Lecture 1
Introduction to Procurement Management
Introduction of the Faculty
• Definitions
• Role of Procurement in organizational success
• Difference Between Procurement and Purchasing
• Procurement over the years in history
• Procurement process overview and key stages
• Strategic sourcing and value addition
Definition of Procurement
The World Bank
• The process that starts with the identification
of a need and continues through planning,
preparation of specifications/ requirements,
budget considerations, selection, contract
award, and contract management.
• It
ends on the last day of the warranty
period.
APICS
• Thebusiness functions of procurement
planning, purchasing, inventory control,
traffic, receiving, incoming inspection,
and salvage operations
SAP
• Procurement is a vital business
function, responsible for securing all
the goods and services needed by an
organization.
Oracle
• Procurement management is also
referred to as the source-to-settle
process. It encompasses the
evaluation, selection, and creation of
formal contractual agreements as well
as managing the company’s ongoing
supplier relationships.
Role of Procurement in
Organizational Success
• Lower Costs mean Lower Price
• Price makes all the difference
• Technology
can be leveraged. Same plant
and machinery can be used by multiple
manufacturers.
• Time is of the essence
Difference Between Procurement and
Purchasing
Need
Procurement: Identify the source. Make sure if it can be fulfilled
with current assets.
Purchasing: Just fulfill the need, no due diligence
Identifying Suppliers
Procurement: Approach different suppliers.
Purchasing: Approach the most affordable suppliers.
Selecting Suppliers
Procurement: Supplier selection process.
Purchasing: Lowest price.
Scope
Procurement: Past buying. Present options. Future
relations and stability.
Purchasing: Fulfill the need of present.
Cost
Procurement: Past buying. Present options. Future
relations and stability.
Purchasing: Fulfill the need of present.
History
Pre-Industrial Revolution (Before 1760)
• During the Kingships and Emperor ships
• Sourcing the best materials for palaces and defense
• Merchants were the suppliers
Industrial Revolution (1760 to 1840)
• Competition started to begin
• Mass production
• Multiple suppliers
2Oth Century (2000 to present)
• Procurement emerged as a separate function with
special professionals
• Emergence of ERP
• MM Modules, Oracle E-Business Suite, etc.
Future
• Class Discussion
Procurement Process Overview
Strategic Sourcing
• According to SAP
Strategic sourcing is a process that creates
efficiencies across all spend categories, minimizes
supply risks with improved supplier selection, and
gives visibility into pricing and forecasting.
Difference Between Sourcing and
Procurement
• Sourcing is the broader view, a wider lens which encompasses all the
planning and decisions needed by the business for customer demand.
• A part of sourcing domain which executes the organizational
purchasing as per the set sourcing policies and guidelines of
organization, that part (or department) is called Procurement.
• Example: A top-notch sports apparel company decides to outsource
their apparel production. The company policy has zero tolerance
against suppliers with any sweatshops (unconducive working
conditions) and child labor (employing people under 18 years of age).
This is the setting of policies as the sourcing strategy. The
procurement manager of the sports brands will now call for
tenders/quotations/proposals from around the world, only those who
have surety (any certification or membership such as of human rights
or Pakistan Standards) that they do not have sweatshops or any links
to child labor, at present or in past.
The End.
