Scope And Influence Of Procurement And Supply Flashcards
What is procurement?
Procurement involves something which may be tangible (goods) or intangible (services).
Procurement process is a strategic function of a business and involves a high level of skill. The procurement process begins by identified a need and is completed once the goods or services that meet that need are delivered.
Procurement takes place in almost all organisations; everything that needs sorting and buying for an organisation involves procurement. Therefore, the cost of an organisation can be linked to procurement.
Procurement Elements
Added value
Costs
Inventory
Logistics
Purchasing (ordering and expediting)
Quality
Supply (delivery)
Waste management
Categories of spend
Capital purchase and insurance
Marketing (promo materials/hotels at trade shows)
Raw materials (inventory and EOS)
Research and development (sourcing prototypes / new materials)
Salaries/pensions (if proc keep costs down org maybe able to offer better pricing)
Services
Sundry items
Training (negotiation when booking)
Utilities
Vehicle/transport (haulage rates/carriage negotiated)
Break down of organisational costs represented by procurement.
Fixed - Do not change with the output of the company. Organisation has to payment then they matter how they performing. i.e. Salaries/pensions, depreciation, build, rent, insurance.
Variable - Changes with the output of the organisation. Relates to the number of goods produced/sold and/or number services provided. i.e. raw materials, haulage costs, wages for hourly paid workers.
Direct - Directly associated with the job i.e. hourly wages, direct labour, raw materials, components.
Indirect - Not directly sociable the job (overheads)
i.e. logistics, rent, utilities
How procurement can influence costs of capital purchases and insurance?
Evaluate potential suppliers Be involved in preparing specifications Review quality and standards Assess ethical requirements Compare buy or lease options Investigate transport Review packaging options Research total it cost Calculate its currency differences Benchmark process Insure assets are fit for purpose
Lease or buy?
Buying advantages Total cost low compare to rental Total control of assets Asset may have residual re-sale value Capital allowances may be set against tax/government grants may be available
Buying disadvantages
High initial expenditure
User bears all cost/risk of maintenance/operations/disposal
Wasteful if only need it for a short time
Lease advantages No initial investment to tie up capital Protects against technical obsolescence Costs are known and agreed in advance Fewer complex tax and depreciation calculations Hedge against inflation
Lease disadvantages
Long-term commitment
User doesn’t have total control over assets
Total cost may be higher
Large organisations may get better Thomas by securing their own finance to purchase
Contract terms me a favour the lessor
Stocked procurements and non-stocked procurement
Stocked procurements: Raw materials (primary sector) i.e. coal, fish, oil,
Components (secondary sector) i.e. nuts/bolts, castings, light bulbs
Finished goods i.e. shoes, jewellery, confectionary
Non-stocked procurements (Not stalled within an organisation i.e. one off or capital purchases): Maybe intangible (advertising campaign, cleaning service, Internet contract, belonging to tertiary sector)
Procurement cycle followed for both stock and nonstock procurements.
Situations for stock
Independent demand Staple predictable demand – low value/non-perishable Long lead time Critical operations Legal requirement to hold stock Where inventory appreciates in value over time We are prices are expected to rise Where demand is essential
Procurement cycle 13 steps
Understanding need Market/commodity Develop strategy Pre-procure The flip documentation Supply selection Issue I TT/RFQ Bid tender Contract award Warehouse logistics Contract performance SRM and SCM Asset management
Kraljic Matrix
Leverage Suppliers (High Cost/Low risk)
Vast competition
Low cost to move suppliers
Often utility services i.e. electricity
Routine Suppliers (Low cost/Low risk)
Low value items
Lots of work associate with the suppliers
Lots of variety available i.e. stationary suppliers
Strategic suppliers (High cost/High risk)
Critical supplier to an organisation
Responsible for core products
Bottleneck suppliers (low-cost/high risk)
Holds monopoly marketplace
Little or no other options
Low value items
What are the organisational budgets?
