MSc. Huong My Le - mslemyhuong@gmail.

com 22/02/23

PURCHASING MANAGEMENT MSc. Le My Huong

[email protected]

TMA313 – Supply Chain Management

1. Introduction to Purchasing Management

1. Definition, Objectives and Classification
2. Purchasing process
3. Insourcing or Outsourcing
CON- • Tự sản xuất - Insourcing

TENT • Thuê ngoài - Outsourcing

4. Supplier Selection and Management
• Role of suppliers
• Supplier selection
• Supplier management
5. Organizational structure of Purchasing Department
6. Purchaser Missions and Skills

Department of Logistics and Supply Chain

Management - SEIB - FTU 1
MSc. Huong My Le - [email protected] 22/02/23

1. INTRODUCTION
PURCHASING MANAGEMENT
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1.1. Definition
• Purchasing, sourcing, supplying
• Purchasing management, supply management, procurement management
• Purchasing department, Sourcing department,…

Department of Logistics and Supply Chain

Management - SEIB - FTU 2
MSc. Huong My Le - [email protected] 22/02/23

1.1. Definition
“Purchasing is a key business function that is responsible for
acquisition of the required materials, services and equipment.”
Wisner, 2011

“Purchasing is a process made up of all activities associated with

identifying needs, locating and selecting suppliers, negotiating terms,
and following up to ensure supplier performance”
Monczka, 2009

Supply management is the identification, acquisition, access,

positioning and management of resources and related capabilities
the organization needs or potentially needs in the attainment of its
strategic objectives.”
Institute of Supply Management - ISM, 2010

Purchasing is understood as all activities to

obtain goods, key operating equipment,
materials, services, maintenance, repair and
operation (MRO).
MRO – Maintenance, Repair and Operations Wisner, Tan and Leong, 2012

Department of Logistics and Supply Chain

Management - SEIB - FTU 3
MSc. Huong My Le - [email protected] 22/02/23

1.2. Objectives
Mua đủ?
Mua đúng? Mua rẻ?

 Ensure timely supply of all necessary materials/goods for

business operations  Responsiveness

 With a reasonable/effective cost  Effectiveness

1.2. Objectives

i. Ensure continuous and stable material flow

ii. Buy with the lowest total cost and reasonable terms attached

iii. Improve the quality of the final product, in order to best meet
customer expectations

iv. Finding and selecting good suppliers, maintaining business

relationships with them

Department of Logistics and Supply Chain

Management - SEIB - FTU 4
MSc. Huong My Le - [email protected] 22/02/23

1.3. Classification
Based on the purpose

Merchants
Purchasing
Industrial
buyers

1.3. Classification
Based on different in process
Traditional
purchasing

E-purchasing
Purchasing
Public
procurement

Green
purchasing/sourcing

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Department of Logistics and Supply Chain

Management - SEIB - FTU 5
MSc. Huong My Le - [email protected] 22/02/23

1.4. Different roles of purchasing

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1.4. Different roles of purchasing

1. Increasing value and savings
2. Building relationships with external partners which can leverage/driving
innovation
3. Improving quality and reputation by acquiring components and material
with high quality
4. Reducing time-to-market
5. Reducing supplier risk and support business continuity
6. Increasing contribution to profits, therefore, generating economic impact
7. Contributing to competitive advantages

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Department of Logistics and Supply Chain

Management - SEIB - FTU 6
MSc. Huong My Le - [email protected] 22/02/23

2. PURCHASING
PROCESS

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Types of product
2. PURCHASING PROCESS Purchasing situation
Requirements and practices of
enterprises

i. Traditional/manual/paper-based process

ii. E-procurement

iii. Public procurement

iv. Green purchasing/sourcing

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Department of Logistics and Supply Chain

Management - SEIB - FTU 7
MSc. Huong My Le - [email protected] 22/02/23

2. PURCHASING
PROCESS

Purchasing Cycle
is used for buying
a particular part,
product, or
service.

