PROCUREMENT MANAGEMENT

Ans-1
Introduction:
Business of any industry or kind or product / service is a process of providing the
customers with the final and finished product or the service, tangible or intangible in
nature that the customer can use as per their need.
In business we can find a various number of functional areas which are working
together in a coordinated manner to make the process a success. one of the strong
and main pillars of the same is the process of “purchasing”. The purchasing is the
combination of various number of steps that a business must undergo in order to
complete a transection.
Purchasing itself has got a very important role to play in the overall efficiency, growth
and profitability.
Concept and application:
Process of purchasing is closely associated with the procurement process. The
process focuses on buying products and services. Purchasing process has an
extremely important place in the overall efficiency and growth of any organisation. An
efficient purchase process reduces waste and maximises the profits and reduces the
unrequired expenses.
The purchasing process provides a business with a structured way to address their
needs. In order to understand the purchasing process there are several steps that
can be understood as below
1.identification of the need
2.specifications of the requirement
3. finding and selecting a supplier
4.cost negotiation
5. order approval
6. placing the order
7. receiving and approval of order
8. Review of supplier performance
Purchasing plays an important role in building supplier relationships. With these
improved relations between the supplier and the consumer they are able to develop
strategies to develop optimize cost controls, best possible usage of the raw materials
in order to increase the overall efficiency and integrity of the organization.
 Features of the Purchases:
1. Increases the value and savings
2. Builds relationships and drives innovations
3. Reduces market time
4. Generates economic impacts
5. Provides competitive advantages in business.

For any business organisation there are number of purchases of goods or the
services that can be taken up. Firms require many various different type of goods
for their workings for example for carrying out their day to day operations for
example, electricity, general appliances, computer, stationary, furniture etc.
Types of purchases:

1. Raw Materials:
This purchase category includes various products such as wheat, steel,
petroleum, cotton etc. for manufacturing of the finished products. These
materials can be directly used as the raw materials which lack processing
but can be converted into useful products after final finishings and
processes
2. Semi-finished products:
These are those category products which are further required for the
manufacturing of the finished goods. these goods may include single part
no. Systems components, assemblies, sub-assemblies.
Mostly with the semi-finished products can be taken into use by the
automobile industries, computer industries for example, Hewlett Packard
purchases the engine of their printers from the external suppliers.

3. Finished products:
These are the fully and finally finished and furnished products which are
ready to be re-sale into the market with the brand name of the organization
under which they have been bought. Finished products when bought or
sourced from the external vendors are known as the “outsourced
contracts”. For example, purchasing of the HVAC systems for residential,
commercial industrial units.

4. Maintenance repair and operating products (MRO):

These products are not generally included along with the final finished
product but become a very associated part of the product. These can be
spare parts of the machines for capital requirements, office supplies etc.
Since these are low-cost components required and supplied all over the
organization so it becomes a very daunting task to keep a regular
inventory and requirement of these products comes into notice only when
the purchase requisition of these materials are raised by the department.
5. Production supporting items:
These items are some what similar to the MRO items which do not
become the part of the final finished product but these are well required for
the production purpose.
Some of the examples of these products can be like pallets, tapes, bags,
electrodes, packaging materials etc. These items can be outsourced from
the external vendors to support and run the production process smoothly.

6. Capital equipment’s:
This part consists of production machinery that are required for the
production process. These products do include heavy capital investments
and are taken in for a long working cycle life. organizations tend to
compare the purchase of such products along with the concept of “return
of investment” (ROI) which is also known as the “payback period”.
This payback period can be days, weeks and also can extend into years.
ROI can be calculated as below

ROI = revenue returns on investments

Investment carried

The evaluation and decision of capital expenditure is taken up by the

finance department along with production and purchase department.
For example: heavy machines, computer systems, material handling
equipment’s.

7. Services:
These types of purchase include purchase of non-tangible workings or the
services those are carried out for the purchased tangible products.
These may include maintenance, repairs, catering, security, testing,
packaging etc.

8. Transports and Logistics:

This is a specialised services which is outsourced from the external
vendors for inbound and outbound material flow through the organization.
Example of these can be, rails, trucks, oceans, 3rd party logistics etc.

