Welcome to procurement basics. This is the first course in this specialization. I would like to just give you a brief overview of what we're going to cover today. So we're going to basically cover some basics stuff. So if you're in procurement, you probably know most of this, such as definitions that sometimes people get confused over, the importance of procurement in your organization, cost versus value. We're going to talk a lot about processes that people use in procurement, such terms as request for quotation, request for proposal, request for information. I'll talk briefly about the difference between directs and indirects, and I'll tell you what that is. Lastly, one of the most important topics is that we're going to talk about stakeholder engagement. So here's what my expectations are for you. These would be like your learning objectives. Hopefully, you'll learn something about some basic definitions. Second, I hope that you'll learn why procurement is important to your firm, give you some basic flow of a general procurement processes, what happens within a department. Hopefully, you'll learn the differences between directs and indirects. Lastly, I'll talk about how you would improve your stakeholder management. Stake holders in my definitions, are your internal customers that you're working for, trying to get things for, goods or services for people in the business. So as you can see here, this is week 1 of 5 and we're going to really talk about definitions for starting. So just take a minute, I'm going to give you about 20 seconds. What's the difference between procurement, sourcing, purchasing, supply management, and supply chain management? So take a minute, I'll give you 20 seconds or so, just try to write down a brief definition of what you think these things are and then we're going to go through some actual definitions. So I'll give you about 20 seconds, see you in 20. So the first things I'd like to cover is what the differences between procurement and purchasing. Now, I normally don't read slides, but because these are definitions, the next couple of slides I'll apologize up front and just say I'm going to have to read these things and hopefully go back and review them at a later date. But let's talk about procurement, which is the name that's in this course. It's the process of identifying, shortlisting, selecting, and acquiring suitable goods and services or works from a third party vendor through direct purchase, competitive bidding, or tendering process, while ensuring timely delivery in the right quality and quantity. Purchasing on the other hand is a subset of procurement, it's about acquiring goods and services that organization requires, it's a smaller subset of this and it requires things like ordering, expediting, receiving, and fulfilling payment. The difference between the two, procurement is much more strategic, we'll talk about that in general and purchasing is much more tactical. Sourcing, which is another words sometimes used for procurement. But we're going to talk about it, is it's going to be a process, is it going to be a stage that comes before any major purchases are made and be considered a subsection of the procurement department. Basically, when you compare large materials, expensive materials, strategic materials, you'll go through a process and we're going to call that the strategic sourcing process, of which we're going to cover in course 3, and you're going to find it reliable, formal, and quality suppliers to supply goods that you need. Another term that pops up is a term called supply management. Now this was instituted by the Institute of Supply Management in United States. This is a professional procurement organization. I think they were trying to get away from the word purchasing because it's by this nature made very tactical, and they come up with a term supply management. It's very similar to procurement, here's their definition, planning for, and acquiring the organization's current and future needs through effectively managing the supply base, and utilizing process orientation in conjunction with cross-functional teams to achieve the organizational mission. I think the two takeaways from this definition is the first one is strategic, you've heard that word before. So you heard it in the procurement about being strategic, you can see in supply management strategic. The second thing that we'll talk more about in Course 3 is this idea of process orientation, putting things in a process to have optimal results. Lastly, you've probably heard this supply chain management particularly when going on with all the COVID-19 which I'm sure you're well aware of. Everybody talks about supply chain management, what is it? Well, it's an active management of supply chain activities to maximize customer value. So this is all the way from the suppliers, suppliers all the way to the end users or customers. It's really put together to have a sustainable competitive advantage. The activities include product development, procurement, remember I said procurement is not always, but generally a function within the supply chain, and production to logistics, as well as information needed to coordinate those activities. So for an example, when I worked as a chief procurement officer for Colgate, I worked for supply chain, and that's not true in every case, we'll touch on that a little bit more. So I want to give you a chart here, and it's a little hard to read here, but if you take a look from left to right, it talks about a source, goes to suppliers, goes to converters or manufacturers, distributors, retailers or end-users, and finally consumers. So let's give an example of what we're talking about. So let's take toothpaste. You're going to need a carton to put the toothpaste in. So basically, the supplier would contract with a source to get some cardboard to print on the substrate or the cardboard to make a carton, form it and ship it off to the converter, or let's say a Colgate manufacturing plant. They would make up the toothpaste, put it in a tube, they put the tube into the carton, and it would be a finished product, put it in a nice beautiful case, ship it out to the distributors. Distributor in local area said okay. Your local retailer would say, "I need some more toothpaste," they would ship it to them. Could go to an end user depending on the business. Sometimes there's not retailers involved, and then lastly, hopefully you as the consumer goes in and of course you buy that Colgate product which of course helps my stock values because I'm still on the last stock. So here's what's important. So the material flow goes from left to right, make sense? So all the way from that piece of cardboard to the supplier, to the converter, eventually it's made into a finished product, to a distributor, to the retailer, and you buy it on the shelf. A lot of times value-added services occur. So you've taken a piece of cardboard. Welcome to the many components that go into toothpaste, and you're basically adding value by putting it into a finished product that goes to distributor, distributor or the company might have a promotion that allows you to buy it cheaper, etc. So a lot of value-added services as it goes throughout the supply chain. Funds flow as you might think, go from right to left. Funds you pay for it at the retail, the retailer pays the distributor, distributor pays the converter, etc. Information goes both ways. The better flow you have of that information, the better you're going to have a well run supply chain. The last one which really is not applicable to toothpaste, but take a company like Dell, for example, that sells you a computer, you have a problem with it, you need to have it fixed, you have to send it to repair center, some after sales or service, and many industries have that. So that's what a supply chain is. Procurement generally works in the supply chain area or sometimes in the manufacturing area. It's not always there. So if you're a bank for example, you don't have any manufacturing or really truly supply chain, you might work for finance or maybe some shared service organization. Lastly, are you confused? Well, quite frankly me too. There's a lot of different terms out there, it can be very confusing. For this course or for this specialization, we're going to use the word procurement which means they're very strategic and we can also say that we're going to use strategic sourcing process, which is that process we use to get very strategic critical materials. Procurement as I said earlier is generally a subset of supply chain management, but I said there are exceptions, another example would be Pharma. Pharma, this has a very high percentage of indirects, and so they put it generally in finance. So they can support both the indirects and the directs, and we'll talk about what directs and indirects are in a few weeks. Lastly, and my advice to you, if you're interested, if you work in procurement or if you don't work in procurement, when somebody starts using some of these terms, ask him what it means to them, and I think that's what's important. A lot of times these terms are used interchangeably, so you need to find out what these terms mean. So with that, we're going to move on to Week 2.
