Assignment ch 2, and ch 3
feras81
chapter_3_purchasing_policy_and_procedures1.pptxPurchasing Policy and Procedures
Chapter 3
OSCM 3660:002 Strategic Sourcing
Spring 2016
Sandeep Jagani
PURCHASING & SUPPLY CHAIN MANAGEMENT, 5e
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
1
Chapter Overview
Policy overview
Policies provide guidance and direction:
Role of purchasing
Conduct of purchasing personnel
Social and minority business objectives
Buyer-supplier relationships
Operational issues
Purchasing procedures
Purchasing & Supply Chain Management, 5e
2
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
The Term “Policy”
Refers to set of purposes, principles, and rules of action that guide an organization
Standard operating procedures
Rules and regulations
Formal (written) vs. informal policies
Part of organizational culture
Purchasing & Supply Chain Management, 5e
3
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Advantages of Using Policies
Define and clarify top management objectives
Means for executives to communicate their leadership and views
Provides framework for consistent decision-making and action
Defines rules and procedures for all employees
Purchasing & Supply Chain Management, 5e
4
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Disadvantages of Using Policies
Often difficult to communicate throughout large organizations
Might be viewed as substitute for effective management
Not a set of “how-to” instructions
May restrict innovation and flexibility
Purchasing & Supply Chain Management, 5e
5
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
What Makes for an Effective Policy?
Action-oriented guidelines
Relevant
Concise
Unambiguous/well-understood
Timely and current
Helpful in solving problems
Purchasing & Supply Chain Management, 5e
6
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Categories of Purchasing Policies
Defining role of purchasing
Defining conduct of purchasing personnel
Defining social and minority business objectives
Defining buyer-supplier relationships
Defining operational issues
Purchasing & Supply Chain Management, 5e
7
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Defining the Role of Purchasing
Origin and scope of purchasing authority
Objectives of purchasing function
Corporate purchasing office responsibilities
Purchasing & Supply Chain Management, 5e
8
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Purchasing Authority
Authority to conduct business and represent organizational interests
Created by executive committee
Authority to delegate certain tasks and assignments to other functional areas
Describes scope of and limits to authority
Purchasing & Supply Chain Management, 5e
9
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Objectives of Purchasing Function
Select suppliers that meet requirements
Purchase materials and services that comply with appropriate standards
Promote buyer-supplier relations and encourage supplier contribution
Treat all suppliers fairly and ethically
Purchasing & Supply Chain Management, 5e
10
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Objectives of Purchasing Function
Work closely with other departments
Conduct purchasing operations to enhance community/employee relations
Support all corporate objectives and policies
Maintain a qualified staff and develop professional capabilities
Purchasing & Supply Chain Management, 5e
11
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Corporate Purchasing Office
Carry out executive policies
Develop and publish purchasing policies and procedures
Coordinate strategy development
Evaluate purchasing effectiveness
Provide expert support at all levels
Perform other corporate level tasks and activities
Purchasing & Supply Chain Management, 5e
12
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Defining the Conduct of Purchasing Personnel
Ethics policy
Reciprocity policy
Contacts and visits to suppliers
Former employees representing suppliers
Reporting of irregular business dealings with suppliers
Purchasing & Supply Chain Management, 5e
13
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Avoid the Appearance of Reciprocity
Giving preference to suppliers that buy from you
Expecting suppliers to purchase your products as condition for securing purchase contract
Looking favorably on competitive bids by suppliers who buy from you
Purchasing & Supply Chain Management, 5e
14
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Former Employees
Access to insider knowledge
Include ban for a stated period of time in employee contracts
Knowledge of policies and procedures
Relationships with buyer’s personnel
Purchasing & Supply Chain Management, 5e
15
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Irregular Business Dealings
Establish reporting mechanism
Specify proper office for reporting
Create safeguards to protect reporting party
Report suspected irregularities as soon as possible
Purchasing & Supply Chain Management, 5e
16
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Examples of Irregular Dealings
Accepting bribes or kickbacks
Cronyism
Accepting late bids
Owning a stake in supplier’s company
Other behavior not considered part of the “normal” course of doing business
Purchasing & Supply Chain Management, 5e
17
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Defining Social and Minority Business Objectives
Support minority business suppliers
Challenges
Lack of access to capital
Supply base optimization initiatives
Inability to attract qualified managerial and technical professionals
Relatively small size
Purchasing & Supply Chain Management, 5e
18
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Defining Social and Minority Business Objectives
State management’s commitment
Evaluate performance potential of small and/or disadvantaged suppliers
Invite minority bids on new contracts
Establish minimum % of business for qualified small and minority suppliers
Create training program to educate buyers
Purchasing & Supply Chain Management, 5e
19
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Identifying Minority Suppliers
Is supplier fully qualified?
