[Link].

Vasin Chooprayoon, PhD

vasin@[Link]
 Part I
Fundamentals of Procurement

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Definition of Procurement
 Procurement is the
acquisition of goods and
services at the best
possible total cost of
ownership, in the right
quality and quantity, at
the right time, in the
right place and from the
right source for the
direct benefit or use of
corporations, individuals,
or even governments,
generally via a contract.
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Definition of Procurement (cont.)
—
Simple procurement may
involve nothing more
than repeat purchasing.
 Complex procurement
could involve finding
long-term partners – or
even 'co-destiny'
suppliers that might
fundamentally commit
one organisation to
another.

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Definition of Procurement (cont.)
 Procurement is the process by which a project requires
resources (goods and services).
 It includes the development of the procurement strategy,
preparing contracts, selecting and acquiring suppliers, and
managing the contracts.

Source: [Link]/[Link]

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Procurement Process
 The first process in the procurement process is recognising a
need or want for a particular good or service.
 Before there is a chance to acquire goods, there has to be the
desire to gain possession of something in particular.
 Without recognising the want or need, there is no reason to
pursue any of the following steps that ultimately lead to a
purchase.
 In short, there will be no procurement if there is no desire.

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Procurement Process (cont.)
Second process:
 Once the need or want has been recognised, it is essential to
qualify the specifics of what will lead to satisfaction.
 For example, the want or need may be new transportation.
➢ Further thought may yield that a truck would be the most effective and
valuable type of vehicle.
➢ From there, it is a matter of determining what features are desired on
the truck and determining an approximate amount of money the
consumer is willing to pay.
 With a solid vision of preference, moving on to the third step
in the procurement process is possible.

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Procurement Process (cont.)
▪ The three process involves the evaluation of potential suppliers.
▪ This step will involve learning more about vendors who can supply
goods or services that meet all the specifications, including the
price range.
▪ The process may involve bidding on a project, negotiating prices, or
accepting proposals.
▪ Over time, one or two suppliers will likely stand out from all other
vendors.
▪ Once the final decision between the two remaining suppliers, the
time has arrived to move on to the final stage of the procurement
process.

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Procurement Process (cont.)
▪ One of the basic rules of procurement is that, in the end, it is
essential to consider the total cost of ownership.
▪ This process includes the purchase price and the time and
resources spent pursuing ownership.
▪ By understanding the steps involved with procurement, it is
possible to understand better the actual cost involved with
attaining any good or service.

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 Procurement Process
vs Bidding

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Procurement Process vs Bidding
▪ Bidding, tendering, and auction are three terms of buying and
selling goods or services. However, they have different
meanings and processes. Here is a summary of the differences:

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Procurement Process vs Bidding (cont.)
▪ Bidding is submitting a proposal or offer to provide goods or
services at a specific price. The buyer initiates bidding and is
typically less formal than tendering.

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Procurement Process vs Bidding (cont.)
▪ Tendering invites bids or offers from potential suppliers or
contractors to perform a specific job or provide specific goods
or services. Due to legal requirements, the seller initiates
tendering, which the seller always uses in government
procurement.

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Procurement Process vs Bidding (cont.)
▪ An auction is a public sale where the seller offers the item, and
potential buyers bid against each other to determine the final
price. Auction is a competitive process where the market
demand and supply set the price.

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Procurement Process vs Bidding (cont.)
▪ Suppose the cost for that product/service is over the threshold
(starting point) that has been established (e.g., Company X
policy: "any product/service desired that is over $1,000
requires a bidding process"), depending on the policy or legal
requirements.
▪ In that case, Company X must state the desired product/service
and open the contract to the bidding process.
▪ Company X may have ten submitters that state the cost of the
product/service they are willing to provide.
▪ Then, Company X will usually select the lowest bidder.
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Procurement Process vs Bidding (cont.)
▪ If the lowest bidder is deemed (believed) incompetent (unable)
to provide the desired product/service, Company X will select
the submitter with the next best price and is competent to
provide the product/service.
▪ In the European Union, there are strict rules on procurement
processes that must be followed by public bodies, with contract
value thresholds dictating what processes should be observed
(relating to advertising the contract and the actual process).

