1/3/2015

Modern Trends in Purchasing

Operational:
1. E-Procurement/ Reverse Auctions/ EDI

2. P-Cards

Strategic
1. Spend Analysis & Management

2. PMR & Purchase Intelligence/ Supply

Chain Intelligence (Reverse Marketing)
3. Green Purchasing

4. SA-8000

5. SRM
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Operational (Add 20% &

Strategic Procurement (80)%
Items above the
zero
line are profit
center PMR/ Cost
Reverse Reduction
activities directly
Marketing
contributing to Strategic
Performance
operating Metrics Sourcing
margins: Supplier
Contract Relationship Budget ing/
Zero Line Management Management Forecasting

Routine
Ordering Rush
Items
below the zero Orders
Invoice
Queries line are cost center
activities adding nothing
Expediting
to profitability. Most
products don’t go
Antiquated beyond Routine
Processes Ordering.
Change and
Confirmation Orders

1. Operational Purchasing
Can be automated: EDI….

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BUYING/ PURCHASE CYCLE

PROCURE TO PAY (P2P) PROCESS, P2P2P
Buyer Seller
Request for quote
Quote

Purchasing Purchase Order Order

Purchase Order Processing
Acknowledgement

Status Request / Response

Shipping Notice

Invoice
Accounts Accounts
Payable Receivable
Payment Remittance
Advice

Digitization: E-Commerce: EDI/

B 2 B eB2C/ B2B
- commerce model

e - procurement

e - commerce

e - disposal e - selling

E-Procurement
 Electronic On-line catalogues/ On-line
Malls/ e-Market Places
 E-Sourcing/ e- Procurement: e-Spend, e-
RFx, e-Contract, e-compliance
 Web-communication with trading partners
 Electronic Data Interchange (EDI) :
The computer-to-computer exchange of
business data in a standardized format.

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e - Procurement
1. Electronic MRP
2. Electronic Documentation
3. Electronic Authorization
4. On-line Auctions (Net Auctions)
5. Reverse Auctions
6. Electronic Payment (E-cash)
7. Electronic Vendor Rating/ Management
8. Electronic MIS & Report Generation
9. E-Market Places: Catalogue Buying on Net
10. Market Information

Supplier Web Communication

Suppliers can view Tenders, POs, Accounts Receivables, Vendor Rating
20% Reduction in Communication Cost for Supplier & Customer
Your Company Web-server

ERP/MRP System
Firewall
EDI

Internet

EDI EDI Supplier

Supplier
Supplier Supplier Supplier Supplier Supplier Supplier

Reverse Auctions
 A reverse auction (also called procurement
auction, e-auction, sourcing event, e-sourcing or
eRA) is a tool used in industrial business-to-
business procurement.
 The role of the buyer and seller are reversed,
with the primary objective to drive purchase
prices downward.
 In an ordinary auction (or also known as forward
auction), buyers compete to obtain a good or
service.
 In a reverse auction, sellers compete to obtain
business.
Source: Wikipedia

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What is an e-Auction?
An e-Auction is a dynamic online negotiation process
between pre-selected suppliers for a specific piece of
business.
Web Connection Supplier 1

Buyer e-Bidding Supplier 2

Supplier 3

• Suppliers compete online and in real-time over the internet.

• Prices start at one level and change as suppliers offer improved terms
to gain the contract.
• Negotiations completed in minutes to hours rather than days.
• Most common e-Auction formats are
Reverse Auctions and Forward Auctions.

OP & HP 16835520

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2. P-Cards

Strategic Procurement (Adds 80% Value)

Operational (Adds 20%)
Items above the
zero
line are profit
center PMR/ SMR Cost
Reverse Reduction
activities directly Marketing
contributing to Performance Strategic
Sourcing
operating Metrics/ Analytics
margins: Supplier
Spend Relationship Forecasting/
Zero Line Management Management Demand Mgt

Routine
Ordering Rush
Items
below the zero Orders
Invoice
Queries line are cost center
activities adding nothing
Expediting
to profitability. Most
products don’t go
Antiquated beyond Routine
Processes Ordering.
Change and
Confirmation Orders

1. Spend Analysis or Annual Purchase

Planning (APP)
 The focus of this activity is to develop an
aggregate view of the procurement spend
across the organization using the transaction
data.
 The aggregate spend by commodity, supplier
plant, etc provides a basis for identifying cost
saving strategies.

