A General Introduction Into Purchasing Management (Boer & Telgen)

A general introduction into purchasing management
Luitzen de Boer, Jan Telgen
1. What is purchasing?
There are many definitions of purchasing and all of them are true , but most of them, at
least partly, incomplete. Most of the definitions you will come across contain elements as
‘the right place’, ‘in time’ and ‘the right specifications’ and are quite long. Our definition is
short and comprises all that purchasing is actually about. In the end, everything that is
purchased will be accompanied or followed by an invoice because the supplier will want
its money. Therefore we define purchasing as ‘everything associated with an incoming
invoice’.
One of the first things to notice is that invoices are not only associated with buying, but with
renting and leasing as well. Second, this definition does not distinguish between the kinds of
items that are purchased, it states ‘everything’ associated with an incoming invoice. It applies
to goods as well as services and works. Furniture and computers are easily recognized as
‘purchasing’, but utilities, temporary labor consultants, auditors, and lawyers are purchased,
too.
Thirdly, both purchases for primary and supporting processes are considered. A distinction
can be made between primary (or BOM) and indirect (or MRO or NPR) purchasing, but when
looking at the purchasing function, both primary and indirect purchasing categories have to
be included. Primary purchasing is also referred to as BOM (Bill Of Material) purchasing.
Indirect purchasing is also called MRO (Maintenance, Repair and Operations) or NPR (Non
Product Related) purchasing. Typical examples of primary purchasing categories are raw
materials, production machines and maintenance. Common indirect purchasing categories
are stationary, catering services, office automation. Note that there are plenty of purchasing
categories that can be either primary or indirect purchases, depending on their intended use,
such as IT equipment, temporary labor and consultancy.
Direct Indirect
Goods Materials Office supplies
Services Temporary labor Cleaning

Works Factory Head Office
Figure 1
A fourth point that we would like to emphasize is that some forms of purchasing are not
always regarded as such because of their ‘disguise’ but they do fall under our definition. One
of them is outsourcing of entire tasks or departments. Another one is the internal expense
accounts. These are often booked as general, unclassified costs, but are definitely
purchases and can actually represent a wide range of purchasing categories and add up to
large amounts. A third one are contract extensions that are often agreed to tacitly. These
mean a commitment based upon which purchases will done.
A last example of purchases is investments. The definition mentions ‘incoming invoice’.

Organizations will receive an invoice for an investment too. The fact that the entire amount
involved with the investment does not show as such in the financial books because of the
way these are written off does not change the fact that it is a purchase.
When looking at the purchasing function fixed costs such as taxes and obligatory,
government dictated insurances (e.g. social security fees) are usually left out. These
expenses can’t be influenced.
1.1. Basic purchasing process

The purchasing process consists of a number of activities that can be combined and laid
out in six main steps. These steps are represented in a simple but effective way by Van
Weele’s model that is shown in the illustration below.
Tactical purchasing function Operational purchasing function
1. 2. 3. 4. 5. 6.
Specification Selection Contracting Ordering Monitoring After-care
(what) (who) (how)
· market · selection of · negotiation · ordering · monitoring of · handle claims

research suppliers · close contract agreement · more / less
· requirements · apply for · umbrella · monitoring of work
· determine proposals / agreement individual · start alteration
volume offers orders of contract
· evaluation of · verification of
offers invoices
Figure 2
Specifying
Specifying is the most determining step with regards to the success of purchasing, simply
because this is the stage where is defined what is going to be purchased. It therefore
provides the basis for everything that follows. The result of this step is the Program of
Requirements, listing all requirements a supplier has to meet in its offer. These are not only
all requirements for the goods or services to be purchased, but may also include
requirements for the relationship with the supplier and additional services he has to provide,
such as maintenance and supply of spare parts.
The specifications are of key importance to the entire purchasing process. It will not be easy
to find a suitable supplier when the initial requirements were incomplete or even not right. A
common mistake is also to over-specify, which is often done out of insecurity of the buying
organization about getting the right offer.
A distinction is made between functional and technical specifications. Functional
specifications describe what the good or service actually has to do or provide. Technical
specifications describe in a very detailed manner which product or service is looked for. A
famous example to illustrate the difference between functional and technical specifying is of
an organization that wants to build a bridge and is looking for a contractor. A group that is
asked to draw up technical specifications comes up with a large pack of documentation
containing drawings, measurements, material characteristics, requirements for the
procedures on the construction site and so on. A group that defines the need in a functional
way comes up with a much thinner document stating that the organization is looking for ‘a
way to cross the river by foot, train, cars and trucks in a safe manner, 24 hours a day’ and
gives some requirements like the estimated number of vehicles passing the river each day
and maximum crossing duration. It will be clear that in the first case the suppliers will all
submit offers to build that one bridge and all offers will be identical, except for the pricing
because that is the only way in which the contractors can distinguish themselves. In the
second case, suppliers may not only be contractors proposing to build a bridge, but could
also be contractors proposing to build a tunnel, or a supplier proposing a ferry service, or
even an operator proposing some manner of transport through the air. Suppliers have more
freedom to compose their best offer when specifications are (more) functional. A combination
of functional and technical specifications is of course possible.
The last part of the specification stage is to draw up selection criteria against which supplier
proposals will be evaluated in a later stage.
Electronic procurement (e-procurement) solutions can improve the performance of this

part of the purchasing process. One main form of e-procurement that deals with
specification is called an e-sourcing system. Such a system identifies new suppliers,
products, and services using sourcing catalog systems (Harink, 2004).
The general effects that can be expected when using this form as well as the general
conditions for use that correspond with the form are (Harink, 2004):
Effects Conditions for use

· Increased efficiency · There is a procedure for who e-sources when
· Increased (internal) customer satisfaction · Employees have Internet access
· Increased quality of specification · Employees know which sourcing catalog systems
· More (honest) competition to use
· Improved information supply · It is clear who e-sources for operational needs
· Less supply risk for strategic and bottleneck · Employees are trained in e-sourcing
items (based on the Kraljic matrix) · It is clear how to handle when a supplier has
· Increased supplier risks if the supplier is been identified
located in a far-away country · Key Performance Indicators (KPI's) have been
· Lower prices defined and are ready to use
Selecting
Selecting is first of all selecting the suppliers that are invited to submit their offer and second
it is selecting out of these the supplier with the best offer. Obviously the chances of receiving
3 A general introduction into purchasing management

good offers are set by the initial selection of suppliers. Therefore this first selection is an
important step. It can be done in several ways. In governmental environment it is common,
and above certain financial thresholds it’s obligatory, to make a public announcement of
planned purchases so that all interested suppliers can submit their proposal. Such
announcement is made in branch specific media. This includes the Internet. Some
companies have already adopted the habit of announcing their purchasing needs on their
website. The other option is to invite suppliers. These can either be suppliers that are already
known to the company, for example because they are past and current suppliers, or
suppliers that are new to the company because they have never supplied to the company
before, have just broadened their assortment or are new in the market It can be a good idea
to perform a market research to make a proper initial supplier selection.
Suppliers are invited to compose their proposal based upon the Program of Requirements
and all other relevant information such as a description of purchaser’s organization, the
proposed legal terms and conditions, and the desired format for the offer.
To make the initial selection it is necessary to define supplier selection criteria. These are
derived from the Program of Requirements. The evaluation of proposals is done by judging
them against the award criteria. The difference between selection criteria and award criteria
is important to note. The selection criteria all relate to the supplier and its organization, like
size, geographical presence, and experience. The award criteria all relate to the content of
the proposal, such as quality of the offer and price.
One main form of e-procurement that deals with selection is called an e-tendering
system. This system can be described as follows (Harink, 2004):
1. Developing requests for proposals
2. Establishing the assessment criteria and assessment procedure
3. Determining the long list of suppliers that receive a request for proposal
4. Sending out the request for proposals to suppliers of the long list
5. Supporting question and answer sessions
6. Receiving and assessing proposals of suppliers
7. Selecting the best supplier(s) (short list) using an e-tendering system

· Increased efficiency · There is a procedure for who e-tenders when
· Less direct contact with suppliers · There is a procedure for informing suppliers in case of e-
· Increased objectivity tendering
· Less mistakes · There is a training to train suppliers in case of e-tendering
· Improved information supply · Employees are trained in e-tendering
· Reduced (tendering) lead times · E-tendering rules have been established
· Increased anticipation of suppliers · KPI's have been defined and are ready to use
Contracting
Contracting is the stage entered into once the supplier(s) has been selected and a
contract is going to be signed. The contract includes the Program of Requirements, the
terms and conditions and agreed pricing. The program of requirements is the result of
the specification stage and may have altered during the selection stage. The terms and
conditions are often subject of discussion during the contracting stage. The negotiations
will usually concern legal details that are important but no longer crucial to closing the
deal. Pricing is of course the result of the offer from the supplier. The contract contains
all agreements related to the deal. Not only on what is to be supplied, also the way in
which logistic, after sales and the financial part are dealt with are described.
Once a contract has been concluded its content has to be communicated to the parties in the
organization that will be affected by the new contract. These parties probably already have
been consulted during the specifying and selection stages of the purchasing process.
· The legal department, which most likely has been involved in drawing up the contract and
discussing it with the supplier, will file the contract and may be assigned the task of
monitoring the contract’s validity in terms of duration period and correctness. In the past
contracts had to be updated, for example, to contain the Year 2000 clause, or a reference
to the Euro.
· Accounts payable has to be informed so they can set up a new supplier in the financial
system and arrangements about payments (e.g. collective invoices) can be briefed.
· End users of the new product or service may need information, a demonstration or a
course to work with it.
· Depending on the kind of product or service purchased: logistic services, technical
maintenance and facility management.
One main form of e-procurement that deals with this purchasing phase is called e -
reverse auctioning. This form can be described as follows (Harink, 2004):
1. Determining the short list of suppliers that participate in an e-reverse auction
2. Inviting and briefing the suppliers of the short list
3. Starting the e-reverse auction by entering the first prices (by the suppliers)
4. Adjusting prices (by suppliers) based on the prices of the competitors that can be seen
5. Ending the e-reverse auction when prices are not adjusted anymore using an e -
reverse auctioning system

