By ATUL CHOUDHARY Study Materials

Introduce various parameters required to develop and implement a procurement

strategy that aligns with the overall competitive strategy of the organization.
Provide knowledge to understand how Strategic sourcing enhances efficiency and
value, ultimately impacting the profitability of the entire organization.
Familiarize with concepts of ethical and contractual risk management, sustainability,
and legal issues faced by purchasing and supply chain managers.

Introduction to purchasing and supply chain management

A new competitive environment, Why Purchasing Important.
Purchasing and supply Management, Supply chains and value chains Enablers of
purchase ad supply chain management
Evolution of Purchasing and supply management.
Purchasing and supply process Objectives –Supply continuity, Sourcing process
efficiency and effectiveness Develop Supply base management, Develop aligned goals
with internal stake holders
Developing purchasing strategies that support organizational goals and objectives.
Strategic Supply Management- Roles and Responsibilities
Spend analysis, Demand management and specifications / SOW’s
Category Management and supplier evaluation / selection
Contract Management(Purchase and Service), Cost Management, Managing the
procure to pay process
Supplier relationship Management.
Improving Procure to pay process Forecast and plan requirement, Needs clarification,
Purchase requisitioning of work.
Travelling purchase requisitions / Bar codes, Forecast and customer orders. Reorder
point system, Stock checks, Cross functional sourcing teams.
Supplier identification and selection, Bidding or Negotiations, Request for quotations.
Specifications or Blueprints, Evaluate Suppliers.

International procurement-Imports.
a) International commercial terms.
b) Import procedures and documentation.
c) Categories of importers.
d) Identification of foreign sources.
e) Payment terms including Letter of credit.
f) Types of L/Cs.
g) Custom tariff
Purchase order preparation
Purchase order, Blanket purchase order, and Material purchase release
Receipt and inspection, Material packing slip, Bill of Lading
Receiving Discrepancy report, Invoice settlement and payment
Record Maintenance, Continuously measure and Manage supplier performance
Reengineering the procure to pay process
Types of Purchases
Raw material, Semi finished goods, components, support items, Services, and Capital
Transportation and third-party purchasing, Online requisitioning systems.
Procurement cards issued to users, Electronic purchasing commerce through internet
Long term purchase
Purchasing agreements,
and Supply Online ordering system to suppliers
chain Organization
Organization structure, Location of authority, Centralized or Decentralized structure,
Drivers, advantages of Centralized or Decentralized structure.
Reporting of Purchasing positions and Factors affecting Purchasing position. Scope
and Job Tasks of Purchasing / Supply Management Report.
Separating Strategic and Operational Purchasing.
Supplier Evaluation and Selection Identify Potential Supply Sources, Use of preferred
Suppliers.
Key supplier evolution Criteria. Developing a Supplier Evaluation and Selection
Survey, Tools and approaches.

Purchasing Analysis: Tools and Techniques

Project management, Learning Curve Analysis, Value Analysis/Value Engineering.
Quantity Discount Analysis, Process Mapping.
Worldwide Sourcing
Overview, Why source Worldwide, Barriers to Worldwide sourcing Developing
worldwide sourcing programme.
Cost associated with international purchasing, Managing Currency Risks.

Strategic Cost Management

A structured Approach to cost Reduction. Price Analysis, Cost analysis techniques
Total cost ownership, Collaborative Approaches to cost management.
Negotiation
The Negotiation Framework in supply Management, Negotiation Planning.
Power in Negotiation, Negotiation Tactics, Win-Win Negotiation.
International negotiation, The Impact of
Electronic Media on Negotiation
Legal aspects and Ethics in purchasing Legal authority and personal liability of the
purchasing manager
Contract Law, The uniform commercial code, Patents and Intellectual property
Antitrust and unfair trade practice laws, Laws affecting Global purchasing
QUESTIONS AND ANSWER

1) What Purchase order and its types? [20]

Answer:

A purchase order is a legally binding document between a supplier and a buyer. It details the
items the buyer agrees to purchase at a certain price point. It also outlines the delivery date and
terms of payment for the buyer.

