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CHAPTER THREE
Supply Processes
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The Essential Steps in the Purchasing Process 1. Recognition of need 2. Description of need 3. Determination and analysis possible sources of supply (supplier selection) 4. Determination of price and terms 5. Preparation and placement of the purchase order 6. Follow-up and/or expedite the order 7. Receipt and inspection of goods 8. Clear the invoice and pay the supplier 9. Maintain records and relationships McGraw-Hill/Irwin
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The Essential Steps in the Purchasing Process 1. Recognition of need 1.
2. 3. 4. 5. 6.
Budgeting 1. Capital Nature 2. Revenue / Expenses / Operational requirements Stocks Projects Plans Emergency requirements
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The Essential Steps in the Purchasing Process •
Description of need – – –
–
Clarity Accuracy Types of Requisitions • Standard • Travelling – Manual cards • Bill of Material Early supply and supplier involvement
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The Essential Steps in the Purchasing Process •
Determination and analysis possible sources of supply –
•
RFx – Items not covered by contract • RFQ• RFP- Complex requirement • RFB- competitive – No negotiation after bidding
Supplier Selection and determination of Terms
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The Essential Steps in the Purchasing Process •
Preparation and placement of the purchase order – – –
Blanket & open end VMI Stockless buying
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The Essential Steps in the Purchasing Process •
Follow-up and/or expedite the order
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The Essential Steps in the Purchasing Process •
Receipt and inspection of goods
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3-10
The Essential Steps in the Purchasing Process •
Clear the invoice and pay the supplier –
Supply & AP
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The Essential Steps in the Purchasing Process 1. Maintain records and relationships
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A Sample Sourcing Process Flowchart
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Some Possible Methods of Reducing Small Order Transaction Costs • • • • • • • • • • • • •
Stockless buy and systems contracts P-cards Blanket P.O.s EDI- and Internet-based systems Reverse auctions Changing authority levels and bidding practices Single sourcing Outsourcing small value order processing Standardization Batch orders Set requisition schedule Invoiceless payments Users pay directly
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Information Needed for Requisitions • • • • •
Date Number (identification) Originating department Account number Complete description of material or service and quantity • Date material or service needed • Any special shipping or service-delivery instructions • Signature of requisitioner McGraw-Hill/Irwin
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Internal Information Flows to Purchasing sales forecasting production control
engineering
production
new products inventory control
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budgeting
Purchasing
quality control receiving
planning
financial control legal
accounting
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External Information Flows to Purchasing
sources of supply suppliers’ capacity
general market product conditions information new product information
Purchasing suppliers’ production rates labor conditions
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sales and use taxes, customs
transportation availability transportation rates prices and discounts
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Internal Information Flows from Purchasing General Management
Engineering Source, product, price information
Product Development
Economic conditions
Product and price information
Production Product availability, lead time, price and quality
Purchasing
Orders placed
Stores McGraw-Hill/Irwin
Marketing
Budget commitments
Contracts
Legal
Competitive conditions
Costs, prices adjustments
Finance
Accounting Š 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.