Purchases refers to a business or organization that tries to acquire goods or services to achieve its objectives. While there are some organizations that are trying to set standards in the buying process, the process can vary greatly between organizations. Usually the word "purchase" is not used interchangeably with the word "procurement", since procurement usually includes acceleration, supplier quality, and transportation and logistics (T & amp; L) other than purchases.
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Purchasing managers/directors, and procurement managers/directors guide organizational procedures and standards of acquisition. Most organizations use three-way checks as the basis of their purchase program. It involves three departments within the organization that complete a separate part of the acquisition process. The three departments do not all report to the same senior manager, to prevent unethical practices and provide credibility to the process. These departments can buy, receive and pay debts; or engineering, purchasing, and debt; or factory manager, purchases and accounts payable. Combinations can vary significantly, but the purchasing and payable departments are usually two of the three departments involved.
When the receiving department is not involved, it is usually called a two-way check or a two-way purchase order. In this situation, the purchasing department issued a purchase order receipt is not required. When an invoice arrives against the order, the payables department will then go directly to the applicant of the purchase order to verify that the goods or services have been received. This is usually what is done for goods and services that will pass the receiving department. Some examples are software that is sent electronically, NRE (non-reoccurring engineering service), consulting hours, etc.
Historically, the purchasing department issued purchase orders for supplies, services, equipment, and raw materials. Then, in an effort to reduce the administrative costs associated with recurring ordering of basic goods, "blanket" or "master" agreements are in place. This type of agreement usually has a longer duration and increased coverage to maximize the number of scale concepts. When additional supplies are required, a simple release will be issued to the supplier to provide the goods or services.
Another method of reducing the administrative costs associated with recurring contracts for common materials, is the use of corporate credit cards, also known as "Purchase Cards" or simply "P-Cards". P-card programs vary, but all have internal checks and audits to ensure proper use. The purchasing manager realized after the contract for the low dollar value consumable material was in place, the procurement could take a smaller role in the operation and use of the contract. There is still oversight in the form of audits and monthly report reviews, but most of the time they are now available to negotiate large purchases and other long-term contract arrangements. These contracts can usually be renewed annually.
This trend is far from the daily procurement function (tactical purchase) resulting in some changes in the industry. The first is the reduction of personnel. Purchasing department is now smaller. It is not necessary for the clerk's army to process orders for each piece as in the past. Another change is the focus on contract negotiations and the procurement of large capital equipment. Both of these functions enable departmental purchases to make the organization's largest financial contribution. New terms and titles arise - Strategic Source and Source Manager. These professionals not only focus on the bidding process and negotiate with suppliers, but the entire supply function. In this role they can add value and maximize savings for the organization. This value is manifested in lower inventory, fewer personnel, and get the final product to consumers faster. The success of the purchasing manager in this role resulted in new assignments beyond the traditional purchasing function - logistics, material management, distribution, and warehousing. More and more purchasing managers become Supply Chain Managers who handle additional functions of their organization's operations. Purchasing managers are not the only ones to be Supply Chain Managers. Logistics managers, material managers, distribution managers, etc. all rise to a wider function and some have responsibility for the current purchasing function.
In accounting, the purchase is the amount of goods purchased by the company during the year. It also refers to information on the type, quality, quantity, and cost of purchasing goods that must be maintained. They are added to the inventory. Purchases are offset by Purchase and Purchase Discounts and Purchase Allowances. When it should be added depends on the Free On Board (FOB) policy of the trade. For buyers, this new inventory is added to submissions if the policy is a FOB delivery point, and the seller removes this item from its inventory. On the other hand, the buyer adds this inventory upon receipt if the policy is FOB's purpose, and the seller removes this item from its inventory when it is shipped.
Goods purchased for purposes other than direct sales, such as for Research and Development, are added to inventory and allocated for Research and Development costs as used. On a side note, equipment purchased for Research and Development is not added to inventory, but is capitalized as an asset.
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The acquisition process
The revised acquisition process for major systems in the US Department of Defense is shown in the following figure. This process is defined by a series of phases in which technology is defined and matured into a viable concept, which is then developed and prepared for production, after which the resulting system is supported in the field.