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 Procurement Process

TOR=Term of
Reference
SOW=Statement of
Work

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Procurement Steps
1. Information Gathering:
If the potential customer still needs to establish an
established relationship with the sales/ marketing
functions of suppliers of needed products and services
(P/S), searching for suppliers who can satisfy the
requirements is necessary.

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Procurement Steps (cont.)
2. Supplier Contact:
When the customer identified one or more suitable
suppliers, the customer will advertise the Requests for
Quotation (RFQ), Requests for Proposals (RFP), Requests for
Information (RFI) or Requests for Tender (RFT or ITT) to
the suppliers, or make a direct contact with the suppliers.

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Procurement Steps (cont.)
3. Background Review:
✓ The customer consults with the team about references
for product/service quality.
✓ The team will investigate any requirements for follow-
up services, including installation, maintenance, and
warranty.
✓ The team may consider, examine and trial the samples
of the P/S.

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Procurement Steps (cont.)
4. Negotiation:
✓ The customer negotiates with the suppliers, including
establishing the price, availability, and customisation
possibilities.
✓ The customer also negotiates the delivery schedules
and a contract to acquire the P/S completion.

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Procurement Steps (cont.)
5. Fulfilment:
Based on contract terms, supplier preparation, shipment,
delivery, and payment for the P/S are achieved, including
installation and training.

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Procurement Steps (cont.)
6. Consumption, Maintenance and Disposal:
During this phase, the company evaluates the
performance of the P/S and any accompanying service
support as the customer consumes.

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Procurement Steps (cont.)
7. Renewal:
✓ This step occurs when the customer consumes or
disposes of the P/S, the contract expires, or the
customer reorders the product or service.
✓ In this step, the customer needs to review the
consumed P/S.
✓ If the customer reordered the P/S, the customer
determines whether to consider other suppliers or
continue with the same supplier.

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 Start here!

(agreement
(report on operation & task analysis)
that just completed)

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 Part II
e-Procurement

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What is e-procurement?
E-procurement is the electronic integration and management of
all procurement activities: purchase requests, authorisation,
ordering, delivery, and payment between a purchaser and a
supplier.

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 Top 8 Reasons Why You Must Invest In eProcurement
(Source: pcatalog | Apr 5, 2018 | eprocurement)

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The 5 Rights of E-procurement
1) at the right price
2) delivered at the right time
3) are of the right quality
4) of the right quantity
5) from the right source.

(Baily et al., 1994)

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 Key procurement activities within an organisation

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Types of Procurement
1) Production-related procurement
2) Non-production related procurement

How did the customer buy items?:

1) Systematic sourcing
2) Spot sourcing

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Types of Procurement (cont.)
1) Production-related procurement
✓ Production-related procurement is obtaining the goods and
services directly involved in producing goods or services. It
includes purchasing raw materials, components, parts, and
other inputs from the finished product.

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Types of Procurement (cont.)
1) Production-related procurement (cont.)
✓ Production-related procurement is different from non-
production-related procurement, which is the process of
obtaining goods and services that are not directly related to the
production, such as office supplies, marketing services, or
maintenance services.
✓ Non-production-related procurement is also known as indirect
procurement, as it indirectly affects the production process and
the product's profitability.

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Types of Procurement (cont.)
1) Production-related procurement (cont.)
✓ Production-related procurement is essential for manufacturing firms, as
it helps them to reduce costs, improve efficiency, and enhance
competitiveness.
✓ Production-related procurement requires careful planning, sourcing,
negotiating, purchasing, receiving, and managing supplies.
✓ Production-related procurement can also involve collaborating with
suppliers to develop innovative solutions, ensure consistent quality, and
optimise delivery times.

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Types of Procurement (cont.)
2) Non-production related procurement
✓ Non-production-related procurement is buying goods and
services that are not directly involved in producing goods or
services.
✓ These goods and services include office supplies, marketing,
maintenance, and capital equipment.

