Procurement by Akhtar Khan

A logistics and supply chain management project on,
PROCUREMENT
by,
AKHTAR KHAN
This is
A logistics and
Supply Chain Management
project based on,
PROCUREMENT
Submitted By,
Akhtar Khan
“Knowledge is the food of the soul.”
-Plato
PROLOGUE
Logisitcs and supply chain management one of the very important aspect of
current management principles which has lately gained more and more
importance. There are varied steps involved in Logistics and supply chain
Management one of them is Procurement. In this project we are focusing on
the procurement aspect of Supply chain management
The project covers all the topics related to business procurement.

Procurement or purchasing activity encompasses all spending activity,
excluding payroll, and often represents more than 50 percent of all
expenditures. Thus it is a crucial component in every business organization.
The process of gathering information and studying the topic was more than
interesting it is undertaken by Akhtar Khan, belonging to T.Y.B.M.S./B.
presented to our Esteemed Prof. Mr. Chougule
I put my best foot forward in-order to make this project a very interesting one.
The systematic flow of information and the comprehensiveness of the topics
are my selling points to demand maximum marks.
Martin H. Fischer stated “Knowledge is a process of piling up facts; wisdom lies

in their simplification.” this is the guiding line for the construction and
completion of this project.
Finally a heartfelt gratitude to our Prof. for giving us such an important topic
to study and providing timely guidance whenever I sought it.
-Author
AN OVERVIEW
PROCUREMENT: IN A NUTSHELL
Every organization that purchases goods or services has standard
procurement procedures, the methods they use to acquire those things.
These procedures cover all aspects of the procurement cycle, including the
selection of the supplier, contract negotiations, order placement and
payment. All firms have procurement procedures, and they are used to
control spending activity, ensure appropriate approvals are in place and
reduce the risk of overpayment. Procurement or purchasing activity
encompasses all spending activity, excluding payroll, and often represents
more than 50 percent of all expenditures.
The primary driving force for the development of procurement procedures is
to control all spending. The actual procedures used can vary slightly but will be
similar. An appropriate approval process usually involves a separation of tasks
and the involvement of senior managers for transactions that will cost more
than a specific price. Another standard procurement procedure is to limit
access to the purchase order forms and require signed authorization from a
manager other than the person using the goods. This separation of the goods
recipient and the approval is designed to ensure that a senior staff member is
aware of the order and can confirm that the materials are required and will be
used for the proper purpose.
Another common procurement procedure is to create a short list of pre-
approved vendors for specific commodities. Vendors are added to the list
through a bidding process that is conducted on a scheduled basis. This process
is designed to be transparent and to provide the firm an opportunity to obtain
discounts in price, to meet quality standards and to ensure timeliness of
delivery.
The risks for a company without proper procurement procedures are
overspending and the failure to achieve good value and purchasing fraud.
Many people who do not have any accounting or procurement training resent
the steps involved in a purchasing request. These processes, however, are
designed to save both time and money.
Other common procurement procedures include setting value thresholds
that trigger different procurement activity. For example, purchases that cost
more than a certain amount might require a purchase order to be approved by
two levels of management. A purchase order for a much higher price might
require a proposal to be issued.
CONTENTS
1. Introduction 1
2. Logistics and Supply Chain Management 2

2.1 Logistics
2.2 Supply Chain Management
2.3 Supply Chain Management components
3. Procurement 9
3.1 Procurement Department
3.2 Procurement Process
3.3 Procurement Planning
3.4 Procurement Policy
3.5 Procurement Procedures
3.6 Purchase order
3.7 Purchase order Financing
4. E- Procurement 17
4.1 ARIBA: The pioneer in E-procurement
4.2 Types
4.3 E-Procurement Value chain
4.4 Advantages
4.5 Disadvantages
4.6 Vendor Managed Inventory
4.7 E-Procurement Trends
4.8 Why E-Procurement
5.Industry information 33
5.1 Chugoku Electric power
5.2 NTT Docomo
5.3 SEAM
6. Green Procurement 39
6.1 Challenges to Green Procurement
6.2 Implementing Green Procuremnt
6.3 Case Examles
6.4 Sharp’s way of doing it
7. IT Procurement 46
7.1 development of the framework
7.2 The IT Procurement processes
8. Conclusion 50
A project study on Procurement by Akhtar Khan
CHAPTER 1
INTRODUCTION
Logistics and supply chain management is a very recent terminology. Earlier
companies did not pay much attention to its logistics management thought it
being a very crucial part in a firm’s success. It was some 20 years ago that the
business organizations and management gurus realized its importance. Since
then logistics has gained a widespread importance in the business world. The
subject is interesting and plays an important part in a firm’s functioning. There
are a wide range of topics in the subject of Logistics management. This study
focuses on one of the most important step i.e. Procurement.
Procurement is nothing but The range of activities associated with the buying
of goods and services to support business operations. When talking about
procurement, planning is the first and most important step in the whole
process. Planning involves selecting missions and objectives and the actions
to achieve them; it requires managers to choose among alternative future
courses of action. Plans thus provide a rational approach to preselected
objectives.
Planning bridges the gap from where we are to where we want to go. It makes
it possible for things to occur which would not otherwise happen. Although
we can never be sure what will happen in the future, and factors beyond our
control may interfere with even the best-laid plans, if we don't plan we are
leaving events to chance. And that is quite risky when talking about business
operations. One wrong step and your business is history.
This study guides you on what Logistics management is, takes u through the
various steps involved in the procurement procedures and updates you about
the recent development in the field of procurement like e-procurement and
outsourcing.
1
CHAPTER 2
LOGISTICS AND
SUPPLY CHAIN MANAGEMENT
2.1 LOGISTICS
Logistics is a very integral of every business organization. earlier this aspect of
management was sidelined. Business organizations did not payed much
attention towards it. However today it is considered as a very crucial part of a
firm’s smooth functioning. Logistics and supply chain management has made
its way into almost all books of management and business functioning. It
involves various steps, and Procurement is one of them. This project mainly
deals with only that aspect of Logistics management. Before getting into the
details of procurement let us study what Logistics and supply chain
management actually means.
Definitions:
“Logistics is defined as a business planning framework for the management of
material, service, information and capital flows. It includes the increasingly
complex information, communication and control systems required in today's
business environment.”
-Logistix Partners Oy, Helsinki, FI, 1996
“The process of planning, implementing, and controlling the efficient,

effective flow and storage of goods, services, and related information from
point of origin to point of consumption for the purpose of conforming to
customer requirements." Note that this definition includes inbound,
outbound, internal, and external movements, and return of materials for
environmental purposes.
-Council of Logistics Management
2
“The procurement, maintenance, distribution, and replacement of personnel

and materiel.”
-Webster Dictionary
Thus from the above given explanations we get a glimpse of what Logistics
management is. Webster’s definition is very comprehensive whereas the
definition given by The Council of logistics management is complete and
covers everything.
Logistics systems are often described as a network of nodes and links

describing an interconnected web. Wandel and Ruijgrok (1995) establish the
basic notion of networks and the correlation between the descriptions of the
transport industry as a network. The correlation between the infrastructure,
the resources that move on the infrastructure and constitute the
transportation exists.
Logistics as a business concept evolved in the 1950s due to the increasing

complexity of supplying businesses with materials and shipping out products
in an increasingly globalized supply chain, leading to a call for experts called
supply chain logisticians. Business logistics can be defined as "having the right
item in the right quantity at the right time at the right place for the right price
in the right condition to the right customer", and is the science of process and
incorporates all industry sectors. The goal of logistics work is to manage the
fruition of project life cycles, supply chains and resultant efficiencies.
In business, logistics may have either internal focus (inbound logistics), or
external focus (outbound logistics) covering the flow and storage of materials
from point of origin to point of consumption (see supply chain management).
The main functions of a qualified logistician include inventory management,
purchasing, transportation, warehousing, consultation and the organizing
and planning of these activities. Logisticians combine a professional
knowledge of each of these functions to coordinate resources in an
organization. There are two fundamentally different forms of logistics: one
optimizes a steady flow of material through a network of transport links and
storage nodes; the other coordinates a sequence of resources to carry out
some project.
3
2.2 SUPPLY CHAIN MANAGEMENT

The concept of Supply Chain Management is relatively new and in this chapter
we seek to provide a basic understanding of the origins and components of
Supply Chain Management.
Supply Chain Management as a concept has been widely accredited to a Booz

Allen consultant named Keith Oliver who in 1982 defined the concept as
follows: “Supply chain management (SCM) is the process of planning,
implementing, and controlling the operations of the supply chain with the
purpose to satisfy customer requirements as efficiently as possible. Supply
chain management spans all movement and storage of raw materials, work-
in-process inventory, and finished goods from point-of-origin to point-of-
consumption”.
This seems to be the earliest published definition and therefore places the
concept of Supply Chain Management at approximately 26 years old. We can
see that “Supply Chain” without the “Management” is referenced in the
definition, so we know that the general idea of a supply flow through a
business was recognised prior to Olivers definition. What Oliver really
captured was the conscious and deliberate control, integration, and
management of the business functions contributing to, and affecting that
supply flow through the business, for the purpose of improving performance,
costs, flexibility etc, and for the ultimate benefit of the end customer.
The concept has been defined in simpler terms since that time and is often
captured with five words: Plan, Source, Make, Deliver, Return.
Both of these definitions allude to a manufacturing origin but of course Supply
Chain Management is as relevant to service, retail, distribution, and most
other types of companies as it is to manufacturing.
The area of Supply Chain Management has enjoyed a meteoric rise in

significance over the last twenty to thirty years as businesses have tried to
establish advantage, and felt the pressure to keep up, in an increasingly
homogeneous and competitive global business environment.
Japanese manufacturing companies brought great emphasis to the area of