This process allows a given system to enter the process at each development phase. For example, a system that uses unproven technology will enter in the early stages of the process and will continue through a long period of technological maturity, while systems based on mature technology can prove directly involved in engineering development or, perhaps, even production. The process itself includes four development phases:
- Concept and Technology Development: intended to explore alternative concepts based on operational needs assessment, technology readiness, risk, and affordability.
- The Concept and Technology Development Phase begins with concept exploration. During this stage, conceptual studies are conducted to define alternative concepts and to provide information about capabilities and risks that will enable an objective comparison of competing concepts.
- Stage of System Development and Demonstration. This phase can be directly incorporated as a result of technological opportunities and urgent user needs, and has come through the development of concepts and technologies.
- The last, and longest, phase is the Program Maintenance and Removal phase. During this phase all necessary activities are undertaken to maintain and maintain systems in the field in the most cost-effective manner.
Selection of bidders
This is the process by which the organization identifies potential suppliers for certain supplies, services or equipment. The credentials and history of these suppliers are analyzed, with the products or services they offer. The bidder selection process varies from organization to organization, but can include running credit reports, interviewing management, testing products, and tour facilities. This process is not always done in order of importance, but rather on the order of cost. Often purchasing managers examine potential bidders who gain information about organizations and products from their own media sources and industry contacts. In addition, purchases may send an Information Request (RFI) to potential suppliers to help collect information. The technique will also examine the sample product to determine whether the company or organization can produce the products they need. If a bidder passes through these two engineering stages it may decide to perform some tests on the material to further verify the quality standard. These tests can be expensive and involve significant time from some technicians and engineers. Engineering management should make this decision based on the product costs they are likely to generate, the importance of the product bidders for production, and other factors. Credit checks, management interviews, factory tours and other measures can all be utilized if engineering, manufacturing, and supply chain managers decide they can help their decisions and fees are justified.
Other organizations may have a minority procurement objective to consider in the selection of bidders. The organization identifies objectives in the use of companies owned and operated by a particular ethnic or women owned business enterprise. The significant use of minority suppliers may qualify the company as a potential bidder for contracts with companies or government agencies wishing to improve their minority supplier program.
This selection process may include or exclude international suppliers depending on the organization's goals and criteria. Companies that want to increase their pacific edge supplier base may not include suppliers from America, Europe and Australia. Other organizations may be looking to buy domestically to ensure faster response to orders and easier collaboration on design and production.
The organization's objectives will define the criteria for the bidder selection process. It is also possible that the product or service purchased is so special that the number of bidders is limited and the criteria must be very wide to allow for competition. If only one company can meet product specifications then the purchasing manager should consider using the "Single Source" option or work with techniques to expand the specification if the project will allow changes in the specification. The only source option is part of the selection of bidders who recognize that sometimes there is only one supplier that makes sense for some service or product. This can be because a limited application for a product can not support more than one manufacturer, the proximity of the service provided, or newly designed or created products and competition is not yet available.
Bidding process
This is the process by which the organization obtains goods, services or equipment. The process varies significantly from tight to very informal. Large corporations and government agencies are likely to have a rigorous and formal process. These processes can use a special offer form that requires special procedures and details. Very strict procedures require that bids be opened by staff from different departments to ensure fairness and impartiality. Responses are usually very detailed. The Bidder does not respond exactly as specified and following the published procedure can be disqualified. Smaller private businesses are more likely to have less formal procedures. Bids can be email to all bidders that specify a product or service. Responses by bidders may be detailed or only the proposed dollar amount.
