Chapter 2 The Purchasing Process
2.2 Purchasing Objectives
Purchasing process: is used to identify user requirements, evaluate stakeholder needs in a
concise and accurate manner, identify suppliers who can meet user requirements, develop
agreements with those suppliers, employ mechanism to place the order with suppliers,
ensure payment occurs promptly, validate that the need was effectively met, and drive
continuous improvement. Also often called the procure-to-pay process or P2P.
2.2a Objective 1: Supply Assurance
Purchasing must perform a number of activities to satisfy the operational requirements of internal
customers.
Internal customers: stakeholders.
Purchasing supports:
- The needs of operations
- The requirements of physical distribution centers
- Engineering and technical groups (IT)
With the dramatic increase in outsourcing, enterprises are relying increasingly on external suppliers
to provide not just materials and products but information technology, services, and design activities
as well. Purchasing must support this strategy by providing an uninterrupted flow of high-quality
goods and services that internal customers require. This flow requires purchasing to do the
following:
1. Source products and services at the right price.
2. Source them from the right source.
3. Source them at the right specification that meets users’ needs.
4. Source them in the right quantity.
5. Arrange for delivery/service performance at the right time to the right internal customer.
Maverick buying: when internal customers try to negotiate contracts themselves, because
the supply managers failed to respond to their needs (lack of confidence).
2.2b Objective 2: Manage the Procure-to-Pay Process Efficiently and
Effectively
Purchasing must manage its internal operations efficiently and effectively, by performing the
following:
- Determining staffing levels.
- Developing and adhering to administrative budgets.
- Providing professional training and growth opportunities for employees.
- Introducing improved buying channels within the procure-to-pay systems that lead to
improved spending visibility, efficient invoicing and payment, and user satisfaction.
Limited resources include:
- Employees working within the department
- External consulting
- Training
- Travel
- IT budget limitations
- Other budgeted funds
1
, - Time
- Information
- Knowledge
P2P workers must be focused on continuously improving transactional-level work through efficient
purchasing systems that keep suppliers satisfied, which makes life easier for internal users.
Talent management is proving to be an important task for procurement, as the need for qualified
purchasing personnel is growing globally.
2.2c Objective 3: Supplier Performance Management
Supplier performance management (SPM): a process that exists of the selection,
development and maintenance of suppliers.
Purchasing must keep abreast of current conditions in supply markets to ensure that purchasing:
1. Selects suppliers that are competitive.
2. Identifies new suppliers that have the potential for excellent performance and develops
closer relationships with these suppliers.
3. Improves existing suppliers.
4. Develops new suppliers that are not competitive with current suppliers.
An important technical requirement to achieve the development of reliable, high-quality supply
sources is the ability to develop scorecards to track performance, as well as the human resources to
perform regular reviews of supplier performance to drive continuous improvement.
2.2d Objective 4: Develop Aligned Goals with Internal Stakeholders
Global organizations have traditionally maintained organizational structures that have resulted in
limited cross-functional interaction and cross-boundary communication. Purchasing must
communicate closely with functional groups that represent their internal customers. This may mean
having procurement professionals who are embedded in these groups, which may include
marketing, manufacturing, engineering, technology, IT, human resources, and finance.
2.2e Objective 5: Develop Integrated Supply Strategies That Support
Business Goals and Objectives
Perhaps the single most important objective for supply management is to support business goals and
objectives. This objective implies that purchasing can directly affect (positively or negatively) the
long-term growth, revenue, and operating outcomes and plans of stakeholders and business units.
Unfortunately, it is often the case that supply management fails to develop strategies and plans that
align with or support organizational strategies or the plans of other business functions, in many
cases because they are too “price-focused”.
A supply management executive actively involved in business strategy discussions can provide
critical supply market intelligence, budget forecasts, and other insights that contribute to more
effective strategic business planning. Examples of such inputs include the following:
- Updates on supply market conditions and trends and translation of these impacts on key
business outcomes.
- Identification of emerging materials and service technologies to support company strategies
in key performance areas, particularly during new-product development.
- Development of supply options and contingency plans to reduce risk.