Supply Chain Management in the 1980's and early 1990's. Awareness of
Supply Chain Management tools such as “Just In Time” and “Kan Ban” spread
4
rapidly and became globally accepted best practice amongst volume

manufacturing businesses. Western businesses raced to keep pace with a
rapidly changing environment, dragging their supply bases, and sometimes
employees behind them.
At the same time companies like SAP and Oracle were developing the complex
IT systems that would be essential for enabling large complex businesses to
effectively integrate and managing the sub areas that combined to make
complex supply chains.
Of course the elements of Supply Chain Management have always existed in
business. What changed was the willingness of businesses to recognise the
inter-relationship of the various sub areas, and to pursue the benefits
generated through coordination and integration, both from a strategy /
planning perspective and operationally.
The sub areas comprising a supply chain include:

Forecasting/ Planning
?
Purchasing/ Procurement
?
Logistics
?
Operations
?
Inventory Management
?
Transport
?
Warehousing
?
Distribution
?
?Customer Service
Today, Supply Chain Management is an accepted term in our business

glossary. However, it is difficult to find a standard model of Supply Chain
Management operating in the business community. We continue to see
variations on the theme. Some business will refer to and manage their supply
chains in a coordinated and all encompassing fashion, including all of the sub
areas defined above. Others will integrate some elements of the supply chain,
for example purchasing and logistics and call this Supply Chain Management.
Many will refer conceptually to Supply Chain Management, but only address it
specifically at the general management level.
One area of confusion arises because Supply Chain Management is both a
horizontal business function (i.e. managing the supply chain in a business),
and a vertical industry sector (i.e. businesses involved in managing supply
5
chain in a business), and a vertical industry sector (i.e. businesses involved in

managing supply chains on behalf of their clients). A company like TDG
operates as a supply chain services provider, within the vertical supply chain
industry sector. But each of the clients serviced by TDG will employ supply
chain staff within their business operating on a horizontal basis across their
organisation. The “supply chain industry” sector as the vertical is often
referred to, is largely restricted to transport and storage type operations.
Distributing products on behalf of clients. Whereas, the horizontal supply
chain functional areas encompass the entire supply chain spectrum across a
business.
Supply Chain Management has matured from a compelling method of
deriving competitive advantage, to a “ticket to ride”. Its is now a baseline
expectation for any company wishing to compete in the 21st Century, and
with that the professions and occupations comprising Supply Chain
Management are now firmly entrenched in the armoury of essential business
executives.
2.3 SUPPLY CHAIN MANAGEMENT COMPONENTS

The sub areas comprising Supply Chain Management are defined further
below:
Forecasting / Planning
All business need to forecast and plan. To look forward and predict what will
be required in terms of resources and materials in order to deliver their
product or service to their customer in a timely manner.
In this area we find activities such as demand planning, inventory planning,
capacity planning ,etc
Purchasing / Procurement
The commercial part of the supply chain is purchasing. Otherwise known as
Buying or Procurement. This is where a business identifies suppliers to
provide the products and services that it needs to acquire in order to create
and deliver its own service or product. Costs and terms of business are
negotiated and agreed and contracts created.
Thereafter the suppliers performance and future contractual arrangements
will be managed in this area.
This area of the business is sometimes referred to as purchasing, sometimes,
procurement, buying, sourcing, etc. However, all titles relate to the
acquisition of materials and services.
6
The difference between purchasing and procurement is largely academic as,

whilst there is a theoretical difference between them, businesses use the
titles interchangeably for the two variations of activity. You will for example
find manufacturing companies with purchasing departments that are actually
doing procurement roles, and you will find service based organisations with
procurement departments but in fact doing purchasing roles. In its strictest
definition purchasing is limited to the actual commercial transaction and no
more, whilst procurement includes the wider elements of the acquisition,
including logistics and performance management.
Logistics
In its strictest definition logistics refers to the movement of goods or
materials, whether inbound, through, or outbound.
In some manufacturing businesses forecasting and planning will be found
within a logistics department, in other businesses logistics will be exclusively
managing the movement and transportation of goods and materials.
Operations
Operations is a general management type activity ensuring that a business
uses its resources effectively to meet its customer commitments. Usually
referring to the conversion activity of the business, i.e. the point where the
acquired resources and/or materials are converted into the product or service
that the business is selling on to its customers.
Inventory Management
Sometimes found within Logistics Management, or Demand Planning or
Operations, Inventory Management typically takes responsibility for both the
replenishment of physical stock, the levels of physical stock, and of course
storage and issue of physical stock. Stock may be materials and goods sourced
from suppliers, work in progress, or finished goods awaiting sale/dispatch.
Transport
Transport management can involve the control of a company owned fleet of
vehicles, collecting, moving, or delivering materials and goods, or managing
transport services sourced from a 3rd party transport provider.
Warehousing
Like transport management, warehousing can involve the control of company
7
warehouse space, or managing warehouse space sourced from 3rd party

providers.
Distribution
Distribution involves the physical distribution of the company's products to
the sub-distributor or directly to the customer base. Typically this is a
combined transport and warehousing operation, responsible for storing and
delivering products to meet the customers needs. Again this combined
activity will often be placed with a 3rd party service provider who will control
and implement the processes.
Distribution
Distribution involves the physical distribution of the company's products to
the sub-distributor or directly to the customer base. Typically this is a
combined transport and warehousing operation, responsible for storing and
delivering products to meet the customers needs. Again this combined
activity will often be placed with a 3rd party service provider who will control
and implement the processes.
Customer Service
Most people do not recognise customer service as part of supply chain
management, but it is in fact the final piece in the jigsaw. Having taken the
business inputs, created and delivered a product or service, the final element
is to check that the customers expectations were achieved, and manage any
actions necessary to meet your customer obligations and commitments.
8
CHAPTER 3
PROCUREMENT
As we have studied in the earlier chapter Procurement is one of the stages
involved in the Logistics and supply chain management. It is the commercial
part of the supply chain is purchasing. Otherwise known as Buying or
Procurement. The purchase is the main activity in the area of Materials
management. It is defined as the single largest function in any organization.
this is the place where money is spent out of the organization.
THE 7 R’s OF PURCHASE

1) buying the material at right price
2) buying materials of right quality
3) in the right quantity
4) at he right time
5) from the right source
6) at the right place
7) with right mode of transport

9
Definitions:
“Acquisition of goods (materials, parts, supplies, equipment) required to carry
on an enterprise. Procurement expenses can be a major cost of doing
business.”
-The Business dictionary
Procurement is the process by which the resources (goods and services)

required by a project are acquired. It includes development of the
procurement strategy, preparation of contracts, selection and acquisition of
suppliers, and management of the contracts.
-www.apm.org.uk/Definitions.asp
“Procurement is the process of acquiring goods, works and services, covering

both acquisition from third parties and from in-house providers. The process
spans the whole life cycle from identification of needs, through to the end of a
services contract or the end of the useful life of an asset. It involves options
appraisal and the critical 'make or buy' decision.”
-National Procurement Strategy, UK
Thus procurement is the process of obtaining the required goods. it includes

various aspects but especially in business it deals with the procurement of raw
materials and other services. it is a very crucial step in logistics and supply
chain management.
3.1 PROCUREMENT DEPARTMENT

A procurement department is responsible for managing the purchasing
activity for the organization. There are two types of purchasing or
procurement departments: centralized and decentralized. In a centralized
model, all requests for materials or goods are center to this department. In a
decentralized model, individual departments can process their own
purchases.
Regardless of the organizational model used, procurement activity is subject
to more scrutiny and review than any other process. The use of company
resources to purchase goods and services must be based on adherence to
specific policies and procedures to reduce the chance of fraud or theft.
Typically, the type of activity is monitored by the accounting department and
internal audit.
10
In a procurement department, the director is responsible for strategic

planning, policy development, and providing procurement advice to senior
management. Most organizations have procurement officers responsible for
managing the request for proposal process, bid tendering, and other related
processes. The most junior position in a procurement department is buyer. A
buyer is typically responsible for a specific commodity or product type. He or
she issues purchase requisitions and orders to approved suppliers, based on
internal needs.
The main purpose of a procurement department is to manage the process
used for the purchase of goods and services by the organization. Advanced
planning, group buying, and negotiated pricing are all strategies used to
reduce costs and increase profitability. In most organizations, the
implementation of procurement strategies is used to reduce overhead and
operational costs without compromising on service to customers.
3.2 PROCUREMENT PROCESS

Procurement is the complete process of obtaining goods and services from
preparation and processing of a requisition through to receipt and approval
of the invoice for payment. Also called sourcing, it commonly involves
1) Purchase planning
2) Standards determination
3) Specifications development
4) Supplier research and selection
5) Value analysis
6) Financing
7) Price negotiation
8) Making the purchase
9)Supply contract administration
10) Inventory control and stores
11) Disposals and other related functions.
3.3 PROCUREMENT PLANNING

Procurement planning is the process used by companies or institutions to
plan purchasing activity for a specific period of time. This is commonly
completed during the budgeting process. Each year, departments are
required to request budget for staff, expenses, and purchases. This is the first
step in the procurement planning process.
11
The budgets for all the departments are then reviewed, and in an organization
that is committed to procurement planning, the accountants spend the time
to find common purchasing requirements. Based on the budgets submitted,
they may direct departments to work with central purchasing to combine
their planned spending for specific commodities. This process works best in
an organization that is committed to reducing costs. Issues surrounding
delivery dates, contract compliance, and customer service issues must be
resolved internally before going out to contract.
an organization that is committed to reducing costs. Issues surrounding

delivery dates, contract compliance, and customer service issues must be
resolved internally before going out to contract.
The primary concept of procurement is that advanced planning, scheduling,

and group buying will result in cost savings, more efficient business operation,
and therefore increased profitability. There are four steps that form the basis
of procurement planning: group buying, just in time delivery, negotiated bulk
pricing, and reduced administrative overhead.
Group buying is the process of combining the total resource requirements for
different departments and creating one purchase order. The departments can
be physically located in a range of buildings, with the delivery dates,
quantities, and conditions listed in the purchase order. This practice is
increasingly common in government and public sector firms, where the same
item can be purchased for a range of different institutions.
Just in time delivery is a central component of procurement planning. Under

this model, the cost of storage is carried by the supplier. They are responsible
for ensuring the purchased quantities of materials are ready and available for
delivery at the specified dates and times. This type of delivery requirement is
typically combined with group buying, keeping storage costs down.
Bulk pricing and negotiating is very important when completing procurement

planning. Organizations that combine the total quantity required for a specific
period of time are able to get lower pricing, based on a specific level of
ordering. Negotiations are typically completed by the procurement director
or senior buying agent.
12
3.4 PROCUREMENT POLICY

