Managing Purchasing Relationship

Topics: Procurement, Supply chain management, Purchasing Pages: 9 (920 words) Published: September 20, 2013
PSM-504:
Managing Purchasing
and Supply
Relationships

Developed by Rashed Morshed MCIPS

1

A Generic Procurement Cycle

Developed by Rashed Morshed MCIPS

2

Purchasing Process

• Pre-contract-award Stages
• Post Contract-award Stages

Developed by Rashed Morshed MCIPS

3

Procurement

Procurement means the purchasing or hiring of Goods, or
acquisition of Goods through purchasing and hiring, and the
execution of Works and performance of Services by any
contractual means

Procurement is a systematic PROCESS

Developed by Rashed Morshed MCIPS

4

What is Sourcing

• Sourcing is basically that part of the
procurement process that is concerned with
‘how and where services or products are
obtained’ (CIPS)
• Lysons and Farrington define it as ‘the
process of identifying, selecting and
developing suppliers.

Developed by Rashed Morshed MCIPS

5

Difference between Purchasing, Procurement and Sourcing

Purchasing refers to the specific activity of committing expenditure and which tends to focus on issues of price rather than of value. Put simply, procurement is the complete process of acquiring goods, services and works from suppliers. The procurement process takes into account factors such as the cost over the life of the good or service, and the quality necessary to meet users' requirements.

Sourcing goes to a more strategic level and for long-term benefits, wherein supplier selection is critical and efforts are focused towards joint risk management activities. However, this also includes everything explained under Procurement and purchasing.

Developed by Rashed Morshed MCIPS

6

Difference between Purchasing, Procurement and Sourcing

Simple procurement may involve nothing more than
repeat purchasing.
‘Purchasing’ was still viewed by much of the business world as an administrative function, linked back to order management. Whilst ‘procurement’ steps away from the transactional side and is seen as more of a strategic function.

Procurement is concerned with the overall gathering of resources, while purchasing is the specific act of acquiring something by paying money for it. Purchasing is one form of procurement.

Developed by Rashed Morshed MCIPS

7

Procurement takes over where
sourcing leaves off

Developed by Rashed Morshed MCIPS

8

Different Purchase Contexts

• Straight re-buy
• Modified re-buy
• New buy

Developed by Rashed Morshed MCIPS

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Purchasing and Supply Relationships

A business relationship, varying in its
degree of closeness, between the
people of two organisations for the
supply of goods, works and services
with the objective of benefit for all
parties and normally profit for at least
one party.
Developed by Rashed Morshed MCIPS

10

Scope of Purchasing



To supply the organization with a flow of materials and services to meet its needs.



To ensure continuity of supply by maintaining effective
relationships with existing sources and by developing other
sources of supply.



To buy efficiently and wisely, obtaining by ethical means the best value for money.



To select the best suppliers in the market.



To protect the company’s cost structure.



To maintain the correct quality/value balance.

Developed by Rashed Morshed MCIPS
11

Purchasing and supply

The purchasing function of an organization involves the acquisition of supplies or inputs to the organization’s activities.
Many organizations have purchasing division/department/unit to carry out purchasing function
The basic objective of purchasing is to ensure 5 R.
Supply is the act/process of providing something or making something available. It involves the transferor flow of goods, services and information from one party to another.

Developed by Rashed Morshed MCIPS
12

Purchasing and supply (Cont…)

Supply often happens in a longer chain of activity-the output of a supplier become the...
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