Does supplier satisfy U.S. government criteria by definition?
Does supplier meet our standard performance requirements?
Is supplier price competitive?
How much business can we award supplier given its capacity?
Purchasing & Supply Chain Management, 5e
20
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Challenges for Buyer
Limited resources for supplier diversity
Lack of executive sponsorship
Need for supplier development initiatives
Process improvement
Leadership/corporate commitment
Purchasing & Supply Chain Management, 5e
21
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Diversity Best Practices
Mandate Tier 1 suppliers to have Tier 2 diversity spend goals
Include minority suppliers in all RFQs
Tie goals and objectives to supply chain management strategies
Include supplier diversity programs into corporate supply management
Include into all corporate functions
Purchasing & Supply Chain Management, 5e
22
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Corporate Social Responsibility
Low-cost country sourcing
Environmental issues
Labor and human rights
Purchasing & Supply Chain Management, 5e
23
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Environmental Policies
Now required by governments, investors, and major customers
Use of recycled materials
Strict compliance with local, state, and federal regulations
Proper disposal of waste materials
Documented disposal of hazardous materials
Implement back through supply chain
Purchasing & Supply Chain Management, 5e
24
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Labor and Human Rights Policies
Also now required by governments, investors, and major customers
Ethical treatment of suppliers’ employees
Living wages
Safety and security
Overtime
Implement back through supply chain
Purchasing & Supply Chain Management, 5e
25
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Defining Buyer-Supplier Relationships
Treating suppliers fairly and with integrity
Supporting and developing motivated suppliers
Providing prompt payment on invoices
Encouraging suppliers to submit innovative ideas and jointly sharing benefits
Purchasing & Supply Chain Management, 5e
26
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Defining Buyer-Supplier Relationships
Developing open communications channels
Informing suppliers as to why they did not receive purchase contract
Establishing fair and transparent process to award purchase contracts
Purchasing & Supply Chain Management, 5e
27
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Qualification and Selection
Price/cost competitiveness
Product quality
Delivery performance
Financial condition
Engineering and manufacturing technical competence
Management of own suppliers
Management capability
Ability to work with buyer
Potential for innovation
Purchasing & Supply Chain Management, 5e
28
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Qualification and Selection
Single vs. multiple sourcing
Longer-term contracts and agreements
Reliance on non-purchasing personnel to aid in evaluating technical and/or financial data
Purchasing & Supply Chain Management, 5e
29
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Awarding Purchase Contracts
Buyer’s purchasing authority to award contracts
Conditions where competitive bidding is and is not appropriate
Conditions outline use of competitive bidding
Process of analyzing sealed competitive bids
Purchasing & Supply Chain Management, 5e
30
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Awarding Purchase Contracts
Conditions allowing for not sourcing with lowest bidder
Conditions prompting a rebid
Operating guidelines that pertain to negotiation of contracts with suppliers
Purchasing & Supply Chain Management, 5e
31
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Labor or Other Difficulties at Suppliers
Guidelines for strikes or labor problems at supplier facilities
Legal removal of company-owned materials, inventory, and/or tooling
Address emergency disruptions to supply chain
Purchasing & Supply Chain Management, 5e
32
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Other Relationship Policies
Accepting and using supplier-developed ideas
Financial obligations to suppliers providing early design involvement
Use of nondisclosure agreements
Criteria for using and/or sharing patents and other intellectual properties
Purchasing & Supply Chain Management, 5e
33
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Defining Operational Issues
Hazardous materials
Supplier responsibility for defective material
Purchased item comparisons
Other operating policies
Purchasing & Supply Chain Management, 5e
34
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Hazardous Materials
Controlling and/or minimizing waste generation
Obeying environmental laws
ISO 14000
Environmental management system
Proper handling of toxic and hazardous waste
Purchasing & Supply Chain Management, 5e
