Overview :-
Almost all purchasing decisions include factors such as delivery and handling,
marginal benefit, and price fluctuations. Procurement generally involves making
buying decisions under conditions of scarcity. If good data is available, it is good
practice to make use of economic analysis methods such as cost-benefit analysis or
cost-utility analysis.
An important distinction is made between analyses without risk and those with
risk. Where risk is involved, either in the costs or the benefits, the concept of
expected value may be employed.
Procurement systems :-
Procurement process :-
Procurement steps :-
In the European Union, the Commission has adopted its Communication on public
procurement for a better environment, where proposes a political target of 50 %
Green public procurement to be reached by the Member States by the year 2010.[6]
Procurement frauds :-
Centralized purchasing provides for less duplication because of fewer orders thus
less processing, receiving, inspection and accounts payable. (Project management
Institute 1997) Centralized purchasing also provides for efficiency and
effectiveness in contracting or purchasing because the organization’s procurement
department has more management control and are more specialized and they tend
to have proper understanding of market conditions. Centralized purchasing also
brings about major bulk discounts because of volume purchases for the
organization and other benefits that they might get from economies of scale.
The disadvantage of centralized purchasing is that the central office lacks the
technical skills or expertise to purchase service or goods that require a person with
technical skills e.g. purchasing electronic parts, computer equipment etc.
Some organizations adopt a hybrid system that combines both centralized and
decentralized purchasing. They use centralized purchasing for larger organization-
wide contracts, but give individual business units autonomy to make small
purchases for their departments or subsidiaries.
PRINCIPLES OF PURCHASING :-
Goods and services not required by law to be procured by the department through
competitive bidding will be procured to:
BUSINESS OFFICE
Files the pink copies of the purchase order and forwards the blue copy to the
appropriate party.
1. When the item is received, the user MUST sign the packing slip and
forward it to the Accounts Payable Clerk. If there is no packing slip,
the user should sign a copy of the blue purchase order indicating the
receipt to the goods or services, and the fact that there was no packing
slip.
2. During the summer months and during long breaks the Building
Principal should open all packages and sign the packing slips for all
items received. This will insure a timely process for payment.
3. There will be times when the packing slip is also the invoice, or vice
versa. Invoices MUST be forwarded to the Accounts Payable Clerk as
soon as possible.
1. Compares the packing slip and/or the invoice against the original
purchase order.
2. Holds any invoice for payment until a signed packing slip is received.
3. Checks the invoice for accuracy against the packing slip and purchase
order.
4. Forwards the signed packing slip, and invoice to the Business
Administrator for approval for payment.
5. Prepares the warrant and a voucher for each payment.
6. Coordinates with the School Committee for the signing of the warrant.
7. Copies all of the required documentation and then forwards the signed
vouchers and warrant to the City Auditor for payment.
8. Once the City Auditor approves the vouchers and warrant, the City
Treasurer issues a payment to the vendor.
A. The staff member must have written approval to charge at the local
vendor. This approval is received from the Business Administrator.
B. The staff member must receive a signed receipt, and the purpose of
the purchase must be easily identifiable.
C. Once the invoice is received, the Principal/Director will be asked to
approve a "confirmation" requisition. The completed requisition and
the charge receipts will be forwarded to the Business Administrator
for approval following the normal procedures.
Faculty and staff may be reimbursed for out-of-pocket expenses and mileage.
They must complete a claim for reimbursement in duplicate. These claims must
be submitted no later than June 30th of the current fiscal year. Their supervisor
must approve the claim and forward it to the Business Administrator for
approval and processing.
• The Director of Materials Management & CPO has responsibility for the
procurement of all goods and services, either by providing the services for
such procurement or by granting functional directions to others delegated the
authority to perform such functions.
• The Purchasing Department has the responsibility for obligating the
University through the use of purchase orders to commitments for the
procurement for materials, equipment, supplies and services.
• The Purchasing Department is responsible for the review and approval of
new vendors.
• The Purchasing Department is responsible for making the final
determination of supply sources, quantities purchased, delivery schedules,
and price negotiations, except where others are so authorized by the
president. These decisions will be made in consultation with those
originating the requisitions and in conjunction with other Administrative
departments, i.e., Finance, Office of General Counsel, as appropriate.
• The Purchasing Department is responsible for initiating and maintaining
effective and professional relationships with suppliers, actual and potential.
• The Purchasing Department serves as the lead channel through which
requests regarding prices and products are handled. The Purchasing
Department will conduct all final correspondence with suppliers involving
prices or quotations. In cases where the scientific, technical or business
expertise required to solicit and qualify a bid or quotation rests with
departments other than Purchasing, individuals designated by the Head of
Laboratory or Department may correspond with suppliers regarding
scientific, technical or business issues in the process of identifying
appropriate vendors/sources and obtaining a bid, proposal or quotation. In all
cases, the Purchasing Department must be consulted regarding the
solicitation and must be provided with copies of relevant correspondence.
Close coordination between the departments and Purchasing must occur
regarding such solicitations.
• Purchasing personnel are to seek to obtain and purchase all goods and
services at the lowest possible total end cost, considering the guidelines of
prices, service, quality, delivery and reliability.
• The Director of Materials Management & CPO has full authority to question
the quality and kind of material or service requested in order to ensure that
the policies of the University are followed and that the best interests of the
University are served.
• Purchasing personnel are to inform requisitioners whenever the quantity or
specifications of materials requisitioned are inconsistent with sound
purchasing practices or market conditions.
