PROCUREMENT MANAGEMENT
BY
Nur Syariz Bin Rizal | DPM5A
Nurfariza Hanim Binti Zulkefli | DPM5A
Wan Nur Arina Binti Wan Zubaidi | DPM5A
Nur Hamira Binti Hamdan | DPM5A
Muhammad Ariff Bin Zamri | DPM5A
Introduction
Procurement can be define as is the acquisition of goods or services in supply chain management. It is the goods or services that are very favourable and appropriate. Besides, they are procured at the best cost to meet the needs of the purchaser in terms of quality and quantity, time, and location that specified. The factors of purchasing are delivery and handling, benefit, and pricing and buying decisions under conditions of scarcity limited resources. Procurement can be simple purchasing arrangement with a supplier that may also involve a more complex arrangement with the seller or a group of suppliers that ties required quantity, quality, and delivery into a production process.
The stages of procurement include information gathering (i.e. who are potential suppliers), supplier contacts (i.e. gathering information about the potential suppliers, background reviews (i.e. vetting, screening, checking references of potential suppliers), negotiations (i.e. setting the price and terms), fulfillment (i.e. delivery and installation), consumption, maintenance, and disposal (i.e. monitoring the actual delivery and use of the supplies or equipment), and renewal (i.e. reorders and continuing relationship with the supplier).
For example, direct procurement systems involve the integration of purchasing into a company’s supply-chain management system, delivering the right supplies at the right time. This procurement method is classified in manufacturing systems as “just-in-time,” which minimizes inventory holding costs and ensures the smooth delivery of supplies needed in the manufacturing process.
Primarily, a procurement process ensures that the company’s purchasing is competitive, fair, and provides the best possible prices available in the market. Because of the efficiencies gained through a formal procurement process, procurement is an important systems component in a company’s overall management structure. Some problems on a company’s cash flow and balance sheet can be traced to problems with procurement, including holding supplies and inventory too long and having the terms of payables for supplies not matched their respective receivables.This diagram show the importance of procurement in the role of sourcing in supply chain.
1.0 Type of Procurement
1.1 Direct Procurement
Direct procurement is an act of purchasing raw materials and good for production. This purchase usually had been done in large quantity which is acquired from a bunch of suppliers at the best possible prices, quality and reliability. These purchase is made frequently. As example, a baker buying a pack of flour to make bread.
If this process are stop functioning, the company will no longer able to produce the goods and create money.
Importantly, direct company is likely as a branch of manufacturing.
1.2 Indirect Procurement
Indirect procurement is an act of getting services or supplies to keep the business alive from a day to day. A way of defining indirect procurement is that it does not involved in production such as repairing machinery, buying the office utensil, or getting services.
Without direct procurement, the business cannot perform in effective ways. Historically, indirect procurement is about 15 – 17 % includes of a company’s revenue.
2.0 Procurement Management Action
2.1 Plan
The company must have knowledge in obtaining products or services. This diagram below show the stages in procurement process for the company to follow from identifying the needs of a company until the final stages. By following the stages, the management of a company can successfully achieve the company’s goal without complication. beside
Procurement management starts with figuring what a company needs to achieve its long-terms business goal. This could be done by meeting with company executives and stakeholders besides all stakeholders have their own specific needs with regards to procurement management.
The procurement department will always stay alert of what is needed to satisfy the needs of internal and as well as external customers. Once this is done, they will formulating findings into a document. These guidelines will be procurement policy that will help company to execute the plan.
The business goals and objectives are the main factors to make a smooth procurement management that will helps the company to achieve its goals or objectives. The goals help the company in identifying the solution in making better procurement management.
2.1.1 Stakeholder need
The stakeholder usually have their own specified needs with regards to procurement management. The best solution to define them is have meeting with them by using survey. This will be continuous process because needs and expectations always change along the times.
2.1.2 Current Capability
By evaluating the company and the recent procurement process capabilities will help the companies to understand where they are today and what kinds of skills, resources and tools that they need to use to execute their plans in future.
2.1.3 Procurement Policy
The procurement department will formulate findings and plans into a document. This also known as procurement policy that states how all process is being carried out. The policy will be presented for all authorities involved. Then, the higher-ups will make decision and after the decision is made, the company will immediately to follow it for all procurement process.
2.2 Align
The higher-ups will value the procurement team that carried out the procurement process and give support to keep the work in highly motivated , informed and trained.
At the same time the leader of procurement team will observe their current team if they has all necessary skills, motivation and resources to carry out the procurement process that be defined in the procurement policy. If their current team is no fulfill all the requirement, the leader need to increase their motivation or supplement their resources. The leader will always observe their team to make sure them has a deep knowledge of the specific industry areas to procure the needed goods and services for the company
If the company need to hire new team members, they will find out external options.
