Procurement: The term procurement is defined as the acquisition of merchandise or services at the optimum possible total cost in the correct amount and quality. These goods and services are also purchased at the correct time and location for the express gain or use of government, company, business or individuals by signing a contract. Procurement function commonly encompass: purchase planning, standards determination, specifications development, supplier research and selection, value analysis, financing, negotiation, making the purchase, supply contract administration, inventory control and stores/disposals and other related functions.Supply chain management: Is a set of synchronized decisions and activities utilized to efficiently integrate suppliers, manufacturers, warehouses, transporters, retailers and customers so that the right product or service is distributed at the right quantities, to the right locations and at the right time in order to minimize system-wide costs while satisfying customer service level requirements.
The objective of supply chain management (SCM) is to achieve sustainable competitive advantage. The key supply chain processes stated by Lambert (2004) encompass:Customer relationship managementCustomer service managementDemand managementOrder fulfillmentManufacturing flow managementSupplier relationship managementProduct development and commercializationReturns managementPurchasing: Purchasing can be defined as a process of acquiring goods, services, or works in return for a price. The major type of activities under purchasing function entail: coordination with user departments to identify purchase needs, identification of potential suppliers, conduct of market studies for important materials, negotiation with potential suppliers, analysis of proposals, selection of suppliers, issuance of purchase orders, administration of contracts and resolution of related problems and lastly maintenance of a variety of purchasing records. Purchasing activities involve buying decisions to ensure that: the right goods are in the right place, at the right time, at the right price, at the right quality and at the right quantity. These are sometimes referred to as the six R’s of purchasing.The right goods: In regard to this, the buyer specifies exactly what the organization requires (based on the needs) rather than simply buying from catalogue or what is on offerThe right place: In making the buying decisions it is important to provide detailed instructions on how, when and where deliveries are to be made.The right time: This is an attribute of ensuring that the ordered item reaches the company at the stipulated time to facilitate efficient supply chain operations.
The right price: Achieving the right price is an important task since this will affect the purchaser’s cost structure and ultimately the margin achieved (profitability).The right quality: The customer either specifies quality or expects the supplier to do so. The bottom line here is that the goods to be supplied should meet the user’s standardsThe right quantity: This entail fully supply of the ordered items. For instance if the buyer orders ten units then the supplier should exactly deliver the specified units that are ten.Supply management: This is a process responsible for the development and management of a firm’s total internal and external supply system. The specific activities include: Early purchase involvement (EPI) and early supplier involvement (ESI) in product design and subsequent specifications development for important items through the use of cross-functional teamsConduct of all purchasing function and procurement process activitiesHeavy use of cross-functional teams in supplier qualification and selectionHeavy use of purchasing partnering arrangement and strategic alliances with suppliers-to develop close and mutually beneficial linkages with key suppliers in the value chain and control quality and costsContinuous identification of threats and opportunities in a firm’s supply environmentDevelopment of strategic , long term acquisition plans for all major materialsThe monitoring of continuous improvement in the supply chainActive participation in the corporate strategic planning processIts prudent to note that supply management concept represents the most advanced stage in the evolutionary development of purchasing/procurement.Stores management: Entail planning, organizing and controlling the available stocks or supplies awaiting issue or transport to the custom ers.
Stores operations compromise the following:Receiving of goods from the suppliers or internal departmentsInspection to verify whether the goods supplied meet the specificationsRecording receipts and issue of supplies either manually or through computerized systemProvision of security to protect stocks against loss through theft, pilferage or misplacementMaintenance: Protecting stocks against loss through deterioration from fire, water, bad weather etc.Stock control: determining the range and quantities of stock or supplies to be held and their receipt and issue.Stocktaking: checking of stocks and verification of stock records against actual physical quantities held in stock and also those at the work in progress stage and finished goods on hand.Disposal of surplus: i.e. scrap, components or equipment identified as no longer in use or usable, by donating, reuse or sale.Implementation of health and safety regulations relating to stores and stores staff. Material management: Can be defined as the planning, organizing and control of all aspects of inventory embracing procurement, warehousing, work-in process and distribution.