Conclusion:

From the above discussion we can understand the importance of the

purchasing process in the smooth and regular workings of any
organization irrespective of the industry they serve their business in.
We also noticed the different kinds and types of purchases that the
organizations take up irrespective of the fact that they are tangible or
intangible in nature.
 Organizations tend to achieve best possible results with minimum possible
hikes and also keeping the quality aspect on the top preference for overall
competency and level of customer satisfaction with minimum possible
delays in order to achieve a strong and appreciative hold of the buisness
market.

Reference:
• NMIMS study material
• www.informit.com/articles
• www.kawazhang.gitbooks.com

ANS-2
Introduction:
In the current time of highly competitive and with and highly scaled impact of
globalisation all over the global level there has been a drastic effect on every aspect
and business world is also not been untouched by this. Today in the business world
all business organizations tend to prove their supremacy over their competitors in the
market.
Business management now are focussing on reducing their cost levels and enhance
their productivity for increasing their profit margins levels and delivering the best
possible output levels simultaneously.
For achieving their goals and objectives, organizations are now shifting their
attention on to manage their buyer supplier relations with a systematic approach of
“Strategic Sourcing”.
The concept of strategic sourcing optimizes the sourcing process by developing
strong, strategic and long-term relations with the suppliers, which is mutually
beneficial for both the parties.

Concept and application:

“Strategic Sourcing” is a part of SCM process helping the organization to focus on
achieving the maximum value from their purchases.
The ultimate focus is on to reduce the total expenditure to the best possible level by
collection of suitable and useful data that combines with the organization goals and
helps to gain best possible results.

According to Fred Soulish, “Strategic sourcing is an organizational procurement and

supply management process used to locate, develop, qualify, and employ suppliers
for adding maximum value to the buyers’ products and services”.
Steps For Strategic Sourcing
There are various number of steps which are involved in the strategic sourcing
process. These steps can be understood as provided
Step-1
Conduct spend analysis:
Spend analysis can be understood as the process of gathering, clearing,
categorising and evaluation of the data in order to procurement cost, improving
efficiency and improving the purchasing power of the organization.
In this step, organization identifies various areas of expenditure and then those are
placed in the category. This categorising helps in prioritising od the sourcing
operations for each and every spend category.
Step-2
Evaluate supplier market:
After the spend analysis has been carried out, management researches for the good
suppliers in the market. It is extremely important for the management to understand
the supplier market thoroughly when selecting the suppliers for a long-term
relationship.
Some of the factors that are to be considered while evaluation of the supplier market
are as follows
• Supplier industry size and growth analysis
• Supplier analysis
• Substitution analysis
• Supplier industry profitability analysis
• Market fragmentation and consolidation analysis
• Industry technology
Step-3
Develop a sourcing strategy:
Once the sufficient and satisfactory amount of supplier market evaluation has been
carried out then based on the data received department should make a suitable
strategy for sourcing. It is a critical step in order to decide where abouts of the buying
while keeping the costs and any associated risks along. In order for the best lot of
suppliers it is the best option to consider both the current and the potential group of
the suppliers.

Step-4
Identify the potential suppliers:
In this step, after satisfactory evaluations have been carried out and a sourcing
strategy has been devised organizations tend to make a list of the potential
suppliers. However, this list can also contain the names of the current and existing
supplier to whom the organization is associated with. Some organizations tend to
have a registration process under which the potential suppliers have fill up the
relevant information with their particulars and the details of their business firm.
Step-5
Pre-qualify suppliers
Organizations tend to have a screening method to screen out in order to judge the
working eligibility and the working capacity of the potential suppliers. These may
include the following areas to be noted at
a. Financial strength
b. Management strength
c. Technical strength
d. Past working experience
Based of the screening scores the eligible candidates are forwarded out for filtration
and for further evaluation processes and short-listings to be carried out.
Step-6
Evaluation and selection of the supplier
After the screening process for the potential suppliers has been carried out, now it is
the time for the evaluation of the final set of the potential suppliers for the
organizations. There are various criteria for the evaluation and selection that are
considered for the potential suppliers which are looked upon for example
a) Operational capacity of the supplier
b) Delivery performance
c) Cost and pricing structure
d) Long-term working experience of the potential supplier candidate
e) Regulatory and environmental compliance
f) Technical stability
g) Management quality parameters
h) Quality management
Based of on these and various factors the potential customers are rated accordingly
and the top-rated pool of supplier party is selected.