CAPEX - Capital purchases - Assets of the organisation Help the business develop Spend money to Make money Continue market trends
Often land, property or machinery.
Features of Capital Purchases
An asset purchased to last long period of time
Often paid as a lump sum or through a bank loan
Accounted for and depreciating over a period of time
High value
OPEX- Operations expenditure
Procurement made by organisation to ensure efficient day-to-day running of business i.e. Rent, raw materials, salary, insurance, transport
Features of operational expenditure I’m going expense to an organisation Paid monthly/annual leave Accounted for in the current month or year Low to medium value
Services procurements - (Intangible i.e. cleaning contracts, insurance, utilities)
Follows procurement cycle; however, can be harder to manage and evaluate intangible items (SLA’s)
Service can be a one-off requirement (car Faletti) or can be something at last for years (electricity contract)
Because services are intangible harder to evaluate. No samples can be analysed to verify conformity. For this reason specifications for sourcing services need to be very detailed to explain exactly what is required.
Heterogeneity/variable - service is not always the same
Ownership – Uncertainties in contractual agreements
Five rights of procurement
QQTPP
Price – fair and reasonable (competitive)
Currency (if purchasing from overseas suppliers) inclusion of tax (net or gross price)
Inco terms (Eliminates Ambiguities or inconsistencies of country-specific sales and shipping contracts.)
– Easier for sellers and buyers to identify and manage costs and liabilities of transporting cargo in between source and delivery destinations.
Quantity – ensuring that the most cost-effective amount of product or service is procured to avoid unsatisfactory consequences i.e. Product shortages, excess stock-waste. Leverage economies of scale.
Quality – quality does not have to be high but fit for purpose, Five for money. About a product/service meeting then needs and expectations of the customer.
ISO9001
Product spec – ensure standard of quality is met
Conformance spec/performance spec
Time – orders and contract should state the time and date order is required to avoid:
Stockouts
Additional costs
Negative impact on supplier relationship
Place – ensuring that goods or services are delivered to the right place avoids:
Stockouts
Non-delivery of goods to customer
Additional cost
Performance Spec
Advantages
– Short document that is quick to prepare
– simple and cheap to prepare
– encourages supplier innovation
– allows supplier competition
– Risk of nonconformance to performance squarely with supplier.
Conformance specification
Disadvantages – Usually long document and it takes time to prepare – difficult to prepare – does not allow supply to innovate – limits supplier competition
What is added value?
Designed to set a business’s Products or services apart from those of its competitors, in order to attract consumers attention and encourage them to buy.
Additional features, brand, convenience, excellent service, market development, reduced input cost, reduced waste.
TCO
The total cost incurred by owning a product throughout its useful life: TCA Tooling Insurance Operation Maintenance Training Storage Disposal (end of life).
Often used went for Procuring assets instead of regularly bought items.
TCA
Total cost of acquisition
The total cost incurred in acquiring a product from sourcing to receiving and installing.
(TCA is a part of TCO)
What needs to be covered to achieve value for money?
Purchase price (needs to be competitive)
Quality of product (Fit for purpose)
Cost of carriage and insurance
Lead time
Internal and external suppliers
Internal Supplier
Suppliers within an org. that are linked by either on the same site or for the same company as the buyer.
External Supplier
Organisations that are separate business entities from the buying organisation.
P&SC Department use contracts, service level agreements (SLA’s) and KPI’s (Qualitative or quantitative) to ensure quality, timescales and quantity considerations are met.
KPIs Qualitative and Quantitive examples
Qualitative KPIs
Reduce number of factory rejects
Achieve ISO accreditation
Reduce materials wastage during manufacture
Quantitive KPIs
Reduced percentage of late deliveries
Increase number of orders received with correct quantities
Increase percentage of deliveries to correct location
Advantages of KPIs
Improved supply motivation
Improve communication
Sharing of common goals
Limitations of KPIs
Reduction in quality by suppliers Russian to meet quantitive KPIs
Reduction of teamwork as suppliers focus on their own KPIs instead of common goals
Contracts
Legally binding agreement between two or more parties in which one pie agree an action in return for something. A contract is enforcible in law and exist in every commercial transaction.