35
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Environmental Management System
Create an environmental policy
Set appropriate objectives and targets
Help design and implement program to achieve objectives and targets
Monitor and measure program effectiveness
Monitor and measure effectiveness of general environmental activities
Purchasing & Supply Chain Management, 5e
36
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Hazardous Waste Contractors
Evidence of valid permits and licenses
Specification of types of disposal services it is licensed to provide
Evidence of safeguards to prevent accidents
Evidence of contingency plan and preparations in case of accidental release of materials
Purchasing & Supply Chain Management, 5e
37
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Hazardous Waste Contractors
Detail of specific process used to control hazardous material once it leaves buyer’s control
Evidence of adequate liability insurance
Evidence that the hazardous waste transporter used properly certified disposal sites
Purchasing & Supply Chain Management, 5e
38
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Supplier Responsibility for Defective Material
Charge-back costs due to supplier nonperformance
Material inspection and rework
Repackaging and extra material handling
Returned goods shipping costs
Costs of lost or delayed production
Purchasing authority to negotiate and settle claims against suppliers
Purchasing & Supply Chain Management, 5e
39
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Purchased Item Comparisons
Periodic market comparison and evaluation of supplier’s competitors
Cost
Quality
Delivery
Technology
Requesting new bids for item from qualified suppliers
Purchasing & Supply Chain Management, 5e
40
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Other Operating Policies
Compliance with laws and regulations
Restrictions on “maverick spending”
Proper disposal of material assets
Legal right to terminate contracts
Supplier responsibility for premium transportation costs
Supplier-requested contractual changes
Supplier use of trademarks or logos
Purchasing & Supply Chain Management, 5e
41
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Purchasing Procedures
Operating instructions detailing functional duties or tasks
Serves as “how-to” manual
No uniform set of procedures that applies to every situation
Purchasing & Supply Chain Management, 5e
42
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Procedure Manual
Acts as reference guide
Especially helpful for new employees
Provides consistency and order by documenting required steps and activities
May specify industry best practices
Must be reviewed periodically to ensure that it is timely and accurate
Purchasing & Supply Chain Management, 5e
43
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Procedure Manual
Should be simplified and streamlined whenever possible
Minimize number of steps
Limit level of detail
Purchasing & Supply Chain Management, 5e
44
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Procedural Areas
Purchasing cycle
Proper use of purchasing forms
Development of legal contracts
Operational procedures
Purchasing & Supply Chain Management, 5e
45
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Purchasing Forms
Description of proper use
Detailed meaning of each information field
Description of proper handling and storage of forms
Where?
How long?
Approval process
Purchasing & Supply Chain Management, 5e
46
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Development of Legal Contracts
Basic features of standard purchase contract, i.e., “boilerplate” terms
Basic contract principles
Execution and administration of agreements
Essential elements of contract
Contract compliance and performance assessment
Purchasing & Supply Chain Management, 5e
47
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Development of Legal Contracts
Formal competitive contracting procedures
Contract development process
Examples of sample agreements
Legal definitions
Use of formal contract clauses
Purchasing & Supply Chain Management, 5e
48
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Operational Procedures
Control of material provided to suppliers
Storage of purchasing documents
Supplier qualification process
Use of computerized systems
Analysis of competitive quotations
Single or sole source selection
Requirements for price analysis
Purchasing & Supply Chain Management, 5e
49
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
Operational Procedures
Procedures for cost analysis
Acceptable cost reduction techniques
Intracompany transactions
Processing of overshipments
Supplier acknowledgements of P.O.s
Disposition of nonconforming materials
Removal of buyer-owned tooling
Purchasing & Supply Chain Management, 5e
50
© 2012 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.
