Procurement and Sourcing

1. Procurement
Management

2. BASIS FOR
COMPARISON
SUPPLY CHAIN VALUE CHAIN
Meaning The integration of all the activities
involved in the procurement,
conversion and logistics of the
product is known as Supply Chain.
Value Chain is defined as
the series of activities, that
adds value to the product.
Originated
from
Operation Management Business Management
Concept Conveyance Value Addition
Sequence Product Request - Supply Chain -
Customer
Customer Request - Value
Chain - Product
Objective Customer Satisfaction Gain competitive advantage
Essence A tool of business transformation,
which minimizes costs and
maximizes customer satisfaction by
providing the right product at the
right time at the right place and the
right price.
Value Chain is a way of
getting a competitive
advantage, through which a
company can beat its
competitors along with
fulfilling customer

3. Suppliers Vendors
A supplier is a business or
person that makes goods
available to another business or
service. Suppliers are often
referred to as the first link in a
supply chain, existing strictly in
a B2B relationship.
A vendor is a business or
person who purchases products
from a company, then sells them
to someone else. They’re often
considered the last link in the
supply chain and can participate
in B2B or B2C relationships.
Vendors are typically in the
business of providing items that
can be inventoried, while suppliers
deal more in raw materials that will
be turned into something else.
In this comparison, vendor
relationships are usually focused
on price comparisons,
Supplier relationships are more
attuned with how the supplier
influences the quality of the
product.

4. Suppliers Vendors
Supplier sells goods to
businesses for the purpose of
resale. Conversely, Vendors sell
goods to the customers for
using purposes.
Conversely, Vendors sell goods
to the customers for using
purposes.
Supplier supplies a specific type
of goods to manufacturers in
bulk quantities.
A vendor, who keeps a wide
variety of goods and provides
the end user in small lots.
When the supplier supplies
goods directly to the final
consumer, he is called as a
vendor.
When the goods are sold by the
vendor to another party for the
purpose of resale, a vendor will
be called as a supplier.

5. Suppliers Vendors
Let’s say you’re a health-focused
restaurant that specializes in high-
quality, organic, made-from-scratch
meals. You’ve partnered with several
local farms to supply you with
ingredients that you use in your
kitchen.
These farms would be considered
suppliers, as your company is directly
connected to the integrity of their
products. The supplier is considered
a partner in the business, helping to
enhance your company image while
providing a mutually beneficial
relationship.
You own a restaurant and serve
several types of soda. You order
your soda from a vendor instead
of a supplier because mixing,
canning or bottling, and storing
your own soda is too much of an
expense and hassle to justify
doing it all yourself.
You probably have a contract
with a particular vendor to
supply your restaurant with all its
soda.

7. Distributor & Dealer
O Distribution process refers to the process in which
company’s product or service are made available to
the customers, by various means like an actual
storefront, e-commerce website, multiple retailer or
telemarketer.
O n individual ora business concern, who is involvedin the activities of buying
goods for their account andthen selling it off from their stock is known as
Dealer. In simple words, a dealer is someone whodeals in the trading of a
particular product. Heoperates an account, on which hedoes commercial
trading for ownself, as a part ofregular business.

8. Basis for
Comparison
Distributor Dealer
Meaning A person or business
organization who is
involved in supplying
goods to dealers and
other businesses is
known as Distributor.
A person or a business
organization who is
engaged in buying and
selling of a particular
kind of goods is known
Dealer.
Function Distributor purchase
products directly from the
company and distributes
it in the market to several
vendors.
Dealer purchases
products for their own
account and trades them
to the customer from his
own stock.
Who are they? Agent Principal
Creates links Manufacturer and Dealer Distributor and

9. Basis for
Comparison
Distributor Dealer
Deals in Products which fall
under a particular
category.
Variety of products
Competition Extreme Moderate
Serving area Large, distributors offer
their services in a
comparatively larger
area, in essence, their
area of operation is
extended to different
towns, cities, and states
Limited. The serving
area of dealers is
limited to a particular
region

10. Factors Affecting Procurement
Procurement
External
National
Economy
Taxations
World
markets
Currency
valuations
EXIM
policies
Time
Supply
variation
Lead time
Demand
variation
Money
Working
capital
Storage
capacity
Utilization
Technology
Forecasting
method used
Information
available
Communication

