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Buying and selling in a complex world - Procurement step by step

35 important questions on Buying and selling in a complex world - Procurement step by step

What is a procurement planning and why is it important?

- It is the process of identifying requirements, determining timeframes and timing whenever goods should be available. This planning also include the selection of supplier, contractors and consultants.

It is a condition for a succesfull implementation of projects, it gives transparency and predictability and it outlines the next 12-24 months of the procurements of the firm.

What does a good procurement planning require?

- Research of the local market for price and availability goods
- Determine quantities and estimated costs
- When ready to use?
- Identify appropriate procurement methods to use
- Schedule lead times for each project

What kind of external stakeholders are there?

Include some individuals or group who are not directly connected with the organisation but who contributes to its activities or is affected by them.

For example:
- The government
- Media
- Wider society

Why are stakeholders important to organisations?

- They can influence the organisation if their interests are threatened.
- Strong public and regulatory pressure
- Ethical and corporate responsibility frameworks.

What do stakeholders have the ability to influence?

- Reliability
- Quality
- Cost and pricing decisions
- Potential for innovation
- Control of strategic resources

What is supplier driven procurement?

Suppliers that learn your business and bring new ideas to the table and thus contribute to the development of the customer's core product.

What is buyer-driven procurement?

Buying power when buying in bulk to negotiate a better price.

What is product-driven procurement?

Developing a product first and then research the market. Focussing on design, features of product. E.g. Apple

What is market-driven procurement?

Buying on price and swithcing suppliers frequently over time.

What are P2P activities?

Procure to pay is a step-by-step approach to managing the buying process. approaching the full procurement cycle systematically from requisition to selecting suppliers and handle accounts payable

What are the different types of enquiries when selcting a product?

1. RFI: Request for information
2. RFP: Request for proposal
3. RFQ: Request for quotation

What does the request for proposal contain?

§Technical specifications
§Functional specifications
§expected service levels
§Purchase conditions
§Final reaction date
§Contact persons

What is the purpose of RFI?

-Extra info from the (potential) supplier
-Not all functionalities are known
-Supplier can show added value

-> request for information to benchmark (*) and to receive an indicative price.

What is the purpose of RFP?

- Coordinate extra info with internal partner.
- More specified request based on information obtained from RFI.
- Literally: “request for the best sales price and quotation”.
-The contacted supplier 'knows' that he may have survived the first selection round.

What is the purpose of RFQ?

- Specifications and functionalities are clear and understood.
- The supplier will respond with a complete and detailed offer.
- Price and contract conditions (*) can still be negociated.
- The contacted supplier 'knows' that he may have survived the second selection round.

What is the purpose of a contract?

Receiving better prices, better lead time and guaranteed quality. Better to have a start and end date for an annual review.

What is a supplier assessment?

First visit the supplier before signing a contract!!!

- Examine production methods and facilities
- To test the production
- Quality control procedure
- use of control charts
- Works in progress
- Policies and attitudes in relation to quality

What is important to the buyer and supplier when contracting?

Supplier: Terms and conditions to protect supplier and minimise the risk of the supplier.

Buyer: Terms and conditions to protect the buyer and govern the contract.

What are the different types of contract agreements?

- Purchase order form: Confirmation of orders made by phone, orders picked up at the counter

- Framework agreement:

- Purchase goods and services

- Purchase goods

- Purchase services: Maintenance, catering, interim

What is an agreement framework?

In the context of negotiations, a framework agreement is an agreement between two parties that recognizes that the parties have not come to a final agreement on all matters relevant to the relationship between them, but have come to agreement on enough matters to move forward with the relationship, with further details to be agreed to in the future.

What is volume pricing?

Same as tiered pricing except that you pay the disoucnt for all units

With which formula to calculate price differences?

The purchase price goes from € 140,2 to € 145,6.
What is the price increase?

145,6 - 140,2 = 5,4.

The percentage difference is then (5,4/140,2) x 100%

What is a letter of intent (LOI)?

Declaration of an intent to cooperate
Why?
Time savings to start (e.g. purchase of raw materials)
à Negociation phase has not been completed!
à No final signed / approved contract

What is a factory acceptance test?

The supplier informs the customer the machine is ready to be tested in “real life” conditions. To verify if everything works properly

What are the payment conditions in a contract?

10-25% when production of the machine is in course, or when the machine is ready for FAT.
- 20% after Site acceptance test
- 30% after final approval -> try to have this amount as high as possible
Meaning the machine works properly for some time (often 2 months) without unexpected or unvisual errors and breakdowns.

What is a purchase order form?

A document made by the buyer that authorizes a purchase transaction and identifies a specific seller. When accepted by seller= binding contract.

What other elements are hiding under the purchase price?

- Equipment acquisition costs
- Installation costs
- Financing costs,...

Why is it important to deliver all the goods on time?

If the materials arrive too late -> Work is not complete at the right time ->sales may be lost ->production halted -> Damage clauses may be invoked -> Dissatisfied customers

What are box-to-box sales?

Supliers deliver goods in exactly the same box as it left the factory in the country of origin no extra

What is drop shipment?

1.a seller accepts an order from a customer,
2.places the order with a third-party supplier (a manufacturer or wholesale distributor)
directs the manufacturer to ship the goods directly to the customer.

How do warehouses check the quality of incoming goods?

§Goods are unacceptable
§Refuse to accept the batch
§Return the batch for replacement
§Return the batch for cedit
§Arrange for the supplier to make a 100% inspection at the buyer’s establishment to sort defective parts from good parts
§100% inspection, alternatives
§Return defective parts for credit or replacement
§Correct or rework defective parts
§Use the defective parts, but with special care or for special applications
§A lower price would be negotiated for the last 2 of these alternatives.

What do organisations have to monitor (follow-up) after the purchase?

- On deliveries (full, partial, backorders)
- On quantity
- On quality
- On invoices
- Checking delivery dates
- Confirming backorders

How do organisations follow up performance? (Aftercare)

First they have to fully understand the contract terms and conditions otherwise they will already have a disadvantage. Supplier performance can be monitored using the balanced score card. ( Quality, service, sustainability and cost)

What steps are being taken if the supplier does not deliver the agreed SLA?

1.By telephone
2. In writing
3. Action plan
4.Face-to-face meeting with supplier
5.Timescales
6. Procurement contract

What retentions and sanction are given when SLA are not being followed?

Retentions: Contract extension options, longer contract opportunity, reduced payment terms.

Sanctions: Retention, withold payment, litigation or termination of the contract

The question on the page originate from the summary of the following study material:

Sales & Procurement

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