If business owners and managers want to maintain enough supplies to operate and to meet the
customer’s demands without overpaying, they must track their inventory. Some people are
tempted to overlook this step, but they are putting themselves at risk of running low on supplies
or buying more items than they need. While allowing their inventory to deplete can cause them
to lose customers, buying more items than needed is a waste of resources. Those who want to
avoid falling into the same trap will need to learn about the four types of purchase orders and the
role that they play in the bottom line of every company.

Standard Purchase Orders

When someone’s goal is to learn about the different types of purchase orders, taking a look at
standard purchase orders is a smart move. With this option, a business leader will order materials
when the need arises. The number of items, price, timeframe and other specifications will be
listed in a standard purchase order. For example, a company that is running low on printer paper
might place a standard purchase order. To keep up with demand, businesses will also do so when
they encounter a customer who places a large order.

Planned Purchase Orders

Although predicting the future needs of a company is not always possible, managers must do the
best that they can. With a planned purchase order, a business leader will try to determine how
many items the company will need over time. Based on the number of employees and customers
that a business has, managers can make an educated guess about the amount of paper that they
should stock, for example. Although they don’t always involve a formal agreement, companies
will usually place purchase orders from the same supplier on a regular basis. A company won’t
always need the same number of items, but having a plan creates a guideline to follow.

Blanket Purchase Order

Rather than planning one purchase order in advance, blanket purchase orders involve planning
several orders at a time. This path will likely consist of an informal pricing agreement between
the company and its supplier. Because getting several orders from the same company is cheaper
than acquiring new clients, suppliers will gladly offer discounted rates, allowing both sides
to benefit from the arrangement.

Contract Purchase Orders

A contract purchase order is a formal version of the planned purchase order, involving a legal
agreement between both sides. Of all the types of purchase orders, this one offers the most
protection. The contract will normally list the number of items that a company will buy and the
price that the seller will offer. These agreements ensure that no misunderstandings occur and that
each side will live up to their promise. The company and supplier will usually negotiate the terms
of an agreement to find a fair compromise that will give everyone the best possible results. The
penalties for breaching the contract will vary but can involve legal action. Once the supplier or
business has drafted a contract, lawyers from each side will review it before moving forward.

2) What is International Procurement process? [10]

Answer:

In purchasing the materials, services, and other inputs needed in the manufacture and supply of
the products it provides its customers, the OKI Group implements procuring activities with
appropriate quality and price levels on a worldwide basis, through transactions that are always
fair and transparent. It also endeavors to promote efforts in areas such as compliance with laws,
regulations, and societal norms and protection of the environment, by working to build
partnerships founded on relationships of trust with its suppliers, requesting its suppliers to
cooperate in its activities in the area of corporate social responsibility (CSR).

Procurement guidelines

Based on the basic approach above, we will promote procuring activities focusing on the
following five points:

1. Selection of suppliers in a fair and honest manner, both in Japan and overseas:
In selection of suppliers, we will provide equal opportunities to all prospective suppliers
both in Japan and overseas, select suppliers through fair evaluation, and work to achieve
mutual growth and performance for both the OKI Group and its suppliers.
2. Compliance with laws, regulations, and societal norms:
We will comply with the laws, regulations, and societal norms that apply to each country
and territory.
3. Environmental considerations:
We will conduct purchasing activities based on the OKI Group Environmental Vision
2020.
4. Appropriate management and protection of information:
We will endeavor to manage and protect personal information and confidential
information in appropriate ways.
5. Pursuit of appropriate levels of quality and costs, and ensuring a stable procurement of
materials:
Our procuring activities shall be based on the goal of procuring materials that meet the
quality, cost, and delivery-time requirements of the OKI Group.
Requests for suppliers

Forming mutual partnerships and working in cooperation with its suppliers are essential to the
OKI Group's implementation of procuring based on its Procurement Guidelines.

1. Compliance with laws, regulations, and societal norms:

Suppliers are requested to comply with the laws, regulations, and societal norms that
apply in each country and region in which they operate. This includes the following
requirements:
o Compliance with laws and regulations related to production and sale of materials,
environmental laws and regulations, laws and regulations related to product safety, laws
and regulations related to labor, occupational health and safety, and other laws and
regulations
 o Prohibition of child labor and forced labor
o Prohibition of discrimination by race, gender, or other characteristic
o Realizing a safe and sanitary working environment
o Prohibition of deviation from fair business practices

3) What are roles and responsibility of strategic supply management?