Schroeder & Goldstein (2016)

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2.1. TRADITIONAL PURCHASING

Step 1: Identify the needs/ Receive the requisition

Step 2: Source and Select the supplier(s)

Step 3: Ordering

Step 4: Receive the order and Make payment

Step 5: Review the order and Store the documents

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Department of Logistics and Supply Chain

Management - SEIB - FTU 8
MSc. Huong My Le - [email protected] 22/02/23

2.1. TRADITIONAL PURCHASING

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2.1. TRADITIONAL PURCHASING

 Purchase information: should be fully and accurately transferred
to the supplier

 Ordered source of materials/products/services: should be

delivered in full, with the required quality and time

 Invoices and documents related to purchases: need to be

transferred on time between the supplier and the accounting
department

The system must ensure internal inspection and control

mechanisms to prevent abuse of the system
 Difficult, time consuming

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Department of Logistics and Supply Chain

Management - SEIB - FTU 9
MSc. Huong My Le - [email protected] 22/02/23

2.1. TRADITIONAL PURCHASING

Relating Documents
PAYMENT
Financial
QUOTATION – REQUESTING QUOTATION RFQ Accounting

PURCHASING ORDER PO

LoI
GOOD RECEIPTS (GR) GR

INVOICE INVOICE PR

PO
LIST OF INVOICE LoI PUR PIC
PO

PURCHASING REQUISITION (PR) PR GR RFQ

INVOICE
Departments Suppliers

GOODS

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PR – Purchasing Requisition
Material requisition
Clearly state:
4 1. Information about products/materials
requested to purchase: product code,
abbreviation or full name of the product,
product type, product color (if needed),...
1 2 2. Quantity (state the unit)
3. Delivery time required
4. Purchase requisition date (will be used for
tracking and retrieving purchase
information loops from this date)
5. Approval signature or relevant
departments (Law, Technical, ...)
1 3
Price/Recommended supplier: can be stated or
5 not
Note: Traveling-requisition: used for materials or
goods purchased frequently or in the past
Purchase Requisition (PR)
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Department of Logistics and Supply Chain

Management - SEIB - FTU 10
MSc. Huong My Le - [email protected] 22/02/23

PR – Purchasing Requisition
Material requisition
Clearly state:
1. Information about products/materials
requested to purchase: product code,
abbreviation or full name of the product,
product type, product color (if needed),...
2. Quantity (state the unit)
3. Delivery time required
4. Purchase requisition date (will be used for
tracking and retrieving purchase
information loops from this date)
5. Approval signature or relevant
departments (Law, Technical, ...)

Price/Recommended supplier: can be stated or

not
Note: Traveling-requisition: used for materials or
goods purchased frequently or in the past
Purchase Requisition (PR)
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4
3

5
1 2

Yêu cầu mua hàng - Purchase Requisition (PR)

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Department of Logistics and Supply Chain

Management - SEIB - FTU 11
MSc. Huong My Le - [email protected] 22/02/23

RFQ – Request for Quotation

 Use in case:
(1) the requested material is no longer/not
in stock;
(2) there is a NCC that provides the product
but does not meet the relevant
requirements
(3) there are currently no suppliers on the
NCC list of this business supplying this
item looking for a new supplier
 It can be through bidding (open or closed),
public bidding in newspapers or sending bid
letters to potential suppliers, etc.
 Supplier will send quotation according to
the appropriate form: by email or by post to
Purchasing Dept.
Request for Quotation (RFQ)
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1
PO – Purchasing Order
State clearly:
6 1. Order number
7 2. Information about products/materials
8 requested to purchase: product code,
abbreviation or full name of the product,
product type, product color (if needed),...
2 5 3
3. Quantity (specify purchase unit)
4
4. Quality requirements
5. Price
6. Delivery time required legally
7. Delivery method binding
8. Delivery address document?
9. Order due date
10. Confirmation signature of superiors or
Purchase Order (PO) relevant departments (Law, Technical, ...)
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Department of Logistics and Supply Chain

Management - SEIB - FTU 12
MSc. Huong My Le - [email protected] 22/02/23

2.2. E-PROCUREMENT
Electronic purchasing (E-procurement) is an integrated purchasing
process that uses information technology application tools,
computers, the internet, etc. to perform transactions between
companies/enterprises and other customers. supplier.

