Purchasing and

Procurement
Principles and Scope
Key learning points
 Understanding the definitions and role of purchasing
in the value chain
 Understand the scope of purchasing and
procurement within the organization
 Understand and describe the main stages of the
purchasing process
 Purchasing in the value chain
firm infrastructure
Support human resource management M
ar
activities gi
technology development n
procurement

inbound operations outbound marketing service

M
logistics logistics & sales

a rgi
n
Primary activities
Porter’s Value Chain
Purchasing in the value chain
 Primary activities can be divided in five generic
categories:

 Inbound Logistics
 Operations
 Outbound logistics
 Marketing and sales
 Services
Purchasing in the value chain
 Support activities can be divided in four generic
categories:

 Procurement
 Technology development
 Human resources management
 Firm infrastructure
Purchasing in the value chain
 The procurement function should be able to meet the
material requirements related to inbound and
outbound logistics, and to operations.

 Procurement activities may be also related to

supplying products and services for the other support
functions.
 What is
purchasing and
procurement?
Purchasing
 The UK CIPS offers the following definitions of key terms related to
purchasing and supply management:

 Purchasing : ‘to acquire goods, works or services from a nominated

supplier’ … . ‘Purchasing is a component of the wider function of
procurement and consists of activities such as ordering, expediting,
receipt and payment’.
Procurement
 Procurement : ‘the totality of acquisition starting from the identification
of a requirement to the disposal of that requirement at the end of its life.

 It therefore includes pre-contract activities, e.g. sourcing, and post

contract activities, e.g. contract management, supplier relationship
management activities.

 However, it does not include stores management and logistics that are
aspects of the wider subject of subject of Supply Chain Management.
Procurement generally relates to goods, works and service(s)
requirements’.
Supply management and sourcing
 Supply management : ‘purchasing, expediting, inventory
management, delivery and receipt of goods and quality control’.

 Sourcing : ‘activities involving searching markets for sources of

goods and services. At the opposite end of the supply chain
from marketing. Strategic sourcing is the attempt to make sure
everything is being sourced as efficiently as possible’.
Different definitions
 Ordering… Operational, short
 Buying… term, deal and
margin oriented
 Purchasing…

 Procurement…
Strategic, long
 Sourcing… term, performance and
value oriented
 Supply Chain Management…
 purchasing function

tactical / initial ordering/ operational

Expediting Follow
Internal
Specification Selecting Contracting Ordering and up/ Supplier
customer
evaluation evaluation

Sourcing Supply
Buying
Procurement
The scope of purchasing
 To supply the organization with a flow of materials and services
to meet its needs.
 To ensure continuity of supply.
 To buy efficiently and wisely, obtaining by ethical means the
best value for every pound spent.
 To maintain sound co-operative relationships with other
departments, providing information and advice as necessary to
ensure the effective operation of the organization as a whole.
 To develop staff, policies, procedures and organization to
ensure the achievement of these objectives.
 The purchasing process
 The purchasing process involves six distinct stages. The first three
stages are referred to as ‘sourcing’ or ‘source-to-contract’ whilst the
final three stages are referred to as ‘supply’ or ‘procure-to-pay’.

 Companies will only go through all of these when facing a new-

purchase situation where they have little experience with the supply
market.

Expediting Follow
Internal
Specification Selecting Contracting Ordering and up/ Supplier
customer
evaluation evaluation
Key learning points
 Understanding the definitions and role of purchasing
in the value chain
 Understand the scope of purchasing and
procurement within the organization
 Understand and describe the main stages of the
purchasing process
References
 Johnsen, Thomas E., et al. Purchasing and Supply Chain
Management : A Sustainability Perspective, Taylor & Francis Group,
2014. ProQuest Ebook Central, http://
ebookcentral.proquest.com/lib/bham/detail.action?docID=1664298.
Created from bham on 2021-12-29 01:57:02.