LOGISTICS
Chapter 02: Procurement Management
Lecturer: Nguyen Dang Quang Huy (MSc.)
huyndq@uef.edu.vn
Learning outcomes
• Understand the distinction between procurement
and purchasing.
• Understand the difference between traditional
procurement and e-procurement.
• Understand how to use a P-card.
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Contents
Procurement Management
Procurement & Purchasing
Traditional procurement & e-procurement
Procurement card
Supplier selection & evaluation
Quality issue in procurement
Global procurement
Procurement problems & challenges
Case Study
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Learning Materials
Paul R. Murphy, Jr., A. Michael
Knemeyer., (2018). Contemporary
Logistics (12th edition).
Global Edition. Pearson
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PROCUREMENT MANAGEMENT
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How attractive are procurement jobs?
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Procurement
Logistics
Purchasing
• Inventory Management
Pricing
• Inbound transportation Sourcing
Ordering
Supplier Management Receiving
• Supply & Demand Planning
Contract Management Invoicing
• Outsourcing Management Catalogue Management Paying
• Fleet Management
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Procurement
• Refers to the raw materials, component parts, and
supplies bought from outside organizations to
support a company’s operations.
• Procurement costs often range between 60% - 80%
of an organization’s revenues.
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Procurement objectives
Supporting organizational goals and objectives.
Managing the purchasing process effectively and efficiently.
Managing the supply base.
Developing strong relationships with other functional groups.
Supporting operational requirements.
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Difference between Procurement & Purchasing
Both are activities performed in relation to their goods and
services, but done with a different method and approach.
Procurement Purchasing
Deals with the sourcing The process of goods and
activities, negotiation and services are ordered. It is
strategic selection of goods usually described as the
and services that are usually transactional explicit
of importance to an function of procurement
organization. for goods or services.
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Purchasing includes:
Payment
Receiving goods and
services
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Procurement involves:
Schedule the purchasing
Strategic vetting
plan
Determine the purchasing Selection and negotiation
standard of contracts
Research and select
Checking the inventory
vendors
Establish payment terms Purchasing
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Traditional Procurement
1 day 2 hours 2 hours
Search goods Fill in requisition Buyer prints order
Send to buyer
1 day
2 hours 1 day 1 day
Payment Matching invoice Accountant Delivery
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E-procurement
1 hour 30 mins
Search goods Order on web Delivery
1 day
30 mins
Payment Generate invoice
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Total cycle time needed:
4 days and 6
hours
1 day and 2
hours
Benefits Reducing costs
Increased Transaction Speed
Tracking orders
Transparent Spending
Increased Productivity
Standardized Buying
Reduced Errors
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Procurement card (P-card)
A type of company charge card used for smaller
purchases to achieve greater cost efficiency, control
and convenience.
Benefits
End-users Suppliers
Process savings Cost reductions
Shorter procurement cycle time Faster receipt
Staff reductions Competitive advantage
Spend data availability Customer satisfaction
Reduction in the number of Increased sale
invoices
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Place order
Receive goods/services
End-user organization Supplier
Provide Request Receive Submit
Make data card Provide payment transaction
payment card
How P-card works
Card issuer Merchant acquirer
Request Provide Process Request
authorization authorization payment authorization
Process payment Process payment
Request authorization Request authorization
Processor Network Processor
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Identify Need for Supply
Supplier selection and
evaluation
Situation Analysis
Internal factors
External factors
• One of procurement’s most
important responsibilities.
Identify and Evaluate Potential Suppliers
Sources of potential information
• Involves stating an organization’s Establish selection criteria
Assign weights to selection criteria
needs and determining how well
various potential suppliers can Select supplier(s)
Consideration of company policies
fulfill these needs.
Evaluate decision
Compare actual and expected performances
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Quality issues in Procurement
• Quality – conformance to mutually agreed-upon requirements
• Important to match quality levels of buyers and sellers in the
supply chain
• Vendors are expected to have quality programs/practices
ISO 9001
ensure products / services are safe, reliable and of good
quality reduce costs by minimizing waste and errors
and increasing productivity.
Six Sigma
improve customers’ experience, lower costs, build better
leaders.
Lean Six Sigma
combine of 6 sigma and lean manufacturing.
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Global Procurement (Sourcing)
• Refers to buying components and inputs anywhere in the world
• Driven by:
• Factor-input strategy
• Market access strategy
• Components of Global Sourcing Development model:
Planning
Specification
Evaluation
Relationship management
Transportation and holding costs
Implementation
Monitoring and improving
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Global Procurement (Sourcing)
• Challenges in establishing a successful global sourcing strategy include
understanding hidden costs as supply bases are expanded.
• Examples of hidden costs:
o Increased costs of dealing with suppliers outside the domestic market
o Duty and tariff changes that occur over supply agreement life
o Increased inventory-related costs associated with global supply chains
o Rising levels of logistics cost volatility (e.g. ocean freight rates)
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Common Procurement problems
Accidental Orders
Inflexible Suppliers
Exceeding Budget
Damaged Goods
Rushed Purchases
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Biggest Challenges Facing Procurement
• Cost Reduction
• Going Digital
• Risk Mitigation
• Supplier Relationships
• Skills Gap
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End of chapter 02
LOGISTICS
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