· Lower prices · There is a procedure for who e-reverse auctions when
· Reduced (negotiation) lead times · It is clear who authorizes e-reverse auctions
· Increased efficiency · There is a procedure for informing suppliers in case of e-
· Improved usage of blanket reverse auctioning
contracts · There is a training to train suppliers in case of e-reverse
· Increased (internal) customer auctioning
satisfaction · Employees are trained in e-reverse auctioning
· Increased market transparency · E-reverse auctioning rules have been established
· Increased competition · There is a checklist for checking all is in place for starting an
· Disturbed relation with suppliers e-reverse auction
· Increased anticipation of · There is a procedure for who auctions when
suppliers · KPI's have been defined and are ready to use
Ordering
Ordering is the actual requesting of a delivery. An order can be a one -off, for example
because it is part of an extensive purchasing process for a large investm ent. In that case
the ordering process coincides with concluding the contract and does not need special
attention. More often the ordering is frequently repeated, for example the ordering of
supplies for the canteen or of laptops for new employees under a framework contract.
In most organizations, an order is preceded by a requisition that is initiated by the end

user and is to be approved before an order can be issued. The process of initiating a
requisition, approving it, and raising an order is purely operational and is in many
organizations still more time consuming than necessary.
The design of the ordering process, including its steps and documents, should not be
underestimated. Mistakes in e.g. reference numbers, amounts, supplier or client detail s
can cause delays and confusion, creating unnecessary costs. Always make sure it is
clear what is ordered, when it should be delivered, to whom and where. Such details are
usually agreed upon with the supplier and laid down in the contract.
Monitoring
Monitoring is firstly monitoring the order once it has been placed. This includes the
processing of the incoming invoices and related payments, as well as the follow up of
late and faulty deliveries and invoices that have been received but are not correct.
Second, monitoring is about checking whether the operational purchasing process is
executed conform agreed standards. This includes surveying whether the performance
internally corresponds with the implemented quality system as well as surveying whether
the supplier’s performance corresponds with contractually agreed terms and conditions.
The task of monitoring orders is important but time spent can be limited when buyer and
supplier have made clear arrangements and adhere to these. The added value in this
stage of the purchasing process is very limited and monitoring orders should therefore
be done as efficient as possible. Monitoring the operational performance of the suppliers
generates important information that can be used to evaluate suppliers’ overall
performance and helps to improve this.
One main form of e-procurement that deals with ordering and monitoring is called an e -
ordering system. Such as system can be described as follows (Harink, 2004):
1. Requisitioning products and services out of an electronic catalog by employees
2. Approving requisitions by managers
3. Sending out purchase orders to suppliers
4. Monitoring requisitions and purchase orders by employees
5. Registering receipts by employees using an ordering catalog system

· Increased efficiency · The desired ordering process has been established
· Reduced lead times · The ordering catalog system supports the desired ordering
· Lower inventory (costs) process and contains the desired products and services
· Improved usage of call off · It is clear who uses the ordering catalog system for which
contracts activities
· Improved information supply · It is clear how products and services can be ordered that are not
· Better control of total spend in the catalog
· Decentralization of ordering · Electronic orders and confirmations can be sent/received
process · Procedures for data exchanges with other systems are
· Increased spread of established
purchasing knowledge · Content management and application management are in place
· Increased (internal) customer · Users are trained in using the ordering catalog system for their
satisfaction activities
· Less mistakes · Buyers know what they have to arrange with suppliers in case e-
ordering is used
· KPI's have been defined and are ready to use
Servicing
Servicing is necessary when situations occur during the operational purchasing process
that need to be resolved. This kind of situation can be identified during the monitoring
stage but can just as well come up during the ordering stage of the purchasing process.
Servicing usually concerns occasional problems with a specific order or delivery. For
example, a couple of wrong deliveries or systematically wrong invoices. Servicing
usually involves talking to the supplier, not necessarily to complain but to learn why
things went differently and decide on how to do things better next time. When problems
are more structural or result in a serious issue, endangering the quality or continuity of
organizational processes, it may be necessary to evaluate a supplier’s overall
performance and either re-negotiate the contract or look for a new supplier. This is
called supplier management and is not part of the servicing stage.
A lot of people still think that the most important activities in purchasing are ‘negotiating’ and
‘concluding favorable contracts’ to squeeze out the last possible percent points of discount.
Professional purchasers do negotiate but will usually not use it to get that last financial extra
because the main cost driver have already been determined in the specification stage. With
regard to cost control, influence is definitely greatest during the specification stage. This is

where is decided what exactly is going to be purchased. Changing a specification will usually
have a much larger effect on the purchasing price than negotiating about discounts. The
following graph visualizes this theory.
500%
Impact on
total costs
50%
5%
Specification Selection Contracting Ordering Monitoring

Figure 3
To illustrate this we suppose to go buying pens. The specifications have to be drawn up

before suppliers can be selected:
· Ballpoints, fountain pens or felt-tips?
· Refillable?
· With cap or retractable type?
· Up-market image or plain utilitarian? Etc.
During this specification stage the choice between a throwaway biro and a gilt-edged
fountain pen will have an enormous influence on the cost. Let’s say for the purpose of this
example the difference is 500%. During the selection stage potential suppliers of the
specified pens (retractable ballpoints with refills) are identified. Assuming the selection of
suppliers that are invited to offer is restricted to known ‘tested and tried’, local suppliers there
could be a price difference of up to 50% between the local store and warehouses, discount
suppliers or Internet-based services.
Finally, during the contract negotiations with the supplier with the best quotation, it may be
possible to add a little more discount on the basis of a long-term agreement for the future
supply of pens and refills. This discount will probably be in the order of around 5%. By the
time this stage is entered into, the entire deal is already defined to such extent that any
additional cost reduction is unlikely.
In all subsequent stages (ordering, monitoring, servicing) the price has already been
established. The only savings that can be made here will be on internal operational costs.
Even when covered by a blanket order, frequent purchasing of small numbers is more
expensive for the buying organization as well as the supplier, due to administrative costs per
order. While these stages should still be undertaken with due diligence, it is clear that the
degree to which the integrated cost of purchasing the pens can be influenced grows smaller
in each successive stage.
It is strongly advised to pay sufficient attention to the specification and (to a lesser extent)
selection stages when cost control is emphasized. However, this is not the only reason why
specifying is so important. It happens often that organizations find out what they actually
want during the purchasing process, or even after because suppliers give presentations,
submit proposals with all kinds of options or a product is purchased and used, a service is
delivered and people start to learn about the possibilities and change their mind about what
they want or need. It is also still common that part of the specifications are ‘forgotten’ which
means that an additional selection process has to be entered into, which will likely increase
costs. For example, machinery is bought but spare parts have not been included in the
Program of Requirements. To change specifications can delay the purchasing process
considerably, and to buy the ‘wrong’ item is obviously much more expensive than getting it
right the first time.
The individual steps of the purchasing process not always get the same amount of attention.
Purchases with a high financial or strategic importance such as capital goods get a lot of
attention during the tactical stage because of the apparent risks involved. The tactical and
operational purchasing often coincide as deciding on the supplier is in fact the same thing as
placing the order, so the operational process takes up virtually no time at all. For long
running contracts with a lot of repetitive orders for common consumables such as office
supplies the operational process takes up a lot more time. Agreements on how to execute
the operational process should therefore get sufficient attention during the tactical stage.
Another reason why organizations spent relatively little time on steps is unfamiliarity with the
importance of a step. Organizations do not realize that the most important decisions are
made during the specification and selecting stage and tend to put a lot of effort in negotiating
(because it is ‘fun’) or in discussing operational problems with the supplier that should have
been dealt with before the contract was signed.
1.2. Elements of the purchasing function

The purchasing function is more than just the purchasing process. A number of elements
have to be organized properly to support the purchasing process and adequately
facilitate a successful purchasing practice. These elements are categorized as clients
and suppliers, methods and procedures, personnel and organization, information
services, and critical success factors.
Clients and suppliers

Clients of the purchasing function are all employees that make use of the products and
services purchased. This means that the entire organization is a client of the purchasing
function. Sometimes more directly, when for example capital goods are purchased,
sometimes more indirectly, for example when security services are contracted.
Suppliers define the market that the purchasing function has to deal with. Suppliers are
purchasers’ main external counter part. It is obvious that they are a key party. The
relationship with suppliers is an important element in the purchasing function.

