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PURCHASING AND SUPPLY

The art of perfecting

Purchasing and supply Abilities

Training Module Notes

© Copyright 2023

No part of these notes may be reproduced or copied, nor may these notes be loaned, nor transmitted to any
other person, without the express written permission of Nsanje Hills Training Institute (NHTI)
UNIT 1: INTRODUCTION TO PURCHASING AND SUPPLY
Purchasing and supply management involves the procurement, storage, and monitoring of goods
sold in a retail store, machinery, supplies, or other raw goods. The purchasing and supply manager
is the person in charge of this division of this job, as well as in managing the other employees
working in this section. For most businesses, specifically retailers, purchasing and supply
management is one of the most important job descriptions in monitoring buyer behaviors and
making sure top selling items are well-stocked. Supply is the amount of the good and services that
is being sold on the market by producers. Purchasing is an important transnational step in the
procurement life cycle

In many cases, purchasing and supply may involve negotiating with manufacturers or wholesalers
in the process of buying goods or materials, as well as in working closely with cost analysts and
marketing professionals in deciding which products to buy and which ones are not selling well
enough for the costs. This process ensures that the company keeps better selling items in stock
while passing on products that sit on store shelves collecting dust.

The term “procurement” encompasses all elements of a company’s purchasing process. While it
does involve the literal purchasing of goods, services, and property, procurement management
goes far further to include strategic planning as well. The procurement process affects several
business functions and requires a mastery of supply chain management, sourcing raw materials,
and meeting purchasing goals. For this reason, procurement professionals come in high demand,
and many companies even have an entire procurement department led by a chief procurement
officer.

ELEMENTS OF PROCUREMENT CYCLE

1. Determining procurement needs: A company cannot begin acquiring goods and services
without firmly establishing what the business needs. Prudent purchasing decisions start with a
carefully considered strategy that aligns with the company’s mission statement and values.

2. Developing a procurement strategy: Just as potential purchases need measured logic behind
them, so too does the strategy for making these purchases. A company may employ a chief
procurement officer to develop this strategy, or it may turn to outside consulting services.

3. Identifying potential suppliers: Procurement teams must maintain strong supplier

relationships while always being on the lookout for new suppliers.

4. Negotiating the best price: When engaging in direct procurement from a supplier, a company
may need to directly negotiate for the best quality goods and services at the very best price. When
engaging in indirect procurement via a third-party vendor, the price negotiations may be with the
vendor itself. Having multiple vendors can lead to a competitive bidding process.
5. Approving purchase requests: Some companies have purchase requests coming from a variety
of departments. A procurement department determines what the company needs to meet its
objectives and finds a way to source the requested goods and services.

6. Maintaining procurement software: Cloud-based computer software has helped streamline

the procurement process, but even companies fully bought into e-procurement automation must
employ one or more professionals to oversee the software.

7. Purchasing goods: After sufficient planning and sourcing, procurement teams can turn to actual
purchasing activities. This involves making purchase orders and paying for them in a timely
manner.

8. Adhering to company values: Some companies implement an added social responsibility step
designed to prevent them from purchasing goods linked to environmental destruction, child labor,
or slave labor. For companies that prioritize social responsibility, all stages of the procurement
process must align with those company values. If certain external sources and suppliers do not
meet a company’s standards for social responsibility, a procurement team is tasked with finding
new vendors that do.

3 Main Types of Procurement

There are three main types of procurement activities: direct procurement, indirect procurement,
and services procurement.

1. Direct procurement: Direct procurement involves the direct purchase of raw goods, machinery,
and wholesale goods that directly contribute to the company’s end product. The key stakeholders
in direct procurement processes are procurement officers and contracted suppliers.

2. Indirect procurement: Indirect procurement involves the purchasing of goods like office
supplies. These goods don’t directly affect the company’s end product or bottom line, but they
support the day-to-day management of the business. A small company may task office managers
with indirect procurement processes while large corporations may employ a facilities management
company to manage those purchases.

3. Services procurement: This type of procurement can involve hiring temporary staffers, leasing
software, and bringing in short-term vendors to work at an event or seminar.