LOGISTICS

Chapter 02: Procurement Management

Lecturer: Nguyen Dang Quang Huy (MSc.)

huyndq@uef.edu.vn
 Learning outcomes

• Understand the distinction between procurement

and purchasing.

• Understand the difference between traditional

procurement and e-procurement.

• Understand how to use a P-card.

09/13/2020 Nguyen Dang Quang Huy (MSc.) 2

 Contents
Procurement Management

 Procurement & Purchasing

 Traditional procurement & e-procurement
 Procurement card
 Supplier selection & evaluation
 Quality issue in procurement
 Global procurement
 Procurement problems & challenges
 Case Study

09/13/2020 Nguyen Dang Quang Huy (MSc.) 3

 Learning Materials

Paul R. Murphy, Jr., A. Michael

Knemeyer., (2018). Contemporary
Logistics (12th edition).
Global Edition. Pearson

09/13/2020 Nguyen Dang Quang Huy (MSc.) 4

 PROCUREMENT MANAGEMENT

09/13/2020 Nguyen Dang Quang Huy (MSc.) 5

 How attractive are procurement jobs?

09/13/2020 Nguyen Dang Quang Huy (MSc.) 6

 Procurement
Logistics

Purchasing

• Inventory Management
 Pricing
• Inbound transportation  Sourcing
 Ordering
 Supplier Management  Receiving
• Supply & Demand Planning
 Contract Management  Invoicing
• Outsourcing Management  Catalogue Management  Paying
• Fleet Management

09/13/2020 Nguyen Dang Quang Huy (MSc.) 7

 Procurement
• Refers to the raw materials, component parts, and

supplies bought from outside organizations to

support a company’s operations.

• Procurement costs often range between 60% - 80%

of an organization’s revenues.

09/13/2020 Nguyen Dang Quang Huy (MSc.) 8

 Procurement objectives

 Supporting organizational goals and objectives.

 Managing the purchasing process effectively and efficiently.

 Managing the supply base.

 Developing strong relationships with other functional groups.

 Supporting operational requirements.

09/13/2020 Nguyen Dang Quang Huy (MSc.) 9

 Difference between Procurement & Purchasing

Both are activities performed in relation to their goods and

services, but done with a different method and approach.

Procurement Purchasing
Deals with the sourcing The process of goods and
activities, negotiation and services are ordered. It is
strategic selection of goods usually described as the
and services that are usually transactional explicit
of importance to an function of procurement
organization. for goods or services.

09/13/2020 Nguyen Dang Quang Huy (MSc.) 10

 Purchasing includes:

Payment

Receiving goods and

services

09/13/2020 Nguyen Dang Quang Huy (MSc.) 11

 Procurement involves:

Schedule the purchasing

Strategic vetting
plan

Determine the purchasing Selection and negotiation

standard of contracts

Research and select

Checking the inventory
vendors

Establish payment terms Purchasing

09/13/2020 Nguyen Dang Quang Huy (MSc.) 12

 Traditional Procurement

1 day 2 hours 2 hours

Search goods Fill in requisition Buyer prints order

Send to buyer

1 day

2 hours 1 day 1 day

Payment Matching invoice Accountant Delivery

09/13/2020 Nguyen Dang Quang Huy (MSc.) 13

 E-procurement

1 hour 30 mins

Search goods Order on web Delivery

1 day

30 mins

Payment Generate invoice

09/13/2020 Nguyen Dang Quang Huy (MSc.) 14

 Total cycle time needed:
4 days and 6
hours
1 day and 2
hours
Benefits Reducing costs
Increased Transaction Speed
Tracking orders
Transparent Spending
Increased Productivity
Standardized Buying
Reduced Errors

09/13/2020 Nguyen Dang Quang Huy (MSc.) 15

 Procurement card (P-card)
A type of company charge card used for smaller
purchases to achieve greater cost efficiency, control
and convenience.

Benefits

End-users Suppliers
 Process savings  Cost reductions
 Shorter procurement cycle time  Faster receipt
 Staff reductions  Competitive advantage
 Spend data availability  Customer satisfaction
 Reduction in the number of  Increased sale
invoices

09/13/2020 Nguyen Dang Quang Huy (MSc.) 16

 Place order

Receive goods/services

End-user organization Supplier

Provide Request Receive Submit

Make data card Provide payment transaction
payment card

How P-card works

Card issuer Merchant acquirer

Request Provide Process Request

authorization authorization payment authorization

Process payment Process payment

Request authorization Request authorization

Processor Network Processor

09/13/2020 Nguyen Dang Quang Huy (MSc.) 17

 Identify Need for Supply
Supplier selection and
evaluation
Situation Analysis
Internal factors
External factors
• One of procurement’s most
important responsibilities.
Identify and Evaluate Potential Suppliers
Sources of potential information
• Involves stating an organization’s Establish selection criteria
Assign weights to selection criteria
needs and determining how well
various potential suppliers can Select supplier(s)
Consideration of company policies
fulfill these needs.

Evaluate decision
Compare actual and expected performances

09/13/2020 Nguyen Dang Quang Huy (MSc.) 18

 Quality issues in Procurement
• Quality – conformance to mutually agreed-upon requirements

• Important to match quality levels of buyers and sellers in the

supply chain

• Vendors are expected to have quality programs/practices

 ISO 9001
ensure products / services are safe, reliable and of good
quality  reduce costs by minimizing waste and errors
and increasing productivity.
 Six Sigma
improve customers’ experience, lower costs, build better
leaders.

 Lean Six Sigma

combine of 6 sigma and lean manufacturing.
09/13/2020 Nguyen Dang Quang Huy (MSc.) 19
 Global Procurement (Sourcing)
• Refers to buying components and inputs anywhere in the world
• Driven by:
• Factor-input strategy
• Market access strategy
• Components of Global Sourcing Development model:
 Planning
 Specification
 Evaluation
 Relationship management
 Transportation and holding costs
 Implementation
 Monitoring and improving

09/13/2020 Nguyen Dang Quang Huy (MSc.) 20

 Global Procurement (Sourcing)

• Challenges in establishing a successful global sourcing strategy include

understanding hidden costs as supply bases are expanded.

• Examples of hidden costs:

o Increased costs of dealing with suppliers outside the domestic market
o Duty and tariff changes that occur over supply agreement life
o Increased inventory-related costs associated with global supply chains
o Rising levels of logistics cost volatility (e.g. ocean freight rates)

09/13/2020 Nguyen Dang Quang Huy (MSc.) 21

 Common Procurement problems

 Accidental Orders

 Inflexible Suppliers

 Exceeding Budget

 Damaged Goods

 Rushed Purchases

09/13/2020 Nguyen Dang Quang Huy (MSc.) 22

 Biggest Challenges Facing Procurement

• Cost Reduction
• Going Digital
• Risk Mitigation
• Supplier Relationships
• Skills Gap

09/13/2020 Nguyen Dang Quang Huy (MSc.) 23

 End of chapter 02

LOGISTICS
09/13/2020 Nguyen Dang Quang Huy (MSc.) 24