11. Procurement Purchasing
Activities related to acquiring goods and
services
Functions associated with buying goods
and services
Steps that happen before, during, and
after purchase
The straightforward process of
purchasing commodities
Used in a production
environment (internal process)
Used in a wholesale
environment (external process)
Puts more importance on an item’s value
than its cost
Tends to focus more on the item’s price
than its value
Refers to a set of tasks that spot and
fulfill needs
Refers to the specific task of committing
expenditure
Includes need recognition, sourcing, and
contract closure
Includes ordering, expediting, and
payment fulfillment
Follows a proactive approach to spot
and fulfill needs
Follows a reactive approach to satisfy
internal needs
Relational–focuses on creating long-
term vendor relationships
Transactional–focuses on transactions
than vendor relationships

12. Difference- Purchasing and Procurement
Viewpoint Purchasing Procurement
1 Goods, Services How Why
2 Viewpoint Transactional Strategic
3 Vendor Base Existing Finding New and Building them
4
Stakeholder
Relationship
Less More
5 Measuring Success Right goods at right time cheaply Cost savings, risk reduction
6 Key Skills Organizational, Attention to Detail
Negotiation, Research,
Relationship Building
7 Focus Price and Lowest cost per unit Value and Total Ownership Cost
8 Automation Lower Compensation Higher Compensation
Purchasing is Narrower but Procurement is Wider
Approach

13. Key Objectives
1. Value for Money (VFM)
The right combination of
A high quality service or product
&
Optimum cost
to achieve the desired outcome for the intended
service recipient

14. Key Objectives
2. Transparency and Accountability
All public sector bodies are responsible for getting
value for money in their purchasing as they are
spending tax payers money.
They must be able to demonstrate that it has been
spent efficiently, effectively and not wastefully.

16. Contract Management
Time table &
milestone
management
Receipt &
review of reports
and deliverables
Confirmation &
acceptance of
deliverables
Payment
preparation &
processing
Project/contract
changes &
variations
Monitoring &
evaluation
Project closure
& audit

17. Procurement Terms
O Arbitration – Third party dispute resolution
O Breach/Default – When a contract provision is
not met
O Force Majeure – Riots, wars, weather, or other
“Acts of God”
O Indemnification – Who is liable
O Liquidated Damages – Estimated damages for
specific types of defaults as defined in the
contract
O Material Breach – A violation of the contract of
sufficient magnitude that the contract cannot
be completed

18. Procurement Process

19. Tender Process

20. Example of a Tender

21. Procurement Process
Issue
Purchase
Order
(PO)
Commercial
Techni
cal
Quality
Evaluation
Below
$2,500
No
competition
$2,500 to
$30,000
RFQ
Above
$30,000
ITB/ RFP
Tendering
Below
$100,000
Award Recommendation
& Approval
Above
$100,000
CRC
Review
Approval
by SD
Director
Award
Sampl
e

22. THE PURCHASING CYCLE
BIDDING PROCESS / TENDER PROCESS
 Open, fair, and competitive procedures used in a
transparent manner in the procurement process.
 Solicitations based on clear and accurate descriptions of
what need to be acquired.
 Contracts awarded only to qualified and capable
suppliers / Contractors.
 No more than a commercially reasonable price shall be
paid

23. Bidding Process / Tender
Process
 General Procurement Notice (GPN)
 Required to alert prospective bidders to the procuring
entity. The notice usually includes information on the
estimated value and brief description of the
requirements.
 The GPN is issued usually in a minimum of 45 days
prior to first procurement action.
 Specific Procurement Notice (SPN)
 Required to alert prospective bidders to prequalify or
bid for specific contracts.
 Published in newspapers and/or websites

24. BIDDING PROCESS / TENDER PROCESS
SPECIFICATIONS
 Specification must define quality
 Quality is suitability for intended purpose.
 Specifications must be neutral / Generic (i.e. avoid use
of brand names). Where a standard exists, such shall
be used.
 Services specifications come in form of Terms of
Reference (TOR) i.e. define minimum performance
levels
 Works specifications come in form of scope of works,
bill of quantity and material specifications or standards.