Methods and procedures
Methods support the execution of steps in the purchasing process by providing a standard
approach. A method describes how a certain activity has to be done and hence helps to
increase the effectiveness of this activity and sets a standard that helps to realize uniform
working practices and quality. Examples are best practices such as formats, checklists,
reference documents, and policy guidelines. Methods can be used for basically all tasks in
the process like drawing up a Program of Requirements, evaluating supplier proposals, and
placing orders.
Procedures prescribe the way of working to standardize this throughout the organization. A
procedure describes which actions have to be done by whom. Standardization aims at
maintaining a certain level of quality and efficiency. Both procedures and methods have a
large influence on the quality of the purchasing processes. Of course, the people executing
the processes are key to the quality of the outcome, but prescribed procedures and
predefined methods will direct and guide them. Therefore, the quality of purchasing starts
with the quality of the procedures and methods. The design of these is an important part of
implementing a professional purchasing function.
Methods and procedures can either be manual or automated. Electronic procurement is

basically about automating the execution of procedures.
Personnel and organization

As stated before, the quality of the people working on purchasing tasks largely defines the
quality of the purchasing function. It is important to determine the purchasing tasks and
assign them to the right people. This involves deciding how these people will work together,
in which structure they will be organized and who reports to whom. This is called the
purchasing organization.
One of the main questions is whether or not to establish a separate purchasing department
and where to position such department in the overall organizational structure. It is important
to realize that not all purchasing tasks will be assigned to purchasing personnel. Drawing up
a program of requirements, for example, will be a joint effort of a purchasing official and
people that will eventually use the contract, like end users, accounts payable, and the
logistics department. And evaluating supplier proposals is usually a team effort of financial
control to screen the supplier’s financial health, the legal department to screen comments on
the proposed contract, and purchasing officials, end users and others to evaluate the actual
content of the proposal. The purchasing function goes beyond the purchasing department.
Information services
Information is necessary and useful in all steps of the purchasing process. It serves different
objectives and can be used by several people and departments to better perform their task.
Information can be either qualitative or quantitative. Examples of quantitative information are
spend data such as amount spend, number of suppliers, number of invoices, order cycle
time, and pricing information. Examples of qualitative information are product catalogues,
supplier performance, client satisfaction, and reference programs of requirements.
Very important aspects of information are the availability and the accessibility of information.
Valuable information is generated in every organization, but often hidden in large amounts of
data, in systems that are difficult to access. The useful information has to be extracted from
these sources and put in an easily accessible and understandable format to supply it to the
people that can make use of it.
Purchasing policy and performance indicators

The purchasing policy states the way an organization wants to profile itself towards external
parties, such as suppliers, by providing principal guidelines. These principle guidelines are in
line with relevant corporate policies and reflect the organization’s opinion on economic,
organizational, idealistic and ethical subjects.
Performance indicators are those measurable indicators of the purchasing function that have
been identified as representative for purchasing performance as a whole. These indicators
are directly derived from the purchasing strategy. For example, when an organization aims at
improving operational performance, a useful performance indicator will be order cycle times.
Or when the main objective is cost reduction the number of suppliers and amount spent will
be important factors to monitor.
The form of e-procurement that deals with performance measurement is called

purchasing intelligence. It can be described as follows (Harink, 2004):
1. Defining KPI's and setting target values for the KPI's
2. Collecting data
3. Calculating realized values for the KPI's
4. Comparing target and realized values
5. Advising on actions to take using a purchasing intelligence system

· Purchasing objectives are · Improved decision making
clearly defined · KPI's have been defined based on the purchasing objectives
· Improved planning and · It is clear how realized values of KPI's will be measured
control loop · Target values for the KPI's have been set
· Improved (internal) · Data to measure realized values of KPI's is stored in other systems
knowledge management · Interfaces to gather data from other systems are established
· Increased use of market · There is a purchasing intelligence officer (for answering questions,
knowledge etc.)
The racecar model

All steps of the purchasing process and all elements of the purchasing function are
comprised in a model as illustrated below. Because of its shape, it is called the racecar
model.

Company policy
Purchasing policy
Organisation Methods &

& personnel procedures
Internal Specify Select Contract Order Monitor After-care Suppliers-

Customers (market)
Information
Performance-indicators
Figure 4
2. Purchasing function and purchasing department
Not all organizations have a purchasing department. Some may be too small, some may
not yet have recognized the added value of a purchasing professional. Mos t
organizations with a considerable spend however do have a purchasing department. The
responsibilities of this department vary largely, and the department can vary from an
operational ‘order processing unit’ to a highly professional tactical purchasing fu nction.
Once an organization has recognized the added value of the tactical purchasing
profession, operational tasks are delegated to the internal clients, automated by
implementing an electronic procurement system or even outsourced to a third party.
Whether an organization has a purchasing department or not, purchasing is never done by

just one person or one (purchasing) department. Some examples show that a lot of different
parties are involved in different steps of the purchasing process:
· A group representing the users of the products and services, e.g. maintenance staff,
product manager, end user, decides on the specifications.
· Internal auditors screen the financial stability of a supplier that has shown interest.
· The legal department draws up the contractual terms and conditions;
· A team of users and subject matter experts evaluates supplier proposals.
· The board of directors makes the financial decision in large investments.
· Ordering is often delegated to the logistics department or to end-users.
· A key user group is asked to evaluate a supplier’s performance.
The spreading of purchasing tasks through the organization is increasing. A trend that
enhances this spread is the contracting out of entire responsibilities to external parties, such
as catering and security services. The decision to tender these tasks is not made by
purchasing but by management and a lot of the work involved is usually carried out by the
facilities department because they will have to cooperate closely with the new supplier.
Decentralized responsibilities also add to the number of people involved in purchasing.

People will need things in several places in an organization and as getting these things is
their own responsibility, purchasing activity in the organization as a whole will increase.
Another reason why purchasing, especially the operational part, is increasingly done by other
people than the purchasing department are the growing number of possibilities of information
technology and the Internet. It becomes easier for people to look for and find suppliers and
place orders themselves.
Important to note is that segregation of tasks is required in every organization to avoid

subjective or even fraudulent decisions. Ordering, receiving, registering and paying of items
should be done by at least four different parties.
3. The importance of purchasing
3.1. Importance of purchasing

The importance of purchasing is large and increasing. The purchasing function is a very
interesting area of attention from a financial perspective. The share of purchasing spend in
an organization’s revenue or total cost is often a lot bigger than expected. Especially the
height of the amount spent on indirect purchases is often a surprise. This proves that
strategic attention for purchasing is important.
Sector Purchasing volume Company Purchasing volume
Trade 70 - 98% Canon 89.9

Minolta 74.7
Industry 50 - 90%
Nikon 77.0
Olympus 83.0
Commercial 30 - 50%
service industry Ricoh 83.3
Sharp 71.0
Sony 90.8
Mean 63%
Figure 5
The share of purchasing spend in the overall revenue is increasing because of developments
such as ‘back to core business’, outsourcing and specialization. All of these trends lead to
contracting out of activities that were done internally up till then or buying products that were
previously manufactured by the organization itself.

100% Margin added value
Production
Purchasing
0%
past present
Figure 6
Another reason why purchasing is increasingly interesting for management in financial

terms is the emerging popularity of the integrated management concep t. The creation of
smaller work units or business units with their own responsibilities puts purchasing
forward as an area of financial control. Sales and wages can for example much less
easily be influenced.
The importance of purchasing in governmental organizations and utility companies has

been given a boost by the in introduction of legislation on public tendering, laid down in
the EU directives on public procurement. These directives have been integrated in EU -
members’ national law and oblige governmental organizations and utility companies to
adhere to certain rules. A lot of these organizations had not been paying a lot of
attention to professional purchasing so the EU directives forced them to improve their
purchasing practice. This effect is especially seen in the last 5 to 10 years when the
adherence to the directives is being monitored more closely then before.
An interesting signal that shows management’s concern with purchasing is the use of a
Purchasing Managers Index (PMI). This index reflects the intention to spend of a number
of purchasing managers that represent the industry. A rising index indicates an
improving economy, as more orders will be placed, a declining index shows vice versa.
3.2. Marketing the purchasing function

Purchasing can have a lot of added value to organizations because of its impact on an
organization’s financial, logistical and operational performance. This potential added
value is not always recognized yet, or organizations find it hard to understand how this
value can actually be materialized. Commercial organizations traditionally pay less
attention to indirect spend than to primary purchasing. In governmental and institutional
environments purchasing in general gets insufficient attention. A lot of people still seem
to think that purchasing is about negotiating discounts and placing orders. One of the
tasks of purchasing professionals is to market the purchasing fun ction.
Seizing opportunities to show that the involvement of a purchasing professional in a

purchasing process adds value can market the purchasing function well. This can be
done either by participating in a purchasing process, or by identifying potential for
improvement in purchasing categories that have not yet been paid attention to. Because
purchasing is not a primary, independent function in any organization it should never be
forgotten that achieving success is a joint undertaking and a success should be
communicated as such.
Inbound Outbound Marketing

Operations Service
logistics logistics and sales
Purchasing
Technology development
Human resource management
Firm infrastructure
Purchasing
Not:
Figure 7
4. Differentiations in purchasing
There is a huge variety in purchasing circumstances representing all thinkable goods,

services, works, markets, sectors, interests and stakeholders. All of these circumstances
require a specific strategy and approach. Every purchasing professional should be
aware of this. The possibilities to obtain interesting offers from suppliers are defined by
client related factors such as the program of requirements on one hand, and by market
related factors such as suppliers’ capacity on the other. An assessment of the
circumstances before going to market is wise because it will enlarge the chances of
success.
The circumstances will not so much influence the way the purchasing function itself is
organized internally but will influence the way tactical purchasing is done, especially the
go-to-market strategy and the expertise required for the category that is purchased.
Differentiations in purchasing are defined by among other things:

· The sector in which the organization operates (Section 4.1)
· The supply market (Section 4.2)
· The product or service that is purchased (Section 4.3)
· The buying situation (this is discussed in Section 3 of Chapter 2)
4.1. Purchasing in different sectors