For a contract to exist there needs to be:
Intention: all parties must have intention but their agreement can be in forced by civil law. Means that if something goes wrong, one party can take legal action against the other.
Consideration: this is the Barkham/exchange aspect of contract. It is a promise by one party for an action by the other party.
Agreement: in contract law the agreement is created for offer and acceptance.
Capacity: to be filed a contract must include the names and addresses of the two parties entering into the agreement, together with a date and signatures by individuals with capacity (a person who is legally able to enter into a contract because of the appropriate age and state of mind)
Other features of a contract should include:
Five rights of procurement (quality/delivery requirements/leadtime/quantities/price/payment terms/packaging/currency)
Term
Law
Notice
Dispute resolution
Sources of added value
Additional features (tangible/intangible): i.e. reversing camera or offer of a years free motor insurance
Brand:
Awareness – strong brand instantly recognisable. Building awareness can cost money initially but long-term value it gives an organisation is considerable. People like to buy products/services for brands they are familiar with.
Engagement – organisations with a strong brand reaches out to its target audience.Effective advertising strategy for its added value because more people will be aware of the organisations products or services.
Communication – telling customers about the latest development of this promotes added value as it keeps them interested/encourage them to make a purchase.
Convenience:
Excellent service: i.e. attention to detail, considering things from a buyers viewpoint, going beyond what is required to assist customer.
Innovation: Porters five forces model Buyers (want more for less) Suppliers (want to give less for more) Substitutes New entrants Existing rivals
Market development (find a new markets/acquiring new consumers)
Reduced input costs - higher profits
Sustainability (insurance something is long-lasting are not going to cease or disappear - conflict affect ability to move goods - break down of supplier relationship – risk minimising and management - use risk matrix. Effect of risk (Minus/moderate/major) vs likelihood of risk occurring (Unlikely/likely/very likely)
Reputation i.e. ethical values
What are the areas to be considered when trying to achieve five for money?
Currency/exchange rates – agree fixed exchange rate to get best value for money
Environment factors – does supply have a sustainability policy/does product meet environment policies. That practices equal products been rejected by customer/lost orders
Freight cost – is cost of transport included in quotation/what incoterms are quoted/does transport price make total cost uncompetitive?
Maintenance costs dash what maintenance costs may be incurred on top of purchase price/is maintenance included?
Packaging – is packaging Best faith money. Returnable/recyclable/single use?
Payment terms - longer payment term to give organisation more time to keep money invested. Interest can be and on improving Cashlie. Some supplies of reduction cost for fast payment.
Place - products/services must be delivered to correct location to avoid additional costs.
Product/service price – lower price/better deal, but other factors have to be considered.
Quality – needs to be good/meat specification but does not need to be superior. Inferior quality could be returned rejected or “production stop.
Quantities - Need to meet demand/should not exceed it by much. Buyers need to establish faith money by ordering an amount that will not make inventory cost too high/be the most cost-effective to buy.
Supply reputation – adaptation could reflect negatively on an organisation. Supply with bad rep could fail to deliver/supply faulty goods.
Time – products or services must be delivered at the required time to avoid additional costs/production stop
Warranty – Warranties can be a value added to cost price. Assess the value for money the warranty would give against the price it will cost.
Supply chains are integral to a well functioning procurement operation
Supply chains must be managed in order to be effective; this takes skill and may involve several methods
Supply chain maybe simple or extremely complex extremely complex
Stakeholders Are very important to all organisations, regardless of the sector or type of business
Stakeholders maybe suppliers, customers, consumers (end users) or the local community
Stakeholders are integral to procurement
What are the 3 types of industrial Sectors?
Primary – acquisition/extraction of raw materials
Secondary – transform is raw materials into finished goods (assembly, construction, manufacturing)
Tertiary – provide a service and support to the other two sectors i.e. retail, education
What is the supply chain?