A procurement policy is simply the rules and regulations that are set in place
to govern the process of acquiring goods and services needed by an
organization to function efficiently. The exact process will seek to minimize
expenses associated with the purchase of those goods and services by using
such strategies as volume purchasing, the establishment of a set roster of
vendors, and establishing reorder protocols that help to keep inventories low
without jeopardizing the function of the operation. Both small and large
companies as well as non-profit organizations routinely make use of some
sort of procurement policy.
There is no one right way to establish a procurement policy. Factors such as

the size of the business, the availability of vendors to supply necessary goods
and services, and the cash flow and credit of the company will often influence
the purchasing procurement approach. The size of the company is also likely
to make a difference in the formation of procurement policy, in that a small
company may not be able to command the volume purchase discounts that a
large corporation can manage with relative ease.
In like manner, the circumstances and financial goals of the business or entity
influence the selection of procurement systems. Some systems are simple
manual processes that make use of older methods such as a flip card system to
track purchases, issuance of items to various departments, and a running tally
of inventory that is used to plan future purchases. Today, electronic systems
make it possible to automatically track all these functions, include
automatically generating requisitions and purchase orders when levels of a
given inventory item are down to a certain level.
E-procurement is a common way of placing and tracking orders today.

Vendors establish network connections with clients that make it possible to
interline with any procurement programs used by the client and automatically
place orders, using the Internet to establish the connection. Programs of this
type also make it possible to quickly track order fulfillment, delivery dates,
and even review any procurement contracts that are currently in place.
Whether the procurement policy involves the establishment of construction

procurement procedures, or governs purchases made by a manufacturer or a
charity, a solid policy will benefit the organization by keeping costs in line and
13
clearly defining how purchases will be made. As the needs of the entity
change, there is a good chance that the procurement policy will be adjusted to
meet those new circumstances. This is necessary to make sure the policy
continues to function in the best interests of the company or non-profit
organization and keep the acquisition process simple and orderly.
3.5 PROCUREMENT PROCEDURES

The primary driving force for the development of procurement procedures is

to control all spending. The actual procedures used can vary slightly but will be
similar. An appropriate approval process usually involves a separation of tasks
and the involvement of senior managers for transactions that will cost more
than a specific price. Another standard procurement procedure is to limit
access to the purchase order forms and require signed authorization from a
manager other than the person using the goods. This separation of the goods
recipient and the approval is designed to ensure that a senior staff member is
aware of the order and can confirm that the materials are required and will be
used for the proper purpose.
Another common procurement procedure is to create a short list of pre-

approved vendors for specific commodities. Vendors are added to the list
through a bidding process that is conducted on a scheduled basis. This process
is designed to be transparent and to provide the firm an opportunity to obtain
discounts in price, to meet quality standards and to ensure timeliness of
delivery.
The risks for a company without proper procurement procedures are

overspending, the failure to achieve good value and purchasing fraud. Many
people who do not have any accounting or procurement training resent the
14
the steps involved in a purchasing request. These processes, however, are

designed to save both time and money.
Other common procurement procedures include setting value thresholds

that trigger different procurement activity. For example, purchases that cost
more than a certain amount might require a purchase order to be approved by
two levels of management. A purchase order for a much higher price might
require a proposal to be issued.
In some cases, companies might be required to defend their purchasing

contracts. If a vendor who participated in the bidding process feels that they
were not provided a fair opportunity to compete, a lawsuit can be filed.
Contract law is a source of a great deal of legal activity, and firms with strong
procurement procedures are in the best position to defend their business
decisions.
3.6 PURCHASE ORDER

Definition: “A purchase order is a document sent to a supplier or vendor,
authorizing shipment of a product to the customer at a specified price and
terms. The creation of a purchase order creates a legally binding contract
which cannot be changed without the consent of both parties.”
Also known as Purchase Requisition A customer may sometimes create an

open or standing purchase order which allows the customer to order
quantities of the product(s) from the vendor over a period of time (usually a
year) at the specified price. Open POs are often used for services which occur
over a period of time.
The typical sections of a purchase order are:

?Date
?The purchase order number
?Names and addresses of both the customer and the supplier/vendor.
?Description of the items being ordered, the cost for each, and the total
amount.
The PO number is an important reference for both the customer and the
supplier.
15
16
A project study on Procurement by Akhtar Khan 1
CHAPTER 4
E- PROCUREMENT
Eprocurement is the term used to describe electronic methods of conducting
business transactions. The 'e' in eprocurement stands for electronic.
Eprocurement can be used in every stage of the process. It can begin with the
actual sale coming through to the purchaser and end with the customer's
invoice and payment.
With the advent of the Internet, many businesses now sell only via computer
technology. It is an excellent way for businesses to cut overhead costs and
reach a larger customer base. Eprocurement is not only beneficial for
businesses; customers can also find this method of purchasing
advantageous. They have a wider choice of merchandise and can shop
without leaving their home. With a little web research, they can easily find
the lowest price when purchasing goods.
Definitions:
“Purchasing process over Internet: the performing of all steps for
procurement over the Internet, including ordering, payment, and delivery”
-encarta dictionary
“E-procurement (electronic procurement, sometimes also known as supplier

exchange) is the business-to-business or business-to-consumer or Business-
to-government purchase and sale of supplies, Work and services through the
Internet as well as other informations and networking systems, such as
Electronic Data Interchange and Enterprise Resource Planning.”
-Baily, P. J. H.
Procurement principles and management
17
Specific benefits for a business using eprocurement include modernization,

which brings the workplace up to date with the latest marketing and selling
methods. It can also help departments manage their supply chain more
efficiently. Eprocurement also opens up a diverse range of markets, including
tendering bids and reducing costs on government contracts.
An easy to recognize web business that utilizes eprocurement is ebay.

Businesses or individuals sell their products on this web site to the highest
bidder. Sellers can also advertise a ‘buy it now’ price which customers can
accept for purchase without bidding. Once the sale is complete, you can pay
by credit card, with a Paypal account or via your bank account.
This type of buying and selling reaches the widest possible marketplace. Many
people run businesses from web sites like these. There are little or no
overhead costs, but you may need to purchase software applications such as
epayment. Epayment is a software tool which deals with electronic invoicing
and self-billing. Such software is relatively cheap, and once it is in place the
billing procedure takes care of itself.
Eprocurement does not just deal with sales and purchasing. With today's
Internet capabilities, it has never been easier, or cheaper, for businesses to
market and advertise their products. Instead of costly and time consuming
mail shots, a single email can be sent to many customers at a fraction of the
price. Even business conferences with staff based all over the world can take
place electronically.
There are no limits to what businesses can do using the technology of

eprocurement. Almost anything you can think of can be bought or sold using
this process. Wholesale buyers can search electronic catalogues for goods,
purchase their requisitions and send the goods to their suppliers. The time
scales using eprocurement compared to previous methods are extremely
quick. In today's fast paced consumer marketplace, no business can afford to
underestimate the value of eprocurement.
E-procurement is done with a software application that includes features for

supplier management and complex auctions. The new generation of E-
Procurement is now on-demand or a software-as-a-service.
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4.1 ARIBA: THE PIONEER IN E- PROCUREMENT

Ariba was founded in 1996 by Keith
Krach, who created the idea of using the
Internet to enable companies to
facilitate and improve the procurement
process. The typical procurement
process was labor intensive and often
costly for large corporation.
Krach developed the idea of purchasing staff buying items from vendors who
provided their catalogs online. Ariba supplied the software to create and host
the vendor catalogs as well as the enabling software to purchase the items. In
1999 the company was one of the first business-to-business Internet
companies to go public. At the time Ariba was challenged by a number of
other players in the e-procurement area, such as Commerce One and
Metiom.
Ariba offers a spend management solution for company's purchasing
requirements. Customers are offered a large number of supplier catalogs to
purchase from. The number of vendors with catalogs on the Ariba Supplier
Network is now over 160,000 with in excess of 80 million items. Two million
purchase orders are sent to these vendors each month at a value of over $8
billion.
The Ariba software allows a company to automate, monitor, and control the
complete purchasing life cycle from requisition to payment. Users can create
requisitions that are approved according to pre-configured business rules
that each company decides upon. Purchase orders can be automatically
generated and sent directly to suppliers, while order acknowledgements and
ship notices are sent back to the original requestor.
The invoicing process is simple for the suppliers who can create an invoice
directly from the requestors purchase order. The invoices are pre-matched
with the purchase order line items and any receiving information, so that the
requestor reconcile and pay without delay.
For those companies that use an ERP solution, Ariba can be fully integrated.
However, Ariba offers its product as an on-demand solution. The “Software as
a Service” (SaaS) model has been available from Ariba since 1999 and they
offer a fully hosted, pay-as-you-go solution for those companies who require
a fast implementation with low upfront costs and a low cost of ownership.
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4.2 TYPES
There are seven main types of e-procurement:
1) Web-based ERP (Enterprise Resource Planning): Creating and approving
purchasing requisitions, placing purchase orders and receiving goods and
services by using a software system based on Internet technology.
2) e-MRO (Maintenance, Repair and Overhaul): The same as web-based ERP
except that the goods and services ordered are non-product related MRO
supplies.
3) e-sourcing: Identifying new suppliers for a specific category of purchasing
requirements using Internet technology.
4) e-tendering: Sending requests for information and prices to suppliers and
receiving the responses of suppliers using Internet technology.
5) e-reverse auctioning: Using Internet technology to buy goods and services
from a number of known or unknown suppliers.
6) e-informing: Gathering and distributing purchasing information both from
and to internal and external parties using Internet technology.
7) e-marketsites: Expands on Web-based ERP to open up value chains. Buying
communities can access preferred suppliers' products and services, add to
shopping carts, create requisition, seek approval, receipt purchase orders and
process electronic invoices with integration to suppliers' supply chains and
buyers' financial systems.
4.3 E- PROCUREMENT VALUE CHAIN