Purchasing is different in different sectors. The most distinct difference is the difference
between commercial and not-for-profit organizations. Commercial companies have
recognized the importance of purchasing some time before governmental and
institutional organizations because their performance is largely judged by financial
performance. Cost is therefore usually a major area of attention in purchasing, for

example in evaluating proposals. In not-for-profit environments it is often more vague
which performance indicators are key, but they are rarely financial. Therefore it seems
harder to measure purchasing performance and create added value by purchasing in
not-for-profit environments, although it is just as well possible.
Some sectors have their own legislation with regards to purchasing. Governmental
organizations and utility companies have to adhere to the EU-directives for the tendering
of goods, services and works with a financial value that exceeds certain thresholds.
These organizations also have to be aware of their public responsibilities because they
are spending community money. They are in a way more accountable for how and where
they spend their money than private companies. They cannot afford any ‘mistakes’ such
as buying from a befriended supplier without a having followed an open, transparent and
fair tendering procedure, or spend money on unnecessary items as community money is
involved. So, many rules and regulations (EU-tendering rules, GPA, etc.) are focused on
ensuring open and fair competition and put less emphasis on either an efficient
procurement process or a good result in terms of the interests of public organizations.
Another distinction between private and public organizations concerns s econdary

interests. These are interests that go beyond the contract at hand. For a public
organization as a buying party the secondary interests may involve issues like job
creation, etc. In private sector procurement, the secondary interests of the buying
organization obviously are quite different and generally not related to any public interest.
4.1.1. Procurement developments in the public sector

Public procurement internationally exhibits major differences in the way it is organized, the
way it operates and in terms of stage of development. From limited initial research, we
observed some fundamental differences between countries in the way they organize their
public services; these differences impact on purchasing and supply undertaken to support
these services. For example, it was noted that there is a substantial impact on purchasing
and supply arising from factors such as different organizational structures for public sector
services, different regulatory, legislative and funding arrangements, and different cultures.
Whereas the situation in public procurement differs across countries and jurisdictions any
situation is just a snapshot in the development of the public procurement function over time.
The path this development follows is a result of internal (from the people involved, from
within the organization) and external pressure (from the general public, the press or even the
professional body) (Smith-Gillespie and Wittig, 1999).
The development itself may be a continuous professionalization following a certain pattern or

the result of sudden changes usually associated with changes in government, legislation or
in the staffing of the public procurement function itself. These sudden changes are hard to
classify or predict. The continuous development does not follow exactly the same path in all
public bodies, but a general pattern is believed to be discernible. Many authors have
suggested very similar patterns to occur as a sort of natural development. Here we sketch a
pattern that uses some parts of the models used by (Veeke, 1992) and (Sykes, 2005).
In a first stage (serving the organization) the main issue is to get what is needed in the right
quantity at the right time at the right place: availability is the objective. Here the public
procurement function merely serves the organization. The public procurement function is
reactive and its duty is basically logistic in nature.
In a second stage (appropriate use of public funds) the main issue is to prevent fraud and
corruption. On top of serving the organization the public procurement function is concerned
with doing that in such a way that the funds are used for what they are intended for. It is still
reactive, but now not only the result (availability), but also the process is important.
In the third stage (efficient use of public funds) the focus shifts to not spending more than
required or getting the most for a fixed amount of money, in addition to goals of the previous
stages. Now the public procurement function is concerned with getting ‘a bigger bang for the
buck’. The commercial aspects enter the scene, even though the attitude is still reactive.
In the fourth stage (accountability) the public procurement function’s main issue shifts
towards being able to explain (to the legislature, the general public, the press, etc.) that it is
doing its job well: required items are there, there was no fraud and we did get a good price.
In order to be able to do that the process has to be well designed and well executed. So, in
addition to the aspects of previous stage also the transparency of the process plays a role.
In the fifth stage (value for money) the scope is broader than before. It is not only costs (or
costs versus quality) that is important in public procurement, but also the value the items and
services procured contribute to the organization. The focus starts to change from reactive to
proactive. But the main objectives are still internally oriented.
In a sixth and final stage (policy delivery) the public procurement function is contributing to
the goals of the organization. As such it starts to have an external role as well. It is seen as a
lever for change/reform; it is aiding policy delivery. What policy that is, may vary across
public bodies and over time. Based on Sykes (2005) we suggest the following policy areas
as increasingly more difficult to contribute to from public procurement:
· Job creation and employment; e.g. by setting up purchases in such a way that jobs are
created or requiring suppliers to use unemployed (Erridge, 2006);
· Strengthening the industry; e.g. by offering long term contracts;
· SME / regional involvement: e.g. by splitting up orders in smaller lots so that smaller
companies can participate in competing for these smaller lots;
· Diversity: favoring various groups of suppliers (minorities, disabled, women, local firms). In
this area the question of opening up local markets for foreign competitors (Ssennoga,
2006) is also important;
· Stimulate innovation; e.g. by asking for innovative products or innovative processes;
· Sustainability and environment; e.g. by requiring or favoring sustainable and
environmentally friendly products or production processes;
· Development aid; using public procurement to support developing countries by favoring
suppliers or products from those countries.

The final stage is the one where public procurement can be employed as a lever of
economic/social change. In this stage the issue for the public procureme nt function is to
get alignment with government policy. If aligned with government policy, public
procurement can be effectively engaged as a lever of economic, technological or social
reform. Moving to the sixth stage appears to be driven most rapidly in cases of
aspirational policy change, such as the removal of apartheid in South Africa .
4.2. Purchasing on different markets

Every market has its characteristics. One very important characteristic is the balance
between overall supply and demand, in terms of the number of parties. For example: is the
buying organization the only buyer in the market? Suppliers will know this organization and
its needs very well and make a lot of effort to sell to this organization, provided that there is a
financial interest. Maybe there is one buyer, but the item purchased is a relatively cheap
spare part for an outdated machine. Suppliers may not be very interested to keep this item in
their assortment just for one client. The number of buyers and suppliers and their
interdependencies is valuable knowledge when defining how to position the demand on the
supply market. Figure 8 explains the extremities of the balance between supply and demand.
An additional factor of influence when defining the strategy for a certain purchasing category
is the balance between supply and demand in quantitative terms. Does the supply capacity
meet the quantity of demand? May the supply exceed the demand, or the other way round?
This balance will influence the availability of products and services and hence the pricing.
The market itself will have some characteristics as well. Is it a local, national, regional or
global market, is it a seasonal market, is it a market in which certain financial constructions
are common, is it a forward market? Which regulations are applicable, such as production
norms, agreements, governmental regulations, and labor laws?
Supply
Number of
suppliers
D Number One Few Many

of buyers
e Captive Demand-
Demand-side
m One market (spare monopoly (weapons
parts) systems)
a
Few
n
Supply-
Supply-side
d Many monopoly (gas,
Competition (office
supplies)
electricity)
Figure 8
4.3. Purchasing of different goods and services

The market approach and the kind of supplier relationship that is sought will differ
depending on the good(s) and service(s) to be purchased and its importance for the
buying organization. There are a number ways to look at goods and services. Usually
they are assigned to ‘purchasing categories’. Purchasing categories are comb inations of
goods and/or services for which competitive offers can be requested from suppliers. This
categorization is very helpful when gaining insight into what is actually being bought.
Questions that can be asked to better understand a buyer’s position are:
· Is the product or service newly developed or ‘tested and tried, proven technology’?
· Is demand predictable or can it change unexpectedly, what is the stock policy?
· Is it something tailor-made or does it conform to standard specifications?
· What is the strategic importance of it to the organization and its operations, indicating risks
that occur when it is not supplied, or late.
· What is the amount of money involved, indicating the financial risk?
· Has is just been launched and will it be purchased by more and more organizations or is
the product in the last stage of its market life and will it be replaced soon?
Examples of considerations for different purchasing categories are listed in Figure 9.
Category Considerations
Investment goods Often project basis: turn key or own supervision (how much?)
MRO Very large assortment, low value per item, low consumption per item
Components Standard (competition) versus specific (collaboration)
Raw materials Liquidity of the material, liquidity of the market; considerable price impact
Services Hard to measure, assess; not separable from supplier, often personal;
large personal influence of end user; time very important
Figure 9
Purchasing of projects is yet another example of a purchasing situation. Purchasing will

not always be about individual categories. Opening a new branch, launch of a new
corporate style, and moving and replacing the IT-infrastructure are examples of projects
for which several suppliers will have to be contracted. Coordinating the logistic planning
and watching the compatibility of products and services from different suppliers, for
example, make project purchasing an ideal opportunity for the purcha sing function to
show its added value. It requires much more than tactical purchasing skills only. Project
management, people management, and communication skills are key as well.
The references of this chapter are available with the lecturers.