All those involved in organising and converting materials through input, conversion and output phases. (Bailey et al)
Christopher coined the term supply network.
Primary sector – extract natural resources from the Earth i.e. mine in the coal/metals – Drilling for oil – agriculture – forestry– fishing
Secondary sector – manufacturing and construction industries. Where materials are converted into finished products. Secondary sector not only changes products but also assembles them are even more materials required but primary sector can be assembled to build a house
Tertiary sector – consist of service industries. Businesses that support the production and distribution process i.e. insurance, education and healthcare
Stages and a supply chain
Upstream – getting the role materials needed for production
Downstream – processing all materials into the finished product
Upstream
–Produces extracts natural resources
-Suppliers obtain raw materials from producers
Both Upstream & Downstream
-Materials are sent to the manufacture
Manufacture processes materials
Downstream
- Distributor collect materials from the manufacturer and delivers them to the customer
- Customer
Supply chain management
Are you in supply chain come from effective management of?
Price (competitive)
Delivery (right time/place avoid additional cost)
Storage (make sure goods are stored properly/less waste)
Ethics
Environment
Sustainability
Communications (good relationship/responsive supplier)
Quality (for for purpose)
Supply chain networks
An extension of a supply chain. Supply chain concert has evolved to include links between various organisations involved in the entire supply process rather than just one element.
Supply networks are designed around five areas:
External suppliers – who is going to provide materials to make the goods/services?
Manufacturers – who is going to produce the end product?
Distribution/wholesale centres – who is going to manage the storage and transportation of goods?
Logistics – he was going to ensure that everything is where it should be at the required time?
Consumer demand – do the intended individuals have a need or decide with the end product?
Supply chain networks include margin flows.
Physical flows – movement and storage materials and then products (tangible parts to supply chain network - goods flow one way)
Information flows – include organisational strategies and the way that they are communicated, the control processes within the network and a standard to which to change should work. (Information flows two ways)
Supply chain management of the current or not the same thing although they are into related
Procurement as part of supply change management.
Procurement is about obtaining products and services in response to a need, while a supply chain Is the infrastructure involved in physically getting the products and services delivered.
Key difference is the process of supply chain management continues after the contract award.
SCM - aims to reduce costs, improve value and reduce risk. Also provides a competitive advantage over competition by adding value throughout the process.
Logistics requires several areas to be managed in order to keep the entire process running effectively.
What are they?
(Doggy Fun Instantly Worn Out)
Demand planning – what is required and when?
Fleet management – fleet vehicles
Inventory management – there in stock availability
Warehousing and storage – efficient and correct storage
Order fulfilment
Supplier tiering and OEM
Started in the automotive industry.
Currently used across many manufacturing operations.
OEM - Original equipment manufacturer. Accompanied his products are used in the manufacture of its own or another organisations products i.e. Sony, dell, Leonardo helicopters.
Every supplier tear is managed and has to conform to the same ethical and sustainable standards.
OEM – will conduct supply audits on the tires fighting their work from time to time but also rely on the tier 1 suppliers to ensure the low part of the chain is managed.
Responsibility of the OEM to ensure each tier of its supply chain conforms to the organisational standards as well as any external regulation/legislation.
Logistics
The control of the flow of goods or services between two points, making sure people or things are where they need to be at the right time.
Logistics involved at every stage in the supply chain.
Internal logistics – production, manufacturing, warehousing
External logistics – distribution, transport, retail
What is MRP?
Materials and production planning system used in manufacturing environment
Aims
– insure materials/parts available
– establish when to place orders and schedule deliveries
– keep inventory value low
Based on demand of the end product
Sales order generates demand
Build materials is launched and MRP system calculates the inventory (order amount gain stock)
Within this calculation MRP will work out the MOQ.