The e-procurement value chain consists of Indent Management, eTendering,
eAuctioning, Vendor Management, Catalogue Management, and Contract
Management. Indent Management is the workflow involved in the
preparation of tenders. This part of the value chain is optional, with individual
procuring departments defining their indenting process. In works
procurement, administrative approval and technical sanction are obtained in
electronic format. In goods procurement, indent generation activity is done
online. The end result of the stage is taken as inputs for issuing the NIT.
Elements of e-procurement include Request For Information, Request For

Proposal, Request for Quotation, RFx (the previous three together), and eRFx
(software for managing RFx projects).
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4.4 ADVANTAGES
The Internet has emerged as a cost-
effective and reliable medium for
performing online business
transactions. More and more
companies are now adopting this
medium for procuring their goods. E-
procurement advantages primarily
include saving money, time, and extra
workload normally associated with
paper works. The conventional
procurement process usually
involves lots of paper processing,
which consumes a large amount of time and money. In some instances, the
processing cost has been reduced by as much as 85%. E-procurement is a
major component of modern B2B ecommerce and can be applied to a broad
spectrum of industries and markets. Many firms have applied e-procurement
successfully, reaping benefits often to the tune of millions of dollars.
Experience indicates that a firm can enjoy returns that may measure up to
300% of the initial investment in just 3 years. The increasing number of
success stories point to the growing recognition of e-procurement
advantages. This indicates an increased optimism towards automation in
spite of the slowing down of global economy. Some companies have adopted
automation at all stages of the supply process to maximize e-procurement
benefits.
E-procurement is mostly employed in purchasing small and less expensive

items such as office stationery. The traditional approach is still preferred for
more expensive products such as complex engineering machinery. However,
companies are increasingly recognizing the benefits of online sourcing. Online
procurement helps organizations to sketch out optimized plans for managing
the supply chain. E-procurement advantages not only include saving money
but also the simplification of the whole process. The optimized plans can be
communicated quickly to the suppliers thereby reducing the cost and waste
usually involved in the supply chain. The advantages of e-procurement
include a reduction of overhead costs such as purchase agents, as well as
improved control of inventories, and the overall improvement of the
manufacturing cycle.
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Benefits for SMEs

While e-procurement is undoubtedly beneficial to the large companies small
and medium enterprises can also gain the benefit through it. There are a list of
benefits gained through e-procurement the following are given below,
?A better chance to widen your client base
?Time-efficiency gains
?The chance to market and sell your services to other eProcurement
customers
?Being paid more quickly because electronic invoicing is generally a more
efficient way of billing clients
?Potentially a higher level of buyer ordering accuracy, increasing overall
efficiency
?Ability to compete on a more level playing field with larger companies
From the other end, local councils also benefit because:

?Paperwork should be slashed helping them analyse, obtain and respond to
bids more quickly
?Transparency is improved as all supplier bids using eProcurement systems
should be traceable - so there should be a logical reason for opting for one
supplier over another
?eProcurement tools can help them measure the quality of the service once a
supplier has been chosen
?They are less likely to rely on a small pool of suppliers, therefore making it
easier to change suppliers (which also means suppliers need to work hard to
maintain their loyalty)
4.5 DISADVANTAGES
The introduction of e-procurement can meet some resistance, as it often runs
counter to corporate culture; in most organizations, this empowers local
business units. So a centralized procurement process will not always be
welcomed by business managers who feel that some of their power has been
taken away from them. Only when they see that there is a financial return do
they become convinced that e-procurement can work.
Other disadvantages can include motivating end-users to adopt the new

system, and educating suppliers.
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4.6 VENDOR MANAGED INVENTORY

Vendor Managed Inventory or VMI is a process where the vendor creates
orders for their customers based on demand information that they receive
from the customer. The vendor and customer are bound by an agreement
which determines inventory levels, fill rates and costs. This arrangement can
improve supply chain performance but reducing inventories and eliminating
stock-out situations.
VMI and EDI

With VMI, the vendor specifies delivery quantities sent to customers through
the distribution channel using data obtained from Electronic Data
Interchange (EDI). There are a number of EDI transactions that can form the
basis of the VMI process, 852,855 and the 856.
The first is the Product Activity Record, which is known as 852. This EDI
transaction contains the sales and inventory information such as key product
activity and forecast measures, such as
?Quantity sold (R)
?Quantity sold (units)
?Quantity on hand (R)
?Quantity on hand (units)
?Quantity on order (R)
R
?Quantity on order (units)
?Quantity received (R)
?Quantity received (units)
?Forecast Quantity (R)
?Forecast Quantity (units)
The EDI 852 information can be sent from the customer to the vendor on a
weekly basis or more frequently in high-volume industries. The vendor makes
the order decision based on this data in the 852 transmission. The vendor
reviews the information that has been received from the vendor and an order
determination is made based on existing agreement between the vendor and
customer.
Many vendors use a VMI software package to assist them in determining
order requirements. VMI software can be part of an ERP suite such as SAP or
be a standalone option such as products from Blue Habanero, LevelMonitor,
NetVMI or others.
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The software will verify if the data as accurate and meaningful. It will calculate
a reorder point for each item based on the data and any customer information
such as promotions, seasonality or new items. The quantity of each item
available at the customer is compared with the reorder point for each item at
each location. This will determine if an order is needed and the quantities
required.
The second EDI transaction that is used in VMI is the purchase order
acknowledgment, which is known as the 855. This EDI document sent to the
customer contains a number of fields including;
?Purchase Order Number
?Purchase Order Date
?Purchase Order Line item
?Quantity
?Price
?Item Number
?Description of Item
?Freight Charge
?Ship Date
?
Some vendors supply an advance ship notice (ASN) to their customers to
inform them of an incoming order, which is know as EDI 856. The ASN differs
from the purchase order acknowledgement in both timing and content. The
856 is sent to the customer after the shipment has been made instead of at
the time of the purchase order.
Why Use VMI?

One of the benefits of VMI is that the vendor is responsible for supplying the
customer when the items are needed. This removes the need for the
customer to have significant safety stock. Lower inventories for the customer
can lead to significant cost savings.
The customer also can benefit from reduced purchasing costs. Because the
vendor receives data and not purchase orders, the purchasing department
has to spend less time on calculating and producing purchase orders. In
addition, the need for purchase order corrections and reconciliation is
removed which further reduces purchasing costs. Cost saving can also be
found in reduced warehouse costs. Lower inventories can reduce the need for
warehouse space and warehouse resources.
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4.7 E- PROCUREMENT TRENDS

Reverse auctions are one of the most prominent trends in procurement today.
While this approach to finding suppliers simply wasn't feasible a decade ago,
today it has allowed both businesses and vendors to reap some significant
benefits. In a reverse auction, the buyer creates a listing of the company’s
specific project needs. For example, if the company needs to purchase spools
of wire from a supplier, then the company would detail the exact
specifications and quantity of the wire they required. The buyer then posts
this listing of requirements and invites potential vendors to give quotes on the
cost of fulfilling those needs. Essentially, the vendors are competing against
one another so lower quotes have an advantage. At the end of the auction, the
buyer then chooses a winner based on several important factors, including
cost, delivery time, and vendor reputation.
Reverse auctions and their popularity have had a tremendous impact on both
manufacturers and on suppliers. Manufacturers have been able to streamline
the vendor selection process and have made it easier on themselves to select
the right supplier for each project. These auctions have also played a critical
role in the increase of offshoring. Reverse auctions have also forced suppliers
to find new ways of staying competitive. Since price is not the only factor,
vendors have been forced to bring more added value to their goods and
services, such as extra warranties, training, or other options.
Despite their profound impact, reverse auctions aren't the perfect solution for
every project. They do have some weaknesses, as well as a number of
strengths that have caused them to become a dominant force in modern
procurement. In order to determine whether reverse auctions are the best
strategy for a business, both the pros and the cons need to be weighed.
Reverse auctions do offer a number of advantages. First, they do open up

competition. Many manufacturers are today doing business with vendors
they never knew existed a year ago simply because they were located on the
other side of the globe. By allowing businesses to expand their horizons,
reverse auctions have given them the tools to truly find the best and most
affordable suppliers. Another strength of reverse auctions is that they speed
up the entire procurement process. While before, the buyer has to create a
complex RFP, distribute it to potential vendors, wait for their responses, then
sift through each of their proposals individually in order to make a decision,
25
today the entire process can be completed in 3-7 days instead of weeks or
months.
Regardless of these benefits, reverse auctions still fall short in some areas.
Because reverse auctions seem to emphasize cost over other qualifications,
many buyers may choose the lowest bid only to find out that the shoddy
workmanship, low quality products, and slow delivery times cost them more
in the long run. Reverse auctions can also be detrimental to the supplier-buyer
relationship that is essential for some goods. For example, if only a handful of
vendors can provide the raw materials a company needs, and that company
places the project up for auction instead of simply using its long-term vendor,
chances are that they will lose the goodwill of that vendor and will find it
difficult to work with them again. Furthermore, when only a small number of
vendors can provide a specific good or service, reverse auctions do not always
deliver cost savings and can sometimes cost the buyer more.
Most businesses feel that the strengths of reverse auctions outweigh their
weaknesses, hence the reason why they are so popular. Another method of
online procurement that works well in some industries is trade exchanges. In
trade exchanges, a number of separate companies in a specific industry join
together to create specifications for suppliers. Large suppliers are then
allowed to participate in the vendor selection process. Unlike reverse
auctions, which are open to almost any size vendor, trade exchanges are
usually limited to the big players in the field. Many successful trading
exchanges are often set up by several large players in an industry.
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4.8 WHY E-PROCUREMENT?