A general introduction into the purchasing process
Luitzen de Boer, Jan Telgen
In this chapter, we take a closer look at the axis of the ‘racecar model’: the purchasing
process. What does each of the steps comprise? How are the steps related to each other?
After a detailed analysis of the process steps – and decisions that must be made within and
about each step – the chapter concludes with a section about different configurations of the
purchasing process.
1. Six basic activities can be distinguished in purchasing processes
In this section, we explain and discuss in detail the basic steps in the purchasing process.
1.1 Specification of the need

The first activity in any purchasing process consists of describing what is actually to be
obtained from an external supplier. We will refer to this first step as the ‘specification of
need’.
Specifying the need may comprise multiple dimensions

Just as it is not given that firms turn to outside suppliers for providing required goods and
services, the descriptions of these goods and services as such are not given either. Nellore
et al. (1999) explains that a purchasing specification may comprise multiple dimensions and
that a buying company must choose which dimensions are most important in a given
situation. We will now briefly discuss the dimensions identified by Nellore.
The first dimension covers the product requirements. More specifically, these are the
technical, physical attributes of the purchased product. For example, what should be the
physical dimensions? Should a particular material be used? In addition, the requirement can
also comprise logistical requirements in terms of volume and delivery times.
The second dimension comprises process requirements. In other words: how should the
purchased product be produced? What kind of tools or machinery should be used?
Nellore’s third dimension refers to what he calls customer requirements. In this case, the
customer is the ultimate user of the purchased product – or the more comprehensive product
in which the purchased product is used. For example, consider a purchaser working for a car
manufacturer. Suppose this professional buyer is responsible for buying steering wheels. In
preparing the specification for the supplier, he may complement product requirements like
exact dimensions and material and so on – coming from the engineering department – with
his expectations of what the ultimate user the car will find important regarding the steering
wheel, e.g. softness of the material and grip. So, a purchaser can look further than his
internal customer when preparing specifications by considering the customer of his internal
customer.
Another important dimension of the specification has to do with choosing an appropriate
mode of communication with the supplier(s). So far, we have assumed that writing
specifications is something that is being done entirely by the buying company. However, this
is often not the case. There are many situations – we recall the previous discussions about
information exchange between supplier and buyer – where the supplier modifies the initial
specification coming from the buyer, possibly in a series of iterations. This is not necessarily
a good or a bad thing. A supplier may contribute significantly by bringing in his knowledge
and skills. However, the purchaser should as much as possible consider the need for
supplier involvement in the specification process up front and if necessary make sure that the
desired communication can take place.
A dimension that is often neglected is the one that contains the functional requirements of
the product. This dimension can be considered as the counterpart of the dimension of the
product requirements. Functional requirements state what the product should do, the
problem it is supposed to solve or the outcome that should result from using the product. It is
not important how the product achieves the desired outcome. Functional requirements
provide the supplier with a certain amount of freedom to be creative in developing solutions
for the buyer.
So far, we have discussed the various types of content in a specification. In addition to

content, the form of the specification should also be considered. A widely used form to
convey specifications to suppliers is by using drawings of the purchased item or product.
In addition to the product and process requirements in a specification a purchaser should

also consider whether it is necessary or desirable to include explicit requirements regarding
technologies that should be used – or not used! – in (producing) the product.
Finally, a purchaser must decide to what extent the specification can or should make use of
standard specifications. As outlined by Lysons (1996) a standard may affect a product’s
dimensions, a product’s performance measures and safety and environment requirements.
Using standards may have many advantages, like removing uncertainty for the supplier,
increased reliability of the delivered product, saving of time and money in writing and
communicating the specification, a more accurate evaluation of suppliers’ offers and less
dependability on specialist suppliers (Lysons, 1966).
So far, we have not distinguished between specifications for products and services. Axelsson
and Wynstra (2002) suggest four specific bases for specifying services: input, throughput,
output and outcome. Traditionally, services were often specified in terms of the required input
and throughput required for performing the service. For example, when specifying a cleaning
service, the buying company would specify which cleaning materials should be used (input)
and how and where they should be used (throughput). However, in recent years purchasers
have started to focus more on the output and/or outcome of the service. For example, rather
than telling the supplier how – and how often – he should clean an office building, the buying
company develops a set of performance indicators which define when the offices are
sufficiently clean. The supplier is free to do what he wants to do as long as he meets the
agreed upon levels. These agreements are usually called Service-Level-Agreements.

Clearly, the ‘input-throughput’ basis and the ‘output-outcome’ basis resemble the dimensions
of product/process requirements and functionality requirements in Nellore’s classification.
In any given situation, a purchaser must consider which of the above dimensions should be
used in specifying the need. Using fewer dimensions provides the supplier with more
flexibility, which may be very beneficial. At the other hand, it may also have very severe and
unwanted effects. The supplier may take advantage of the situation – recall what we wrote
earlier on about the cost of opportunism – and supply the buyer with an expensive product
which it does not really need. Also, leaving out essential dimensions in a specification may
lead to faulty products or products that cannot be used in the subsequent processes of the
buying company. Summarizing, we can see that setting specifications is both very important
and very difficult.
The importance of a proper specification of the need

The importance of a proper specification of need cannot be overstated. The entire
purchasing process builds on what is decided in this first step. As we will see in the next
section about supplier selection, the specification is what the supplier has to go on. The
specification determines the ‘playing field’ for the supplier.
It has been reported by various authors that by far the largest part of the total costs of
purchasing and using a good or consuming a service are born in the stage of specifying. No
matter how much care is taken in selecting a qualified supplier and negotiating a good
contract, the decisions made in and about the specification process are crucial.
Finally, we address some typical problems encountered in practice when specifying the need
in a purchasing process. Perhaps the most serious problem is that no clear specification is
prepared at all. Another problem concerns not consciously considering which dimensions of
the specification should be considered, resulting in either a too narrow or a too
comprehensive specification. In addition, it is important to have a clear division of
responsibilities regarding the preparation and approval of a specification, something that in
practice is often not the case.
1.2 Selection of suppliers

Usually, once the specification of need has been established, the next step in the purchasing
process commences: the selection of one or more suppliers for carrying out what has been
specified. In this section we address this important step from four perspectives. First, we
show that supplier selection entails more than one single decision. Next, we show the
underlying complexity of the supplier selection process from the perspective of rational
choice and we see that purchasers must make several tough trade-off’s between the costs of
searching and the quality of the supplier that is ultimately chosen. Thirdly, building on the
previous perspectives, we take a look at the practical execution of the supplier selection: how
does the workflow look like and what are the common pitfalls and practical issues.
Supplier selection comprises more than one decision

Generally, supplier selection is explicitly and rather extensively covered in purchasing
textbooks (see for example Leenders & Fearon, 1993; Van Weele, 1997). Although the
various contributions differ slightly with respect to the terms used and the level of depth, a
general two-stage pattern can be discerned. In this pattern a distinction is made between
(first) arriving at a set of acceptable suppliers which usually is added to a list of so-called
approved suppliers and secondly the ultimate choice from this approved vendor list (AVL) for
a particular supplier-product/service combination. The AVL serves as a kind of 'stock' of
basically acceptable suppliers. However, the final choice is made based upon quotations
provided by the approved vendors. In that sense, there is a disconnection between (1)
selecting an ultimate supplier-product/service combination and (2) pre-selecting acceptable
suppliers. In addition, two other important phases should be included: the problem definition
and the criteria formulation.
The first phase involves the definition of the supplier selection problem. This phase consists
of ‘deciding’ or checking whether or not a certain problem is solved (or a purpose served) by
selecting one or more suppliers. It thus involves determining what the ultimate problem or
purpose is and why supplier selection is an appropriate course of action.
The next phase concerns the formulation of criteria. Once the supplier selection problem has
been defined, criteria for the selection of the supplier(s) are formulated. The criteria relate to
the supplier and/or the product or service purchased.
Qualification and selection are subsequent phases. We already indicated that the purchasing
literature generally distinguishes between (a) arriving at a set of acceptable suppliers and (b)
making a final choice from these suppliers. For example, Misker (1996) identifies the
following situations:
· Recognition: supplier selection with the purpose of creating or updating an approved
vendor list. From such a list, suppliers will be selected for frequently recurring and
important purchases;
· Pre-qualification: selection of suppliers with the purpose of creating a set of suppliers from
which subsequently a supplier will be selected for a specific, yet seldomly occurring and
important purchase;
· Direct selection of suppliers without prior pre-qualification and resulting from a specific
requirement;
· Final selection of a supplier from an approved vendor list and resulting from a specific
requirement.
The explicit distinction between prequalification of suppliers and subsequently a final choice
for one of these suppliers corresponds with the distinction made in the EC-directives on
public procurement. Although Misker identifies ‘direct selection’ (without prior pre-
qualification) we argue that, at least theoretically speaking, there will always be some form of
qualification. Implicitly, it is decided which suppliers (from all possible suppliers) will be asked
to submit a quotation. Nevertheless, purchasers will not perceive this implicit qualification as
a qualification in the usual sense. Moreover, one could argue that sometimes the supply
market itself (e.g. in the form of supplier catalogs, associations of accredited suppliers etc.)
constitutes an 'approved vendor list'. In the sequel of this book we use the following
definitions of supplier qualification and supplier selection. Qualification involves bringing
down the set of ‘all’ suppliers down to a smaller set of acceptable suppliers. This step is also

referred to as ‘pre-qualification’. It may result in a so-called ‘bidders-list’ (in one-off
purchases) or an Approved Vendor list (for repeating purchases).
This process of qualification may be carried out in more than one step. However, the first
step always consists of defining and determining the set of acceptable suppliers while
possible subsequent steps serve to reduce the number of suppliers to consider. Selection
consists of making a final choice from (or ranking of) the set of qualified suppliers.
Workflow of supplier selection