Most of the bidding processes are multi-tiered. Acquisitions below the specified dollar amount can be "user discretion" enabling requests or to choose who they want. This rate can be as low as $ 100 or as high as $ 10,000 depending on the organization. The reason is the savings realized by processing this request equals the least expensive goods and do not justify the time and cost. The purchasing department notes the violation of the privilege of user freedom Acquisitions in mid range can be processed with a slightly more formal process. This process may involve users who offer from three separate suppliers. Purchases can be requested or requested to get quotation marks. The official bidding process begins as low as $ 10,000 or as high as $ 100,000 depending on the organization. The offer usually involves a specific form filled by the bidder and must be returned by the specified deadline. Depending on the purchased commodity and the organization, the offer may set weighted evaluation criteria. Other bids will be evaluated at the discretion of the purchase or by the end user. Some bids can be evaluated by cross-functional committees. Other bids may be evaluated by the end user or buyer in the Purchase. Particularly in small private firms, bidders may be evaluated on the basis of criteria or factors that have little if anything to do with actual bids. Examples of these factors are the history of the bidder with the company, the history of bidders with the company's senior management in other companies, and the breadth of the product bidders.
Technical evaluation
Technical evaluation, evaluation of the technical suitability of the goods or services quoted, if necessary, is usually carried out before commercial evaluation. During this phase of the procurement process, the company's technical representatives (usually engineers) will review the proposal and appoint each bidder as being technically acceptable or technically unacceptable.
Technical evaluation is usually carried out against a set of predetermined Technical Evaluation Criteria. There are two types of criteria, the general criteria (where the score is given if they are met) and the important criteria (if failed will make the offer technically disqualified).
Commercial Evaluation
The Cost of Money is calculated by multiplying the prevailing currency rate by the amount of money paid before the receipt of the Goods. If the money stays in the buyer's account, interest will be withdrawn. The interest is essentially an additional fee associated with the payment of Progress or Milestone.
The manufacturing location is considered during the evaluation phase mainly to calculate transport costs and regional issues. For example, it is common in Europe for factories to close during August for summer vacations. A work agreement may also be considered and may be drawn into the evaluation if a particular area is known to have frequent labor disputes.
Production time is the time from the placement of an order (or an end-of-time picture sent by the Buyer to the Seller) until the goods are produced and prepared for delivery. Lead-time varies by commodity and can range from a few days to years.
Transportation time is evaluated when comparing shipments of goods to date of intended use of the Purchaser. If Goods are shipped from remote ports, by rare ship transportation, transport times may exceed schedule and adjustments are required.
Shipping Cost - the cost for the Goods to be shipped to the stated point.
- Bid Valid
- Packaging
- Bid Adjustment
- Terms and Conditions
- Seller Services
- Standards Organization
- Financial Review
- Payment Currency
- Risk analysis - market volatility, financial pressure in bidders
- Test
Negotiate
Negotiation is a major skill in the field of Purchasing. One of the Purpose of the Purchasing Agent is to obtain the goods in accordance with the most favorable terms of the purchasing entity (or only, "Buyer"). Purchasing Agents typically seek to reduce costs when meeting other Buyer requirements such as on-time delivery, compliance with commercial terms and conditions (including warranty, risk transfer, assignment, audit rights, confidentiality, recovery, etc.).
Good negotiators, who have high documented "cost-saving" levels, receive premiums in the industry relative to their compensation. Depending on the agreement between the Purchasing Agent (Buyer) and the company, the cost savings Buyers can generate value creation for the business, and may generate flat rate bonuses, or percentage payments to the Purchasing Agent from documented cost savings.
Purchasing Department, while they can be considered as a support function of the main business, is actually a revenue-generating department. For example, if a company needs to buy a $ 30 million USD widget and Purchase Department secures a widget for $ 25 million USD, the Purchasing Department will save the company $ 5 million USD. The savings could exceed the department's annual budget, which would essentially pay for departmental overheads - employee salaries, computers, office space, etc.
Post-reward administration
Post-award administration usually consists of making minor changes, additions or deductions, which in some way alter the terms of the agreement or the Scope of Procurement of the Seller. Such changes are often small, but for audit purposes should be documented into existing agreements. Examples include increasing the quantity of Line Items or altering metallurgical specific components.
Order sale
Is closing the order.
See also
- Ecoleasing
- Purchase process
- Supply chain management
- Logistics
- Material requirements planning
- Group purchase organization
- Involve
- Total acquisition cost
- Chartered Institute of Purchasing
- Mergers and acquisitions
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Source of the article : Wikipedia
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