The benefits to be achieved from an e-procurement initiative are significant
and the business case for e-procurement is compelling for Queensland Local
Government. With a number of cost-effective e-procurement solutions
available today, the real bottom line is that councils purchasing sections
cannot afford to miss this opportunity.
The Local Buy e-Marketplace solution offers immediate and substantial ROI.
The dynamic purchasing environment allows buyers to transact in real-time
with vendors for goods and services. It streamlines and automates the
purchasing processes, distributes purchasing power to authorised users,
standardises buying methods, controls overall spending and leverages
corporate purchasing to negotiate better deals. The result is increased
productivity, greater efficiency, less maverick buying, and lower transaction
costs.
The numbers speak for themselves. A Deloitte Consulting survey found that
companies expect to save 5-15% of total corporate spending by investing in e-
procurement initiatives. The research firm Aberdeen Group reports that with
e-procurement, transaction-processing costs may drop by 70%, from an
average of $107 to $30 per order. And industry experts from
PriceWaterhouseCoopers and Killen & Associates claim that reducing
purchasing costs by 5-10% can increase profit margins, or in respect of Local
Government, cost effectiveness by 28-50%.
1.The Elimination of Administrative Costs

Implementing the Local Buy e-Marketplace automates much of the
administration involved in purchasing, making it a truly paperless process.
Procurement has traditionally been regarded as a complex paper chase
running throughout an organisation. Relieving staff of the administrative
burden and automating key tasks saves them time and therefore saves the
council money.
Requisitioning officers are often staff in departments outside of purchasing

who simply have a need for goods or services to perform their daily duties. All
too often they spend a great deal of time filling in paper-based forms, passing
them on for authorisation and then chasing the authorisers or purchasing
department.
27
The e-Marketplace offers requisitioners a very quick and simple means of

raising a requisition directly on-line, which is then automatically routed to the
necessary authorisers and then converted into a purchase order and
electronically transmitted to the supplier. These orders can then be
automatically integrated into the council financial management information
system (FMIS) to enable the receipting and payment functions to be
completed.
In many medium to large councils, the saved time and effort can equate to
thousands of person-hours every year. This saved time enables procurement
staff to begin implementing a more strategic approach to purchasing and
enables end users to get on with their specific roles.
Many councils using paper-based procurement processes waste considerable
effort in coordinating the matching of orders, delivery notes and suppliers'
invoices. If councils do not manage this process well, they will be unable to
ensure that what is invoiced by the supplier was actually delivered and that
both agree with what was originally ordered. The time spent by accounts staff
and purchasing staff alike reconciling these documents can often be
significant.
The integrated e-Marketplace solution enables automated matching of

electronic supplier invoices to goods receipts and purchase orders in the
council FMIS. As no paperwork is involved, a supplier's invoice can be
matched and authorised in minutes, rather than days or weeks.
There are many more examples of where the administration of procurement
involves unnecessary time and effort, often from key individuals. The aim of
an e-procurement solution is to automate these types of tasks and therefore
remove the inefficiencies associated with them.
FUNCTION TRADITIONAL PROCESS E-PROCUREMENT
Requisition generation 66.76 29.2
Requisition distribution 7.36 0.0
Order generation 8.87 1.5
Order distribution 1.87 0.0
Expediting 0.91 0.3
Goods reciept 3.83 0.5
Invoice processing 10.40 0.7
TOTAL 100 33.2
The above table, taken from a report by Warwick Business School, highlights the administrative costs of a traditional
procurement system compared with the costs of e-procurement (using the manual system costs as the base index (= 100)
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2.Reduced Purchase Costs

The e-Marketplace does not intrinsically reduce purchase costs. However, e-
procurement empowers the organization to achieve this goal in the following
ways:
?By introducing a system that people can use easily and are happy to use, it is
possible to ensure that everyone in the organization adheres to preferred
supplier rules and therefore increases the buying power of the organization
with its chosen suppliers.
?When transacting with a supplier electronically, suppliers are more likely to
give discounts, because their own administration costs are less.
?By reducing council 'maverick buying' suppliers become more committed to
their agreements as there is more assurance of obtaining a greater share of
the council spend.
3.Reduced Purchase Cycle Time

In many councils the requisition-to-delivery time can be counted in days or
sometimes weeks, making the proper procurement process simply unfeasible
for anything which needs to be ordered quickly. Delays are often caused
when paper-based requisitions have to be authorised manually by one or
more people and where budgets and commitments have to be checked in
advance of the order going out.
The e-Marketplace solution with inbuilt workflow streamlines this process

and avoids the common bottlenecks in the process. It enables a requisition to
be automatically checked against pre-configured settings and electronically
authorised. Not only does this speed up the entire process but also it enables
a complete analysis of the purchase cycle so that procurement staff can
identify common bottlenecks and whether delays are attributable to external
or internal forces. Put simply, it empowers staff to get the job done quickly,
without sacrificing control.
When attempting to calculate the benefit to the council in terms of reduced

purchase cycle time, it is essential to bear in mind that many of the purchases
which are most critical and which will benefit from the increased efficiency,
may fall outside the current system. This of course, makes it difficult to
calculate an accurate cost benefit.
29
4. Reduced Purchase Cycle Time

In many councils the requisition-to-delivery time can be counted in days or
sometimes weeks, making the proper procurement process simply unfeasible
for anything which needs to be ordered quickly. Delays are often caused
when paper-based requisitions have to be authorised manually by one or
more people and where budgets and commitments have to be checked in
advance of the order going out.
The e-Marketplace solution with inbuilt workflow streamlines this process

and avoids the common bottlenecks in the process. It enables a requisition to
be automatically checked against pre-configured settings and electronically
authorised. Not only does this speed up the entire process but also it enables
a complete analysis of the purchase cycle so that procurement staff can
identify common bottlenecks and whether delays are attributable to external
or internal forces. Put simply, it empowers staff to get the job done quickly,
without sacrificing control.
When attempting to calculate the benefit to the council in terms of reduced

purchase cycle time, it is essential to bear in mind that many of the purchases
which are most critical and which will benefit from the increased efficiency,
may fall outside the current system. This of course, makes it difficult to
calculate an accurate cost benefit.
5. Greater Management Control

Because all procurement data is processed through one central database and
automatically integrated into the council FMIS, e-procurement allows
relevant analysis and management reports to be easily produced. As well as
arming procurement professionals with the information they need to manage
effectively, e-procurement aims to reduce their administrative duties
meaning that they can focus more on proactive decision-making.
6. User Compliance
Maximising compliance - ensuring that everyone only buys from approved
suppliers - is the holy grail of any purchasing manager, since it serves two
purposes: - (1) gets the best value from the deals the company has struck, and
(2) allows companies to leverage far better deals with suppliers. It is
compliance and leverage that deliver the lion's share of cost reductions
through e-procurement.
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With traditional procurement processes, paper requisitions are so time-

consuming to complete and prone to delay as they pass through the approval
process that many end users simply don't bother with them. They find other
ways to purchase something, whether it is by placing an order directly with a
supplier or by using a credit card or petty cash. This is known as 'maverick
purchasing' or 'rogue spending', though to many end users who are simply
trying to buy something to get a job done, it is not 'maverick' but in the best
interests of the organisation. When they do use the traditional system, they
sometimes have to make several phone calls to different authorisers or to the
buyer to speed up the transaction.
This results in the following problems. Firstly, the best value is not achieved.
Maverick buyers cannot command the same favourable terms as the
organisation as a whole, and preferred suppliers are rarely used. Secondly,
because the purchase is bypassing the system it cannot be analysed and
therefore meaningful management information is hard to produce. Finally, it
may cause internal friction that could be avoided.
The e-Marketplace provides end users with a way of procuring goods that is
generally quicker than even maverick methods. It enables them to quickly
complete an order on-screen in the user-friendly marketboomer front end.
They can track their orders progress at any stage of the approval chain and can
be informed electronically of shipment of the goods from the supplier.
7. Reduced Order Error Rate

The e-Marketplace dramatically reduces the likelihood of user error in the
procurement process, as orders are created by selecting items from
catalogues within the system. With integration through the Local Buy e-Hub it
is possible to reduce the chance of errors even further, as electronic
transactions passing between the council FMIS, the e-Marketplace and the
suppliers system require no human intervention. This reduces the chances of
orders being interpreted incorrectly, prices being incorrect or of catalogue
items being obsolete or discontinued at the time of order.
8. Knowledge Workers
Although we have highlighted a range of benefits to councils through the Local
Buy e-Marketplace it is also interesting to consider the following.
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In his 1999 book, Business @ the Speed of Thought, Microsoft founder Bill
Gates described the effect of deploying an e-procurement solution at
Microsoft. As well as savings to the tune of around $140m per annum, the
principal effect of the implementation was the transformation of staff into
'knowledge workers'. This term describes how staff are no longer bogged
down with administrative chores such as filling in and passing around forms –
this is all computerised and staff are given the information to actually manage
procurement, rather than be managed by it.
Turning staff into knowledge workers achieves better productivity throughout

the council. This applies not only to purchasing staff but to all involved in the
procurement process: requisitioners, authorisers, managers, finance staff,
and so on. It enables end users to focus fully on their own tasks with the
support of an effective procurement system, and it allows procurement staff
to shift their focus from often meaningless administrative duties to
concentrate on procurement strategy and analysis.
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A project study on Procurement by Akhtar Khan 1
CHAPTER 5
INDUSTRY INFORMATION
While we have studied various standard levels in procurement and its
procedures it is very important to review the actual procedures undertaken
by companies. In this chapter we will take into consideration the process
undertaken by some reputed companies. this will help us to understand the
actual procedure apart from the theory knowledge.
5.1 CHUGOKU ELECTRIC POWER