Although supplier selection processes may differ strongly in terms of the number of
successive stages and the number of suppliers involved, the workflow in terms of documents
used is usually quite similar. We briefly explain some basic documents used in supplier
selection. By means of a Request For Information (RFI) a purchaser obtains some basic
information from a selection of suppliers about their organization and/or their product range.
This document is used in the qualification stage. Next, a Request for Quotation (RFQ)
accompanied by a List of Requirements is used to ask a specific set of suppliers to submit an
offer which lays out the conditions under which the supplier will be prepared to fulfill the
buyer’s requirements. In practice, a quotation is sometimes also referred to as ‘bid’ or
‘tender’. In this text we will use these terms interchangeably.
1.3 Negotiating
Once one or more suppliers has been – tentatively – selected, the next step will usually but
not necessarily consist of a process of negotiation between the supplier and the buying
organization. More specifically, the selection of the supplier as such does not yet mean that a
formal and binding agreement has been reached between the two parties. Rather, the
selection implies which particular supplier will be invited for the negotiations. In this process
the final deal may or may not be reached.
Traditionally, negotiations between buyers and suppliers have received a lot of attention both
in the academic and professional literature. Often, being a ‘tough’ negotiator is seen as the
desired profile of an industrial purchaser and his prime task. We will conclude in this book
that such a view is shortsighted and ignores the – often more dramatic – impact of the other
purchasing activities, especially specifying the need and selecting suppliers. Still,
negotiations are part of many daily purchasing processes and as we will come to see,
advances in Information and Communication Technology such as Electronic Reverse
Auctions blur the distinction between supplier selection and negotiations. Therefore, in this
section we discuss some of the main contributions in the area of business negotiations.
An analytical view on business negotiations

Contributions in the analytical view assist us in identifying different basic types of
negotiations, useful concepts related to the process of negotiating and negotiation support
tools that have been developed over the past decades.
A first important distinction can be made between so-called ‘distributive’ or ‘fixed sum’
negotiations and ‘integrative’ or ‘variable sum’ negotiations (Kristensen and Garling, 1997). In
the former, an improvement for one party necessarily means deterioration for the other party
– usually the metaphor of a cake is used where a bigger slice for the one means a smaller
slice for the other. In the latter, an improvement for one party does not necessarily mean
deterioration for the other party. Rather, by changing an initial agreement, both parties can
usually achieve improvements. Achieving such a ‘win-win’ situation is usually done by
considering multiple issues, which brings us to a closely related distinction between single-
issue negotiations and multiple-issue negotiations. Clearly, single-issue negotiations are
distributive: party one’s gain equals party two’s loss. Multiple issue negotiations are almost
always integrative as both parties’ interests are usually not completely opposite on all issues
under consideration.
Based on Raiffa (1982) we explain the principle of a multiple issue negotiation between a
buyer and a supplier (consider figure 2.1).
30
400
50 V T
R
350 70 60
Time (days)
85 Q
40
300
S P
20
0
250
3.0 3.5 4.0 4.5
Cost (millions of Euro’s)

Figure 2.1. Iso-curves for a buyer and supplier regarding delivery and cost (Raiffa, 1982)
This figure depicts the preferences of both the buyer and the supplier regarding two issues:
delivery time and cost. The closed curves represent the preferences of the supplier while the
dashed curves show the preferences of the buyer. Obviously, the supplier will in general be
interested in high prices and long delivery times, hence the increasing utility of the curves
towards the upper right corner. Conversely, the buyer will be interested in low prices and
speedy delivery, hence the increasing utility of the dashed curves towards the lower left
corner. Given a certain combination of price and delivery time however, the supplier will be
prepared to guarantee a faster delivery but naturally will charge a higher price or vice versa.
The closed curve indicates to which changes he will be indifferent. For example, suppose
that point P represents the initial offer by the supplier, i.e. a delivery of 280 days and a price
of 4.4 million Euro. This offer would be based on the initial requirements of the buyer laid out
in the list of requirements. The utility of this offer for the supplier equals 20, the buyer’s utility
equals 50. How could negotiations lead to a win-win situation? The buyer’s utility could be
further improved by simply following the closed line left from P. Any position on that side of P
represents an improvement of the buyer’s utility, while the supplier’s utility remains the same.
Alternatively, the supplier’s utility could be improved by following the dashed line left from P.
It is clear that moving to any point within the space (P, Q, V, R) both the supplier and the

buyer will achieve a higher utility. These will be thus the points to look for in negotiations.
However, the picture described here is a theoretical one: how do buyer and seller identify –
and agree on – the relevant issues and how do they know their utility functions? Therefore,
let us consider some results from empirical research on negotiations in the next session.
Empirical observations: the use of reference points in negotiations

Kristensen and Gärling (1997) indicate that in practice negotiators find it difficult to
simultaneously take into account multiple issues and make trade-off’s between them. In that
sense, the negotiation process may be said to consist of separate distributive negotiations on
each issue. Rather than evaluating the outcome of an utility function, Kristensen and Gärling
refer to research that shows that buyers and sellers evaluate simply offers in relation to so-
called reference points, e.g. a target price, a reasonable delivery time and so on. From a
buyer’s perspective, any offer from the seller exceeding the reference points is considered a
loss. Reference points may differ from person to person and may have different origins like
an initial offer from a seller, the expected market price, an aspiration price or a reservation
price. From the buyer’s perspective, the aspiration price is lowest price that he thinks will be
accepted by the supplier. The reservation price is the highest price that the buyer would be
willing to pay. While the reservation price is usually a very important reference point, its role
may change during the negotiation process and the other aforementioned points may
become more important. In any case, it seems important to be aware of the ‘reference point
mechanism’ in preparing and conducting negotiations. In the final section on negotiations we
highlight some important points for successful negotiations often described in the
professional purchasing literature.
Careful preparations as the key for successful negotiations

Gelderman and Albronda (1998) present a typical blueprint for preparing for negotiations.
Their model contains five steps. Firstly, they emphasize the importance of collecting facts,
about the supplier as well as the product or service at hand. Next, the relative power
positions must be assessed: who is under most pressure to close a deal? Furthermore, the
buying organization should consider who should represent the firm in the negotiations. Many
times, a team will be involved rather than just the purchaser. Recalling the multiple issues
that may play a role in negotiations, experts on each issue may be needed in the process,
e.g. legal experts, technical experts etc. The constellation of the team may change during the
negotiations as well. In addition, the buying organization should try to envisage what the
consequences could be if no agreement would be reached with the supplier: is there a way
out? What is the so-called Best Alternative To a Negotiated Agreement (BATNA)? Last – but
not least – the buying team should set explicit goals: what are the ultimate objectives and
how far should the team go on each issue? Clearly, the latter point ties in with our discussion
on reference points. Although difficult, it may be better to try to identify various reference
points at the outset of the negotiations – and discuss them within the team – than to find out
along the way.
1.4 Contracting
Suppose that a purchaser and a supplier reach an agreement in their negotiation process.
Does this imply a legal, binding agreement between two parties? Basically, the answer is
‘yes’. Usually, the parties write up the most important aspects of their agreement in a
contract. A contract can thus be described as a formal description of a transaction agreement
between a supplier and a buyer. However, as we just noted, a written contract is not a
necessary condition for an agreement. In addition, we will see that contracts cannot be
perfectly ‘complete’ in the sense that they will cover all possible future events that may affect
the agreement between the supplier and buyer. Still, contracts are widely used – and may
take various forms. Subsequently, we discuss the minimal requirements for a legal
purchasing agreement, the basic outline of a contract, typical types of contracts and the
limitations and use of contracts.
Getting to an agreement
As outlined by Gelderman and Albronda (1997) a formal deal between a supplier and a buyer
requires the following conditions to be met:
· Buyer and seller must be ‘capable of contracting’, i.e. they must be legally authorized to
represent their company;
· A situation of ‘consensus ad idem’ must be present, i.e. one party makes an offer which is
subsequently accepted by the other party. There must be two expressions of will – one on
behalf of the buyer and one on behalf of the supplier – that are aimed at the same
outcome;
· The agreement should not violate existing law;
· It must be possible to determine the substance of the deal. In other words: there must be a
mechanism, which could be used to determine the characteristics of what is being
purchased.
From these requirements it follows that a binding agreement can also be reached verbally! In
addition, it also means that asking for a RFI or RFQ does not constitute yet an agreement.
Only explicit acceptance by the purchaser leads to an agreement.
Basic outline of a contract and types of contracts

Although contracts vary extensively, some common elements can be identified (Van Weele,
1997) which will usually be part of a contract:
· What is being exchanged, i.e. basically the specification used by the purchaser;
· Conditions regarding price, delivery, payment and so on;
· Where and when the products should be delivered (or service should be carried out);
· General terms and conditions that apply;
· Where and when the transfer of ownership takes place.
While these elements will be part of most contracts, there can be huge differences between
contracts in terms of depth and coverage. Monczka et al. (2001) identify some typical
contract forms as is shown in Table 2.1.

