Principles Of Procurement Lecture Notes – Sourcing has been an important part of doing business for as long as there has been commerce. While long gone are the days of scribes keeping track of purchases on papyrus scrolls, the process of carefully selecting and purchasing goods and services is still as important as ever. necessary for daily activities. By allowing your business to secure the supplies it needs at the lowest possible cost, purchasing can have a direct impact on your bottom line.
Purchasing includes various activities involved in obtaining goods or services. What is the purpose of the purchase? In general, the purchasing team works to obtain parts at competitive prices that provide the greatest value. However, not all companies define the same method. Many companies view procurement as a whole process, from gathering company requirements and sourcing suppliers to tracking the receipt of goods and maintaining payment terms, while others instead defines purchasing as a narrower activity, such as issuing purchase orders and payments.
Principles Of Procurement Lecture Notes
Traditionally, some companies use the term procurement as a synonym for purchasing. But today, purchasing is often seen as just one step in a larger, more strategic purchasing process. So, what exactly is a purchase?
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Purchasing includes all the activities required to obtain the goods and services a business needs to support its daily operations, including purchasing, negotiating, purchasing goods, receiving and inspecting goods if necessary and record every step of the process. .
Procurement is an important step in understanding the supply chain, as it helps a company find reliable suppliers who can provide goods and services at competitive prices that meet the company’s needs. This applies whether the company is looking for raw materials for production, a business service provider or new office equipment.
For example, if a company needs a new vendor to provide an ongoing service indefinitely, such as an email security solution, the procurement process helps the company select the vendor that best meets all of the company’s requirements. at a reasonable price. This allows companies to avoid wasting time, money and valuable resources dealing with the wrong supplier.
Reducing costs is an important aspect of improving the purchasing process. But it’s also important to identify suppliers that provide the quality of goods and services your business needs and have a proven track record of reliable delivery.
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Contracts can be classified in a number of ways. It can be classified as a direct or indirect source, depending on how the company will use the purchased goods. It can also be classified as a purchase of goods or services depending on what is purchased.
The buying process usually consists of several steps. The company determines the specific goods and/or services it needs, recruits suppliers who will help the company achieve its business goals, negotiates terms and prices, and then buys and receives the related goods.
A small business may have one person in charge of purchasing all goods and services. Larger companies may have teams of people who specialize in dealing with different suppliers or support a special internal business unit. For some components, the team may need to gather input from different business units to determine business requirements.
It is important to remember that buying is not a series of isolated events: it is an ongoing process. For example, companies generally aim to build relationships with key suppliers to get the best service and lowest possible price, which ultimately translates into higher profits. The company may also need to conduct regular quality assurance audits and performance reviews to ensure that supplier expectations are met.
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The procurement process varies depending on the structure and needs of each company, but generally includes the following nine steps:
1. Find out what goods and services the company needs. First, a company needs to identify the company’s requirements for a particular product or service. This could be a new item not previously purchased by the company, a replenishment of an existing item, or a subscription renewal. This process usually involves drilling down into the details of the company’s needs, such as exact technical specifications, equipment, part numbers, or service features. At this stage, it is good to approach all the departments of the company involved in the purchasing decision to ensure that the goods purchased represent the needs of each department.
2. Submit the purchase request. When employees or business units need to buy a large amount of new goods or services, they make formal purchase requisitions (also known as purchase requisitions). A purchase requisition notifies the company that there is a need, usually through the department manager, the purchasing staff, or the finance team, with specific requirements such as price, time need, quantity and other important things that the buying team must keep in mind. The purchasing department can accept or reject the purchase request. If approved, the buyer’s team can proceed with supplier selection and procurement.
3. Evaluate and select suppliers. With a clear list of requirements and an approved purchase request, it’s time to find the best supplier and send a Request for Request (RFQ) – this is what the purchasing team sends to potential suppliers to get a quote – important this is to be as detailed as possible so you can compare apples to apples. Evaluating vendors should not only focus on price, but also on reputation, speed, quality and reliability. Many companies consider ethics and social responsibility, as sourcing is often associated with corporate identity. A retailer that prides itself on sustainability will benefit from working with environmentally friendly suppliers, for example.
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4. Negotiate price and terms. A common best practice is to get at least three quotes from the supplier before making a decision. Review each word carefully and discuss if possible. If you have to back out of the contract, make sure you have concrete alternatives. When you agree to the final terms, put them in writing.
5. Create a purchase order. Complete a purchase order (PO) and send it to the supplier. The purchase order must be sufficiently detailed to accurately identify the service or item required and to enable the supplier to fulfill the order.
6. Receive and inspect the delivered goods. Inspect the delivery carefully for any defects or damage. Ensure that everything is delivered as described in the purchase order and that the quality meets or exceeds expectations.
7. Make three letters. Accounts Payable should do a triple play by comparing purchase orders, purchase receipts or packing slips, and invoices. The purpose is to ensure that the goods or services received correspond to the purchase order and to prevent unauthorized or incorrect billing. Point out any discrepancies between the three documents and resolve the issue before processing the payment.
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8. Approve invoices and arrange payments. If all three matches are correct, accept and pay the bill. Businesses should strive to have a consistent invoice payment process through Accounts Payable that verifies that payments are consistent with the invoice amount and due date. A standardized process can help ensure that invoices are always paid on time, which can prevent late fees and build good relationships with suppliers.
9. Records. It’s important to keep records of the purchasing process, from purchase requisitions to price negotiations, invoices, receipts, and everything in between. These records can be useful for many reasons. They help companies to order goods at the right price in the future, and assist in the process of verification and tax calculations. Clear and accurate records can help resolve any disputes.
The nine main stages of the buying process can also be considered as three distinct stages: the buying, buying and receiving stages.
Organizations often think of the steps in the procurement process as a life cycle. This perspective reminds us that all the activities and steps in the buying process are overlapping and interdependent and the process is continuous. A well-researched procurement cycle also recognizes the integration between the process and the business as a whole, including the need to adapt to the rules and procedures that exist in the sector. the business like budget. The process is not always smooth and sometimes adjustments need to be made to account for dynamic digital supply chains with changing suppliers, availability and prices.
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The terms sourcing, purchasing, procurement and supply chain are often used interchangeably. However, there is a big difference between them.
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In public sector organizations, the procurement process is generally similar to that of private organizations, but there are important differences. Because the people involved manage public funds, they generally have to follow strict rules during the procurement process. These principles can be considered as a code of ethical conduct that holds public officials accountable for their purchases. Some of these principles may even benefit private organizations.
In many companies, the purchasing and finance teams operate as separate departments. Historically, they have sometimes been at odds with a major brand
Principles Of Procurement
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