The Chugoku Electric Power Company Inc. is a public limited company
incorporated since 1951. Currently has with more than 10000 employees.
CEPCO generates and supplies electricity to the Chugoku region of Japan,
which covers approximately 32,000 square kilometers. The region is made up
of the prefectures of Yamaguchi, Hiroshima, Shimane, Tottori, and Okayama,
which with local heavy industry and a total population of 7.8 million provides
the sixth largest customer base of the ten electric power companies in Japan.
The company operates 93 hydroelectric power stations, 12 thermal stations,
and one nuclear power station. Plans are in the works to launch several new
hydroelectric and coal-fired power stations, and by 2016 the company
expects to have its generating capacity balanced equally between nuclear,
coal-fired, and other types of facilities. As a result of industry liberalization,
CEPCO has diversified its operations and established new divisions including
comprehensive energy supply, information and telecommunications,
environment, and business and lifestyle support.
Procurement procedure
Chugoku Electric procures equipment and
materials according to the following
Chugoku
Standard Procurement Procedure.
33
1.Prospective Supplier Selection

Prospective suppliers will generally be selected from Chugoku Electric's list of
registered suppliers after the Group Management Div receives a request for
procurement from a section that needs equipment or materials.
2.Bid Request
Chugoku Electric generally procures a product by means of competitive bidding,
whereby two or more potential suppliers are asked to offer proposals. Chugoku
Electric may request a proposal from a specific supplier, however, when technical
competence, patents, production capacity, equipment compatibility, or other factor
is of particular importance.
3.Bid Submission
Written proposals will be deemed valid only if they meet Chugoku Electric deadlines,
specifications, and conditions. Proposals based on specifications different from
those designated by Chugoku Electric will be considered, however, if such alternative
specifications satisfy Chugoku Electric functional and performance requirements.
4.Supplier Selection and Price Negotiation
As a general rule, Chugoku Electric negotiates the final price of a contract with the
low bidder only. Unsuccessful bidders will be informed of the results upon request.
5.Contract Conclusion
A contract should, in principle, be in compliance with the clauses prescribed by
Chugoku Electric when placing an order. When circumstances necessitate, however,
a contract may be drawn up in accordance with terms and conditions agreed upon
between Chugoku Electric and the supplier.
6.Delivery, Inspection, and Payment
Products will be inspected upon delivery by Chugoku Electric to confirm
conformance with contract stipulations. The supplier's presence at such inspection
and/or assistance may be requested.
Payment is usually made in the month following acceptance. If warranted, such as
when long lead time is needed to manufacture a certain type of product, Chugoku
Electric will make scheduled disbursements or other special payment arrangements.
7.Other
a)A party to the contract shall not divulge classified or otherwise sensitive
information in its possession without the express written consent of the other party.
b)Chugoku Electric may also make formal claim for damages due to late delivery of
contracted goods.
c)Any questions or comments for Chugoku Electric at any stage of the procurement
procedure should be addressed to the Group Management Division Chugoku Electric
will respond to each party in good faith.
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5.2 NTT DOCOMO

NTT DOCOMO established in 1991 is Japan's premier provider of leading-edge
mobile voice, data and multimedia services. With more than 56 million
customers in Japan, the company is one of the world's largest mobile
communications operators.
DOCOMO also is an influential force in the continuing advancement of mobile

technologies and standards. In 1999, DOCOMO launched i-mode™, the
world's most popular platform for mobile Internet services including e-mail,
browsing, downloading and more. Over 49 million DOCOMO subscribers now
use i-mode.
In 2001, DOCOMO introduced FOMA™, the world's first 3G commercial

mobile service based on W-CDMA, which has transformed the mobile
landscape in Japan while bringing the DOCOMO brand global recognition.
The role of mobile phones as "lifestyle tools" was cemented when DOCOMO
launched Osaifu-Keitai™, a mobile wallet platform enabling quick, contactless
transactions for cash, credit, ID, and more. More than 37 million phones
equipped for Osaifu-Keitai services are now in use.
Building on a solid foundation of research and development, and guided by its

customer-first philosophy, the company leverages the power of mobile
communications to enable customers to enrich their lives.
DOCOMO is expanding its global reach through offices and subsidiaries in
Asia, Europe and North America, as well as strategic alliances with mobile and
multimedia service providers in markets worldwide.
The procurement procedure of NTT docomo is divided into four major steps
as given below.
PROCEDURE FOR REQUEST FOR PROPOSALS (RFP)
1. Request for Proposals
Potential suppliers who wish to submit a proposal can view requirements and
information (overview of the requested product, time and place of submission, how
to download the Procurement Procedure Manual, etc.) on our Internet website.
The Procurement Procedure Manual contains detailed information necessary to
submit a RFP. The Procurement Procedure Manual can be downloaded from our
website from the day proposal acceptance starts until the submission deadline.
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2. Acceptance of Proposals
Potential suppliers will submit the necessary application form based on information
provided in the Procurement Procedure Manual. This will be reviewed by NTT
DOCOMO.
3. Evaluation, Selection, Agreement of Contract
Proposals are comprehensively reviewed according to the criteria indicated in the
Procurement Procedure Manual. A contract will be awarded to the supplier who
scores the highest marks as a result of this assessment.
PROCEDURE FOR SUPPLIER'S PROPOSAL

1. Application for Proposal
Potential suppliers who wish to submit a proposal for a new product or technology
can apply via a form designated by NTT DOCOMO.
See Acceptance of New Proposals and Products for how to submit.
NTT DOCOMO will review the proposal.
Comparative studies indicating merits (quality, specifications, performance, price,
etc.) over other competitors regarding the product you wish to submit and company
brochure are requested.
Please note that we can only accept information that is non-confidential and
available to the public.
2. Confirming the details of the proposal
Meetings may be requested to discuss and confirm technical points and other details
of the proposal. If NTT DOCOMO selects the product, procedures will advance to the
next step.
3. Submission of Detailed Data
Potential suppliers will submit the necessary application form based on information
provided in the Procurement Procedure Manual. This will be reviewed by NTT
DOCOMO.
4. Evaluation, Selection, Agreement of Contract
Proposals are comprehensively reviewed according to selection criteria indicated by
NTT DOCOMO. A contract will be awarded as a result of this assessment.
PROCEDURE FOR RENEWAL OF ONGOING PROCUREMENT

Additional Purchases of a Product
We make additional purchases of a product that has been selected through the
"request for Proposal" and "Supplier's Proposal" procedures to an already Suppliers
that have been chosen via the "Request for Proposal" and "Supplier's Proposal"
procedures are what we call "selected suppliers".
PROCEDURE FOR PROCUREMENT BASED ON A DEMAND BY CUSTOMERS

1. Customer's Selection
The product and the supplier will be selected by the customer.
36
2. Contract
We will sign a contract with the supplier who is selected by our customer.
Request for Proposals

NTT DOCOMO issues Requests for Proposals, offering opportunities to suppliers who
are interested in participating in our business activities.
Request for Information

NTT DOCOMO issues Requests for Information, requesting data and other
information from suppliers, to assist us in determining whether to solicit certain
goods with a Request for Proposal.
5.3 SOUTHEAST ASIA MANAGEMENT

SouthEast Asia Management (SEAM) provides a wide range of
consulting and agent services to high-tech/telecommunications
companies. Their specialty is helping companies establish
economical manufacturing operations in Southeast Asia either
through partnerships with existing local manufacturers or
establishing your own manufacturing operation.
SEAM is a service provider they help firms in procuring goods and services by
acting as an agent between the buyer and the seller. They provide professional
services in procuring goods for the organizations. Given below is strategy and
procedure they undertake to deliver to their clients.
1. All information regarding marketing is registered in our database.
2. From that database, we select a supplier who has items we desire to
procure, and request an estimate after consideration. Then we evaluate the
submitted estimate.
If a supplier estimate is evaluated highly:
3. We visit the supplier to investigate general considerations such as business
operations and policies. Then we judge the transaction.
4. We inspect items required for Quality audit based on ISO9000 from the viewpoint
of quality and manufacturing techniques at the same time or separately from the
company investigation.
5. We check that each part specification satisfies our design specifications, and
decide whether or not it is acceptable. At this time, we ask the supplier to submit a
sample, approval drawing and documents related to certification already acquired.
6. We then test each part to be procured regarding its reliability, compare supplier's
guaranteed performance with our demands, and decide whether or not it is
acceptable.
37
At this time, we ask the supplier to submit a sample and the supplier's test results.
7. When inspection and evaluation are acceptable, we negotiate with supplier in
respect to transaction contents.
8. Contract is concluded formally.
9. Mass-production prototype is tested using actual machine.
10. Formal mass production is requested.
11. For regular transactions, parts performance is checked from the point of view of
quality, cost, delivery and service.
12. Regular audit is conducted.
13. When contents of regular transaction and results of regular audit are suitable, we
request a new estimate.
38
CHAPTER 6
GREEN PROCUREMENT
With the growing awareness about the global issues like ozone depletion and
global warming. Going green is the word in the corporate sector. More and
more organizations are aiming toward going green resembling a sense of
social responsibility towards the masses. Thus earning them goodwill.
Moreover earning a goodwill for the sake of performance and growth is not
enough there is dire need of being socially responsible and working towards
sustainable growth. In this chapter we will focus on Sustainable
procurement. There are a list of companies going green and working towards
green procurement.
Definitions:
“Procurement policies that encourage development and diffusion of
environmentally sound goods and services”
-Buying Green,
a handbook on environmental procurement
“Green procurement is the purchase of environmentally friendly products

and services, the selection of contractors and the setting of environmental
requirements in a contract.”
-Sustainability Concepts,
by GDRC
“Environmentally responsible or 'green' procurement is the selection of

