Introduction Procurement
Why are companies buying?
What are companies buying?
Buildings, equipment, ingredients/raw materials, software/licenses, hardware, vehicle, utilities
(water, gas,…), services, machinery, interim
2 sides
If you hire people they are on a payroll and every
month you give them a paycheck.
If you want to buy stuff you order it and you get interim
an invoice
Ways to classify items
Goods VS Services
Direct VS indirect purchases/spend *
OEM vs IAM
Capex vs opex
Investments
*Difference between direct and indirect purchases/spend
Direct spend is product related: acquisition of goods, raw materials, and/or services to be
directly applied to an organization’s own production
, Indirect spend is non product related (NPR): purchasing of materials, goods, or services
necessary for internal use
GOODS vs SERVICES
GOODS SERVICES
Tangible • Non tangible
• Produced -> Sold –> Consumed • a task of some kind
• production location - factory • a performance of some act
• production process of value
• stock = output from production • Organisations are ‘sub-
stored for future sale contracting’ non-core aspects of
• can be transported their work. Examples ?
• good design and production • Examples : Accountancy,
processes ensure the right Advertising, Marketing, Banking,
quality • Catering, Cleaning, IT,
Consultancy, ..
DIRECT vs INDIRECT PURCHASE/SPEND
DIRECT INDIRECT
Product Related • Non Product Related (NPR)
• acquisition of goods, raw materials, • purchasing of materials, goods,
and/or services to be directly applied or services necessary for internal
to an organization’s own production use.
• necessary for key business practices • required to keep the day to day
• raw materials and goods for business alive.
production • does not add to a business’s
• done in large quantities bottom line
• acquired from a pool of suppliers at • businesses wouldn’t be able to
the best possible cost, quality and operate in an effective manner
reliability. • Examples:
• Examples: • Travel
• Drinks in shops • Office supplies (computers,
• Fruit and vegetables for direct phones,...)
consumption • Utilities (gas, electric,
• PPE (Personal Protective water etc.)
Equipment) such as gloves, • Facility management
safety glasses, safety shoes (beverages, toiletries etc.).
• repairing equipment
,OEM / IAM
OEM IAM
OEM : original equipment manufacturer IAM : Independent Aftermarket Parts
• a company that manufactures a product that is • "third-party"
sold to another company, which resells the • an unofficial alternative for the standard
product under its own brand name. (expensive) official licensed parts
• Advantages • wide range of prices and qualities
- Advantages:
- Quick response times
- Quality component
- Good customer service
- Warranty
OEM examples:
Car industry:
- A company that manufactures the steering wheel or the tires on a new car, truck or SUV.
Computer software:
- A company like Microsoft that sells the operating system used in computers or other digital devices.
Electronics:
- A company that builds the car radio that is included in a new vehicle.
Manufacturing:
- A company that builds the engine that goes into a new bulldozer or airplane.
CAPEX vs OPEX
Capital expenditures (CAPEX) are major purchases a company makes that are designed to
be used over the long term. Operating expenses (OPEX) are the day-to-day expenses a company
incurs to keep its business operational.
Why important?
- Different accounting
- Different budget
, Procurement process
6 phases in the procurement process
Specifying Selecting Contracting Ordering Deliveries/follow-up Performance follow up
Role of procurement
Activities of procurement?
- R&D – market research
- Supplier selection
- Contracting
- Ordering products
- Supplier evaluation
- Strategy decisions (offshore/outsourcing/make or buy)
- Fairs
- Operational emergencies
…
Key contributor to Business Success
Procurement role: isolated?
Interaction with suppliers OUTSIDE the company
Interaction with many colleagues/departments INSIDE the company
- Which stakeholders?
- Which departments (not)?
Why are companies buying?
What are companies buying?
Buildings, equipment, ingredients/raw materials, software/licenses, hardware, vehicle, utilities
(water, gas,…), services, machinery, interim
2 sides
If you hire people they are on a payroll and every
month you give them a paycheck.
If you want to buy stuff you order it and you get interim
an invoice
Ways to classify items
Goods VS Services
Direct VS indirect purchases/spend *
OEM vs IAM
Capex vs opex
Investments
*Difference between direct and indirect purchases/spend
Direct spend is product related: acquisition of goods, raw materials, and/or services to be
directly applied to an organization’s own production
, Indirect spend is non product related (NPR): purchasing of materials, goods, or services
necessary for internal use
GOODS vs SERVICES
GOODS SERVICES
Tangible • Non tangible
• Produced -> Sold –> Consumed • a task of some kind
• production location - factory • a performance of some act
• production process of value
• stock = output from production • Organisations are ‘sub-
stored for future sale contracting’ non-core aspects of
• can be transported their work. Examples ?
• good design and production • Examples : Accountancy,
processes ensure the right Advertising, Marketing, Banking,
quality • Catering, Cleaning, IT,
Consultancy, ..
DIRECT vs INDIRECT PURCHASE/SPEND
DIRECT INDIRECT
Product Related • Non Product Related (NPR)
• acquisition of goods, raw materials, • purchasing of materials, goods,
and/or services to be directly applied or services necessary for internal
to an organization’s own production use.
• necessary for key business practices • required to keep the day to day
• raw materials and goods for business alive.
production • does not add to a business’s
• done in large quantities bottom line
• acquired from a pool of suppliers at • businesses wouldn’t be able to
the best possible cost, quality and operate in an effective manner
reliability. • Examples:
• Examples: • Travel
• Drinks in shops • Office supplies (computers,
• Fruit and vegetables for direct phones,...)
consumption • Utilities (gas, electric,
• PPE (Personal Protective water etc.)
Equipment) such as gloves, • Facility management
safety glasses, safety shoes (beverages, toiletries etc.).
• repairing equipment
,OEM / IAM
OEM IAM
OEM : original equipment manufacturer IAM : Independent Aftermarket Parts
• a company that manufactures a product that is • "third-party"
sold to another company, which resells the • an unofficial alternative for the standard
product under its own brand name. (expensive) official licensed parts
• Advantages • wide range of prices and qualities
- Advantages:
- Quick response times
- Quality component
- Good customer service
- Warranty
OEM examples:
Car industry:
- A company that manufactures the steering wheel or the tires on a new car, truck or SUV.
Computer software:
- A company like Microsoft that sells the operating system used in computers or other digital devices.
Electronics:
- A company that builds the car radio that is included in a new vehicle.
Manufacturing:
- A company that builds the engine that goes into a new bulldozer or airplane.
CAPEX vs OPEX
Capital expenditures (CAPEX) are major purchases a company makes that are designed to
be used over the long term. Operating expenses (OPEX) are the day-to-day expenses a company
incurs to keep its business operational.
Why important?
- Different accounting
- Different budget
, Procurement process
6 phases in the procurement process
Specifying Selecting Contracting Ordering Deliveries/follow-up Performance follow up
Role of procurement
Activities of procurement?
- R&D – market research
- Supplier selection
- Contracting
- Ordering products
- Supplier evaluation
- Strategy decisions (offshore/outsourcing/make or buy)
- Fairs
- Operational emergencies
…
Key contributor to Business Success
Procurement role: isolated?
Interaction with suppliers OUTSIDE the company
Interaction with many colleagues/departments INSIDE the company
- Which stakeholders?
- Which departments (not)?
