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PURCHASING PROCEDURES,

E-PROCUREMENT, AND
SYSTEMS CONTRACTING

Reporters:
Estinopo, Alexander
El-Gheddar, Ahmed
Sobredilla, Harly John
Learning objectives

1. Identify the steps in the conventional purchasing cycle.


2. Explain the differences between buying and purchasing.
3. List the main activities of a typical purchasing department.
4. Define routine versus nonroutine purchasing/buying
methods.
5. Identify the technical requirements for e-procurement.
6. Know the differences between EDI and e-procurement.
7. Introduce the RFID technology.
Introduction
Purchasing Department objectives:

1. Spend corporate funds wisely.


2. Operate in a professional manner.
3. Purchase the right materials in the right quantities,
at the right time and price, from the right source.
4. Practice the highest level of ethical standards to
ensure confidence among all parties.
Purchasing procedure
1. Specific Need
2. Source options
3. Price and terms
4. Purchase order
5. Delivery
6. Receipt and inspection
of purchases
7. Invoice approval and
payment
8. Record Maintenance
Systems contracting

A stockless inventory method for ordering and


stocking MRO and related items.

Use: Aid the firm in reducing ordering and


inventory costs.
Negotiated agreement between buyer and seller
includes:
1. Type of material
2. Scope of contract
3. Price
4. Billing Policy
5. Stocking Policy
6. Delivery Requirements
E-procurement

Is the business-to-business purchase and sale


of supplies or services throughout the internet
or other information network software's.
Two broad e-procurement purchasing categories

Direct Indirect

Directly related to the • Are any commodity or service


production of the that is not directly involved in the
finished goods. production of finished goods
• Operating resource
management (ORM) and
Maintenance repair and
operations (MRO)
Routine Versus Non Routine Purchasing
Department
More than 75 percent of a firm’s procurement activities are
routine. Unfortunately, many firms spend more than 75 percent of
the time buying low-value routine supplies. This level of
commodity purchasing is increasingly automated. However,
knowledge of the standard purchasing cycle must be understood
by all purchasing professionals.
E- Procurement

- Procurement is a very broad term. A broad push by e-


procurement software vendors for companies to migrate
all types of purchasing to e-procurement.

- Online or e-procurement technology has become an


important part of purchasing and supply chain
management.
- Four most popular e-procurement technology
models are:
1. e-procurement software
2. Market exchanges
3. B2B Auctions
4. Purchasing consortia
Purchasing Categories
• Direct materials are directly related to the production of finished goods.
• Indirect materials are any commodity or service that is not directly
involved in the production of finished goods.
-Two Categories of Indirect Materials
1. Operating Resource Management (ORM)
2. Maintenance Repair and Operation (MRO)
Respondents’ Adoption and Use of E-Procurement
Technology (% of Respondents)
Adoption of e-procurement types/systems
At least one e-purchasing technology 39.6
No e-purchasing technology 64.6
E-procurement software 24.6
Internet B2B auctions 5.2
Internet market exchanges 8.2
Internet purchasing consortia 1.5
Direct Materials Purchasing

-Critical items and systems are not the first


place to apply a new e-procurement system.
Effective e-procurement Implementation

1. Start with noncritical items.


2. Bring all internal stakeholders onboard with
your new procurement process to establish
internal customer behavior.
3. Streamline, map, test, troubleshoot, and
improve the process before expanding it to
external suppliers.
Reverse Auctions

-The internet has revolutionized commodity


purchasing.

- Reverse auctions may not be the solution for all


commodity buying.
Implementing a Reverse Auction

-Implementing the reverse auction process requires the


steps
1. Define market specifications.
2. Identify suppliers
3. Perform preaward review
4. Approve suppliers’ listing
5. Identify specific terms and conditioning
6. Invite suppliers
7. Set up auction
8. Write up contract
Electronic Data Interchange (EDI) and Purchasing
EDI is the direct computer transmission of orders and other transaction
information.

Purchasing: EDI is used for electronic transmission of orders, invoices,


and payment between buyer and seller.
Main Elements of EDI system

• Computer Hardware
• Computer Software
• Computer Compatibility between sender and the receiver
• Subscription to a Common Network
Benefits of using EDI

1. EDI may help keep a valued trading partner or customer or


even gain new ones.

2. For larger firms, the main benefit is generally the cost


savings, or to be known as a leading-edge company.
RFID (Radio Frequency Identification)

RFID is a universal term given to any technology that uses radio waves to
identify and track items.

Originated in the government sector during World War II used by The


Germans, Japanese, Americans and British were all using radar—which
had been discovered in 1935 by Scottish physicist Sir Robert Alexander
Watson-Watt.
Advantages of RFID
•Reduced labor cost
•Simplified business processes
•Improved inventory control
•Increased Sales
•Reduced Shrinkage

Disadvantage of RFID
• Expensive cost of equipment
BASIC COMPONENTS OF RFID
• RFID READER
RFID reader sends radio waves of between one centimeter and 30 meters or more. If a
transponder enters this electromagnetic region, it detects the activating signal from the reader.
The RFID reader decodes the data stored in the integrated circuit of the transponder (silicon
chip), and communicates them, depending on the application, to a host system.

• RFID antenna
consists of a coil with one or more windings and a matching network. It radiates the
electromagnetic waves generated by the reader, and receives the RF signals from the transponder.

•RFID Transponder or Tag


The heart of an RFID system is a data carrier, referred to as the transponder, or simply the
Tag. The designs and modes of function of the transponders also differ depending on the
frequency range, just as with the antennas.
RFID ACROSS LOGISTICS
RFID ACROSS SUPPLY CHAIN