products and services that minimize environmental impacts. It requires a
company or organization to carry out an assessment of the environmental
consequences of a product at all the various stages of its lifecycle. This means
considering the costs of securing raw materials, and manufacturing,
transporting, storing, handling, using and disposing of the product.”
-Business and Sustainable Development
a global guide
39
Green procurement is an approach to procurement in which environmental

impacts play an important role in purchasing decisions, with procurement
officers concerned about more than just price and quality. Companies which
pride themselves on environmental stewardship and thoughtful care of the
environment may use green procurement, among many other tactics, to
ensure that they do business in an environmentally responsible way. A
number of aspects of the procurement process may be adjusted to meet a
mission of environmental sustainability.
Within a procurement office, green procurement can involve changes in office

procedure which are designed to benefit the environment. For example,
rather than having people submit purchase orders and requests on paper, the
procurement office might switch to electronic methods of communication so
that paper is not wasted. The office might also engage in environmentally
friendly activities like reducing energy usage, keeping plants around the office
to improve air quality, or buying carbon offsets to compensate for office
energy usage.
During the procurement process, green procurement involves seeking out

products which are manufactured sustainably. On a simple level, green
procurement can push companies to seek out office supplies made from
environmental products, or products made by companies which are
committed to environmental stewardship. The office might also demand
minimal packaging on the products it orders, look for products moved with
biodiesel, seek out manufacturing facilities which bear environmental
certifications, or indicate to potential vendors that it would prefer products
from companies which are committed to minimizing waste and benefiting the
environment.
Buying products which are environmentally responsible can be a dicey

occupation. Labeling and certification requirements vary, so a green
procurement officer may think that he or she is doing the right thing by
purchasing a product which bears a “green” label and later learn that the
product isn't more environmentally responsible than that of a competitor,
even though it's more expensive. Good procurement officers will investigate
their sources with care, taking the time to confirm that the claims made by a
company are accurate and comparing data from different sources to see
which vendor is the best.
40
Companies which engage in green procurement processes may be eligible for

environmental certification, formal recognition from the government, and
other perks. Projecting a sustainable image can also be a valuable marketing
tool which a company may use to get an edge on the competition.
Environmental advocates also point out that as more and more companies
demand green procurement, the market for environmentally sustainable
products expands, making them cheaper and easier to obtain. These
advocates hope to see green procurement becoming the norm, rather than an
unusual event.
6.1 CHALLENGES TO GREEN PROCUREMENT

1. Price:
There is a perception that green products are more expensive than
conventional alternatives. This is true in some cases, particularly where
development costs are reflected in the price; however, often there is no
significant difference. The real problem may simply be that products are being
ordered in small quantities, or are not available locally.
Sometimes a green product may have a higher up-front purchase price, but
will cost less over its liftime. For example, a non-toxic alternative to a toxic
product will cost less to transport, store, handle, and discard. It will require
fewer permits, less training for staff, and the consequences of an accident will
be greatly reduced.
Similarly, a product that uses less packaging and that is easily recyclable or
reusable will carry a lower disposal cost.
2. Lack of corporate commitment:

For an organization to implement a green procurement program, it must have
commitment from all levels, including senior management and purchasing
agents. A policy statement outlining the corporate commitment to green
procurement can help.
3. Insufficient knowledge:
Many organizations are unfamiliar with the concept of green procurement or
with the options available to them. For an organization to participate, it must
have an understanding of concepts, vocabulary and terms.
41
4. Availability:
Frequently, local distributors do not stock green products, or else they stock
only small quantities. This can lead to delays in obtaining the product.
Increasing market demand will help to overcome this obstacle.
5. No acceptable alternative:
Another barrier to green purchasing can be simply a lack of acceptable
alternatives to the present product. For example, a few years ago in the
furniture manufacturing industry, the use of water-based finishes as an
alternative to solvent-based ones was impeded by the fact that water-based
finishes presented technical difficulties which were costly to overcome, and
were of lower quality. Growing demand for will stimulate the development of
new and better 'green' products.
6. No specifications:
It is important that suppliers be asked to provide the environmental
specifications of the products they are offering. Purchasers, in the same way,
must clearly define their needs and requirements.
7. Purchasing habits:
We've always done it this way' can be a difficult mentality to overcome. There
may also be existing relationships between purchasers and suppliers that
make it difficult to switch to alternatives.
6.2 IMPLEMENTING GREEN PROCUREMENT

The steps involved in implementing a green procurement program are
outlined here. It is not comprehensive, but rather is intended to provide an
overview.
1. Organizational support:
Implementing a green procurement program means changing policies and
procedures. For it to be successful, it is essential that management support
the initiative fully. In addition, those charged with making purchasing
decisions must be involved in the implementation process. Their suggestions
and support are critical.
2. Self-evaluation:
An important step in implementing green procurement is conducting an
42
evaluation of present purchasing practices. This process will help to clarify

what is purchased, in what quantities, from where and at what price. The
evaluation will provide a baseline, in order to measure future success and to
focus the development of green procurement goals.
3. Set goals:
A broad policy should be established, and specific priorities and targets set.
4. Develop a strategy:
It is now to time to identify and implement changes, both short and long-
term, identify suitable products and services, and evaluate the environmental
performance of suppliers.
5. Run a pilot project:

A pilot project can provide practical experience in purchasing green products
and services, by applying green procurement principles to a specific product
or service. Pilot projects can be used to generate more detailed guidance on
purchasing practices.
6. Implementation:
Implementing the green procurement program will require an assignment of
accountability, plus a well designed communications plan addressing
employees, customers, investors, suppliers and the public.
7. Sustainment:
As with all business practices, it is important that a systematic review of the
green procurement program be carried out, in order to establish whether the
scheme is meeting its goals and objectives. The review should take into
account changing environmental goals.
6.3 CASE EXAMPLES

1. Fujitsu
Fujitsu Japan has a green procurement policy that selects materials; parts;
products; and production equipment based on price; environmental impact;
quality; and delivery. Environmental considerations include: avoidance of
toxic substance during production and disposal; resource and energy
conservation; recyclablity; and ease of disassembly for processing and
disposal.
43
2. Ikea
Ikea, a furniture and household goods retailer, has implemented a code of
conduct for its 2,000 suppliers. The code of conduct focuses on environmental
impact and working conditions. An external body verifies information
submitted by suppliers. If suppliers do not meet the code, they are requested
to remedy the situation and if suppliers continually breach the code, they can
be removed from Ikea's suppliers list.
The code includes a list of supplier musts (waste and emission reductions,
handling, storage and disposal of hazardous chemicals, recycling, etc) and
must nots (use of chemical compounds and substances banned or restricted
by Ikea and source of wood).
3. Japan Travel Bureau

Japan Travel Bureau (JTB), a Japanese Travel Agency, implemented an ISO
14001 accredited Environmental Management System (EMS) in 1999. The
EMS required the development of a green purchasing policy, which covers
office supplies and sales kits.
6.4 SHARP’s WAY OF DOING IT

While we have taken various cases of companies doing it above. it’ll be very
helpful and informative to know how actually a company undertakes the
entire process. In this sub-topic we have focused on Sharp’s way of doing it.
Their Purpose of Green Procurement
Sharp Group (hereafter "SG") pursues the reduction of environmental
burdens in all aspects of its business activities following our Basic
Environmental Philosophy stated above, as well as the Sharp Group Charter of
Corporate Behavior and the Sharp Code of Conduct.
When obtaining materials from our business partners, in particular, we follow
the evaluation criteria of the "Green Procurement Guidelines" as we work
together with them to conserve the global environment and to achieve a fully
recycling-oriented society.
Procurement Judgment
Green procurement involves the conventional procurement of materials
based on the criteria of "quality (Q), cost (C), delivery terms (D)", but it also
comprises an overall judgment that is based on environmental considerations
(E).
44
Evaluation based on environmental considerations follows the

"Environmental Management Evaluation", criteria which appraise our
partners' organizational measures for environmental conservation, It also
follows the "Delivered Goods Evaluation", criteria for appraising their efforts
to reduce environmental burdens imposed by parts and materials we
purchase from them (raw materials, multi-purpose parts, finished goods,
semi-finished goods, supplementary materials, etc.)
overall evaluation
environmental delivered Procurement
management goods Judgement
evaluation evaluation
4. Positioning of Green Procurement Guidelines SG established the "Green

Procurement Guidelines" and the "Manual for Survey of Chemical Substances
Contained in Parts and Materials" It continues to issue them requesting our
business partners' cooperation.
For this revision we have changed the procurement criteria given by the
"Green Procurement Guidelines" to conform generally to those of the
"Environmental Management Evaluation".
We have changed the "Delivered Goods Evaluation" to conform to the
"Manual for Survey of Chemical
Substances Contained in Parts and Materials"
For a detailed information please visit:

http://sharp-world.com/corporate/eco/customer/pdf/gguide3e.pdf
45
CHAPTER 7
IT PROCUREMENT
An IT procurement process, formal or informal, exists in every organization
that acquires information technology. As users of information systems
increasingly find themselves in roles as customers of multiple technology
vendors, this IT procurement process assumes greater management
significance. In addition to hardware, operating system software, and
telecommunications equipment and services - information resources
traditionally acquired in the marketplace - organizations now turn to outside
providers for many components of their application systems, application
development and integration, and a broad variety of system management
services. Yet despite this trend, there has to date been little, if any, research
investigating the IT procurement process.
Definitions:
“IT Procurement is defined as acquisition of technological goods and
services”
Information Technology Services,
IT procurement documents
IT Procurement is the process by which IT resources (goods and services)

required by a project are acquired. It includes development of the
procurement strategy, preparation of contracts, selection and acquisition of
suppliers, and management of the contracts.
-www.apm.org.uk/Definitions.asp
46
7.1 DEVELOPMENT OF THE FRAMEWORK