[10]

4) What are the types of Purchases? [10]

Depending on what type of purchase you are going to make, then the process concerned is not
the same. The following examples show the different processes that take place concerning the
different purchase types

Personal Purchases

The consumer purchases for the consumption of themselves, and then they fall into this very
important category class. They are ultimately driving the economy through the purchase of its
products. Therefore, the economy becomes dependent on them.

Mercantile Purchasing

Facilitated by middlemen for the intention of re-sale to meet others requirements. Agents,
wholesalers and retailers come under this category providing their own channels of distribution
to the consumer.

Industrial Purchasing

The purchaser is buying to convert material into finished goods and product. It entails
buying raw materials. Components, supplies and consumable stores, spares and tools, machines
and equipment and office appliance.
Institutionalized or government purchasing

Government agencies or institutions are very important, they purchase in bulk for public utilities

5) What is Supply Chain Management and its importance? [10]

Supply chain management (SCM) is the oversight of materials, information, and finances as they
move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply
chain management involves coordinating and integrating these flows both within and among
companies. It is said that the ultimate goal of any effective supply chain management system is
to reduce inventory (with the assumption that products are available when needed). As a solution
for successful supply chain management, sophisticated software systems with Web interfaces are
competing with Web-based application service providers (ASP) who promise to provide part or
all of the SCM service for companies who rent their service.

Supply chain management flows can be divided into three main flows:

The product flow

The information flow

The finances flow

The product flow includes the movement of goods from a supplier to a customer, as well as any
customer returns or service needs. The information flow involves transmitting orders and
updating the status of delivery. The financial flow consists of credit terms, payment schedules,
and consignment and title ownership arrangements.

There are two main types of SCM software: planning applications and execution applications.
Planning applications use advanced algorithms to determine the best way to fill an order.
Execution applications track the physical status of goods, the management of materials, and
financial information involving all parties.

Some SCM applications are based on open data models that support the sharing of data both
inside and outside the enterprise (this is called the extended enterprise, and includes key
suppliers, manufacturers, and end customers of a specific company). This shared data may reside
in diverse database systems, or data warehouses, at several different sites and companies.

6) Write essay on Strategic Cost Management? [20]

Answer:

Meaning of Strategic Cost Management:

In global competitive environment, the most efficient firms view all of their spending as an
investment. They make efficient spending decisions based on a strategic vision and their internal
capabilities to deliver value from that investment. Traditionally firms have been under pressure
to cut costs in the short term without really thinking about sustainable growth and integration
with the overall business strategy.

In today’s business environment of increased global competition, new markets, increasing

regulation and changing demographics, successful companies must develop a multifaceted cost
competence. It has been observed that traditional firm’s tactical solutions, despite consuming
considerable resources, have failed to deliver the planned reduction of costs and have not
resulted into competitive advantage.

Importance of Strategic Cost Management:

Strategic cost management has become an essential area now a day. While formulating the
strategy for the accomplishment of organisational overall objectives, different cost drivers should
be clearly identified. Identification of key cost drivers helps companies to focus on key activities
that will constitute almost 90% of the total costs.

In view of this, the importance of strategic cost management should not be underestimated. This
implies that an organisation should be installing appropriate framework of strategic cost
management to reduce its costs in key areas on which the success of organisation is mainly
dependent. Strategic cost management is understood in different ways in literature.

Strategic cost management can be defined as “scrutinizing every process within your
organisation, knocking down departmental barriers, understanding your suppliers’
business, and helping improve their processes” Cooper and Slagmulder argued that
strategic cost management is “the application of cost management techniques so that they
simultaneously improve the strategic position of a firm and reduce costs”.
The Framework of Strategic Cost Management provides a clear plan of attack for addressing
costs and decisions that affect them. Following are the three core components of this framework.

7) What is Purchasing and supply process Objectives in supply chain management?