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Types of Procurement (cont.)
2) Non-production related procurement (cont.)
✓ Non-production-related procurement is also known as indirect
procurement, as it indirectly affects the production process and
the product's profitability.
✓ Non-production-related procurement can be challenging and
time-consuming, involving many items, suppliers, and end
users.
✓ Therefore, some companies use e-commerce technologies to
streamline and improve non-production-related procurement
processes.

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Types of Procurement (cont.)
How items are bought:
1) Systematic sourcing
✓ Systematic sourcing is a trading mechanism primarily used in
B2B e-business.
✓ It means that buyers and suppliers have established some
trading relationships before the transactions and procure
goods systematically based on their prenegotiated terms.

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Types of Procurement (cont.)
How items are bought:
2) Spot sourcing
✓ Spot sourcing is an unplanned purchasing type that the customer
usually does in response to an immediate or urgent need.
✓ Spot sourcing involves buying goods or services from the available
suppliers at the current market price without following a formal
procurement process or a long-term contract.
✓ The end-user often performs spot sourcing rather than a procurement
professional, which can be costly, risky, and inefficient if appropriately
managed.

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Drives of E-procurement
1) Cost reduction
2) Enhanced budgetary control
3) Elimination of administrative errors
4) Increasing buyer’s productivity
5) Improving information management
6) Improving the payment process

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Risks and Impact of E-procurement
▪ Organisational risks
✓ Need to redeploy staff
▪ Technology risks
✓ Integration with existing financial systems

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Implementing E-procurement
1) Stock control system
2) Web-based catalogue
3) E-mail/workflow system
4) Order-entry on web site
5) Accounting systems
6) ERP systems

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 Web-based catalogue
Stock control system
Use of different information systems for different aspects of the
fulfilment cycle
DIT 104-English Programme
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 The three main e-procurement model alternatives for buyers

DIT 104-English Programme

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 [Link]
[Link]/en/

Assessment of
the procurement [Link]
[Link] and ERP suppliers such
model as SAP and Oracle
alternatives for
buyers

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 Integration between e-procurement systems and catalogue data

DIT 104-English Programme

2/5/2024 46
 Part III
Documents and Data
Flow in Procurement
Process

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Document and Data Flow in
Procurement Process
1. Purchase Requisition
2. Purchase Order
3. Packing List
4. Goods Receipt Document
5. Vendor Invoice
6. Vendor Payment

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1. Purchase Requisition
▪ Purchase Requisition (PR) is a document that
identifies the material needed, the quantity
needed, and the date it is needed.
▪ The unique number identifies the purchase order
document.

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2. Purchase Order
▪ A Purchase Order (PO) is an agreement to purchase
the stated materials for the stated price under the
stated term.
▪ It contains much of the data found in the purchase
requisition, the type and quantity of the materials
ordered, and price and shipping information.

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3. Packing List
▪ A packing List is a delivery document.
▪ A packing list provides details about the materials contained in
the shipment.
▪ It includes data about the purchase order for the shipment, the
dates when the order was filled (packed) and shipped, and the
persons involved in preparing the order.
▪ The list includes details of the items in the shipment,
quantities, and weights.
▪ It does not contain any pricing information.

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4. Goods Receipt Document
▪ A Goods Receipt Document verifies that the specified customer
already received goods and services.
▪ The document contains a goods receipt number that uniquely
identifies the document, including the date of the receipt, the
name of the supplier, and the purchase order number
associated with the receipt, and it specifies which products the
customer ordered along with the quantities ordered, received,
and back-ordered.

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5. Vendor Invoice
▪ A vendor invoice is a bill for the material shipped.
▪ The vendor sends the invoice to the customer's accounting
division for payment.
▪ The accounting division will retrieve the corresponding
purchase order (PO) and goods receipt document and compare
them to the invoice.
▪ If the data in all three documents match, the accounting
division will send the payment to the vendor called "a three-
way match."

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5. Vendor invoice (cont.)
▪ An invoice will identify the sender, the invoice number, the
invoice date, and the recipient, the customer purchase order
number, vendor order number and the order terms, the details
of what the invoice is for, along with the total balance due.
▪ It provides information about who should be paid ("make
checks payable to") and where to send payment.

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6. Vendor Payment
Pay invoices either by check or electronic funds
transfer.

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 data-flow diagram for
equipment
procurement

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