In January 1994, the Society for Information Management (SIM) Working
Group on Information Technology Procurement was formed to exchange
information on managing IT procurement, and to foster collaboration among
the different professions participating in the IT procurement process.
This chapter presents a model of the IT procurement process that was
developed by the SIM Working Group to provide a framework for studying IT
procurement. Specifically, the IT Procurement Process Framework was
developed by a 12-member subgroup comprised of senior IT procurement
executives from large North American companies. The task of developing the
framework took place over the course of several meetings and lasted
approximately one year. A modified nominal group process was used, in which
individual members independently developed frameworks that described the
IT procurement process as they understood it.
In a series of several work sessions, these individual models were synthesized
and combined to produce the six-process framework presented below. Once
the six major procurement processes had been identified, a modified nominal
group process was once again followed to elicit the sub-processes to be
included under each major process. Finally, a nominal group process was once
again used to elicit a set of key issues, which the group felt presented
managerial challenges in each of the six processes.
The key issues were conceived of as the critical questions that must be
successfully addressed to effectively manage each process. Thus, they
represent the most important issues faced by those executives responsible for
the management of the IT procurement function.
The process framework and key issues were reviewed by the Working Group
approximately one year later (summer 1996), and modifications to
definitions, sub-processes, and key issues were made at that time. The key
issue content analysis described below was conducted following a Working
Group review in early 1997.
7.2 THE IT PROCUREMENT PROCESSES

The IT Procurement Process Framework provides a vehicle to describe
systematically the processes and sub-processes involved in IT procurement.
Exhibit 1 illustrates six major processes in IT procurement activities: three
deployment processes (D1, D2, and D3) and three management processes
(M1, M2, and M3). Each of these major processes consists of a number of sub-
47
(M1, M2, and M3). Each of these major processes consists of a number of sub-
processes. The Appendix at the end of this chapter lists the sub-processes
included in each of the major processes, as well as the key issues identified by
the Working Group.
Major Processes in IT Procurement.
Deployment Requirements Contract

Acquisition
processes Determination Fulfillmenr
D1 D2 D3
Supplier Management M1
Management
Asset Management M2
Processes
Quality Management M3
DEPLOYMENT PROCESSES
Deployment processes consist of activities that are performed (to a greater or
lesser extent) each time an IT product or service is acquired. Each individual
procurement can be thought of in terms of a life cycle that begins with
requirements determination, proceeds through activities involved in the
actual acquisition of a product or service, and is completed as the terms
specified in the contract are fulfilled. Each IT product or service that is
acquired has its own individual iteration of this deployment life cycle.
D1. Requirements determination is the process of determining the business

justification, requirements, specifications and approvals to proceed with the
procurement process. It includes sub-processes such as organizing project
teams, using cost-benefit or other analytic techniques to justify investments,
defining alternatives, assessing relative risks and benefits defining
specifications, and obtaining necessary approvals to proceed with the
procurement process.
D2. Acquisition is the process of evaluating and selecting appropriate

suppliers and completing procurement arrangements for the required
products and services. It includes identification of sourcing alternatives,
generating communications (such as RFPs and RFQ) to suppliers, evaluating
supplier proposals, and negotiating contracts with suppliers.
D3. Contract fulfillment is the process of managing and coordinating all
48
D3. Contract fulfillment is the process of managing and coordinating all

activities involved in fulfilling contract requirements. It includes expediting of
orders, acceptance of products or services, installation of systems, contract
administration, management of post-installation services such as warranty
and maintenance, and disposal of obsolete assets.
MANAGEMENT PROCESSES
Management processes consist of those activities involved in the overall
governance of IT procurement. These activities are not specific to any
particular procurement event, but rather are generalized across all such
events. Three general classes of IT procurement management processes are
supplier management, asset management, and quality management.
M1. Supplier management is the process of optimizing customer-supplier

relationships to add value to the business. It includes activities such as
development of a supplier portfolio strategy, development of relationship
strategies for key suppliers, assessing and influencing supplier performance,
and managing communication with suppliers.
M2. Asset management is the process of optimizing the utilization of all IT

assets throughout their entire life cycle to meet the needs of the business. It
includes activities such as development of asset management strategies and
policies, development and maintenance of asset management information
systems, evaluation of the life cycle cost of IT asset ownership, and
management of asset redeployment and disposal policies.
M3. Quality management is the process of assuring continuous improvement

in the IT procurement process and in all products and services acquired for IT
purposes in an organization. It includes activities such as product testing,
statistical process control, acceptance testing, quality reviews with suppliers,
and facility audits.
IT Procurement handbook for SMEs

by David Nickson
a very comprehensive and informative book is available on the net:
http://www.bcs.org/upload/pdf/it-pro-chapter1.pdf
For a detailed information on managing IT procurement process visit

Robert L. Heckman’s article on
http://www.ittoday.info/Articles/Managing_IT_Procurement_Process.htm
49
CHAPTER 8
CONCLUSION
Procurement, one of the very important step in Logistics and supply chain
management also known as purchasing. It contributes over more than
50percent of entire production cost. hence, it is very crucial for every
organization to give special attention towards strategic procurement policies
to reduce cost and procure best quality. A quality of the raw materials forms
the basis of the quality of the final product.
In this project we have seen the importance of procurement and its role in the
functioning of the organization and in supply chain management.
Procurement being very important aspect of Supply chain management, This
project first deals with what Logistics and supply chain management is and
the steps involved in it. In chapter three we have come towards explaining
what is Procurement. Procurement defined in its simplest form is “Acquisition
of goods (materials, parts, supplies, equipment) required to carry on an
enterprise. Procurement expenses can be a major cost of doing business.”
With the advent of technology and growing phase of computerized

operations E-procurement isn't an alien topic. And due to the growing
awareness of environmental degradation and CSR activities we are also
seeing companies getting more and more Socially responsible and using
Green procurement approach.
This project also includes original first hand procurement procedures of

various companies making it more understandable and industry oriented. In
case of E-procurement we have also included its advantages, disadvantages
giving reasons for firms to adopt E-procurement policies in this competitive
business world.
50
REFERENCES
BOOKS
Elements of Logistics and Supply Chain Management
-by S.D. Aphale
Logistic Chain Management

-by Donal J. Bowersox and David J. Closs
IT Procurement Handbook for SMEs

-by David Nickson
WEBSITES
www.merriam-webster.com
www.logistics.about.com
wiki.answers.com
www.supplychainrecruit.com
en.wikipedia.org
en.wikitionary.org
www.apm.org.uk
www.businessdictionary.com
www.ittoday.info
www.wisegeek.com
www.nextlevelpurchasing.com
searchcio.techtarget.com
www.bitpipe.com
ecommerce.hostip.info
www.answers.com
www.theanswerbank.co.uk
www.epiqtech.com
searchwarp.com
www.its.state.nc.us
51

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A logistics and supply chain management project on,

The project covers all the topics related to business procurement.

Martin H. Fischer stated “Knowledge is a process of piling up facts; wisdom lies

2. Logistics and Supply Chain Management 2

“The process of planning, implementing, and controlling the efficient,

“The procurement, maintenance, distribution, and replacement of personnel

Logistics systems are often described as a network of nodes and links

Logistics as a business concept evolved in the 1950s due to the increasing

2.2 SUPPLY CHAIN MANAGEMENT

Supply Chain Management as a concept has been widely accredited to a Booz

The area of Supply Chain Management has enjoyed a meteoric rise in

Japanese manufacturing companies brought great emphasis to the area of

rapidly and became globally accepted best practice amongst volume

The sub areas comprising a supply chain include:

Today, Supply Chain Management is an accepted term in our business

chain in a business), and a vertical industry sector (i.e. businesses involved in

2.3 SUPPLY CHAIN MANAGEMENT COMPONENTS

The difference between purchasing and procurement is largely academic as,

warehouse space, or managing warehouse space sourced from 3rd party

THE 7 R’s OF PURCHASE

Every organization that purchases goods or services has standard

Procurement is the process by which the resources (goods and services)

“Procurement is the process of acquiring goods, works and services, covering

Thus procurement is the process of obtaining the required goods. it includes

3.1 PROCUREMENT DEPARTMENT

In a procurement department, the director is responsible for strategic

3.2 PROCUREMENT PROCESS

3.3 PROCUREMENT PLANNING

an organization that is committed to reducing costs. Issues surrounding

The primary concept of procurement is that advanced planning, scheduling,

Just in time delivery is a central component of procurement planning. Under

Bulk pricing and negotiating is very important when completing procurement

3.4 PROCUREMENT POLICY

There is no one right way to establish a procurement policy. Factors such as

E-procurement is a common way of placing and tracking orders today.

Whether the procurement policy involves the establishment of construction

3.5 PROCUREMENT PROCEDURES

The primary driving force for the development of procurement procedures is

Another common procurement procedure is to create a short list of pre-

The risks for a company without proper procurement procedures are

the steps involved in a purchasing request. These processes, however, are

Other common procurement procedures include setting value thresholds

In some cases, companies might be required to defend their purchasing

3.6 PURCHASE ORDER

Also known as Purchase Requisition A customer may sometimes create an

The typical sections of a purchase order are:

“E-procurement (electronic procurement, sometimes also known as supplier

Specific benefits for a business using eprocurement include modernization,

An easy to recognize web business that utilizes eprocurement is ebay.

There are no limits to what businesses can do using the technology of

E-procurement is done with a software application that includes features for

4.1 ARIBA: THE PIONEER IN E- PROCUREMENT

4.3 E- PROCUREMENT VALUE CHAIN

Elements of e-procurement include Request For Information, Request For

E-procurement is mostly employed in purchasing small and less expensive

Benefits for SMEs

From the other end, local councils also benefit because:

Other disadvantages can include motivating end-users to adopt the new

4.6 VENDOR MANAGED INVENTORY

VMI and EDI

Why Use VMI?

4.7 E- PROCUREMENT TRENDS

Reverse auctions do offer a number of advantages. First, they do open up

4.8 WHY E-PROCUREMENT?