An electronic purchasing system covers the processes involved in

purchasing activities, from identifying needs in the organization,
to supplier selection, to payment execution, to contract
management, and to supplier management. grant

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2.2. E-PROCUREMENT
Differences between E-procurement and E-commerce

E-procurement usually includes purchasing processes between companies

(buyers) and suppliers (sellers), commonly used in industrial purchasing.
 SRM

E-commerce usually involves the buying process between consumers/retail

customers (buyers) and companies/businesses (sellers), often used in
commercial purchases.
 CRM

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Department of Logistics and Supply Chain

Management - SEIB - FTU 13
MSc. Huong My Le - [email protected] 22/02/23

2.2. E-PROCUREMENT

Corsi, 2006

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2.2. E-PROCUREMENT
1. Time-saving
• From the appearance of demand in the departments to the time of making
and receiving orders
• Eliminate paperwork processes and procedures  reduce storage and save
time in retrieval and search
• Save time for purchasing professionals in creating purchase orders (POs) and
storing orders and purchase documents
2. Increase connectivity and exchange of information between departments in the
company and with suppliers. The system increases the accuracy of information
between buyers and sellers.
3. Increase the ability to manage orders, suppliers and other features (retrieve data
on prices, purchase history, repeat orders frequently, ...)
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Department of Logistics and Supply Chain

Management - SEIB - FTU 14
MSc. Huong My Le - [email protected] 22/02/23

2.3. GLOBAL PURCHASING

• You can buy and sell directly or through an intermediary

• Can be purchased from a trading company, which has a variety of

goods
• There are many organizations in the world established with the
aim of reduce the tariff and non-tariff barriers: WTO, EU, NAFTA
• Participating in international trade must be aware of: Contracts
for the International Sale of Goods (CISG)

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2.3. GLOBAL PURCHASING

Some terms to note::

• Import broker – Sales agent who performs transactions for a fee

(they do not take title to the goods)

• Import Merchant – Buys and takes title to the goods and resells

• Tariff

• Non-tariff barriers

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Department of Logistics and Supply Chain

Management - SEIB - FTU 15
MSc. Huong My Le - [email protected] 22/02/23

2.4. GREEN PURCHASING

Green sourcing: not only finding new environmentally friendly
technologies or increasing recycled materials, but also helping to
reduce costs in different ways, including replacing some components.
into products, reducing waste and using less raw materials.

4. Develop
6.
3. Field-visit to strategic
1. Identify the 2. Negotiate 5. Execute the Institutionalize
supplier site to sourcing for
opportunity with Suppliers strategic plan the sourcing
evaluate green
strategy
purchasing

6 steps process for greener purchsing

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INsourcing

3. DECISION: INSOURCING OR
OURSOURCING

OUTsourcing

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Department of Logistics and Supply Chain

Management - SEIB - FTU 16
MSc. Huong My Le - [email protected] 22/02/23

3. DECISION: INSOURCING OR OURSOURCING

Favorable reasons for Insourcing/Make Favorable reasons for Oursourcing/Buy

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Make-or-Buy Break-Even Analysis

Phân tích điểm tới hạn
A business has to decide whether to manufacture it in-house or buy it out to get the parts it
needs. Demand for the year is …………………… units.

o If outsource, the cost for the order is ……….$, the purchase price is ………$/unit;

o If insource, the investment in machinery and equipment is $.............. and the cost of
components is $............./unit

Cost Insourcing Outsourcing

Fixed costs $........... $...........
Variable costs $......../unit $....../unit
Annual Demand: …………….. units
Should businesses make or buy this component?
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Department of Logistics and Supply Chain