2.2.1 Skilled Team
Procurement is in a constant state of flux. The company as well as modern procurement methods, software and big data are changing the procurement landscape. If the company need keep their team on top of latest developments by training and participating in professional organizations and industry conferences.
2.2.2 Motivational Work Environment.
The team should participating in analyzing and planning procurement process and ensuring they are aware of the steps required the document and complete the process without delays and confrontation that can cause discontentment and subpar productivity. The higher-ups need to run regular employee satisfaction surveys and use the results to keep the work environment as motivational as possible.
2.2.3 Strategic Partners
They are the supplier whim the company have a close relationship and the company wellbeing depends on the goods or services that the supplier delivered. The company need to develop a long term plans and strategies with strategic partner, by treating the supplier as a team members that the company can afford to lose.
2.2.4 Centralized, decentralized and central-led procurement process
The procurement department need to decide the best way to set up the procurement management process in the company. In can be centralized, where all activities controlled by procurement department. Or decentralized, where every department controlled their activities in their department, or center-led which is a combination of centralized and decentralized.
2.3 Procure
Now the company need to to set up a streamlined and efficient process to support their highly motivated, skilled team. This way the company can make sure their team focus on satisfying the needs of the internal customer and does not waste time in dealing with bureaucracy.
By selecting the right tools can make it easy to follow the procurement process, get real-time overview and reduce manual labor, saving buyer’s valuable times.
The following methods should be part of communications with supplier. When dealing with strategic partners, the process can bemore personalized.
2.3.1 Finding Suppliers
The company should always refresh their supplier list by looking for new ones online, at trade fares and so on. By doing it, the company can keep bidding competition high and find vendors that can give a competitive advantage over the competitors.
2.3.2 Tenders and RFP processes
The procurement department should use tendering methods such as RFPs, RFIs, RFQs and reverse auctions un order to determine supplier and asks for a bids. Based on the biddings, they can filter out the supplier that can help them in acquiring the highest quality and cost standard products and services on the market.
2.3.3 High and low value requests
For running strategic and high values and respects, they can use qualitative methods constantly. Running these requires skill, tools, attention to detail, and more resources. The company’s lower value requests may be run by more quantitative ways which is by selecting the best three received bids.
2.3.4 Negotiations
By using qualitative procurement methods can determine if the supplier is trustworthy and their goods/services are at a top quality, to negotiate the price, and to minimize the delivery risks
2.3.5 Contracting and Delivery
Once the company select the best supplier, they will signs a contract with terms that both have agreed to. After starting working, the company need constantly be on the look out to make sure the goods/services that been delivered are on time and with expected quality.
2.4 Manage
To keep the procurement
2.1 Stage 1 – Need Recognition
Every business owner or procurement management must recognize what is needed for company in order to purchase it. The product that been recognized can be either a brand new item, or the one that is being reordered.
2.2 Stage 2 – Specific Need
The right product is very important to a company. Some of company have requirement for various product which make it more up to date on the requirement and order accordingly.
2.3 Stage 3 – Source Options
Every business needs to verify where to acquire the goods. Some company have their own an approved vendors list while the other may be searching for the supplier by doing research a variety of source such as magazines, internet and sale representative. The company will analyze whether the supplier is qualified or not for determine the best to the company.
2.4 Stage 4 – Price and Terms
If the supplier had been chosen, most of companies will stick with them and negotiate with them to determine the best price and terms for their product. It depends on company if they need readily available products or specialized materials. Commonly, the business will check out a few supplier before make final decision.
2.5 Stage 5 – Purchase Order
The purchase order is the formal contract used to buy the goods or products. The purchase order provides the prices, specifications, and terms and conditions of the goods/products or service and any other additional obligations.
2.6 Stage 6 – Delivery
The transfer of the purchase order via email, fax or mail. Most companies use email to transfer the purchase order.
2.7 Stage 7 – Expediting
This stage addresses how long of the service or goods delivered. Delays, for many business, are important. The purchase order will expected delivery date information.
2.8 Stage 8 – Receipt and Inspection
Once the goods delivered, the company that receives the goods will inspect and, subsequently, accepts or rejects the goods. Rejection is almost always due to a damaged goods.
2.9 Stage 2.9 – Invoice Approval and Payment
In this stage, there are three documents that important for a seller if the seller wants a payments which are invoice, the receiving document (attached to the product) and the original purchase order. This is known as three-way matching, if there are discrepancy, the must be resolved before payment is made.
2.10 Stage 10 – Record Keeping
The receiving or buying companies must keep goods record. This means saving all relevant document the involved.
3.0 Purchasing the Goods or Services that Company Needs
3.1 In purchasing the goods or services that company needs are on time, the best quality, and at the best price.
3.2 That’s procurement management of company will evaluate
Procurement Management –
The Sustainability Cycle:
a. Cost
b. Quality
c. Delivery
4.0 Procurement Management Plan