[10]

8) What are the parameters required to develop and implement a procurement

strategy? [10]

9) What is Supply Chain Management? [10]

Answer:
Supply chain management (SCM) is the oversight of materials, information, and finances as they
move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply
chain management involves coordinating and integrating these flows both within and among
companies. It is said that the ultimate goal of any effective supply chain management system is
to reduce inventory (with the assumption that products are available when needed). As a solution
for successful supply chain management, sophisticated software systems with Web interfaces are
competing with Web-based application service providers (ASP) who promise to provide part or
all of the SCM service for companies who rent their service.

10) The Importance of Supply Chain Management [10]

Answer:

Supply chain management flows can be divided into three main flows:

The product flow

The information flow

The finances flow

The product flow includes the movement of goods from a supplier to a customer, as well as any
customer returns or service needs. The information flow involves transmitting orders and
updating the status of delivery. The financial flow consists of credit terms, payment schedules,
and consignment and title ownership arrangements.

There are two main types of SCM software: planning applications and execution applications.
Planning applications use advanced algorithms to determine the best way to fill an order.
Execution applications track the physical status of goods, the management of materials, and
financial information involving all parties.

Some SCM applications are based on open data models that support the sharing of data both
inside and outside the enterprise (this is called the extended enterprise, and includes key
suppliers, manufacturers, and end customers of a specific company). This shared data may reside
in diverse database systems, or data warehouses, at several different sites and companies.

11) What are the functional aspects of Strategic Management? [20]

Answer: Decision-Making: CEO is the key-man to take decisions. Thus, with the help of
strategic management, CEO can select best strategy and sub strategies. He can direct the
management in a right manner.

2. Achieving Performance: The companies can fix production targets and productivity, with the
help of strategic management.

3. Growth: Organization always seeks to achieve growth. Profit maximization, wealth

maximization will form part of formulation of strategies. Hence, strategic management helps the
management for future growth.

4. High Results: Strategic management helps in determination for achievement of results which
leads to growth. Every organization always seeks to achieve high result as low performing
entities cannot survive in the competitive world.

5. Reduction of Complexity: Reduction of complexity in procedures result in achieving high

results. Ultimately it leads to growth and good performance.

6. Social Responsibility: Social responsibility is expressed in terms of types of activities, number

of days of service, or financial contributions. These can be determined with the utility of strategic
management.

7. Customer Satisfaction: By implementing strategic management process, the business entities

can enhance their customer satisfaction. Goodwill may also improve as a result of increased
customer satisfaction.

8. Development of Human Resources: Every organization will have a separate human resource
department. It tries to concentrate on improving skills of manpower. Manpower planning and
development is one of the key factors of strategic management.
9. Adaptability to Change: The benefit of adaptability to change with minimum resistance is also
likely to follow the uses of strategic management. Participative process leads to greater
awareness of the basis of choosing a particular option and the limits to available alternatives.

10. Cost Control: To achieve more profits, organization should concentrate on cost control and
cost reduction techniques. Thus, cost control will be one of the important objectives of the
strategic management.

11. Profitability: Profitability can be expressed in terms of profits, return on investment, earnings
per share, or profit-to-sales ratios. Strategic management will help in enhancement of
profitability of organizations.

12. Ability to Compete: Strategic management helps in analyzing market. The organization
would be able to increase sales, and it may achieve expected market share with the
implementation of best strategies.

12) Demerits of strategic management: [10]

Answer:

1. Strategic management process is a costly exercise.

2. Its gestation period is very long.

3. Sometimes strategies may fail, which leads to frustration.

4. Future uncertain, and risk is very high. Strategic management mostly depends on long-term
results, hence it is uncertain and high-risk oriented.

5. Resistance to change by the employees.

 13) What is Sourcing Strategy in management? [10]

Answer:

A successful sourcing strategy requires a thorough understanding of a company’s business

strategy, the resources required to deliver that strategy, the market forces and the unique risks
within the company associated with implementing specific approaches. A periodic review of the
sourcing strategy ensures achievement of desired results and continued alignment with business
objectives. Some of the sourcing strategies that are used in supply chain management today
include:

Single sourcing: A method whereby a purchased part is supplied by only one supplier.
A JIT manufacturer will frequently have only one supplier for a purchased part so that close
relationships can be established with a smaller number of suppliers. These close relationships
(and mutual interdependence) foster high quality, reliability, short lead times, and cooperative
action.

