PROCUREMENT & SUPPLY CHAIN

Procurement is the process of acquiring goods, works and services. It gives a broader perspective
to buying and is most often used interchangeably with purchasing. Procurement process or
concept encompasses a wider range of supply activities than those included in the purchasing
functions. It is concerned with securing goods and services that best meet the needs of users and
the local community whilst providing the best value to help achieve the firm’s key priorities.

Procurement activities include:

a) Development of material and service specifications;

b) Value for money analysis activities;

c) Extensive market research;

d) Conduct all purchasing functions;

e) Suppliers’ quality management;

f) Disposal of obsolete materials (salvage of surplus and scrap);

g) Materials handling activities;

h) Supplier Relationships;

i) Contract Management activities; and

j) Stores management activities.

Purchasing is the process of buying. It involves need identification from user departments,
preparing bidding documents, supplier selection, negotiating prices, and following up to ensure
delivery. Purchasing has been referred to as doing “the five rights”: getting the right quality, in
the right quantity, at the right time, for the right price, from the right source.

Purchasing is a component of the broader functions of procurement and it consists of the

following activities:

a) Purchase needs identification through liaison with user departments.

b) Supply market research.

c) Supplier identification and selection.

d) Negotiation and contracting.

e) Issuance of purchase orders.

f) Administration of contracts and resolutions of related problems.

g) Supplier measurement and improvement.

h) Purchasing systems development.

i) Maintenance of purchasing records

PROCUREMENT PROCESS

The procurement process encompasses all the activities involved in acquiring goods, services, or
works from external sources. It's a strategic function that goes beyond mere purchasing, focusing
on obtaining the best possible value while considering factors like cost, quality, delivery, and
supplier relationships. A well-defined procurement process is crucial for organizational
efficiency, cost savings, risk management, and overall business success.

Stages in the Procurement Process

While the specific steps can vary depending on the organization's size, industry, and the nature of
the procurement, the following are generally considered the core stages:

1. Needs Identification: This initial stage involves recognizing and clearly defining the
organization's requirements for goods, services, or works. This often originates from
various departments or stakeholders and should specify the quantity, quality, technical
specifications, and desired timelines. For example, the IT department might identify the
need for new laptops with specific processing power and memory for new employees.

2. Purchase Requisition: Once a need is identified, a formal internal document called a

purchase requisition (PR) is created and submitted for approval. This document typically
includes details of the required items, quantity, estimated cost, and the requesting
department. Depending on the organization's policies, the PR may need approval from
department heads, budget holders, or the procurement department itself.

3. Vendor Identification and Selection: After the purchase requisition is approved, the
procurement team identifies potential suppliers who can fulfill the requirements. This
stage may involve market research, reviewing existing supplier databases, or soliciting
information from potential vendors through Requests for Information (RFI). For more
significant purchases, a formal Request for Quotation (RFQ) or Request for Proposal
(RFP) might be issued to gather detailed pricing and service information. Vendor
evaluation considers factors beyond just price, such as reputation, experience, quality
standards, financial stability, ethical practices, and sustainability.

4. Negotiation and Contract Award: Once the preferred vendor(s) are identified, the
procurement team negotiates the terms and conditions of the contract. This includes
pricing, payment terms, delivery schedules, performance metrics, and service level
 agreements. The goal is to reach a mutually beneficial agreement that meets the
organization's needs and minimizes risks. Upon successful negotiation, a contract is
awarded to the selected vendor. This could take the form of a Purchase Order (PO), a
Master Service Agreement (MSA), or a more detailed contract document.

5. Order Placement and Management: A formal Purchase Order (PO) is created and sent
to the supplier, detailing the specific goods or services to be procured, agreed-upon
prices, quantities, delivery dates, and shipping instructions. The procurement team then
manages the order, tracking its progress and ensuring timely delivery. This may involve
regular communication with the supplier and addressing any potential issues or delays.

6. Receipt and Inspection: Upon delivery of the goods or completion of the services, the
receiving department inspects the items to ensure they match the PO specifications in
terms of quantity, quality, and condition. Any discrepancies or damages are documented
and communicated to the supplier and the procurement team for resolution.

7. Invoice Processing and Payment: The supplier submits an invoice for the delivered
goods or services. The accounts payable department then verifies the invoice against the
PO and receiving documents (a process known as three-way matching) to ensure
accuracy. Once verified, the invoice is approved for payment according to the agreed-
upon payment terms.

8. Record Keeping and Performance Monitoring: Maintaining accurate records of all

procurement activities is crucial for audit trails, compliance, and performance analysis.
This includes purchase requisitions, POs, contracts, invoices, and supplier performance
data. Regularly monitoring supplier performance against agreed-upon metrics helps in
evaluating the effectiveness of the procurement process and identifying areas for
improvement.

A supply chain is a network of organizations and individuals involved in the creation and
delivery of a product or service to the end consumer. It encompasses all the steps from sourcing
raw materials 1 to the final distribution of the finished product. Think of it as the entire journey
of a product, from its origin to your hands.

Components of a Supply Chain

1. Suppliers (Upstream)

o Provide raw materials, components, or services.

o Example: A steel supplier for car manufacturing.

2. Manufacturers/Producers
 o Transform raw materials into finished goods.

o Example: An electronics factory assembling smartphones.

3. Distributors & Wholesalers

o Act as intermediaries between manufacturers and retailers.

o Example: A pharmaceutical distributor supplying medicines to pharmacies.

4. Retailers (Downstream)

o Sell products directly to consumers.

o Example: Amazon, Walmart, or a local grocery store.

5. Logistics & Transportation

o Ensures goods move efficiently between stages (shipping, warehousing).

o Example: FedEx, Maersk (shipping), or DHL.

6. Customers (End Users)

o The final consumers who purchase and use the product.

Types of Supply Chains

Type Description Example

Lean Supply Focuses on minimizing waste & Toyota (Just-in-Time manufacturing)

Chain costs.

Agile Supply Prioritizes flexibility & quick Zara (Fast fashion)

Chain response.

Global Supply Cross-border sourcing & Apple (iPhones made in China, sold
Chain distribution. worldwide)

Digital Supply Uses IoT, AI, and blockchain for Amazon (AI-driven warehousing)
Chain efficiency.

Supply Chain Processes

1. Planning

o Demand forecasting, inventory management.

2. Sourcing

o Selecting suppliers, negotiating contracts.

3. Manufacturing

o Production, quality control.

4. Delivery & Logistics

o Transportation, warehousing, last-mile delivery.

5. Returns & Reverse Logistics

o Handling product recalls, recycling, or refurbishing.