and placement of the purchase order
Purchase Order (PO)-A document issued by a buyer or seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer; Sending a PO does not constitute a contract until it has been accepted by the seller
Maintenance of records and relationships
Purchase order, supplier history, and other related documents are stored for legal purposes.
Step 7
Receipt and Inspection
Step 1
Recognition of Need
Cross Functional Teams
Recognition of Need and Description of Need
Follow - up and expediting (Expediting)
Recurring use of expediting may suggest that the buyer's purchasing process needs improvements
Maintenance of records and relationships
Relationship with key supply chain stakeholders should be developed, assessed, and maintained throughout the supply process
Description of need
Requisition — a gatekeeping tool to manage information flow through authority, internal clarity, and internal clearance
Step 4
Supplier Selection and Determination of Terms
Identification of potential sources / Supplier selection and determination of terms
Supplier selection will be featured in future slides
Recognition of Need
Supply department tracks market conditions and place orders in advance.
Recognition of Need
Supply policy guide users to align with corporate goals.
Description of need
Types of requisition: Standard requisition — date, ID, department, account charged, items and quantity, date needed by, delivery instruction, signature; Bill of Materials (BOM) requisition — line items that make one end units; Inventory requisition — needs met by inventor
Preparation and placement of the purchase order
Blanket PO - Purchase order that covers a period of time, used for recurring needs for expendable goods
Step 5
Preparation and Placement of the Purchase Order
Follow - up and expediting (Expediting)
Application of pressure on supplier to meet the delivery date, deliver ahead of schedule, or speed up delivery of delayed order
Description of need
Authority: does the requisitioner have the authority to make the specified request?
Step 6
Follow-Up and Expediting
Follow - up and expediting (Follow Up)
May be built into the electronic system for low-value purchases
Preparation and placement of the purchase order
Open-End PO - Addition of items and/or extension of time
Maintenance of records and relationships
These data can also be used to improve future purchasing decisions.
Invoice clearing and payment
Top management may put account payable and supply into one department to achieve goal alignment