Chapter 4 : Purchasing

Management
- The Role of Purchasing in an Organization
- The Purchasing Process
- Electronic Procurement System
Topics - Small Value Purchase Orders
- Sourcing Decision : Make or buy decision
- Supplier Selection
- How many suppliers to use

“The act of obtaining merchandise, capital

Purchasing equipment, raw materials, services, or
maintenance, repair and operating (MRO)
Meaning supplies in exchange for money or its
equivalent.”

- Primarily purchase for resale purposes

Merchants - Take advantage of quantity discounts
Example : Tesco, Mydin

- Purchase raw materials for conversion

purposes
Industrial - Manufacturers & service firms such as
Buyers restaurants
Example : KFC, Honda Service Center
 Seeking better
materials &
suppliers

To ensure
Working closely
uninterrupted
with strategic
flows at the
suppliers
lowest cost

4.1 The Role of

Purchasing in
an Organization

Purchasing new To improve

design & quality of the
development goods and
effort produced

To optimize
customer
satisfaction
 Goal :
To ensure the
efficient transitionof
info from users to
Purchase Order : the suppliers
- Purchase order is
Manual Purchasing
buyer's offer
System :
- Sales Order is supplier's
offer - slow, prone to
errors due to
- Follow up prevents late
duplication data
delivery
entries
-Expediting speed up
overdue shipment 4.2 The
Purchasing
Request for
Process Material Requisition:
- initiates request for
Proposal (RPP) : materials
- by propose new - product, quantity,
materials, it's delivery due date
enabling the firm to
- issuer retains a copy
exploit the expertise Request for Quotation
of suppliers (RFQ) : - the copy contains info
to charge the user
- if the material is not in
warehouse, its
channeled to the
purchasing department
- if there's no supplier,
the buyer must issue a
RFQ
 4.3 ADVANTAGES OF E-PROCUREMENT SYSTEM

• E-procurement is more efficient

Time saving • Buyers can create preferred supplier lists for
products & services

• Lower prices of goods & services

• Reduce inventory cost
Cost saving • Fewer purchasing staff

• System eliminates double-key input

• Enhance the communications between buyers
Accuracy & suppliers

• Enables buyers to initiate bids and suppliers to

respond in 24 hours
Real Time • Buyers can post the bid immediately instead
of waiting to contact the suppliers

• Buyers can submit process & check status of

bids
Mobility • Buyers can communicate supplier regardless
of the buyer's location and time of day

• Tracing an electronic bid and transaction is

Track ability much easier and faster than tracking paper
trails

• Can store supplier information

• Supplier performane report can be generated
Management for management to review and utilize for
future planning

• Lower barriers to entry and transaction costs

Benefits to the • Access to more buyers
suppliers • The ability to instantly adjust to market
conditions
 Blank check
purchase
orders

Blanket or
open-end Procurement
purchase credit card
orders

4.4
Stockless Alternatives Accumulating
buying or small order
system for small value to create a
contracting purchase large order
order

Standardization
and
Petty cash simplification of
material &
components
Using a fixed
interval for
specific
categories of
supplies
 4.5 Sourcing Decision :
The Make-or-Buy Decision

Reasons for Buying or Reasons for Making :

Outsourcing :
- Protects Proprietary
- Cost advantage Technology
- Insufficient capacity - No component Supplier
- Lack of expertise - Better Quality Control
- Quality - Use Existing Idle Capacity
- Control of Lead-time,
Transportation and
Warehouse Cost
- Lower cost
 Quality

Communication
Capability Cost

4.6 Supplier
Selection
(Factors)
Service Reliability

Location Capacity
 4.7 How many suppliers to use

(Reason favouring a single supplier)

To establish a good relationship

Less quality variability

Lower cost

Transportation economies

Proprietary product or process

purchase

Volume too small to split