PURCHASING & PROCUREMENT 1

Purchasing & Procurement

Sahil Thapar

8645611

Purchasing- SCM 115-78

Ankur Sandal

June 21, 2020

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Purchasing

Purchasing is a process used by the companies to obtain goods and services

required to fulfill the business objectives. The company tries to obtain the goods and

services in a timely and cost-effective manner (Supply Chain Game Changer, May 19 th,

2020).

Purchasing can be termed into two different categories-

 Traditional Purchasing- This included basic elements of purchasing and

was used majorly in the late 20th century by the businesses. Elements such

as requisitioning, purchase orders, and invoicing played a major part. The

procurement process was considered more clerical than strategic and

focused on ensuring that appropriate quantity of goods was purchased at a

lower cost at the right time. Less focus was laid on quality control since raw

materials were not carefully examined when purchased, resulting in many

product recalls.

 Electronic Purchasing- Involves acquiring and selling the products and

services by way of an automated process or through electronic methods. In

the new digital era, corporations are rapidly utilising online processes to

operate their supply chains more effectively, more reliably, more transparently

and more safely. E-purchasing systems provide up-to - date information

regarding the status of the needs of buyers. They allow the establishment of a

deal with a seller to ship materials automatically when a buyer's stock

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reaches a low point. This also applies to the solicitation phase where buyers

can track incoming offers prior to supplier selection (United Nations, n.d.).

Purchasing plays an important role in supply chain by focusing on various

grounds listed below-

 Lower Costs- This can be termed as by far the most important objective.

Lowering product acquisition cost will allow for the company to enjoy

immediate savings and higher profits (BDC, n.d.).

 Risk Reduction and Secured Supply- Risk should be adequately managed

and moved on to suppliers who are able to manage it. Appropriate decisions

shall be made by the management with regards to importance of the goods

and services so that appropriate steps can be taken to secure supply chains

(BDC, n.d.).

 Manage Relationships- Long term relationships shall be maintained with the

suppliers. This is possible by passing on the benefits to the suppliers as well

(BDC, n.d.).

 Improve Quality- Target performance levels should be set to have quality

improvements with respect to durability and longevity of the products (BDC,

n.d.).

Procurement

Procurement is the process of purchasing products or services, usually for

commercial purposes. Procurement is more frequently correlated with corporations

since, typically on a broad scale, organisations tend to request resources or purchase

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products. Procurement generally refers to the final purchasing act, but it can also

include the overall procurement process that may be of critical importance to companies

leading up to their final purchasing decision (Young, J, July 5 th, 2019).

Like Purchasing procurement can also be termed into two different categories-

 Traditional Procurement- In the last few decades, procurement has

developed into a specialist business activity, since the push towards low-cost

goods and items has contributed to the substitution of traditional, 'domestic'

manufacturers with foreign vendors, pushing towards the new 'low-cost'

environment. First supplies and parts fell into focus for goods, then

consumables, facilities, machinery and repair groups, as practical teams

turned over their buying obligations. Traditional Procurement departments

compile bid quantities and bargain against the given criteria, finding 'best

value' to secure the lowest cost suppliers.

 E-Procurement- Most companies tend to use sluggish, unreliable resources

such as document, email, and spreadsheets to handle their transactions. This

can lead to serious problems, including carrying too much or too little

inventory, missing opportunities for cost-savings and enduring frustrating

inefficiencies. E-Procurement pops up as a solution to these problems with

the help of numerous cloud-based platforms that help the companies to plan,

track and efficiently manage purchases.

E- Procurement systems can make recommendations based on on-the-shelf

inventory, pre-set high and low levels, orders already placed and even
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forecasted customer demand. In addition, the system can analyse historical

data to adjust your purchase to seasonal demand and other variations.

