Chapter 1
Procurement Management
Introduction
LTD Hieu, MEng
Feb 08, 2025
Agenda
Overall Procurement Introduction:
1. Procurement Objectives
2. The Size of the Organization’s Spend and Financial
Significance
3. Supply Strategy
4. Supply Position Model
5. Types of Purchases
6. Supply Market Intelligence
7. Purchasing Responsibilities
8. Risks and Challenges
WHAT IS SUPPLY CHAIN MANAGEMENT (SCM)
SUPPLY CHAIN MANAGEMENT oversees & optimizes:
❖ the processes of acquiring inputs (goods & services)
from suppliers (Sourcing & Purchasing),
❖ converting those inputs into a finished product
(Production), and
❖ delivering those products or outputs to customers
(Delivery)
Supply Chain Management P
U
SSOOUP
Suppliers My company Customers
Physical flows
Information flows
Financial flows
MAIN ELEMENTS OF SUPPLY CHAIN MANAGEMENT
Supply Chain Management is to manage supply and
demand including:
Sourcing/Purchasing raw materials/parts and services
Order entry and order management,
Manufacturing and assembly,
Warehousing and Inventory tracking,
Distribution across all channels, and
Delivery to the end customer
Supplier Relationship Management
PROCUREMENT MANAGEMENT
Procurement is the process of getting the raw materials,
equipment and & services to deliver the goods to the end
customers to serve business needs that meet organization
mission and vision
Procurement Management is to manage the original raw
materials from supplier to the final customers as well as
the flow of information that triggers this product flow in
order to achieve the best possible customer service at
the lowest possible cost.
.
1. Procurement Objectives
Supply Continuity
Support Organizational Goals and Objectives
Develop integrated purchasing strategies that support
organizational strategies
Manage the purchasing process efficiently and
effectively
Develop supply base management
Develop strong relationships with other functional
stakeholders
2. Organization’s Spending
and Financial Significance
Directs – anything related to COGS/production
In-directs – non production related purchases
Other expenses
EBIT (Earning Before Interest & Tax)
Example Dollars % of
Sales
- Revenue $1,000,000 100
- Cost of Goods Sold:
- Direct Materials $400,000 40
- Direct Labour $240,000 24
- Overhead Cost $200,000 20
Total Cost of Goods Sold $840,000 84
Gross Profit $160,000 16
3. Supply Strategy
Levels of Strategic Planning:
Corporate: What business? How to allocate resources
among these businesses?
Business Unit: plans to contribute to the corporate
strategy.
Function: plans → each function→ contribution to the
business strategy + allocation of internal resources.
Strategic Planning in Supply Management: a supply
action plan
Assurance-of-supply strategies.
Cost-reduction strategies.
Supply chain support strategies.
Environmental-change strategies.
Competitive-edge strategies.
Risk-management strategies
4. The Supply Positioning
H Model
M
Impact/ Bottleneck Critical
supply
opportunity/
risk rating Routine Leverage
L
N
80% of items = 20% of value 20% of items = 80% of value
$ Expenditure
5. Supply Positioning Model
11
What items need to buy?
Direct and indirect
material
FACTORY LAYOUT
Hand tools & Spare part
Material handling equipments personal protective equipment
12
5. Types of Purchases
Including Goods & Services to support
business need or the organization:
Raw materials for production
Semi-finished products and components
Finished products
Maintenance, Repair, and Operating
supplies (MRO)
Other services such as Marketing
Services, Logistics services, HR
services, Finance services etc.. 13
6. Supply Market
Intelligence
Monitoring supply markets and trends
Identify new player in the market
Identifying critical materials and
services
Supporting new product development
Developing supply options and
contingency plans
Supporting a diverse and globally
competitive supply base
14
7. Purchasing
Responsibilities
Act as primary contact with suppliers
Procurement Planning
Clarify requisitioner’s needs vs. business
needs
Forecast and plan requirements
Procurement execution
Review specifications
Evaluate and select suppliers
Contract & contract management
Supplier Management 15
8. Risks and Challenges
Risks: Supply chain disruption and supply chain risks →
risks identification and assessment + balance risks/reward
→ decisions
Operational risk: supply interruptions and delays
Financial risk: Changes in price, exchange rate
Reputational risk: legal and ethical issues, bribery,
environmental practices, quality, communications……
Challenges: 6 major challenges
Supply chain management
Measurement
Risk management
Sustainability
Growth and influence
Effective contribution to organizational success
BACK UP
Procurement Management
Expectations for professional purchaser
A good overview about the market, industry,
suppliers dynamics
Integration of all the knowledge into commercial
strategy to bring the total best value for the
project, equipment, materials and services that
are purchased
Be able to identify new supplier in the market,
evaluate and select them.
Capable to manage supplier, maximize the
usage of supplier’s expertise, develop and
sustain long term working relationship
Good negotiation skills
Well manage stakeholders’ expectations
Role model of business ethics
Expectations for professional purchaser
We treat suppliers fairly, honestly and ethically
We tell the truth, do not mislead the suppliers
Do not bluff, do not take advantages of
supplier’s errors
Treat supplier’s information confidential
Do not reveal other vendor’s information,
technology, pricing without prior written
permission
Resolve issues, claims on a fairly basis and
timing
Effectiveness of Professional Purchaser
❑ Understanding customer needs
❑ An effectice supplier pool to meet customer needs
❑ A strategic sourcing and procurement process that
integrate the whole supply chain (customer,
supplier, stakeholder etc..)
❑ Good communication
❑ Successfully tackle operational issues
Sourcing Overview
Sourcing Strategy Overview:
- Which suppliers to be considered? Why not others?
- Which alternate options? If none, why not?
- Should we purchase any sub-components
separately to get better value? Which one?
- Can we leverage the volume for good discount? Any
other opportunity exit? How can we explore them?
- Should we inquiry, negotiate or use existing blanket
purchase order?
- How important a specification from a commercial
view point?
- What special commercial terms will be helpful, such
as warranty, performance guarantee (CNDA etc..)
Sourcing Skills
Sourcing Plan
A key sourcing plan include:
- contracting approach
- equipment approach
- project delivery and compensation approach
Address project and company needs
- requirements, specifications, quantity, timing
- Options
- Opportunities,
- Risks
Who will buy what?
Sourcing & Procurement Process
Collect and
Converge Develop Execute Strategy
Analyze Manage Supplier
Internal & Sourcing & Implementation
Internal Relationship
Market Data Strategy Plan
Requirements
• Identify Stakeholders • Identify, Analyze • Commodity • RFQ / RFP Process • Establish clear
• Establish local/global and Evaluate categorization • Receive, Evaluate expectations on both
Sourcing team current supply base • Commodity and Rank RFP sides
• Collect Internal • Analyze current Strategy Responses • Track & Report on major
Requirements strategy components • Supplier Pre- Performance metrics
• Analyze Internal • Collect Market • Commodity Qualification & • Regular performance
Requirements Intelligence Strategy details Selection Criteria feedback sessions
• Validate scopes • Assess Market • Develop • Review & Approval • Continuous improvement
Sourcing Team Conditions implementation of Negotiation Plan sessions
• Identify savings plan • Conduct • Agreement on new goals
opportunities • Get approval / Negotiations. & metrics
• Establish internal alignment & • Develop Contract • Develop continuous
goals /objectives communicate and Secure Internal process by going to
• Prepare RFI Management Track & Report …..
Approval /
Stakeholder buy-in
Supplier Continue MI
Selection Supplier
Sourcing Team Market Strategic
Contracting Continuous
Formation Intelligence Sourcing Plan
Administration Quality
Support Improvement
