Question

Q1-The most common item categories are standard, consignment, subcontracting, third-party, and stock transfer. Explain how each of these item categories impacts on procurement process when a company purchases materials or services?

Q2-Explain how the procurement process is integrated with other processes within an organization. Expert Answer

Answer 1

Answer 2

The procurement process can be divided into five steps.

Define the business need

You need to understand what the fundamental business requirement is. At this point, it is important to understand the difference between a requirement and a solution. For example, the business requirement is to source some software to help to get information published on the company intrantet. An item of software to publish information on the company intranet is a solution – not a requirement. The requirement is to be able to publish information on the intranet. It may be that an outsourced solution is a better option.

Develop the Procurement Strategy

Depending on the scale of your project, there could be a very wide range of potential solutions and approaches to your business need and a number of ways of researching the market and selecting a supplier.

Supplier Selection and Evaluation

After researching the market and establishing your procurement approach, you need to evaluate the solutions available. This may involve a formal tender process or an on-line auction. You criteria for comparing different solutions and suppliers are critical. Weight the key criteria heavily and don’t attach too much importance to aspects that will have little impact on the solution.

Negotiation and award.

Even when you have selected a supplier it is important that detailed negotiations are undertaken. This is not just about price. Think in terms of Total Cost of Ownership. A cheap product is not so cheap if the carriage costs are huge or if the maintenance contract is onerous.

Consider carefully the process by which the goods or services will be ordered and approved; how they will be delivered and returned if necessary; how the invoice process will work and on what terms payment will be made. Considering the whole Purchase to Pay process (P2P) at the outset can reduce costs and risk significantly

Induction and Integration

No goods or services should be ordered of delivered until the contract is signed, but this is not the end. It is vital that the supplier is properly launched integrated. The P2P process needs to be in place and need to be understood on both the buy-side and the supplier side. Any service levels that have been agreed need to be measured and KPIs put in place. Regular reviews should be established.