The goal of materials management is to consolidate and efficiently handle core services. The specific materials management activities include:Purchasing and supply managementInventory managementStores and warehousing In-plant materials handlingProduction planning, scheduling and controlTraffic and transportationLogistics management: This is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and other related information from the point of origin to the point of consumption for the purpose of conforming to customers requirements. Logistics involves integration of information, transportation, inventory, warehousing, material handling and packaging. Logistical management includes the design and administration of systems to control the flow of materials, work in process and finished inventory to support business unit strategy.
The overall goal of logistics is to achieve a targeted level of customer service at the lowest possible total cost. World class logistics firms create a competitive edge by providing customers with superior service / information systems to monitor logistics performance on real time basis, identifying potential operational breakdowns and taking corrective action prior to customer service failure. 1.4 Relationship between the purchasing and supply function with other departmentsSome issues on which interaction and cooperation may take place between purchasing and other company departments include the following:Purchasing and finance/accounts department:Finance/accounts department prepares budget allocation for goods/services to be purchased in a given time periodThe purchase department establishes and forwards to finance/accounts department value analysis report for goods/services to be purchasedFinance/accounts department briefs the purchasing department on issues based on supplier paymentPurchasing department gives accounts department information based on damaged items and obsolete itemsPurchasing department gives out information based on stock movement to the accounts departmentPurchasing/supplies department works together with accounts department during stock taking exercise which is based on assessing the variance status of the company’s inventory.
Stores personnel who works under purchasing/supplies department works together with the accounts personnel when it comes to the issue of receiving goods from the supplier(s). The accounts personnel checks whether the amount indicated in the invoice correspond with the amount indicated in the local purchase order (LPO).Purchasing and design department:Preparation of specifications for purchase of materials and componentsQuality assurance or defect preventionValue engineering and value analysisInformation to departments regarding availability of materials, suppliers and costsAgreement of alternatives when specified materials are not availableCreation of library of books, catalogues, journals and specifications for joint use by the design and purchasing departmentsPurchasing and production (User department)Preparation of material schedules to meet just in time requirementsEnsuring that delivery schedules are maintainedControl of inventory to meet production requirementsDisposal of scrap and obsolete itemsQuality control or defect detection and correctionApproval of ‘first-off samples’Make or buy decisions General involvement in such techniques and systems as optimised production technology, computer integrated technology, materials requirement planning (MRP) and manufacturing resource planning (MRP 2)Purchasing and human resource developmentPurchasing professionals gives out technical expertise when a prospective purchasing staff is being interviewed for a job.Human resource personnel liaise with purchasing managers on checking the performance of purchasing employees through job appraisal analysis.
Human resource development relates with purchasing department when it comes to issues of arranging training and seminars for the purchasing staffs.Human resource development work hand in hand with purchasing department through provision of motivational incentives for the purchasing staffs. This entail the acknowledgment of best employees through giving out Awards, presents and so on.Purchasing department works also with human resource development on disciplinary matters of the employees.Purchasing and marketing:Provision of sales forecasts on which purchasing can base its forward planning of materials, components etcEnsuring that through efficient buying, purchasing contributes to the maintenance of competitive pricesObtaining materials on time to enable marketing and production to meet promised delivery dates to the end-customerExchange of information regarding customers and suppliersMarketing implications on partnership sourcing Purchasing and information technology department (IT):Purchasing department and IT have an increasing number of interdependencies. In some cases IT function is outsourced by the purchasing function. To this extent therefore its performance is evaluated accordingly by the purchasing department. Also the manager of IT works closely with purchasing manager to develop automated procedures and reports in line with purchasing.
To add on that IT department establishes computer devices to purchase and to this extent the IT manager prepares purchase order requisition (POR) for such items and forwards the same to purchasing department. On the other hand the purchasing department sources for such devices on behalf of the IT department.