 Prevents Maverick Buying

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Benefits of Spend Analysis

 Spend Volume Aggregation across
geographies, business functions
 Achieve Supplier Rationalization/ bulk
sourcing.
 Contract Compliance: Track contract
compliance to remove surreptitious spending
 Inventory Standardization: Reduce ad-hoc
spending.
 Requisition to Pay Process Improvement:
Reduce overall cycle time and optimize cash
flow.
Every $ (Re) saved is literally every $ (Re)
earned

2. Purchasing Market
Research
(PMR)
or
Supply Market Research
(SMR)

Purchase Market Research: PMR

Purchase Intelligence:
Commodity Prices,
Supplier news,
Company news,
Industry news &
reports

Reverse Marketing-
The New Buyer –
Seller Relationship
Michiel Leenders &
David L Blenkhorn

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Reverse Marketing’s New Terminology-

Emphasizing the Supply Side

1. Marketing 1. Reverse Marketing

2. Market Research 2. Pur Market Research
3. Market Intelligence 3. Purchase Intelligence
4. CRM- Customer 4. Supplier Relationship
Relationship Mgt Mgt (SRM)
5. Know Your Customer 5. Know Your Supplier
(KYC) (KYS): V- Meets/ Clinics
6. Customer Satisfaction 6. Vendor Satisfaction
Index/ Survey Index/ Survey
7. Key Account Mgt 7. KSAM/ Performance -
Potential Assessment

PMR: Now increasingly difficult for buyers to

stay up-to-date

 Purchasing Research: Internal to

organization
 Purchasing Market Research:

-Relating to External Suppliers’ Market

-Analysis of Supply and Demand
-Assessment of strengths and weaknesses of
suppliers’ organization

Why PMR ?
-Supply market dynamics
-Continuing technological developments

What is PMR ?

‘Systematic gathering, classifying and

analyzing data considering all relevant
factors that influence the procurement of
goods and services for the purpose of
meeting present and future company
requirements in such a way that they
contribute to an optimal return’

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Types of PMR

 Continuous Research  Ad-hoc Research

 Qualitative Research
 Focus on short-term  Quantitative Research
problems  Focus on long-term
problems
 Desk Research
(MNCs regularly publish  Field Research
bulletins for buyers)

How to Structure PMR ?

1. Determine objectives
2. Cost-Benefit Analysis
3. Feasibility Study
4. Design of Research Plan
5. Execution of Research Activities
6. Preparing Research Report & Evaluation

Macro-, Meso- and Micro-economic Research

 Macro-economic: General economic environment

and factors that can influence future economy
 Meso-economic: Focuses on specific sectors of
industry, supply and demand
 Micro-economic: Focuses on individual suppliers
and products, aims to get insight into suppliers’
strengths and weaknesses

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Subjects of Macro, Meso and Micro:

Macro: Business cycle and economic growth,
Development of industrial production, currencies, inflation, interest rates, wages, etc

Meso-economic Micro-economic
- Supply and demand -Financial situation
analysis -Organizational structure
- Utilization rate -Delivery Performance
- Order situation and sales -Delivery Lead Time
- Inventories -Service Quality
-Quality of delivered
- Market Structure goods
-Cost Price Structure

3. New Concepts: Green Purchasing:

Environmentally Preferable Purchasing (EPP)
Slogan: 4-Rs =
Re-duce, Re-use,
Re-cycle , Recover !!
*Establish a waste Reduction
Programme
*Buy Recycled, Repairable
materials
*Buy energy efficient
equipment/ materials
*Reduce use of Plastics
*Involve Vendors- Is it
environmentally sound
policy/ product/ process ?
*SHE (Safety, Health &
Environment) Practices:

Environmentally Preferable Purchasing

"...products or services that have a lesser or reduced

effect on human health and the environment when
compared with competing products or services that
serve the same purpose..."

U.S. Federal Executive Order 13101

High Quality Purchasing/Supply Chain Management

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4. Purchasing Ethics: Ethical Codes & SA-8000

: Internal & External Accountability

SA 8000

 Is used to encourage and support non-

compliant suppliers-rather than castigate
them.
 Improvement not disqualification is the
preferred outcome.
 SA 8000 is proving to be a robust and flexible
tool of ethical management practice

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