Req is then released onto procurement
Disadvantages
Rely on correct information from the outset (I.E.bill of materials, MOQ, lead time)
Product developments need to be updated
Potential for incorrect demands to be placed
What is ERP?
Enterprise requirements planning
An extension of MRP which includes many more organisational functions such as accounting, HR, manufacturing et cetera
Can be used as a more cost-effective/efficient procurement process and reduce costs for the organisation.
Define stakeholder
Any group or individual who can affect or is affected by the achievement of the organisation objectives. All parties who will be affected or will affect the organisation strategy.
Internal and external stakeholders?
Internal Stakeholders People/groups of people who are directly involved directly with the business. -Colleagues with a need Accounts department Company owner Manufacturing department Stores department Quality department Sales department Transport fleet
External stakeholders People/groups of people who have an interest in organisation, and could either be impacted by it will have an impact on it. – Producers Shareholders Supplies and external manufacturers Thanks Local community Careers and haulage companies Media Governments and regulatory bodies CIPS
Mendelows Stakeholder matrix
High power/low interest – keep satisfied – investors/shareholders
High power/high interest – manage closely (all info they need, involved in decision-making et cetera) – senior managers or government.
Low power/low interest – minimum effort – more customers/suppliers
Low power/high interest – keep informed – stakeholders that do not have much power within the organisation but are potentially powerful outside of it. Local activists.
CIPS procurement cycle
12 stages
Stage 1: understanding the need and develop a high-level specification.
Stage 2: market/commodity options
Stage 3: develop strategy/plan
Stage 4: Pre-procurement, market test and market engagement
Stage 5: Develop documentation for distribution to potential suppliers
Stage 6: Supplier selection to participate in ITT/RFQ negotiation
Stage 7: Issue ITT/RFQ
Stage 8: Bid/tender/quotation evaluation – consideration of TCO
Stage 9: Contract award and implementation
Stage 10: Warehouse, logistics and receipt – for products
Stage 11: Contract performance review
Stage 12: Supplier relationship management and supply contract management and development
Stage 1 of procurement cycle:
Understanding the need and develop a high level specification.
Understanding need and developing a high-level specification
– having knowledge of what customer requires
– need can be tangible/intangible
- description, quantity, delivery time and quality
- performance vs conformance specification.
Stage 2 of procurement cycle
Market/Commodity options
Market/commodity and options
– researching/review market for best means to meet need
– consider control of buying organisation and level of risk
For example can it be made in house? (High control and low risk) or sourced externally? (Less control and increased risk)
Would be in sourced externally open resource?
Should consider:
Economic situation (cheaper aboard?)
Currency fluctuations (exchange rates)
Supply and demand (price fluctuations)
Stage 3 of the procurement cycle
Develop strategy/plan
– which Suppliers to approach? Local/global?
– Evaluate competition (porters five forces)
Does the supplier have a monopoly?
ITT or RFQ
Stage 4 of procurement cycle
Pre-procurement, market test and market engagement
This means: engaging with market, suppliers and consider macro economic factors to determine how to develop specification, costs, terms and conditions, right time?
Seeking information from internal and External stakeholders on proposed need.
Market engagement – process to gain advantage, and understanding of market prices or trends.
Seeing where a product is in its life cycle - demonstrated by amount of sales.
4 stages:
Introduction, Growth, Maturity, Declines.
If reaching maturity - qty of proposed need may need to increase.
If product is in decline then demand is reducing and need may not need original qty stated.
Stage 5 of procurement cycle
Develop documentation
Documentation to include:
Description and specification Quantity Delivery dates Service level agreements Terms and conditions
Stage 6 of procurement cycle
Supplier selection to participate in ITT/RFQ negotiation
Supplier selection to participate in ITT/RFQ
Optional step relating to decision about which supplies to receive IT/RFQ.
Evaluating suppliers
Site visits
PQQ- company history, financial activity, insurance, membership to professional bodies, Quality accreditation’s, capabilities, health and safety, CSR policy, Code of ethics, Conflict of Interest.
