Procurement and Supply Management: A Comprehensive Guide

Posted on Aug 18, 2024 in Economy

PROCUREMENT AND SUPPLY MANAGEMENT FUNCTIONS

This is the logistic function provided by a company, whether commercial, industrial, or service-oriented, to procure all necessary equipment for its operations. This process includes:

  • Calculating needs
  • Selection of suppliers
  • The decision to purchase
  • Storage
  • Inventory control

The purchasing department, responsible for managing this entire process, plays a fundamental role as it significantly influences costs and, therefore, pricing. This, in turn, affects the company’s ability to compete in the market. A company’s success depends on the quantity, quality, and timely acquisition of goods and services at the right cost. The sourcing function pursues this goal by obtaining all necessary resources from the market at the lowest cost and with the highest possible quality levels.

DECISIONS INVOLVING WAREHOUSE MANAGEMENT

a) Decide the number of warehouses and their size: This decision should consider the type of product, its characteristics, its potential for handling and storage, etc. The physical state of the raw materials or products purchased, whether solid, liquid, or gas, should be taken into account. Other factors include whether the goods to be stored are large or directly manipulated by an operator without auxiliary machinery, if they can be stacked with pallets for space-efficient storage, and if they are high-volume products. The number of warehouses thus depends on several factors, with cost and duration of transport being fundamental.

b) Choose the locations for the warehouses: A logistical study is necessary to determine appropriate warehouse locations to reduce transportation costs and employee time spent on provisioning. Analyzing the means of communication is also essential in this study. The location of the warehouses is decided by considering the costs of various alternative locations.

c) The type and level of mechanization: The first decision is whether to use owned, rented, or outsourced warehouses. Another fundamental decision is the level of automation of the warehouses.

d) Establish the organization and specific management procedures: The resources purchased to start the procurement process must be properly organized. It becomes necessary to decide the number of warehouse employees, select them, train them, and assign responsibilities. An important aspect is the distribution of the warehouse within the plant. That is, how the various products are spread across the warehouse’s surface. For example, placing the busiest products near the exit reduces total displacement.

REQUIREMENTS FOR THE VALIDITY OF A COMMERCIAL SALES CONTRACT

A) Consent of the parties: Evidenced by the offer and acceptance of the thing and the cause, which must constitute the contract. This means that the parties enter into an agreement regarding the goods offered, the price, place, and date of delivery. The following cannot give consent:

  • Non-emancipated minors
  • The insane or mentally incapacitated
  • The deaf who do not know how to write

B) The subject: The set of things/services that are not outside the scope of trade, even those in the future. Impossible things or services cannot be covered by the contract.

C) The cause: The cause of a commercial sales contract is the delivery or promise of a thing or service by the other party.

INCOTERMS

International rules for the interpretation of trade terms. With them, both buyer and seller have the security of interpretation of the terms negotiated. Incoterms lack any legal force or legislation; however, they are valued for their routine use worldwide. To apply to an international sale of goods contract, they must be specifically stated.

4 Categories:

a) Category E: The seller makes the goods available to the buyer at the seller’s address.

b) Category F: The seller is responsible for delivering the goods to a means of transport chosen by the buyer.

c) Category C: The seller has to contract for carriage but without assuming the risk of loss or damage to the merchandise or additional costs after loading and shipping.

d) Category D: The seller must bear all costs and risks needed to bring the goods to the country of destination.

LEASING

Leasing is a lease contract with a purchase option that, when exercised, results in the asset’s value coinciding with the last installment amount.

TYPES OF LEASING:

A) Financial Leasing: An irrevocable contract where the lessee must pay even if they choose to return the leased property at the end. They may exercise the option to buy if they wish for the residual value.

b) Operational Leasing: A revocable contract where the lessee can return the property and stop paying under the conditions set forth in the contract. Its function is to facilitate the replacement of goods as more technologically advanced ones arise.

c) Leasing Back: The sale of property with the intention of repurchasing it through a lease.

RENTING

Renting is the leasing of property without the option to buy. It was initially regarded as a variable of financial leasing.