Management - SEIB - FTU 17
MSc. Huong My Le - [email protected] 22/02/23

Make-or-Buy Break-Even Analysis

Phân tích điểm tới hạn
Setting the break-even point is Q, we have:
 Total cost of Insourcing/Make = …………………………….(USD)
 Total cost of Outsourcing/Buy = ……………………………..(USD)
At the break-even point, the total cost of insourcing is equal to the total cost of outsourcing,
so we make the two polynomials equal.  Q = ……………… (units)
 Total cost at the break-even point = ………………………….. (USD)
 Every year, businesses have a demand of ……………. components, so:
Total cost if the company insources 15.000 units: ………… + …………. = ………….. (USD)
Total cost if the company outsources 15.000 units: ………+ ………...… = ……….. (USD)
The difference between self-produced and purchased is : ………………………….. USD
Therefore, if the annual demand is 15,000 components, enterprises should
produce their own.

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Break-even Analysis

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Department of Logistics and Supply Chain

Management - SEIB - FTU 18
MSc. Huong My Le - [email protected] 22/02/23

Meaning of Break-even Point

• If the Demand ………….. Break-even Point  ……………….

• If the Demand …………… Break-even Point  ……………….

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4. SUPPLIER SELECTION, EVALUATION & MANAGEMENT

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Department of Logistics and Supply Chain

Management - SEIB - FTU 19
MSc. Huong My Le - [email protected] 22/02/23

4.1. SUPPLIER SELECTION

1. How many suppliers should we

have?
• Reasons to have 1 only?
• Reasons to have several suppliers?
2. How can we choose the right
suppliers? According to which
criteria?
3. How can we develop the relationship
with suppliers?

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4.1. SUPPLIER SELECTION

Supply Base is the list of suppliers that a firm uses to acquire its
materials, services, suppliers and equipment.

Apple SC Video Link: https://www.apple.com/supplier-responsibility/pdf/Apple-Supplier-List.pdf

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Department of Logistics and Supply Chain

Management - SEIB - FTU 20
MSc. Huong My Le - [email protected] 22/02/23

4.1. SUPPLIER SELECTION

How many to choose?
Reasons to have 1 supplier Reasons to have several suppliers

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2. Supplier Selection, Evaluation, & Development

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Department of Logistics and Supply Chain

Management - SEIB - FTU 21
MSc. Huong My Le - [email protected] 22/02/23

2. Supplier Selection, Evaluation, & Development

Qualitative Quantitative
Supplier Selection Criteria Total Cost of Ownership (TCO)
1. Quality: Chất lượng
2. Cost/Price: Chi phí / liên quan giá
3. Delivery: Phân phối, giao hàng
4. Responsiveness & Flexibility:
Tính linh hoạt
5. Environment: trách nhiệm với
môi trường
6. Technology: ứng dụng công nghệ
7. Business Metrics: yếu tố liên
quan tới hoạt động kinh doanh
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QUALITATIVE METHOD
There are 3 vendors with the following information on performance
• Pricing: Vendor A: 20 USD/unit; B: 15 USD/ unit; C: 24 USD/
unit.
• Delivery time: NCC A: 95% on time and in stock; NCC B: 85% on
time and in full stock; NCC C: 98% on time and in stock
• Product quality: NCC A: 95% good; NCC B: 90% good; NCC C:
99% good.

Let's argue to choose the appropriate vendor.

Assume to use the score ladder 5

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Department of Logistics and Supply Chain

Management - SEIB - FTU 22
MSc. Huong My Le - [email protected] 22/02/23

Supplier evaluation & selection

Step 4. Evaluate the

Step 2. Supplier
Step 1. Criteria Step 3. Weighting the supplier based on the
Monitor and Collect the
Selection criteria score ladder 0-100 of
Data
each criterion

Step 5. Multiply the

Step 6. Classify the
weight and the score Step 7. Evaluate and
suppliers based on the
of each criterion  periodically check
total point
Sum - Total point

Weighted-Point Evaluation System Example

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Total cost of ownership (TCO) analysis