Multisourcing: Procurement of a good or service from more than one independent supplier.
Companies may use it sometimes to induce healthy competition between the suppliers in order to
achieve higher quality and lower price.

Outsourcing: The process of having suppliers provides goods and services that were previously
provided internally. Outsourcing involves substitution—the replacement of internal capacity and
production by that of the supplier.

Insourcing: The goods or services are developed internally.

14) What is Procurement Process? [10]

Answer:

It is the process of finding, agreeing terms and acquiring goods, services or works from an
external source, often via a tendering or competitive bidding process. The process is used to
ensure the buyer receives goods, services or works at the best possible price, when aspects such
as quality, quantity, time, and location are compared.Corporations and public bodies often define
processes intended to promote fair and open competition for their business while minimizing
risk, such as exposure to fraud and collusion.

Almost all purchasing decisions include factors such as delivery and handling, marginal benefit,
and price fluctuations. Procurement generally involves making buying decisions under
conditions of scarcity. If good data is available, it is good practice to make use of economic
analysis methods such as cost-benefit analysis or cost-utility analysis.

An important distinction should be made between analyses without risk and those with risk.
Where risk is involved, either in the costs or the benefits, the concept of best value should be
employed.

15) What is Procurement cycle process? [20]

Answer:

Step 1: Need Recognition

The business must know it needs a new product, whether from internal or external sources. The
product may be one that needs to be reordered, or it may be a new item for the company.

Step 2: Specific Need

The right product is critical for the company. Some industries have standards to help determine
specifications. Part numbers help identify these for some businesses. Other industries have no
point of reference. The company may have ordered the product in the past. If not, then the
business must specify the necessary product by using identifiers such as color or weight.

Step 3: Source Options

The business needs to determine where to obtain the product. The company might have an
approved vendor list. If not, the business will need to search for a supplier using purchase orders
or research a variety of other sources such as magazines, the Internet or sales representatives.
The company will qualify the suppliers to determine the best product for the business.

Step 4: Price and Terms

The business will investigate all relevant information to determine the best price and terms for
the product. This will depend on if the company needs commodities (readily available products)
or specialized materials. Usually the business will look into three suppliers before it makes a
final decision.

Step 5: Purchase Order

The purchase order is used to buy materials between a buyer and seller. It specifically defines the
price, specifications and terms and conditions of the product or service and any additional
obligations.

Step 6: Delivery

The purchase order must be delivered, usually by fax, mail, personally, email or other electronic
means. Sometimes the specific delivery method is specified in the purchasing documents. The
recipient then acknowledges receipt of the purchase order. Both parties keep a copy on file.

Step 7: Expediting

Expedition of the purchase order addresses the timeliness of the service or materials delivered. It
becomes especially important if there are any delays. The issues most often noted include
payment dates, delivery times and work completion.

Step 8: Receipt and Inspection of Purchases

Once the sending company delivers the product, the recipient accepts or rejects the items.
Acceptance of the items obligates the company to pay for them.

Step 9: Invoice Approval and Payment

Three documents must match when an invoice requests payment - the invoice itself, the
receiving document and the original purchase order. The agreement of these documents provides
confirmation from both the receiver and supplier. Any discrepancies must be resolved before the
recipient pays the bill. Usually, payment is made in the form of cash, check, bank transfers,
credit letters or other types of electronic transfers.

Step 10: Record Maintenance

In the case of audits, the company must maintain proper records. These include purchase records
to verify any tax information and purchase orders to confirm warranty information. Purchase
records reference future purchases as well.

16) What do you do with a purchase order? [10]

Answer:

A purchase order is a legally binding document between a supplier and a buyer. It details the
items the buyer agrees to purchase at a certain price point. It also outlines the delivery date and
terms of payment for the buyer.