DIFFERENCES:

LEASING:

  • Is a financial product
  • Is a finance lease with an option to buy
  • Does not include maintenance costs
  • Can be terminated early

RENTING:

  • Not a financial product
  • A lease without an option to buy
  • Includes the cost of maintaining the agreement
  • Cannot be, in principle, terminated early

BENEFITS:

  • Finance assets without the need for large investments
  • Greater liquidity, not having to make large disbursements
  • Frequent renewal of assets avoids the risk of obsolescence
  • For tax purposes, fees are a deductible expense

INCONVENIENT:

  • Legal problems if they are not used professionally. It is very common not to use the professional standard for passenger cars
  • Cannot be canceled in advance like a loan
  • Only funds the initial investment, with maintenance costs being the responsibility of the tenant

FRANCHISING

Franchising is a contract whereby the franchisor provides goods, services, brands, trade names, etc. In return, the franchisee makes an economic consideration for the right to exploit them, accepting the conditions imposed. The franchisor must register with the franchisors only for information and publicity purposes.

Elements involved:

a) The Franchisor: The natural or legal person who gives their name, trademarks, or service.

b) The Franchisee: The natural or legal person that is part of the chain that operates a business with the cession of the franchisor.

c) Trademark and Logo: The means by which the franchise is recognized.

d) The Know-How: The transmission of know-how from the franchisor to the franchisee.

Rating:

a) Distribution Franchise: The franchisor makes the products, and the franchisee sells them.

b) Manufacturing Franchise: The franchisor provides the franchisee with part of their formula or manufacturing process, giving them training.

c) Service Franchises: The franchisee provides the procedure for filing services.

Rights and Duties:

a) Obligations of the Franchisor:

  • Give the franchisee the use of distinctive signs, patents, products, depending on the type of franchise
  • Technical assistance
  • Quality control of the franchisee’s actions
  • Train the franchisee and staff
  • Provide products for the franchisee
  • Allow the franchisee to sell their stock when the contract is rescinded
  • Not to grant other franchises in the area of influence if there is an exclusivity clause in the franchisee’s contract

b) The Franchisee’s Obligations:

  • Protect confidential information received from the franchisor
  • Compliance with all conditions agreed with the franchisor in the development of the activity

LOGISTICS

Logistics is a broad field that covers many activities, including the management of the supply system, product inventory management, warehouse management, and the transportation system. Joint management is needed throughout the entire logistic system, which involves the flow of goods, information, and money.

OBJECTIVES:

  1. Give satisfactory service to customers. Deliver products on schedule and without errors.
  2. Reduce the cost of getting the product through the entire system, from the supplier to the company, from the time of manufacturing to the end consumer.

CURRENT TRENDS IN THE ROLE AND THE PROCESS OF PURCHASING

  • Investigate and search for providers actively: Companies are getting the best suppliers by expanding the search scope.
  • To enhance the information: On products, costs, and suppliers that the purchasing department handles.
  • Reduce the number of suppliers to reduce procurement costs and management: If purchases are accumulated with a few suppliers, there will be greater bargaining power, so better trade conditions can be obtained.
  • Cooperate and coordinate with their suppliers to reduce costs: Coordination with suppliers is essential to get the products at the right time and at minimum cost.

TRANSPORT

There are several decisions to be made:

  • Transportation systems used
  • Whether to own or hire trucks
  • The organization of the transport system and the management of information
  • Establishing routes

E-MAIL OR SUPPLY PROCUREMENT

.: Aims to optimize procurement processes for companies by creating virtual hosting shopping centers customized for each company using the Internet offers advantages in such transactions. BENEFITS: – reduction of administrative costs. through electronic procurement. – Reducing job ACQUIRING prices of goods and services from 5 to 10%. – Increased use of preferred suppliers. – REDUCTION time required to complete the buying cycle. DISADVANTAGES: Some procurement department managers and procurement suspicious because they feel their job is threatened or at least requires a strong cultural and procedural cmbio in empresa.los also feel threatened intermediaries porqe its function may disappear. providers see as margins narrowed.