The Purchasing process - 1. Define Specification.
2. Select Supplier
3. Contract Agreement
4. Ordering
5. Expediting
6. Evaluation Follow up
Definition of Procurement & Supply - recognition of the fact that the purchasing function has a
role in not just "buying inputs" but in "securing suppl...
The Purchasing process - ✔✔ 1. Define Specification. 2. Select Supplier 3. Contract Agreement 4. Ordering 5. Expediting 6. Evaluation Follow up Definition of Procurement & Supply - ✔✔ recognition of the fact that the purchasing function has a role in not ju st "buying inputs" but in "securing supply" Direct Costs - ✔✔ These are costs which can be identified directly with the production of a good or service; e.g. raw materials. Usually strategic or leverae suppliers Indirect Costs - ✔✔ These are costs which ca nnot be matched against each product because they need to be paid whether or not the production of good or services takes place; e.g. rent on the premises. Kraljic Matrix - ✔✔ A tool for portfolio analysis: a four -box matrix that reflects the segmentation of spend based on an assessment of the value of the spend relative to the market risk to acquire 1. Leverage Suppliers 2. Strategic Suppliers 3. Routine Suppliers 4. Bottleneck Suppliers CAPEX is - ✔✔ 1. Capital expenditures are for major purchases that wi ll be used in the future. 2. The life of these purchases extends beyond the current accounting period in which they were purchased. 3. Because these costs can only be recovered over time through depreciation, companies ordinarily budget for 4. CAPEX purcha ses separately from preparing an operational budget. OPEX - ✔✔ Operating expenses are the costs for a company to run its business operations on a daily basis. CAPEX - ✔✔ 1. Useful beyond its curent year 2. Lump sum up front 3. 3-10 year accounting lifespan for depreciaiton 4. Listed as preprty or equipment 5. Tax deducted as asset depreciated Name the 13 stages of the procurement cycle - ✔✔ 1. Understand the need. 2. Market Commodity options. 3. Develop Stratgey/ Plan. 4. Pre -procurement / market test. 5. Develop required documentation. 6. Supplier Selection. 7. Issue invitation to tender. 8. Bid / tender evaluation. 9. Contract Award. 10. Warehouse logistics & receipt. 11. Contract performance review and continuous improvemen t. 12. Supplier relationships / contract management. 13. Asset management / end of life. Scope of Procurement - ✔✔ 1. Contributor of Added Value 2. Manages cost of procured materials & services on behalf of an organisation 3. Helps manage inventory 4. Work s alongside logistics partner function 5. Helps mange quality in procurement 6. Manages delivery performance 7. Manages & controls waste in the supply chain Porters Value Chain - ✔✔ Primary - Inbound Logistics, Operations, Outbound Logistics, Marketing & sales, Services Support Activities - Firm Infrastructure, HR Management, Technology, Procurement Action points for CAPEX purchasing - ✔✔ 1. Documentation or guidline and standard procedure 2. Cross -functional team for appraisal & evaluation 3. Appropriate project evaluation methology 4. Process automation (E -platform) 5. TCO / Life cycle costing 6. Regular review for better control & monitoring 5 rights of procurement - ✔✔ Right Quality Right Quantity Right Price Right Place Right Time Right Quality - ✔✔ goods which are of satisfactory quality and fit for their intended purpose e.g. ensuring an accurate specification of the requirement and its quality standards. Right Quantity - ✔✔ sufficient to meet demand and maintain service levels while mi nimising stock holding e.g. by ensuring that there is accurate demand forecasting and efficient inventory management. Right Place - ✔✔ goods delivered to the appropriate delivery point, packaged and transported so as to secure their safe arrival in good co ndition e.g. by including transport instructions including packaging requirements as part of purchase orders. Right Time - ✔✔ delivery of goods at the right time to meet demand, i.e. not too late but not so early as to incur unnecessary inventory costs e.g . by ensuring accurate demand management, placing orders in time for suppliers to provide timely delivery and ensuring that suppliers are aware of delivery requirements. Right Price - ✔✔ securing all of the above at a reasonable, fair, competitive and affo rdable price. Ideally, minimising procurement costs in order to maximise profit e.g. by carrying out price and supplier cost analysis and/or by carrying out competitive tendering and negotiation. The 'right' price is one that represents good value for mone y. Life Cycle cost (LLC) - ✔✔ The total cost throughout its life including planning, design, acquisition and support costs and any other costs directly attributable to owning or using the asset". Total Cost of Ownership (TCO) - ✔✔ 1. TCA 2. Tooling 3. Insurance 4. Operation 5 Maintenance 6 Training 7. Storage 8. Disposal TCO Acquisition costs - ✔✔ Acquisition/Physical Hardware costs include the cost of equipment or property before taxes, but after commissions, discounts, purchasing incentives, and cl osing costs. Sometimes this will include one -time peripheral equipment or upgrades necessary to installation or utilisation of the asset. TCO Operating costs - ✔✔ Operating costs include subscriptions or services needed to put the item into business use. T his includes utility costs, direct operator labour, and initial training costs.
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