• Purchasing personnel will negotiate the return of rejected equipment or
supplies to suppliers. In cases where the scientific, technical or business
expertise required to negotiate the return rests with departments other than
Purchasing, individuals designated by the Head of Laboratory or Department
may correspond with suppliers regarding scientific, technical or business
issues related to the return. In all cases, the Purchasing Department must be
consulted regarding the return and be provided with copies of relevant
correspondence. Close coordination between the departments and
Purchasing must occur regarding such returns.
• The Purchasing Department is responsible for considering the
appropriateness of prepayments.
• The Purchasing Department is responsible for considering the
appropriateness of "trial period" or "demo" transactions for equipment.
• The Purchasing Department reviews and approves, with appropriate
consultation with the Finance Office, trade-in arrangements for University
equipment.
• The Purchasing Department is responsible for questioning requests that are
beyond the University's "generally accepted" terms and conditions and for
consulting with the Office of General Counsel on these issues.
So what exactly is a purchasing cycle? Well it’s the steps taken to order and pay
for products that a business requires. The purchasing cycle determines the
frequency that products are purchased.
The steps in a standard purchasing cycle are:
1. The Need
You need to identify that there is a need to update the inventory or stock.
You may also need a business service or ad hoc product.
2. Specify
Now you need to decide how much and when you want the products or
services delivered.
3. Requisition or Order
This is when you write the purchase order or requisition order.
4. Financial Authority
Before the order can be placed, it usually requires some kind of authority for
its purchase. With some purchase orders, this is reasonably automatic. With
a large order that will be put out to tender it could be multi staged.
5. Research Suppliers
Repetitive orders usually have set suppliers, although it does no harm to
review the options sometimes. Other orders will either need to go out to
tender or there will be a choice of suppliers.
6. Choose Supplier
The supplier is now chosen.
7. Establish Price and Terms
In a large company, many suppliers will be contracted with a Master
Agreement where prices and terms are set for a defined period. For other
orders, now is the time to negotiate terms and prices.
8. Place Order
At this stage in the purchasing cycle, the order is placed and this becomes a
contract between the business and the supplier.
9. Order Received and Inspected
The goods are delivered, checked in the warehouse and entered into the
inventory. Shortages and breakages are reported to the supplier for the
appropriate credits to be supplied.
10. Approval And Payment
Usually within 30 days, the invoices are received and paid.
11. Update Of Records
The purchasing ledger and stock records are updated. This is automatically
done by many purchasing computer systems.When there is a need to place a
requirement out to tender the purchasing cycle becomes slightly different:
When there is a need to place a requirement out to tender the purchasing cycle
becomes slightly different:
1. The Need
In this case, the need usually goes through a business case and is then tightly
defined and specified.
2. Financial Authority
This usually happens at a higher level and includes the management of the
department that requires the goods.
3. RFP
A Request For Proposal (RFP) is written, in which the need is highly
specified.
4. Invite Tenders
This is always done formally, usually by posting the request in trade
magazines and appropriate web sites. Government projects are posted on
government web sites.
5. PQQ
A Pre Qualification Questionnaire (PQQ) is sent out to likely suppliers in
order to select a short list of appropriate potential suppliers.
6. Tenders
The tenders are sent in from the qualified suppliers.
7. Qualifying
A number of meetings are held to clarify any questions that suppliers may
have.
8. Evaluation
This is the most exciting part of the purchasing cycle and can take many
weeks for a big tender. All the tenders are evaluated and the requirement
awarded to the winning bidder.
9. Negotiation
The fine print of the terms and conditions are negotiated with the chosen
supplier. The price is fixed at the bid price.
10. Contract Award
In a very short time, the contract is awarded to the chosen bidder.
11. Manage Contract
This is the period in the purchasing cycle when the goods are delivered.
12. Approval And Payment
If the contract is carried out completely then full payment is made. If there
are problems, there may be a damage request.
13. Sign Off
At the end of the contract work and deliveries, the contract is signed off and
all relationships with the supplier are finished.
14. Update Of Records
The purchasing ledger and stock records are updated. This is automatically
done by many purchasing computer systems.
Vendor Management :-
Strategies to Strengthen Vendor Relations
Vendor management allows you to build a relationship with your suppliers and
service providers that will strengthen both businesses. Vendor management is not
negotiating the lowest price possible. Vendor management is constantly working
with your vendors to come to agreements that will mutually benefit both
companies.
One of the goals in vendor management is to gain the commitment of your vendors
to assist and support the operations of your business. On-the-other-hand, the
vendor is expecting a certain level of commitment from you. This does not mean
that you should blindly accept the prices they provide. Always get competitive
bids.
Vendor management seeks long term relationships over short term gains and
marginal cost savings. Constantly changing vendors in order to save a penny here
or there will cost more money in the long run and will impact quality. Other
benefits of a long term relationship include trust, preferential treatment and access
to insider or expert knowledge.
Remember, your vendor is in business to make money too. If you are constantly
leaning on them to cut costs, either quality will suffer or they will go out of
business. Part of vendor management is to contribute knowledge or resources that
may help the vendor better serve you. Asking questions of your vendors will help
you understand their side of the business and build a better relationship between
the two of you.
Good vendor management dictates that negotiations are completed in good faith.
Look for negotiation points that can help both sides accomplish their goals. A
strong-arm negotiation tactic will only work for so long before one party walks
away from the deal.
Vendor management is more than getting the lowest price. Most often the lowest
price also brings the lowest quality. Vendor management will focus quality for the
money that is paid. In other words: value! You should be willing to pay more in
order to receive better quality. If the vendor is serious about the quality they
deliver, they won't have a problem specifying the quality details in the contract.
8. Vendor Management Best Practices :-