Importance of Procurement in supply chain-

E-procurement often offers substantial benefits to the purchasing

organization, such as-

 Cost Savings- Integrated management systems help track expenses and

optimise efficiency, eliminating overhead and paperwork. Fully automated

systems streamline processes and the creation of an order to fulfil can result

in a faster cycle. There is also the prospect of a broader range of goods and

services (Michigan State University, October 7th, 2019).

 Shorter Purchasing Cycles- Centralized monitoring of purchases simplifies

documentation of deliveries, transfers and requisitions as well as maintaining

contract conformity, both of which will shorten distribution times. Buyers have

access to the products, services and prices that are available electronically

(Michigan State University, October 7th, 2019).

 Improved Inventory Control- Procurement professionals are able to locate

products from preferred suppliers quickly and are limited to the purchases

they can make, so inventory is better managed (Michigan State University,

October 7th, 2019).

 Transparency- The data is centralised and can, where applicable, be made

accessible to management, partners, creditors or the media (Michigan State

University, October 7th, 2019).

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TOOLS AND APPLICATIONS USED IN E-PROCUREMENT

Many businesses outsource their e procurement requirements to third party

procurement service providers (PSPs), who plan and operate internet-based

procurement services for a fee on their behalf. A business takes time and money to

build market knowledge in any area of spending. A PSP 's assistance enhances the

probability that judgments about the acquisition of businesses stay strategic.

Some e-procurement tools and applications include:

 electronic systems to support traditional procurement- Which comprise

mainframes and PCs, Electronic Data Interchange (EDI), and Enterprise

Resource Planning (ERP) (UN, 2012).

 EDI (electronic data interchange)- EDI is an application where computer

programs of two separate organizations can exchange electronic messages (UN,

2012).

 ERP systems- ERP systems are information management systems that

incorporate and automate many of the business practices linked with a company

or organization 's operations. ERP systems usually handle a company or

organization’s production, logistics, distribution, inventory, shipping, invoicing,

and accounting. ERPs help in controlling many business activities, such as sales,

delivery, billing, production, procurement, inventory management, and managing

human resources (UN, 2012).

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 internet as a support or complement to traditional procurement- There are

various types of internet-based applications that serve different purposes. Some

well-known applications that use the internet are described below:

 electronic mail (e-mail)- Internet based application to share electronic

messages between people (UN, 2012).

 web enabled EDI- Same as traditional EDI as above but runs on the internet

(UN, 2012).

 extensible markup language (XML)- Allows easy exchange of documents over

the internet (UN, 2012).

 world wide web (www)- The World Wide Web consists of "Web servers" that

store and disseminate "Web pages," which are "rich" documents that contain

text, graphics, animations, and videos to anyone with an Internet link (UN, 2012).

 internet tools and platforms that replace traditional procurement- Some

internet tools and platforms that replace traditional procurement include E-

sourcing, E-tendering, E- auctioning, E-ordering and web-based ERP, E-

information(UN, 2012).
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References

Supply Chain Game Changer (2020). What Exactly Is Procurement? And What is

Purchasing? Retrieved June 21, 2020, from

https://supplychaingamechanger.com/what-exactly-is-procurement-and-what-is-

purchasing/

BDC (n.d.). 6 Ways the purchasing department can improve your business. Retrieved

June 21, 2020, from https://www.bdc.ca/en/articles-

tools/operations/purchasing/pages/purchasing-department-objectives.aspx

United Nations (n.d.). E-Purchasing. Retrieved June 21, 2020, from

http://tfig.unece.org/contents/e-purchasing.htm

Young, J (2019). Procurement. Retrieved June 21, 2020, From

https://www.investopedia.com/terms/p/procurement.asp

Michigan State University (2019). E-procurement helps online information exchange

between Buyers and Suppliers. Retrieved June 21, 2020, from

https://www.michiganstateuniversityonline.com/resources/supply-chain/e-

procurement-helps-online-information-exchange-between-buyers-suppliers/

UN (2012). E-Procurement. Retrieved June 21, 2020, from

https://www.ungm.org/Areas/Public/pph/ch04s02.html
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