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Lecture 2

33:799:301 Lecture Notes - Lecture 2: Supplier Relationship Management, E-Procurement, Strategic Sourcing

Supply Chain Management
Course Code
James King

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Procurement - The process of selecting and vetting suppliers, negotiating contracts, establishing
payment terms, and the actual purchasing of goods and services
- Concerned with acquiring all of the goods and services that is needed by an organization
- Umbrella term within which the action of purchasing can be found
Three pieces of procurement
- Purchasing management
- Strategic sourcing
- Supplier relationship management
Purchasing is the process of how goods and services and ordered, purchasing is the
transactional function of procurement for acquiring goods or contracting services
Purchasing is also a term commonly used in business to represent the function of, and the
responsibility for, acquiring materials, supplies, and services for an organization
- It is a separate department within a company and is considered part of the supply chain
management group within a company
Primary goals of purchasing:
1. Ensure uninterrupted flows of materials and services at the lowest total cost
2. Improve quality of the finished goods produced
3. Optimize customer satisfaction
Purchasing contributes to these objectives by:
- Actively seeking quality materials and reliable suppliers
- Working with the expertise of strategic suppliers to improve quality and materials
- Involving suppliers and purchasing personnel in new product design and development
Merchant buyers - Purchase branded product for resale by wholesalers, distributors and
retailers who
Industrial buyers - Purchase raw materials for conversion into products, and/or products
services, capital equipment and MIRO supplies
Contracting - A term used for the acquisition of services
e-Procurement - The business-to-business electronic purchase transaction of supplies and
services over the Internet via EDI
Supply Management - The term that encompasses all acquisition activities beyond the simple
purchase transaction
Request for Info - A document whose purpose is to gather information to help make a decision
next steps the acquisition of a product or service
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Request for Proposal - A detailed evaluation document that is used to precisely determine a
supplier’s capability, interest and price in supplying the required product or service
Request for Quote - A document used to solicit bids from interested and qualified suppliers for
goods or services that the organization needs to obtain
Bid - A tender, proposal, or quotation submitted in response to a solicitation from a contracting
Competitive Bidding - Offers submitted by multiple individuals or firms competing for a contract,
privilege, or right to supply specified services or merchandise
Purchase Requisition - A document that defines the need for goods and/or services. An internal
document. Does NOT constitute a contractual relationship with any external party
Material Requisition - Identify need to acquire product or service, Supplier Determination -
Identify potential suppliers, Issue Purchase Order - Determine flow and information and goods,
Receive, Inspect & Pay - Receive product/service and invoice
People involved in the process:
End user, buyer, supplier, receiver, end user, accounts payable
e-Procurement - enables process to be automated
Profit-Leverage Effect - A decrease in purchasing expenditures directly increases profits before
taxes (assuming no decrease in quality or purchasing total cost)
Return on Assets (ROA) Effect - Improve ROA by increasing profit using the same assets or the
same profit with less assets. Indication of management efficiency and effective use of capital
- Profit/Assets - Formula
Inventory Turnover Effect - Increased inventory turnovers indicate optimal utilization of space
and inventory levels, increased sales, avoidance of inventory obsolescence, improvement of
cash flow
- Represents the number of times a company sells through its inventory over a given
period of time
- COGS/Inventory
A high turnover ratio is beneficial - means that the company is generating sales efficiently to sell
Low turnover ratio - Unfavorable because it means the company is not selling through products
efficiently, company is likely buying/making too much inventory for demand and may end up
marking down or throwing out expired or unsaleable products
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