25. BIDDING PROCESS / TENDER PROCESS
 OPENING OF TENDERS
 Tenders shall be deposited in a tender box.
 Tenders submitted within the stipulated period shall
be opened;
 Opened Publicly
 By an authorized officer,
 On a day other than a public holiday or day after a
public holiday

26. BIDDING PROCESS / TENDER PROCESS
 OPENING OF TENDERS / TENDERS
 Time for opening is immediately after submission deadline
 Late bids cannot be accepted; should be returned unopened
 The same opening procedure will apply for each bid;
 Any question relating to the process of evaluation may be
answered but only with reference to the bidding document
 No statements referring to evaluation are to be made in the
bid opening. For that reason, no bids are rejected at bid
opening
 Only the relevant points are to be read in a bid opening, using
a Bid Opening Checklist form.

27. THE ROLE OF AN AGENT
O Relationship that arises between 2 parties
O Principal – a person on whose behalf an agent acts
O Agent – a person appointed to act for another,
usually in contractual matters
O How it arises
O Expressly, by conduct, by necessity
O Three parties
O Principal, agent, third party
O Agent acts for principal in relationship with third party

28. THE ROLE OF AN AGENT
OAgent acts on behalf of another (the Principal)
OMay have authority to bind principal in
contract or simply responsibility to assist
principal to achieve some business objective
OGoverned by common law rules and, in some
cases, by statute
OMolded by both common law and law of equity
OTraditionally distinguished from employment
law

29. NATURE OF
RELATIONSHIP
O Agent is one who is employed to act on behalf of another
O Agent can bind principal
O If done within scope of agent’s authority
O General rules of contract apply to agency relationship
O Capacity of agent
OAgent can be minor and bind a principal if the
principal is an adult

30. AGENCY
CONTRACTUAL RELATIONSHIPS
EXAMPLE:
PRINCIPAL
THIRD
PARTY
AGENT
Authority to Enter into Contract
on Behalf of Principal
(Contract Usually Between
Principal and Agent)
Negotiation
of Contract
on Behalf of
Principal
(Within
Scope of
Authority)
RESULT
PRINCIPAL
THIRD
PARTY
AGENT

31. AGENCY
RIGHTS OF THIRD PARTIES
PRINCIPAL
DISCLOSED PRINCIPAL
UNDISCLOSED PRINCIPAL
AGENT THIRD PARTY
Right of Action
Authority Contract on Behalf
of Principal
PRINCIPAL AGENT THIRD PARTY
Right of Action Against Agent or Principal
Authority Contract on Behalf
of Undisclosed
Principal

32. Contract Award
 Contract award notification to the supplier/contractor
shall be in writing and shall be by the purchasing officer.
 Simple or low value/risk contracts can be by local
purchase order. However, complex and high value/risk
contracts must be written with relevant Conditions of
Contract.
 Advance payments are generally not permitted. Where
this is unavoidable, the supplier/contractor must submit
an advance payment guarantee of equivalent value from
a financial institution.

33. Supplier Evaluation Matrix

34. Initial Supplier Evaluation
Category Weight Subweight
Score
(1 - 5 scale)
Weighted
Score
Subtotal
Quality Systems 20
Process control systems 5 4 4.0
Total quality commitment 8 4 6.4
PPM defect performance 7 5 7.0 17.4
Management Capability 10
Management/labor relations 5 4 4.0
Management capability 5 4 4.0 8.0
Financial Condition 10
Debt structure 5 3 3.0
Turnover ratios 5 4 4.0 7.0
Cost Structure 15
Costs relative to industry 5 5 5.0
Understanding of costs 5 4 4.0
Cost control/reduction efforts 5 5 5.0 14.0
Delivery Performance 15
Performance to promise 5 3 3.0
Lead-time requirements 5 3 3.0
Responsiveness 5 3 3.0 9.0
Technical/Process Capability 15
Product innovation 5 4 4.0
Process innovation 5 5 5.0
research and development 5 5 5.0 14.0
Information Systems Capability 5
EDI capability 3 3 3.0
CAD/CAM 2 0 0.0 3.0
General 10
Support of minority suppliers 2 3 1.2
Environmental compliance 3 5 3.0
Supply base management 5 4 4.0 8.2
Total Score 80.6