Week 3, we're going to talk about procurement processes. Most of you, if you work in procurement, you're familiar with a lot of these processes, but particularly if you don't work in procurement, you probably aren't aware of it, you've never really thought about it. So we're just going to walk you through what a basic procurement department, what the processes look like from the time the identification of the requirement until the time the vendor gets paid. So this is what it looks like. We're going to go through each one of these individually, talk about forecasting your plan requirements, going to move on to some clarification that occurs, supplier identification, talking about the actual approval of contracts, that's when the supplier fulfills it, then it's received, and then you pay the supplier. I want to talk about in this slide just about where the requirements come from. So operations would be one of them. So you have a manufacturing plant, say they need 100,000 cases of toothpaste next month. They would use a thing called MRP, materials requirements planning. That would break it down in how many corrugated cases, how many cups, how many tubes, how many of those cartons that we talked about earlier, etc. That would typically come through the electronic systems that you're using. They also, if you're working in a factory, they have services they need, they need to have oil delivered and they need to have, for example, they got to have the lawns mowed. So you would contract for those services. Internal customers are people generally inside that are not in operations that may need, for example, printed materials, we're going to use that example later, marketing guy may need 100,000 printed materials to hand out for salespeople. He would write you a requisition, which we'll talk about in a minute. The third one would be the projects. This could be a capital project where maybe you're building a plan and you have to buy capital equipment to go into the plan. So these are all ways that you end up doing it. We're going to walk through the rest of these chevrons as we go through it. We already talked about this briefly, but can generally come in from a number of sources I had mentioned earlier, operations, internal customers, and projects. It comes in a lot of different ways, but they're not always clearly defined. So you as a procurement person have to get some clarity around these things and maybe the statement of work from engineering isn't clear and you have to maybe bring the supplier in and get some clarity around it or maybe you don't understand it. So you need to get some clarity, that's your job in procurement. Many times, forecasting customer orders, 100,000 and you say, "Great, two ways I thought we had changed the graphics on this carton. Are you sure this is what we need to buy?" That's inside the system, but maybe you need some clarity, then, "We're going to produce that next month. Got it." Then obviously, new product teams are asking for various things, generally they're not really clear and you've got to sit with them and say, "Now, what do you really want here so I can talk to the suppliers?" I'm not going to read these, but these are elements of a purchase requisition. Basically, this is generally done electronically today in most corporations, sometimes paper. But basically, they're going to fill this thing out, gain approval, shipping and have you go procure the materials, goods, or services. Critical step here, supplier identification. Really critical. We're going to talk more about this in course 4 about whether you use existing or new. Existing, you have a track record on these guys. You probably are evaluating if they have the right systems, do they deliver on time, is the quality good, how's their price look. So you already have these existing people, and if you've used them over and over again, there was what we generally call preferred suppliers that you say, "I don't need to qualify another supplier. We're going to use supplier ABC because we've used them 10 times before for this type of commodity or item." Make sense. New suppliers, again, we're going to talk about that primarily in course 4, but you got to identify the suppliers. Take a lot more time. You're going to have to maybe evaluate and go out and qualify them before you can move forward. You're going to have to do all this to meet the supplier requisition's needs. The next step is part of the identification selection. You have tools, you've got to decide if you're going to competitively bid it, you're going to negotiate or both. You may use some tools, we'll talk about later in some of the processes, request for information, RFX, RFQ is request for quotations, RFP is request for proposals, we'll cover that a little bit later, what they are. But how are you going to get information? How are you going to get pricing? How are you going to get delivery? Statement of work, generally by engineers will give you statement of work or specifications or blueprints. You're going to have to give those suppliers, make sure they understand. Then lastly, as part of an ongoing process, you're going to evaluate the suppliers, how they do. So you're going to want to probably set that criteria before you actually issue a purchase order. Next one is issue a purchase order. This is a formal contract. Typically has terms and conditions on the back. Just as a joke, you get terms and conditions on many things that you get. In your rental car, you got terms and conditions on the back of the rental agreement, etc. You've seen these things. Well, it's the same thing, there are terms and conditions that primarily has been developed by your legal department about what's important. Many of them are standardized across many different industries. Sometimes there are particularly specific for your particular industry. But that's usually in the back of the purchase order. When the guy acknowledges that he agrees to this contract, he's acknowledging to those terms and conditions. Generally, when you take this purchase order and you put it into the system, in most time it's electronic today, it has complete visibility throughout the corporation. So finance sees it for paying bills, receiving sees it for receiving materials, they can be audited if necessary, etc. This is what a purchase order looks like. I mean to be perfectly honest with you, we really can't read it here, but I'm going to go over what's generally on there. But basically, as you can see here, you're talking about what quantity you need, what's the specification. If there's a referral to a drawing or something, you want that spelled out in the description area. Any quality requirements, how much the price obviously when you need it. Method delivery, you want to put it by truck or you want to go air. Have a ship to address. You have multiple clients, PO number, order due date and name, address of buyers cases, any issues. So all this is on the PO generally in electronic form, so anybody can see this information. This is the receiving process. So let me just walk you through it. So let's go back to that carton example we talked about a few weeks ago. So you buy these cartons for toothpaste. The supplier, vendor makes them, ships in your receiving department. He says, does this have a PO number? If it's no, he sends it back to purchasing to find out. If it's a yes, he acknowledges it and he goes ahead and takes that product, in this case, those cartons, and would put them into the warehouse at a particular warehouse location that can be used by manufacturer. Services are a little bit different. For services, obviously, you're not delivering something that has to be received, but certainly the person that has gotten this service, or they literally are going to have to say, "Yes, I've received that service and I approve it to be process for payment." Receipt and inspection. All right, so as these things are coming in, today, generally electronic, there's things called ASN, Advanced Shipping Notifications. So your receiving department knows that it's coming in and the vendors already acknowledged that he's agreed to the contract and everything. It's going to come in and it's probably going to have a packing list with it. So it's going to say, we shipped you 42 boxes of those cartons that we talked about. Bill lading, the trucker is going to say, I delivered 42 boxes, I counted 42, they came in my truck, you're going to transfer this cartons to your company. Then if there's any problems in receiving overages or shortages, you're probably going to have to go back to procurement to outline what the problem is and how's it going to be rectifying. So with all that done, you're going to find that accounting and finance, whoever is paying your bills is going to say, "I got a PO, I got an invoice, I got a receiving, we can pay him." It can be done by paper. Again, many things today are done electronically. EFT, electronic funds transfer, so the vendor gets his money effectively and efficiently very fastly. So what's important is after you do all this, this information, the quantity that came in, the price, etc, all is collected in these information systems that you're going to use to analyze what we talk about basically in Course 3 in strategic sources and more in Course 4 in supplier management. You're going to be able to analyze how many widgets did I buy? How many cartons did I buy? What price did I pay etc. That's where it captures a lot of this data as in these ERP type systems. So what's important about this? So I think what's important is that you just need to understand from an outsider perspective or internally, there's a basic process here. There is this pretty much identical, I've worked in, tens of of procurement departments, they all operate basically the same. You just need to understand. Lastly you see the thing on enablers. Depending on how you setup, finance sometimes pays the bills, which is important. Legal does the legal terms but sometimes they write special contracts. Information technology is critical to capturing this information such you can leverage this information at a later date. So that's it for Week 3.