Step-7
Negotiations
Once the final lot of the potential supplier is selected then the process of negotiations
between the organizations and the suppliers are carried out. In this step there are
various meetings carried out between the both managements in order to gain more
knowledge about the firm. More is the information about the organisation better it is.

Step-8
Contract / agreements
Under this step, after sufficient negotiations and information’s between both the
parties have been exchanged and the final suppliers have been selected and the
suppliers have been made well aware of the company policies and integrated quality
compliances, the organizations tend to enter with legal terms and conditions in form
of legal contract or the agreement between both the parties.
Step-9
Managing supplier relationships /monitoring
Least but not the least step is to closely monitor and maintain the supplier
performances. If the performance is not up to the desired level the organization can
object and ask the suppliers to answer and improve the quality of the supplies or the
services up to the required standard level or else in case organization can also
terminate the contract in case the issues are not resolved further in future as well.

We can take the example of one of the biggest beverage organizations working
“Coca Cola”. Coca Cola tends to have following steps in their strategic sourcing
process
a) Coca Cola tends to have their raw material suppliers to comply with their
basic guiding principles. All the agricultural raw materials have to be complied
with third party standards like SAI FSA, ISCC plus, UNILEVER SAC, PSA
principles, GLOBAL GAP.

b) Supplier performances are assessment are carried out for critical supplies on
an annual basis covering up to 90% of the procurement cost.

c) Supplier to accept supplier guiding principles of Coca Cola (SGP)

d) Coca Cola keeps a check on the proportion of resources spent by the

organization on the local supplies at significant location of the operations.
They target to ensure 95% of spending on to the local suppliers according the
areas of operations.
Conclusion:
 From the above discussion we conclude the with the usage of proper strategic
sourcing process the organization tend to have a proactive approach for the
supply chain management.
It helps in developing a strong relation between the customer and the supplier
and helps the business to work at an enhanced level with efficiency and quality
complied.
References:
• NMIMS study material
• www.coca-colahellenic.in
• www.suppliergateway.com
• www.buisness.amazon.in

ANS-3(a)
Introduction:
In the changing era of technological developments being introduced in the business
industry, the various aspects of business operations such as, marketing,
procurements, operations, design, engineering, manufacturing, sales etc have all
been affected.
With the developing and growing high connectivity power, speed and flexibility like
features internet has impacted on the management of the various business
operations, procurement being one of them. These various processes of the
procurements which are being conducted with the use of IT tools is known as “E-
Procurement”.
For the process of E-Procurement the various tools like E-Marketplace, Online
Catalogues and Online Auctions are being widely and vastly carried out. These
developments have led the business to grow on a global scale level.

Concept and application:

With the current development of IT tools, the marketplace for the business has
widely grown on a global scale. Markets are now not just only confined to the
geographical scales but with the use of E-Markets the working arena has expanded
all over for the organizations.
The concept of E-Marketplace can be understood as an electronic platform where
buyers and the sellers get together to indulge in online business transfers. These
business procedures occurring online on internet are generally known as the e-
marketplace.
E-Marketplace can be of two types
a). Public E-Marketplace:
In Public E-Marketplace the intermediate electronic company is neither a buyer nor a
seller it is just conducting the buying and selling procedure. These transfers can also
be known as the “exchanges”
b) Private E-Marketplace:
E-Marketplace are operated by private investors and they invite buyers and sellers to
do online business on their private platform. Some of the examples of E-
Marketplaces can be taken as Amazon, Myntra, Zomato, Flipkart etc.

Functions of E-Marketplace
• Provide virtual market place for buyers and sellers.
• Initiate online procurement transactions
• Initiate interactions between buyers and sellers.
• Provides necessary procurement tools to be used by buyers such as online
catalogues, collaboration tools etc.
Online catalogues:
Under these trends the organizations tend to use online catalogues which
contains a list of various products and services available for the potential
customers and to purchase it online. These catalogues also include pricing
details along with suitable discount offers available.
Example:
Amazon, flipchart use these online catalogues for their customers to know about
product/service details and also purchase directly from the portal
Types of Online catalogues:
1. Simple catalogues:
These are the catalogues that provide the basic items such as stationary with
individual descriptions and prices. such catalogues are responsible for 60% of
the e-marketplace transactions.
Examples being, hardware catalogues, machinery catalogues etc.