Audits,
PPQs
RFI’s - Carter’s 10 C’s
Stage 7 of procurement cycle
Issue ITT/RFQ
Issue to shortlisted suppliers, all docs to be sent at the same time, include deadline.
Stage 8 of procurement cycle
Bid/tender/quotation evaluation
– tenders are usually evaluated against the criteria, structured and formal if tender
– involvement of cross functional teams
- quotation evaluation is usually more informal and quick decision-making
- consideration of the TCO
Stage 9 of procurement cycle
Contract award and implementation
– advise winning supplier
– finalise T&C’s and signed contract
– feedback to unsuccessful suppliers
Stage 10 of procurement cycle
Warehouse, logistics and receipt
– warehouse prep for receiving item, is there already a procedure in place for this item?
–Location to store it?
– Communicate logistics agreement to warehouse
– receipt in process – does it need conformance track/and packing
– does it have specific storage requirements
Stage 11 of procurement cycle
Contract performance review
– periodically review supply to maintain required performance and standards
– KPIs and review meetings
Stage 12 of procurement cycle
Supplier relationship management and supplier relationship management
SRM and SCM and development
Kraljic Matrix Strategic supplier – close management Bottleneck supplier – relatively close management (often monopolies) Routine supplier – little management Leverage supplier– High value items
Stage 13 of procurement cycle
Asset management / lessons learnt
– review in contract in place, does it still needs? I.E new legislation/standards?
– Contracts nearing end should be refused and feedback sought from stakeholders
– Lewins change model
Unfreeze, change, freeze
Carter’s 10 C’s
Competency Capacity Commitment Control Cash Cost Consistency Culture Clean Communication
Porters five forces
Buyers power Suppliers power Substitutes? New entrants Existing rivals
Pre-contract award stages
Understanding the need Market commodity options Develop strategy/plan Pre-procurement market test Develop documentation Suppliers selection Issue ITT/RFQ Bid/tender/quotation evaluation
Consequences of incorrect pre-contract award
Not understanding the need - not fit for purpose
Not researching the market - porters 5 forces, product life cycle
Ordering the incorrect quantity / incorrect location
Suppliers not able to make Goods/meet needs
Poor reputation due to suppliers CSR
Conflicts of interest- legal action
Post contract award stages
Asset management
SRM and SCM
Contract performance
Warehouse, logistics and receipt
Consequences of incorrect post contract award
Assets not managed correctly, maintained etc
If no SCM/SRM no understanding of how the contract / supplier is performing. No lessons learnt for next time.
Warehouse may not be able to store goods properly - damaged goods, loss of stock.
Key stages of a sourcing process
Defining needs
Creation of contract terms
– Developing documentation
- PPQ or PQQs
- Offer and acceptance
Make an offer – response to an RFQ or ITT
Acceptance of offer
– Unconditional offer
– counter offer
Suppliers offer Offer details – Price – delivery – packaging – frequency – leadtime – quality – MOQ – payment terms
Express and implied terms
- Express– anything said or written, and agreed between two parties; specifically written in contract.
- Implied – assumed to exist and linked to communal. Such terms do not have to be mentioned in contract. By law these are present even if not shown.
Service level agreements
KPIs -SMART objectives Specific Measurable Achievable Relevant Time bound
Supplier selection
Electronic systems can be used at different stages of the sourcing process
Many procurement cycle stages take place electronically
Theory remains the same even when the delivery method has changed.
e-procurement consists of
e-sourcing: (Knowledge, specification, RFQ/tender, negotiation/evaluation, contract)
e-purchasing: (Select/requisition, authorise, order, receive, payment)
Relationship between achieve in compliance with processes and the achievement of outcomes
Compliance is about adhering to regulations, following legislation and conforming to rules
Processes form an important part of that Kim function to ensure compliance is carried out and the outcome is monitored.