• Total cost of ownership is all costs associated with buying, selling,
transporting and storing goods in the supply chain.
• TCO is different from the traditional costing method.
• Total cost of ownership analysis is not only concerned with the
purchase price from the supplier, but also considers all relevant
quantitative and qualitative information such as shipping costs, taxes,
and remittance fees. , terms of payment….
• Also used as a tool to help businesses negotiate and suggest Suppliers
to improve some points.
46

Department of Logistics and Supply Chain

Management - SEIB - FTU 23
MSc. Huong My Le - [email protected] 22/02/23

SUPPLIER SELECTION USING TCO ANALYSIS

A company is choosing between two suppliers for the next year of operations.
Due to warehouse limitations, the company only imports …………..
components/order. This component is very important for the production of the
final product, so any late orders will cause production disruptions; accordingly,
causing ……………..loss of sales and ……………of orders being returned.
The table below details the relevant data provided by the two suppliers.

The logistics service provider also quoted as follow:

Truckload (TL >= …………….. lbs: $............/ ton-mile)
Less-than-truckload (LTL): $................./ton-mile
Note: per ton-mile = per ………….lb-mile

Should the company choose Vendor 1 or Vendor 2?

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Truckload (TL >= 40.000 lbs: $0,8/ ton-mile

Less-than-truckload (LTL): $1.2/ton-mile
SUPPLIER SELECTION - TCO
Annual Demand 12.000 (units) Unit Price Vendor 1 Vendor 2

Unit weight ………. pounds 1 – 999 lk/đơn $510 $505

Ordering Cost $125/order 1000 – 2999 $............ $...........

Inventory cost percentage 20% annually  3000 $490 $488

Ratio of working capital 10% annually Tooling Cost $22.000 $20.000

Profit margin ………….% Payment Term 2/10, net 30 1/10, net 30

Unit Price – Final products $............../ product Distance 125 miles 100 miles
(dặm Anh)
Back-ordering cost $........./product Percentage of 2% 3%
defective product
Rate of late delivery 1% 2%
Should the company choose Vendor 1 or Vendor 2?

48

Department of Logistics and Supply Chain

Management - SEIB - FTU 24
MSc. Huong My Le - [email protected] 22/02/23

SUPPLIER SELECTION USING TCO ANALYSIS

List of costs:

1. Purchasing cost

2. Tooling/setup cost

3. Transportation cost

4. Ordering cost

5. Carrying cost = (Q/2) * c * k

6. Quality cost

7. Delivery cost (backorder, lostsale)

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2.3. Supplier development

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Department of Logistics and Supply Chain

Management - SEIB - FTU 25
MSc. Huong My Le - [email protected] 22/02/23

51

5. PURCHASING DEPARTMENT ORGANIZATION

• Purchasing duties:

at
Source good
reasonable in time
products
price continuously

Q C D
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Department of Logistics and Supply Chain

Management - SEIB - FTU 26
MSc. Huong My Le - [email protected] 22/02/23

5. PURCHASING DEPARTMENT
Where is decision-making power concentrated?

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Centralization
Purchasing decisions are concentrated at managers/senior management
units or at the Head Office
Support centralized purchase
• Buy in bulk reduce costs: have discounts, bigger incentives,
easier to negotiate, reduce transportation costs and reduce
order fulfillment costs
• Ensure coordination and avoid duplication of work
• Ensure consistency with the overall goals of the organization
• Specialization: allows employees to focus on purchasing
(rather than multitasking)Easy to manage suppliers
• Reduce competition between units within the enterprise
54

Department of Logistics and Supply Chain

Management - SEIB - FTU 27
MSc. Huong My Le - [email protected] 22/02/23

Decentralization
Purchasing decisions are decentralized to lower level managers/management
units or to branches

Support decentralization of purchasing activities

• Buy products that meet your needs more precisely

• Reduced costs: by purchasing from local sources (closer,
quality matched to part needs)
• Reduce administrative procedures

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QUESTIONS,
COMMENTS,
SUGGESTIONS?
[email protected]

56

Department of Logistics and Supply Chain

Management - SEIB - FTU 28