2. Goods and services catalogues:

These catalogues include complex details and specifications of the products .
these catalogues involve 30% of the e-marketplace.
Examples being computers, printers etc.

3. Contract driven catalogues:

These catalogues include the ones which are with supplier contracts made by
sourcing process. These include 10% of e-marketplace.
Advantages of online catalogues:
• Easy to update
• Saves printing costs
• Easily and randomly accessible
• Easy to share
• Reduces marketing time
• Provides better audience interface with customers
• Audio visual files can be included for better understanding of the potential
customers.

Conclusion:
From the above discussion it is understood that the information and technology
developments have raised the bar level of the business industry to the markets
which were difficult for the middle or low scale industries. These developments have
helped the industries to reach out the far away markets through internet and digital
media support.
These developments will enhance the organisations to have a competitive arena
where they can work hard to provide the customers with better quality of products or
services.
References:
• NMIMS study material
• https://www.geektonight.com/e-marketplace-and-online-catalogues

Ans-3(b)
Introduction:
With the growing importance of the development of the technologies for the
procurement processes in business, online auctions have proved itself to be a very
important and useful IT tool for the process of E-procurement. These online auctions
initiate the online activity between two parties irrespective of the geographical
locations irrespective of the distance between the locations.
Concept and application:
Online auction can be understood as a service in which various number of bidders
take part and buying and selling of the products is being carried out while being
connected through the means of internet. online auctions are an important
component of e- procurement procedure.
In the online auctions the buyers create a “Request for Quote” (RFQ) and invites
potential suppliers in order to submit their quotations for bidding. This process of
bidding keeps on going until a specific period of time period and the lowest possible
quote is selected among different quotes of the suppliers.
However, the online auction system can be divided into two different types

1. Regular Online Auction:

In case of the regular online auction, the prices are well informed to the bidder
but the identification of the bidder quoting that bid is kept closed and hidden.

2. Rank Online Auction:

In case of the rank online auction, bidders are only informed about their
current ranking among the list of other bidders and no other information is
shared with them.
Online auctions can include B2B, B2C or C2C auction, for example “Ebay”, “Online
Auctions, Overstock” can be considered a good example for online auctions
platforms. Organizations tend to go for online auction with ultimate motive of cost
saving.

Advantages of Online Auctions:

• Online auctions offer purchase price savings due to competitive bidding
• Reduction in the usage of time and resources
• Helps in efficient working processes.
• Increased level of procurement efficiency
• Less paperwork
• Better working transparency
• No location issues.

Process of Online Auctions:

Step-1
The buyer organizations consider or decides the items those have to be procured in
the online auctions.
Step-2
Evaluation of the suppliers is carried out and approved for taking part in the auction.
Market researches can be made in order to get information about the potential
sellers.
Step-3
Suppliers are officially invited to join in for the bidding procedure
Step-4
The buyer organization develop E-RFx (Electronic Request For Quotation) and those
are sent to the potential suppliers.
Step-5
The bidders are informed with the details of the place, date and time along with the
rules of the auction.
Step-6
At the decided time the bidding begins, bidders are able to see the quoted price if it
is open bid or their respective ranks in the bidding list in case of closed bidding
without the disclosure of any identification of the competitive bidder.

Step-7
Company analyses the auction bids and the selected bidder is chosen. However it is
not mandatory that lowest bids always win, bidders can be chosen on the basis of
technical ranking taking into consideration other factors also.
Conclusion:
From the above discussions for both the cases we conclude that role of IT has
deeply impacted the business processes of procurement and sourcing with online
catalogues and online auctions being major upcoming tools for the budding
organizations to expand their business processes to a high level irrespective of the
geographic locations’ issues.
Online Auctions and Online Catalogues have shown the organizations the way of
reducing their operating costs by successfully reducing the usage time periods and
resources and hence increasing the overall procurement efficiency levels of the
organization.
References:
• NMIMS study material