Stages of CIPS Procurement cycle commonly carried out electronically
e-requisitioning : raising/receipt of reqs
e-catalogues : Researching product ranges
e-ordering and e-sourcing
e-payment
e-requisitioning
Simplify process
Provide info about both the requisition and requirement
Database contains record of all materials and parts, code numbers, descriptions, usage records and current stock balance – as well as prices of recent requisitions and supplier details. Stock levels are automatically updated.
EPOS systems invoke using barcodes + RFDI to record sales at point of sale terminals. Can be linked to inventory management systems, to trigger automatic stock requisition and replenishment.
Advantages and disadvantages of E – requisitioning
Advantages Quicker than manual process Traceability Consistent style More control Reduced risk Saves costing long-term
Disadvantages large investment to install E system Less personal Individuals may resist change Reliant on technology Individuals need training (downtime from role) Affected by power failure
E-catalogues
Often found on websites.
Often contain more information on paper ones and are interactive so users can click through pages to see detailed diagrams and few dimensions.
Some e-catalogues include videos of products in use.
Advantages and disadvantages of E – catalogues
Advantages Information is always available Information is always up-to-date In-depth details are readily available E–catalogues can be viewed at all times Environmentally friendly
Disadvantages
If technology fails access is denied
Lack of relationship building
May be difficult for buy to navigate
E – ordering
Using an electronic system to place orders in response to the E – requisitions.
Manual input – by inputs order requirement in response to information received through and E – requisition.
Automated systems – commonly used in organisations that use MRP. Document professional receives a report that they can upload it automatically into an E – order that can be sent.
Advantages and disadvantages of E – ordering
Advantages Saves time Relies on correct information being input Traceability Control Reduced risk
Disadvantages
Personal
If technology fails, the process stops
Requires expensive investment
E-sourcing
Includes the following:
Developing the e-specification
Sending E – RFQ/E – ITT
E-negotiation (face 2 face quicker/strategic relationship)
Preparing and sending an E – contract
Supply evaluation (sending out electronic questionnaires and compiling results on the document which provides feedback to show the most suitable suppliers.
Supply evaluation criteria could include: Price, quality and delivery Financial stability Long-term relationship potential Total quality performance and philosophy E – commerce capability
Reverse and E – auctions
E – auctions are an auction between a buyer and the seller on an electronic platform.
Reverse auctions – supplies reduce on a bit until nobody will go lower and appoint the contract is made. Role of buyer and supplier is swapped in the reverse auction. The seller is bidding to sell their services rather than by a bid and buy their requirement.
E – auctions do not involve a personal business transaction. Will not enhance long-term strategic relation.
Ideal when: Specification is a simple Launch and competitive supplier base you like relatively long lead times Stable prices on market forces Short-term contracts They cost from changing suppliers Regular and simple delivery schedule High purchase value
Advantages and disadvantages of reverse and E – auctions
Advantages
Quick and easy to compare bits
Software and I was open communication between buyer and seller
No geographical constraints
The organisational site constraints
Lower overheads for suppliers no need to visit buyers with offers
Disadvantages
Supplies can make low profit than through other negotiation methods
Without samples being seen suppliers could be bidding to supply something that is not suitable.
E payment
E – payment can take place through the following means:
Bank transfer
Debit or credit cards
Approved E – payment portals (PayPal)
Advantages Quick process Traceable Low risk of money go missing High level of control
Disadvantages
possibility of hackers
If technology fails, system stops
No personal relationships
Crypto currencies (Bitcoin block chain technology (digital ledger of all transactions)
Impact of electronic purchase to pay systems on sourcing process
Reduced waist (Lean – seven areas of waste)
Automated processes
Reduce costs
Faster payments
Continuous improvement – EDI (PO’s, delivery notes and invoices)
Enhance relationships (Easier way of working. I.e. Received an email rather than having to wait for a paper document - more inclined to work with supplier)
Continuous improvement: Identify Plan Execute Review
As new technologies introduced into businesses CI is important and demonstrates an organisation is embracing change and move with the times as well as seeking to add value.
