Basic Purchasing

The Tactical Purchasing Process

The nine steps to the tactical purchasing process are:

1. Determining a need

2. Communicating the need

3. Reviewing the need

4. Finding potential suppliers

5. Conducting bidding and/or negotiation

6. Selecting a supplier

7. Formalizing the commitment

8. Following up

9. Closing out the transaction

Specifications

A specification is a description of a product or service to be purchased. An ideal specification will contain the environment in which a product will be used, the purpose intended for the product, and measurable performance characteristics.

Specification can also refer to the process of writing a specification. Over-specification occurs when a requisitioner develops requirements that exceed what is necessary. Such actions usually result in an unnecessarily high cost.

Requisitions & Bills of Materials

The need to purchase a product or service is often communicated to the purchasing department by using a requisition or a bill of materials.

A requisition is a preprinted form containing the information necessary for the purchasing department to identify a supplier and place the order. There are several common items on a requisition, including:

• User’s name

• An approver's signature

• Description of the goods and/or services

• Quantity

• The date that the goods or services are required

• A price estimate

• Suggested supplier

• The departmental account or budget to which charges should be applied

• The location where goods should be shipped or services performed

A bill of materials is a list of the materials, components, and subassemblies

required to manufacture a product or perform a service. Bills of material are used for items that are comprised of many different parts, such as airplanes, televisions, or furniture.

Depending on the policies and processes of an organization, bills of materials may be used in lieu of, or in conjunction with, a requisition to communicate a need to the purchasing department.

Prioritizing Requisitions

There are many different ways to prioritize requisitions, including:

1. First come, first served

2. Arranged by date required

3. Rush/emergency orders first

4. Most important orders first

5. Longest lead time first

6. Lowest schedule margin first

Order Timing

You need to know several pieces of information to decide when to place an order, including: the safety stock quantity, the lead time, the quantity in stock, and the usage per day. You should estimate your inventory levels for several days by deducting daily usage from the quantity on hand. Multiplying the lead time by the usage per day will indicate how much inventory will be depleted during the lead time. Adding this quantity to the safety stock level and comparing your estimated day-by-day inventory levels will tell you the latest day on which you should order the items.

Identifying The Best Potential Suppliers

The process of finding an appropriate supplier varies based on a number of factors including the speed in which delivery or performance is required and the location at which delivery or performance is to occur. A purchasing professional should be able to figure out the appropriate source of suppliers for all combinations of these factors. For example, a source for international suppliers would be inappropriate to use when in need of a one-time, low value on-site service. Conversely, for a long-term, enterprise-wide contract, an organization may want to conduct a more exhaustive, global search for the appropriate supplier.

Buying Internationally

Buying internationally has several inherent challenges such as having to be knowledgeable about exchange rates, being able to adapt to different financial exchange procedures, and the required

Using Competitive Bidding, Negotiation, or Both

When deciding on a supplier for a purchase of goods or services, the purchasing professional may choose to use competitive bidding, negotiation, or both. Generally, competitive bidding is considered the best way to identify all alternatives and then select the best alternative.

Negotiation without bidding is preferred to a competitive bidding process when there is only one supplier available, the value of the order is too small to justify the expenditure of time in bidding, and changes to the specifications are highly likely. Changes in specifications do not permit the type of equitable comparisons necessary in a fair competitive bidding process.

In many cultures, negotiating after competitive bidding is considered acceptable unless the suppliers were led to believe that the supplier selection was going to be made solely on the bids submitted.

Using Solicitation Tools For Competitive Bidding

A Request For Quote (RFQ) is a solicitation document used when the firm specifications for the product or service are provided by the buying organization and suppliers are merely asked to submit their pricing and terms for performing the provided specification. A Request For Proposal (RFP) is a solicitation document used when suppliers are expected to submit a specification along with their pricing and terms in accordance with the purchasing organization’s requirements. Sometimes, an RFP describes a problem that the buying organization is facing and requests that suppliers propose their solutions to that problem.

When a buyer receives from the low bidder a proposal that suggests a variation on the buyer’s original requirements, the buyer

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