Ayietah Notes

7/27/2019 Ayietah Notes

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Supplier Selection Criteria





Steps to undertake when you have a relationship with a current or potential

supplier’s employee.

Disclose

To advise management of a relationship that may appear to be a conflict of intrest.

Recuse

To remove yourself from participation in a decision in order to avoid conflict of intrest.

Documents

To produce and retain written correspondence about your disclosure. Ethical accusations

often arise months/years after decision is made. Good documentation can prove that a decision

was reached ethically.

What Justifies an Increase in Purchasing Scope?

Purchasing personnel are measured on their performance of purchasing processes.

Other departments are measured on different contributions to the organizations.

Assigning purchasing responsibility to these departments keeps them from spending

time on their primary functions within the organizations.

Purchasing personnel are trained in cost savings techniques like negotiation and

strategic sourcing. Engineers, department heads and other internal customers are

typically not, which can lead to paying higher prices. The purchasing department has savings generating tools such as eSourcing systems at

their disposal. Other departments do not.

The purchasing department is goods at identifying alternatives, then guiding the

organization to select the best option.

By working with all departments, the purchasing department is aware of enterprise

wide standards. As such, it can leverage aggregated volume for lower costs, minimize

inventory and avoid pitfalls.

Purchasing personnel are trained at evaluating supplier viability, Engineers, department

heads and other internal customers are not which can result in the selection of asupplier that goes out of business during the course of the relationship.



By having the purchasing department provide centre –led oversight, the organization

can have more assurance that all departments are benefitting from the organizations

leveraged buying power.

Steps to commodity price forecasting

Properly categorize the commodity against an existing price index and be more

specifice.g. Newsprint instead of paper.

Price levels historical fluctuation, Historical price levels can help you determine whether

current levels are relatively high or low.

Look at Micro and Macro economic factors that may give hints as to where pricing may

go.

Evaluate your starting point, if your original price was established at the peak of the

market and was not established through best practices like strategic sourcing.

E-Sourcing

The process of obtaining bids from different suppliers via a single portal.

Benefits of E-Sourcing

Streamlining the sourcing process

Reducing prices by maximizing supplier competition.

Creating a repository for sourcing information.

Helps in gathering of supplier information.

Goals of Strategic Sourcing

To save money

To reduce risk, Strategic sourcing helps should enable one to sustain continuity of supply

in the face of unexpected disruption to the operations of one or more suppliers.

To improve supplier performance-

To bring innovations from the supply base-in today’s competitive world. Every business

needs constant flow of innovative ideas to keep their competitors from stealing their

market share.



To support the organizations social responsibility goals.Todays organization

support diversity, environmental responsibility and other goals, so decisions

made as part of strategic sourcing should consciously help move the organizationtowards those goals.

What you should do at the end of a negotiation?

Enter the last negotiation session with the authority to commit, if you lack the authority

to commit to a deal in that last negotiation session, you lack full control over the

negotiation run the risk of the supplier going around you and negotiating directly with

those who do have decision making authority.

Have at least one week of slack time between the last scheduled negotiation and the

actual day you must commit. Creating uncertainty by stating a need to “think it over aweek”-even if you don’t really have to can make your supplier nervous and more

susceptible to agreeing to more favorable terms. If the supplier tries to dissuade you

from ‘thinking it over’ ask would there be any benefit to my organization for deciding

now as opposed to next week,.

Share this negotiation strategy with management in order to get full support on the

importance of leveraging last negotiation strategy.

Ways by which Procurement Department with Finance Dept. Agreeing on cost savings reporting standards

By agreeing with finance on standards and using income statement to keep score.

Procurements cost savings reporting will be more believable.

Considering the downside of certain cash flow strategies

Determine a balanced inventory approach

Considering supply market forces when setting financial goals.



Tips on how to Renegotiate a Supplier Contract

Approach your supplier carefully

If you contracted for the product/service they are no obligation to concede to you. You

are essentially asking them for a favor.

Address specifications and expectation.

Be careful about specifying that you want the same product/service that you are getting

today for a lower rate, often when suppliers renegotiate, they look out for quality,

delivery or service.

Convince the Supplier that a price reduction is fair; use persuasion techniques to

petition the supplier.