2
2.2 Purchasing Objectives
Purchasing process: is used to identify user requirements, evaluate stakeholder needs in a
concise and accurate manner, identify suppliers who can meet user requirements, develop
agreements with those suppliers, employ mechanism to place the order with suppliers,
ensure payment occurs promptly, validate that the need was effectively met, and drive
continuous improvement. Also often called the procure-to-pay process or P2P.
2.2a Objective 1: Supply Assurance
Purchasing must perform a number of activities to satisfy the operational requirements of internal
customers.
Internal customers: stakeholders.
Purchasing supports:
- The needs of operations
- The requirements of physical distribution centers
- Engineering and technical groups (IT)
With the dramatic increase in outsourcing, enterprises are relying increasingly on external suppliers
to provide not just materials and products but information technology, services, and design activities
as well. Purchasing must support this strategy by providing an uninterrupted flow of high-quality
goods and services that internal customers require. This flow requires purchasing to do the
following:
1. Source products and services at the right price.
2. Source them from the right source.
3. Source them at the right specification that meets users’ needs.
4. Source them in the right quantity.
5. Arrange for delivery/service performance at the right time to the right internal customer.
Maverick buying: when internal customers try to negotiate contracts themselves, because
the supply managers failed to respond to their needs (lack of confidence).
2.2b Objective 2: Manage the Procure-to-Pay Process Efficiently and
Effectively
Purchasing must manage its internal operations efficiently and effectively, by performing the
following:
- Determining staffing levels.
- Developing and adhering to administrative budgets.
- Providing professional training and growth opportunities for employees.
- Introducing improved buying channels within the procure-to-pay systems that lead to
improved spending visibility, efficient invoicing and payment, and user satisfaction.
Limited resources include:
- Employees working within the department
- External consulting
- Training
- Travel
- IT budget limitations
- Other budgeted funds
1
, - Time
- Information
- Knowledge
P2P workers must be focused on continuously improving transactional-level work through efficient
purchasing systems that keep suppliers satisfied, which makes life easier for internal users.
Talent management is proving to be an important task for procurement, as the need for qualified
purchasing personnel is growing globally.
2.2c Objective 3: Supplier Performance Management
Supplier performance management (SPM): a process that exists of the selection,
development and maintenance of suppliers.
Purchasing must keep abreast of current conditions in supply markets to ensure that purchasing:
1. Selects suppliers that are competitive.
2. Identifies new suppliers that have the potential for excellent performance and develops
closer relationships with these suppliers.
3. Improves existing suppliers.
4. Develops new suppliers that are not competitive with current suppliers.
An important technical requirement to achieve the development of reliable, high-quality supply
sources is the ability to develop scorecards to track performance, as well as the human resources to
perform regular reviews of supplier performance to drive continuous improvement.
2.2d Objective 4: Develop Aligned Goals with Internal Stakeholders
Global organizations have traditionally maintained organizational structures that have resulted in
limited cross-functional interaction and cross-boundary communication. Purchasing must
communicate closely with functional groups that represent their internal customers. This may mean
having procurement professionals who are embedded in these groups, which may include
marketing, manufacturing, engineering, technology, IT, human resources, and finance.
2.2e Objective 5: Develop Integrated Supply Strategies That Support
Business Goals and Objectives
Perhaps the single most important objective for supply management is to support business goals and
objectives. This objective implies that purchasing can directly affect (positively or negatively) the
long-term growth, revenue, and operating outcomes and plans of stakeholders and business units.
Unfortunately, it is often the case that supply management fails to develop strategies and plans that
align with or support organizational strategies or the plans of other business functions, in many
cases because they are too “price-focused”.
A supply management executive actively involved in business strategy discussions can provide
critical supply market intelligence, budget forecasts, and other insights that contribute to more
effective strategic business planning. Examples of such inputs include the following:
- Updates on supply market conditions and trends and translation of these impacts on key
business outcomes.
- Identification of emerging materials and service technologies to support company strategies
in key performance areas, particularly during new-product development.
- Development of supply options and contingency plans to reduce risk.
2
