In this lesson, you will learn the step-by-step process of procurement, from identifying a need to receiving the goods or services. We will break down each stage of the procurement process, highlighting key considerations and best practices to ensure efficiency and value for your organization.
This is where the procurement journey begins. It involves recognizing a need for a product or service. This could be anything from office supplies to complex machinery. Careful planning at this stage is crucial.
Key Activities:
* Determine the need: What exactly is required? (e.g., new laptops, consulting services)
* Develop specifications: Define the required features, quality, and quantity. (e.g., laptop specifications: processor speed, RAM, storage space, operating system)
* Budgeting: Determine the available funds for the procurement. Estimate the costs involved.
* Timeline: Establish a realistic timeline for the entire process.
Example: Your company needs to purchase 50 new laptops for the sales team. The initial planning would involve identifying the specific needs of the sales team, researching the best laptop specifications, estimating the cost, and setting a deadline for delivery.
This stage focuses on finding potential suppliers and evaluating their capabilities. You'll explore different vendors to fulfill the identified need.
Key Activities:
* Market Research: Investigate potential suppliers who can meet your needs. This might involve online searches, industry contacts, or attending trade shows.
* Request for Information (RFI): Sending an RFI is a pre-cursor to a quote and allows you to understand the capabilities of potential suppliers.
* Request for Quotation (RFQ)/Request for Proposal (RFP): Requesting quotes or proposals from potential suppliers. An RFQ is used for standard items, while an RFP is for more complex projects.
* Supplier Evaluation: Analyze the submitted quotes or proposals based on price, quality, delivery time, and other relevant factors.
Supplier Selection:* Choose the supplier that best meets your requirements and offers the best value.
Example: After determining the laptop specifications, you would research laptop suppliers (e.g., Dell, HP, Apple). You would send out RFQs to several suppliers, requesting quotes for the 50 laptops. You'd then evaluate the quotes based on price, warranty, customer support, and delivery time, ultimately selecting the supplier that offers the best overall package.
Once you've selected a supplier, you'll negotiate the terms and conditions of the purchase.
Key Activities:
* Negotiation: Negotiate prices, payment terms, delivery schedules, and other contractual details. Aim for the best possible terms without sacrificing quality.
* Contract Creation: Create a formal contract that outlines all agreed-upon terms. This protects both the buyer and the seller.
* Contract Review: Review the contract carefully to ensure all details are accurate and aligned with your needs.
* Contract Execution & Management: Sign the contract and manage the contract throughout its lifecycle. Monitor supplier performance against the contract terms.
Example: After selecting a laptop supplier, you would negotiate the price per laptop, payment terms (e.g., net 30), delivery date, and warranty. A formal contract would be created, detailing all agreed-upon terms. You'd review this contract to confirm accuracy and then move forward to order the laptops.
This is the stage where you place the order and the supplier fulfills it.
Key Activities:
* Purchase Order (PO) Creation: Generate a purchase order that formally authorizes the purchase and specifies the items, quantities, and agreed-upon prices.
* Order Placement: Send the purchase order to the supplier.
* Order Tracking: Track the order's progress and ensure it's delivered on time.
* Delivery & Inspection: Receive the goods or services and inspect them to ensure they meet the agreed-upon specifications.
Example: After negotiating and signing the contract, you would create a purchase order for the 50 laptops. The PO would be sent to the chosen supplier. You'd then monitor the delivery progress and, upon receipt, inspect the laptops to ensure they are the correct models and in good working order.
This stage involves receiving and processing the invoice and making the payment.
Key Activities:
* Invoice Receipt: Receive the invoice from the supplier.
* Invoice Verification: Verify the invoice against the purchase order and the delivered goods or services. Ensure the quantities, prices, and descriptions are correct.
* Payment Processing: Process the payment according to the agreed-upon payment terms.
* Record Keeping: Maintain accurate records of all invoices and payments.
Example: The laptop supplier sends an invoice. You would check the invoice to verify the quantity of laptops, the price per laptop, and the total cost against the PO and the actual laptops delivered. Once verified, you'd process the payment according to the agreed-upon payment terms (e.g., within 30 days) and file the invoice and payment records.
This stage involves maintaining records of all procurement activities and managing the relationship with your suppliers.
Key Activities:
* Maintain records: Keep track of all your procurement activities, all contracts, PO's, invoices, payments etc. to provide a clear audit trail
* Supplier Performance Monitoring: Track your suppliers' performance in areas such as delivery, quality, and responsiveness. This is a key component of a successful SRM.
* Supplier Relationship Management: Build and maintain positive relationships with your suppliers. This can involve regular communication, performance reviews, and collaborative problem-solving.
* Continuous Improvement: Continuously review and improve your procurement processes based on performance data and feedback.
Example: Regularly review and track the performance of the laptop supplier for delivery times, product quality, and customer service. Maintain good communication and use the data to continuously improve the process and strengthen the supplier relationship.
Explore advanced insights, examples, and bonus exercises to deepen understanding.
Yesterday, we covered the core procurement process. Today, we'll expand on that foundation, focusing on how those steps relate to building and managing relationships with your suppliers. This is where Procurement transforms from a simple transaction to a strategic advantage.
SRM is not just about negotiating the best price; it's about fostering mutually beneficial relationships with suppliers. Think of it as an investment, not just an expense. A strong SRM strategy encompasses several key areas:
Imagine your company sources office supplies. List three of your key suppliers. For each supplier, assign it to one of the four supplier categories mentioned above (Strategic, Critical, Leverage, Non-Critical). Justify your choices, explaining why you placed each supplier in that particular segment.
For a key supplier of IT hardware, brainstorm three specific KPIs you would use to measure their performance. Explain why each KPI is important and how you would track it. Think about the impact to your organization if these KPIs were not managed effectively.
SRM is crucial in many industries. Consider the automotive industry, where manufacturers rely on complex supply chains. Poor supplier relationships can lead to production delays, quality issues, and increased costs. Alternatively, consider retail, where strong relationships with manufacturers enables better product availability and timely responses to changing consumer demands. Think about any scenario where you need to purchase goods or services, how does SRM impact those relationships?
Research a company known for its excellent supply chain management (e.g., Apple, Toyota, Amazon). What specific SRM strategies do they employ? How do these strategies contribute to their success?
Drag and drop the following procurement process stages into the correct order: 1) Need Identification & Planning, 2) Sourcing & Supplier Selection, 3) Negotiation & Contract Management, 4) Purchase Order & Order Fulfillment, 5) Invoice & Payment, 6) Record Keeping & SRM
With a partner, role-play the scenario of purchasing 20 new laptops. One person is the Procurement Manager and the other is the Sales Representative from a laptop supplier. Discuss the process, from initial need to purchase order.
For the purchase of office supplies (pens, paper, etc.), create a simplified flowchart outlining the key steps of the procurement process.
Your company is planning to move to a new office space. Your team is in charge of procuring all the office furniture. Outline the steps you would take, using the procurement process, to acquire the necessary desks, chairs, and other furnishings. Consider what kind of specifications and contract management you would need.
Prepare for Lesson 3, which will focus on developing supplier selection criteria and conducting supplier evaluations.
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