Consider the possibility that the relationship could devolve into an opportunistic one

Consider ethics and cultural norms, renegotiating a contracted price may be considered

unethical.

Put your reasoning into context

Fundamental features of Management

Is universal i.e. basic principles of mgt are universally accepted?

Is purposeful i.e. the aim of all managers is the same, to attain organization

objectives.

It applies at all levels of the organization.

An interactive process

Is concerned with productivity?

Functions of Management

Directing

Planning

Staffing

Organizing

Controlling



Methods of Controlling

Budget-Plan expressed in numbers for purpose of controlling operations.

Auditing – Associated with verification of financial records & practices.

Types of Budgets

Balance sheet budgets

Cash budgets

Revenue & Expense budget

Time Budget

Capital expenditure budget

Non-budgetary Controls

Statistical data

Special reports & analysis

Breakeven point analysis

Personal Observation

Gant chart

Network analysis

Benefits of contracting out

Cost savings

Competitive edge

Increased mkt accessibility

Expertise in distribution function used

Relieves manufacture from non-core function

Enhanced customer satisfaction due to timely delivery

Demerits of contracting out

Loss of confidentiality

Loss of control

Inflexibility

Insensitivity to customers

Loss or lack of direct contact with customers

Delayed feedback from customers.

Strategies used to reduce cost of purchased services



Using reverse auctions

Outsource service purchasers i.e. advertising,insuarance

Considering consortium buying

Take advantage of volume aggregation to negotiate quantity discounts

Developing integrated purchasing strategies so that purchasing professionals can work with

users of services to enforce financial controls.

Problems encountered in measuring & evaluating purchasing performance

Lack of definition – Although frequently used in practice as well as in theory,terms like

Purchasing,performance,purchasing effectiveness & purchasing efficiency,

Haven’t been precisely defined.

Lack of formal objectives & performance stds – Most purchasing depts. Operate without the

Guidance of a well defined performance stds.

Problems of accurate measurement – Purchasing performance is a result of many activities

Which due to their intangible character are difficult to

Evaluate.

Difference in scope of purchasing - Purchasing tasks & responsibilities differ greatly from one

Company to another. This produces the devpt of broadly

Based, uniform benchmarking & evaluation systems.

Purchasing performance evaluation is the quantitive/qualitative assessment over a given time

towards achievement of corporate or operational goals/objectives relating to purchasing

economies, effectiveness & efficiency.

Importance of measuring purchasing performance

Purchasing performance evaluation can lead to better decision making since it identifies

variances from planned results.

May lead to better communication with other depts.

Makes things visible.i.e regular reporting of actual versus planned results enables a buyer to

verify whether his/her expectations have been realized.

May contribute to better motivation.



Factors influencing purchasing performance measurement

Strategic business area –Purchasing is actively involved in deciding the company’s core business

Reinforces the company’s competitive position.

Part of intergrated logistics – Mgt introduces targets to buyers on quality improvement lead the

& improving supplier deleivery reliability. Operational,administrative activity

What Justifies an Increase in Purchasing Scope?

1. Purchasing personnel are measured on their performance of purchasing processes.

Other departments are measured on different contributions o the organizations.

Assigning purchasing responsibility to these other departments keeps them from

spending time on their primary functions within the organization.

2. Purchasing personnel are trained in cost savings techniques like negotiation an strategic

sourcing. Other depts. Are typically not which can lead to paying higher prices.

3. The Purchasing dept has savings generating tools e.g. eSourcing systems while other

depts. Do not.

4. The Purchasing dept is good at identifying alternatives, then guiding the organization to

select the best option. Too often, the internal customers just go with the first supplier

found commiting the organization to a suboptimal arrangement that endures for years.

5. By working with all depts.,the purchasing dept is aware of enterprise wide standards.As

such it can leverage aggregated volume for lower costs,minimize inventory and avoid

pitfalls previously identified with competing products.

6. Purchasing personnel are trained at evaluating supplier viability while other depts. Are

npt which can result in the selection of a supplier that goes out of business during the

course of the relationship.

7. Its not uncommon for suppliers to harge different departments within the same

organization different prices when they can get away with it.By having the purchasing

dept provide centre led over sight .the orgns can hav more assuarance that all

departments are benefitting from the orgns leveraged buying power.