Table 2.1. Types of contracts (Based on Monczka et al. 2001 and Van Weele (1997)
Type Description
Fixed price · Price stated in contract does not change whatever happens
Cost plus · Fixed fee: supplier charges allowable costs up to a maximum plus a fixed fee
· Time and materials: specifies labor rate plus percentage for overhead and profit (not
to exceed maximum price)
· Incentive fee: in addition to charging allowable costs, the supplier may charge a fee
which is dependent on demonstrated savings
· Cost sharing: allowable costs are shared between supplier and buyer
Special · Blanket order: covers price, quality and delivery conditions for a large group of small
contracts items, except the precise quantities. Placing an order with reference to the contract
formalizes the agreement.
· Systems contracting: blanket order plus additional services performed by supplier
e.g. inventory control
The limitations of contracts and different ways of using them

In the previous section we discussed different types of contracts. Depending on various
situational factors and expectations about the future a purchaser will choose one type over
another. For example, Monczka et al. (2001) specify a number of factors that determine the
desirability of using a fixed price contract instead of a cost-based contract:
· Uncertainty about the market and process/technological developments;
· Degree of trust and length of the relationship with the supplier;
· Supplier’s ability to affect costs.
However, as many authors have pointed out, it would be a futile exercise to try to write a
‘perfect’ contract in the sense that the contract would satisfactorily cover any possible ‘state
of the world’. Firstly, a purchaser cannot imagine all possible future events and their impact
on the agreement with the supplier, simply because of cognitive limits (Foss, 1996). In
addition, even if it would physically be possible to evaluate each and every contingency, the
cost of this massive evaluation process would outweigh the benefits of doing so. In that
respect, contracts therefore, are always incomplete. Besides the obvious negative aspects of
incomplete contracts, Foss (1996) also points to the possibility of viewing incomplete
contracts in the more positive context of learning: the adaptations and sequences of
problem-solving that are required to deal with unforeseen events contribute to the creation
and further development of the firm’s competencies.
Finally, we briefly touch upon the use of contracts. While the general purpose may be to
‘enforce’ appropriate behavior on the part of the supplier – at least seen from the buyer’s
perspective – Klein Woolthuis (1999) found that the use of contracts may change over time
and may also serve as a sign of trust and an instrument for further development of the
relationship between companies, rather than a means for monitoring and safe-guarding.
1.5 Ordering
Once negotiations have been completed and a contract has been put in place, the actual
order for the item or service may be placed. While ordering usually receives less attention
than setting specifications and selecting suppliers, there are some important ordering related
issues to consider, which will be the objective of the following subsections.
Stages in ordering
We may distinguish between three stages in the ordering process: (a) the notification stage
(b) the actual ordering stage and (3) post-ordering activities. The notification stage sees an
internal customer identifying the need for purchased items or service. In our discussion of the
purchasing process so far, the notification of the need has already occurred in the
specification phase. However, as we will see later, many purchasing needs in an
organization have a repetitive character. The notification stage consists of identifying again
that what has already been specified before is required again. The actual ordering stage
consists of the purchaser – or anyone in the buying organization for that matter – sending a
signal to the selected supplier(s) to physically deliver the product and/or service as agreed
upon in the negotiation and contracting phase. Post-ordering activities include a number of
administrative, logistical and financial tasks such as comparing the actually delivered product
with the ordered product, comparing the price and conditions mentioned on the supplier’s
invoice with the prices and conditions agreed in the contract with the supplier. If all matches
turn out satisfactory, a payment order can be created. Figure 2.2 shows the basic flow of
information and materials in an ordering process.
Obtaining efficiency in the ordering process

While placing an individual order may seem quite insignificant, the relative and absolute
magnitude of the costs of the ordering process should not be underestimated. Ordering costs
are especially relevant – in a relative sense – when we look at items of which the other
purchasing related costs are relatively small, i.e. the price of the items and various
transaction costs like communicating with and managing the supplier base. Furthermore,
recent advances in ICT and especially Internet technology offer ways to drastically reduce
the cost of the ordering phase.
INVOICE
PURCHASE REQUISITION
PURCHASE ORDER
‘Purchasing’ Supplier
COPY OF
ORDER DELIVERY
Internal DELIVERY
customer $
Store
GOODS
DELIVERED
NOTE
RECEIPT
Administra- Administra-
tive unit tive unit
PAYMENT ORDER
Figure 2.2. A typical flowchart of the ordering process (Based on Telgen and Lenselink, 1998)
1.6 Expediting and follow-up

As the final steps in the purchasing process we consider expediting and various follow-up
activities. Expediting simply means making sure that the supplier will deliver the ordered
product or service on the required time and day. After all, there may be numerous reasons
why suppliers may not be able or willing to deliver timely. For example, the delivery schedule
promised by the sales department of the supplier may turn out to be unrealistic for the

supplier’s production department. Depending on the importance of the product or service for
the buying company, the purchaser will dedicate more or less time to proactively contacting
the supplier in order to closely monitor the status of the delivery. Not surprisingly, purchasers
will closely monitor the delivery process of products and services of high importance.
Usually, purchasers will only take action regarding the timely delivery of items of little
significance to the buying company if the ultimate users of those items indicate that problems
have occurred due to the late delivery. Again, developments in ICT – especially in the area of
Supply Chain Management solutions – greatly improve a purchaser’s ability to track the
status of orders downstream in the supply chain.
Follow up activities are necessary in case the products or services delivered by the supplier
deviate from the ordered products and services. Deviations often concern the quality and/or
the quantity of the products received from the supplier. Usually, it the purchaser’s task to
collect information about these deviations and take this up with the supplier concerned.
Depending on what has been agreed with the supplier – and specified in a contract – the
supplier will have to compensate the buying company for the deviations, either through
payments or by fixing the quality problems.
2. A number of decisions are required about the basic purchasing activities
In the previous section we introduced the basic steps in the purchasing process. In this
section we briefly discuss some typical decisions that must be made about each of the basic
purchasing steps.
2.1 Which level to use when specifying the purchasing need?

A crucial decision related to the specification step concerns the level of the purchasing
specification. This relates to the fact that whatever product or service an organization
purchases, this product or service is – or becomes – part of a ‘bigger whole’. If we see the
purchased product or service as a system, the organization must make a decision as to
whether it specifies this system as one single system and starts a purchasing process for this
system or whether it breaks the system down into smaller subsystems and specifies each
subsystem. And at each point the firm must decide whether to fulfill the specification inside
the firm or to leave this up to an external supplier.
For example, consider the logistics function in a manufacturing firm. At the highest level, the
logistics function can be specified as a service comprising the design and management of all
activities related to the inbound flow of materials, internal storage and movement and
outbound transport to the firm’s customers. Some companies actually almost outsource their
logistics on this very high level using so-called third part logistics service providers. However,
the logistics function can be broken down into many subfunctions – like the mentioned
inbound logistics, internal transport and storage and outbound logistics – and each of these
subfunctions can in turn be broken down into smaller parts. At the lowest level for example,
the firm specifies and purchases the service to transport a certain load of items from a
location A to a location B. Similar examples can be given for specifying purchased products.
Buying a product or a service at a high level is often called ‘system sourcing’. System
sourcing has received a lot of attention in recent years. It seems to offer some clear
advantages (Gadde and Jellbo, 2002):
· It enables the buying firm to focus on what it believes are its core competences
· Supplier handling costs can be reduced drastically since large number of component
suppliers are replaced by one system supplier
· It fosters joint innovation and mutual learning
However, in practice system sourcing is not without problems and sometimes the buying firm
finds out that moving to system sourcing has been easier said than done. While the costs of
handling suppliers and inbound logistics may have dropped, the buying firm may find it
difficult to really rely on the system supplier to take over much of the parts engineering. Often
the buying firm finds it difficult to actually find capable system suppliers. Moreover, if a
problem occurs with fitting in the purchased system into the ‘overall’ product, the cost of
rework, problem solving and supplier training can be excessive. Gadde and Jellbo (2002)
developed a framework for understanding why system sourcing seems to work well in one
situation but not in another. They identify three main factors that determine the potential for
successful system sourcing:
· The modularity of the overall system in which the purchased system has to fit in: how
intertwined is the purchased system with the overall product it has to fit in?
· The capabilities of both the buying firm and the supplier: can the buying firm effectively get
the new kind of higher level specification across to the supplier and can the supplier
actually take responsibility for the additional engineering of parts?
· The degree of difficulty of separating development and production activities: can a system
be developed without much knowledge of technologies for producing (parts) of it?
In summary, it is very important to realize that (a) it is never given how any product or
process should be designed – or specified – in terms of its smaller parts and subprocesses
and (b) it is never given at what level the design – or the specification – becomes a
purchasing specification and how much of the refinement of that specification into more
detailed specifications should be left to the supplier(s).
2.2 Which kind of contract-type and pricing structure should be used?

In the section on the contracting and negotiating phase in the purchasing process we already
concluded that companies can choose from a wide range of contract types. Again, it is not
given which kind of contract should be used – or pursued – in a given situation. For example,
when buying raw materials – for example steel – on a spot market, a purchaser may wonder
if it would not be better to close a fixed price contract for a certain period, especially when the
purchaser expects the price to go up in the near future.
2.3 Which type of ordering system should be used?