17) What are the types of Purchase Orders? [20]

Answer:

If business owners and managers want to maintain enough supplies to operate and to meet the
customer’s demands without overpaying, they must track their inventory. Some people are
tempted to overlook this step, but they are putting themselves at risk of running low on supplies
or buying more items than they need. While allowing their inventory to deplete can cause them
to lose customers, buying more items than needed is a waste of resources. Those who want to
avoid falling into the same trap will need to learn about the four types of purchase orders and the
role that they play in the bottom line of every company.

Standard Purchase Orders

When someone’s goal is to learn about the different types of purchase orders, taking a look at
standard purchase orders is a smart move. With this option, a business leader will order materials
when the need arises. The number of items, price, timeframe and other specifications will be
listed in a standard purchase order. For example, a company that is running low on printer paper
might place a standard purchase order. To keep up with demand, businesses will also do so when
they encounter a customer who places a large order.

Planned Purchase Orders

Although predicting the future needs of a company is not always possible, managers must do the
best that they can. With a planned purchase order, a business leader will try to determine how
many items the company will need over time. Based on the number of employees and customers
that a business has, managers can make an educated guess about the amount of paper that they
should stock, for example. Although they don’t always involve a formal agreement, companies
will usually place purchase orders from the same supplier on a regular basis. A company won’t
always need the same number of items, but having a plan creates a guideline to follow.

Blanket Purchase Order

Rather than planning one purchase order in advance, blanket purchase orders involve planning
several orders at a time. This path will likely consist of an informal pricing agreement between
the company and its supplier. Because getting several orders from the same company is cheaper
than acquiring new clients, suppliers will gladly offer discounted rates, allowing both sides
to benefit from the arrangement.

Contract Purchase Orders

A contract purchase order is a formal version of the planned purchase order, involving a legal
agreement between both sides. Of all the types of purchase orders,this one offers the most
protection. The contract will normally list the number of items that a company will buy and the
price that the seller will offer. These agreements ensure that no misunderstandings occur and that
each side will live up to their promise. The company and supplier will usually negotiate the terms
of an agreement to find a fair compromise that will give everyone the best possible results. The
penalties for breaching the contract will vary but can involve legal action. Once the supplier or
business has drafted a contract, lawyers from each side will review it before moving forward.

18) Write essay on purchasing and supply process? [10]

Answer:

Purchasing is the formal process of buying goods and services. The purchasing process can
vary from one organization to another, but there are some common key elements.

The process usually starts with a demand or requirements – this could be for a physical part
(inventory) or a service.A requisition is generated, which details the requirements (in some cases
providing a requirements specification) which actions the procurement department. A request for
proposal (RFP) or request for quotation (RFQ) is then raised. Suppliers send their quotations in
response to the RFQ, and a review is undertaken where the best offer (typically based
on price, availability and quality) is given the purchase order.

Purchase orders (PO) can be of various types, including:

Standard - a onetime buy

Planned - an agreement on a specific item at an approximate date

Blanket - an agreement on specific terms and conditions: date and quantity and amount are not
specified.

Purchase orders are normally accompanied by terms and conditions which form the contractual
agreement of the transaction. The supplier then delivers the products or service and the customer
records the delivery (in some cases this goes through a goods inspection process). An invoice is
sent by the supplier which is cross-checked with the purchase order and documents specifying
which goods have been received. The payment is then made and transferred to the supplier.

19) What are the types of Purchases? [10]

Answer:

Depending on what type of purchase you are going to make, then the process concerned is not
the same. The following examples show the different processes that take place concerning the
different purchase types

Personal Purchases

The consumer purchases for the consumption of themselves, and then they fall into this very
important category class. They are ultimately driving the economy through the purchase of its
products. Therefore, the economy becomes dependent on them.

Mercantile Purchasing

Facilitated by middlemen for the intention of re-sale to meet others requirements. Agents,
wholesalers and retailers come under this category providing their own channels of distribution
to the consumer.

Industrial Purchasing

The purchaser is buying to convert material into finished goods and product. It entails
buying raw materials. Components, supplies and consumable stores, spares and tools, machines
and equipment and office appliance.

Institutionalized or government purchasing

Government agencies or institutions are very important, they purchase in bulk for public utilities