Any company that has designed its logistics system in such a way that it includes stocks of
purchased items must make some decision regarding the way of releasing purchasing orders
to the supplier(s) of those items. The options to choose from are closely related to the basic
options for controlling stock in a materials flow system:

· A replenishment order – i.e. a purchasing order – is automatically generated once the
stock level drops below a certain order level. A subsequent decision must be made
regarding the inspection strategy: is the inventory level monitored continuously or only
every so many time intervals? Also, the order amount must be decided upon. This can be a
fixed quantity or a variable quantity.
· A replenishment order is generated after a certain time interval has passed. Again, the
ordered amount can be fixed or variable.
Ever since the eighties, the so-called Just-in-Time (JIT) concept has gained a lot of attention
in the operations management and logistics literature and practice. The basic idea is to
consider inventory and stock as waste and to reduce ordering and set-up costs as much as
possible in order to obtain minimal replenishment quantities that are supplied ‘just in time’,
i.e. only when it is needed for processing (see e.g. Christopher, 1998). In fact, what triggers
the replenishment – and also the purchasing order – is the completion of the previous
supplied part. Implementing a truly JIT based production system has far reaching
implications for a firm’s suppliers. In many cases, suppliers must relocate closer to the
customer in order to establish JIT supply.
Whatever the materials flow control concept, in each case, the replenishment orders from the
operations and production process must be transferred into purchasing orders for the
suppliers. Therefore, the releasing of purchasing orders is closely linked to the design of the
firm’s primary operations and its materials flows.
Yet another question concerns the responsibility for and the organization of the ordering
process. In terms of organizational units in a firm, a Purchasing department is often but not
necessarily involved in the actual placing of the orders. More and more – and stimulated by
technological developments such as Enterprise Resource Systems and Electronic
Purchasing systems – internal customers take over the task of placing orders. An even more
drastic shift of responsibilities takes place in a so-called Vendor Managed Inventory (VMI)
arrangement. With VMI, the supplier becomes responsible for the actual stock level – or
more in general the availability of purchased items – in the customer’s warehouse. By
providing the supplier with more insight into the expected future demand of the particular
items, the supplier is now responsible for making sure that sufficient stock is present at the
customer’s premises and hence the supplier becomes by definition responsible for placing
orders instead of the buying firm.
3. Purchasing processes evolve into different typical configurations
In practice, there is no single purchasing process. Many different configurations appear. In

this section, we discuss Faris et al. (1967) classical distinction into three of such
configurations: a New Task configuration, a Modified Rebuy and a Straight Rebuy. It is
important to understand why these different configurations occur and what the implications
are of the differences between the configurations.
3.1 New task – configurations
The configuration that precisely follows the basic steps of the purchasing process as we
introduced them in this chapter is the so-called New Task configuration. This configuration
appears in response to a genuine new need in the organization or when specifications have
changed so drastically that a new sourcing process has to be initiated. In other words: the
organization has never before purchased anything similar. Therefore, all basic steps have to
be performed and take place in the logical sequence. Typical features of this purchasing
process are shown in Table 2.3. Examples of categories with a lot of New Task situations are
IT-infrastructure, buildings, and production machines.
Table 2.3. Classification of purchasing approaches (Faris et al, 1967)

Purchasing approach Description
New Task configuration · Entirely new product or service, no previous experience
· No (known) suppliers
· High level of uncertainty with regard to the specification
· Extensive problem solving, group decision making
Modified Rebuy · New product or service to be purchased from known
configuration suppliers
· Existing (modified) products purchased from new
suppliers
· Moderate level of uncertainty regarding the specification
· Less extensive problem solving
Straight Rebuy · Perfect information concerning specification and
configuration supplier
· Involves placing orders within existing contracts
3.2 Modified Rebuy – configurations

In most organizations, only a few purchases will qualify as New Task purchases. In many
situations, the need that must be fulfilled by an external supplier is not new but more or less
similar to a previously purchased product or service. In that case, the existing – known –
supplier is often used to fulfill this revised need. In other words: the phase of supplier
selection is ‘skipped’. Alternatively, there may not even be a change in the internal need but
in the existing supplier’s willingness or capability to deliver the customer’s need. For
example, the existing supplier may go bankrupt or may decide to no longer produce the
product under consideration. Or, new suppliers may enter the market and convince the
buying organization that their offerings are superior to the product of the existing supplier. In
the latter case, the specification phase is hardly carried out. Instead, the process ‘starts’ with
searching and/or evaluating and selecting a new supplier to fulfill an existing need. Both
configurations are called a Modified Rebuy, see again Table 2.3. Examples of categories in
which one often finds Modified Rebuys are temporary labor, office furniture, and hotel
services. Like Straight Rebuys, Modified Rebuys are largely defined upfront, which enables
end users to place orders themselves.
3.3 Straight Rebuy – configurations

Many purchasing processes in a firm consist of completely copying the tactical phases, i.e.
the specification and supplier remain unchanged and no new negotiations take place. In
other words: many successive internal needs are fulfilled using a fixed specification, a known

supplier and an already existing contract. Such purchasing processes are called ‘Straight
Rebuy’. In a Straight Rebuy, only the ordering phase is really executed, see again Table 2.3.
Examples of such purchases are utilities, office supplies, and replenishment orders for spare
part stocks. Because a Straight Rebuy is completely defined upfront, such orders are usually
done by end users or even automatically by an automated ordering system.
Time spent on purchasing is shortest and the number of decisions that have to be made is
smallest in a Straight Rebuy situation, increases for a Modified Rebuy situation and is
highest for a New Task. Some Straight Rebuy situations do not take any time at all, for
example the monthly ‘purchasing’ of utilities. The degree of routine in the activities is highest
for a Straight Rebuy and lowest for a New Task.
4. Shaping appropriately programmed configurations of purchasing processes
In the final section of this chapter, we discuss the background and some of the implications
of the different purchasing process configurations and to what extent (purchasing)
management can or should try to influence the purchasing process types taking place in their
organizations.
4.1 Different purchasing process configurations will appear naturally

Relying on standard operating procedures or routines is a basic element of the functioning of
organizations in classic organization theory (e.g., see Cyert and March; 1963). Organizations
cannot function without some sort of stability in the way it works. The stability provides
direction for the employees and facilitates coordination of tasks within the firm. Also, without
sufficient stability within the processes of the organization, learning – and ultimately
achieving process improvements – becomes difficult. Moreover, standard procedures provide
a necessary degree of efficiency as well. The latter point may explain why in many cases
specifications and suppliers are not changed even if a clear change in the internal need
arises or if a promising new supplier comes along. The effort and costs of rewriting the
specification and finding possibly more suitable suppliers often exceed the benefits of a
somewhat more accurate specification and a slightly cheaper supplier. Again, as proposed
by Cyert and March, existing routines – and in our case purchasing routines or configurations
– are not changed as long as they perform well enough. Only if a purchasing configuration
consistently and over a period of time leads to an insufficient outcome, are slight changes in
the configuration considered.
4.2 Striking a balance between differentiation and efficiency

Organization theory helps us to understand why organizations standardize and fix much of
their purchasing processes and decisions regarding specifications, suppliers and contracts,
and such ‘standardized’ purchasing configurations may differ for different categories of
purchased items and services. A first important implication therefore is to realize that
management of purchasing processes must be based on differentiation. In other words: there
is no one ‘best’ purchasing configuration. For example, extensive market research and
supplier evaluations may be appropriate in one situation but far less useful in other cases. It
is management’s task to recognize this and design different purchasing configurations
accordingly. In that respect Management must also recognize that there may be many
different internal and external triggers of purchasing processes: new or revised internal need;
new supplier, supplier failure; etc.
A second implication is however that in doing so the purpose of efficiency must not be
ignored. Management has a number of options to standardize and ‘program’ each basic
purchasing phase. Examples are:
· Providing and prescribing standard specifications instead of newly designed solutions
· Prescribing mandatory use of pre-qualified suppliers
· Dictating the use of standard contract templates and texts
Purchasing management has some influence as to which configurations should be used for
different situations and categories of purchased items and services.
The references of this chapter are available with the lecturers.

A General Introduction Into Purchasing Management (Boer & Telgen)

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A general introduction into purchasing management

Luitzen de Boer, Jan Telgen

Services Temporary labor Cleaning

A last example of purchases is investments. The definition mentions ‘incoming invoice’.

1.1. Basic purchasing process

Tactical purchasing function Operational purchasing function

· market · selection of · negotiation · ordering · monitoring of · handle claims

Electronic procurement (e-procurement) solutions can improve the performance of this

Effects Conditions for use

3 A general introduction into purchasing management

Effects Conditions for use

5 A general introduction into purchasing management

In most organizations, an order is preceded by a requisition that is initiated by the end

Effects Conditions for use

7 A general introduction into purchasing management

Specification Selection Contracting Ordering Monitoring

To illustrate this we suppose to go buying pens. The specifications have to be drawn up

1.2. Elements of the purchasing function

Clients and suppliers

9 A general introduction into purchasing management

Methods and procedures can either be manual or automated. Electronic procurement is

Personnel and organization

Purchasing policy and performance indicators

The form of e-procurement that deals with performance measurement is called

Effects Conditions for use

The racecar model

11 A general introduction into purchasing management

Organisation Methods &

Internal Specify Select Contract Order Monitor After-care Suppliers-

2. Purchasing function and purchasing department

Whether an organization has a purchasing department or not, purchasing is never done by

Decentralized responsibilities also add to the number of people involved in purchasing.

Important to note is that segregation of tasks is required in every organization to avoid

3. The importance of purchasing

3.1. Importance of purchasing

Sector Purchasing volume Company Purchasing volume

Trade 70 - 98% Canon 89.9

13 A general introduction into purchasing management

Another reason why purchasing is increasingly interesting for management in financial

The importance of purchasing in governmental organizations and utility companies has

3.2. Marketing the purchasing function

Seizing opportunities to show that the involvement of a purchasing professional in a

Inbound Outbound Marketing

There is a huge variety in purchasing circumstances representing all thinkable goods,

Differentiations in purchasing are defined by among other things:

4.1. Purchasing in different sectors

15 A general introduction into purchasing management

Another distinction between private and public organizations concerns s econdary

4.1.1. Procurement developments in the public sector

The development itself may be a continuous professionalization following a certain pattern or

17 A general introduction into purchasing management

4.2. Purchasing on different markets

D Number One Few Many

4.3. Purchasing of different goods and services

Examples of considerations for different purchasing categories are listed in Figure 9.

Purchasing of projects is yet another example of a purchasing situation. Purchasing will

The references of this chapter are available with the lecturers.

19 A general introduction into purchasing management

Luitzen de Boer, Jan Telgen

1. Six basic activities can be distinguished in purchasing processes

1.1 Specification of the need

Specifying the need may comprise multiple dimensions