UNIVERSITY OF TRANSPORT HOCHIMINH CITY
LOGISTICS CENTER
Purchasing
Management
Lecturer : MSc. LE QUOC LOI
Phone number : 0867.299.334
Mail : Loilq@[Link]
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Content
CHAPTER 1: OVERVIEW OF PURCHASING MANAGEMENT
CHAPTER 2: PURCHASING PROCESS
CHAPTER 3: SUPPLIER MANAGEMENT STRATEGY
CHAPTER 4: QUALITY MANAGEMENT IN THE PURCHASING
PROCESS
CHAPTER 5: IMPORTANT ELEMENTS OF PURCHASING IN THE
SUPPLY CHAIN
CHAPTER 6: NEGOTIATIONS IN PURCHASING AND TYPES OF
PURCHASING CONTRACTS
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What basic skills does a purchasing staff
need????
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CHAPTER 1: OVERVIEW OF PURCHASING
MANAGEMENT
1. Introduction to Purchasing
2. Relationship of Purchasing and Supply Chain Management
3. Objectives of Purchasing Management
4. Methods of Purchasing
5. Position of Purchasing Department in Enterprise
6. Important Issues in Purchasing Profession
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1.1 Introduction to purchasing activities:
1.1.1 PURCHASING:
Purchasing is the process by which a business or organization acquires goods or services to achieve
its objectives.
Each individual or organization sets standards for its purchasing process, so the processes can vary
greatly between different organizations.
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1.1 Introduction to purchasing activities:
1.1.2 PROCUREMENT
Procurement is simply understood as purchasing. This is the process that
includes planning, building strategies and maintaining purchasing activities
of organizations and businesses.
What is the difference between Procurement and Purchasing?
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1.1 Introduction to purchasing activities:
* DIFFERENCE BETWEEN PROCUREMENT AND PURCHASING
* In principle: if Procurement has a strategic function, Purchasing is just a tactic to
achieve the highest purchasing efficiency.
* In terms of scale: The scope of activities of Procurement includes activities before,
during and after purchase; much wider than Purchasing. Meanwhile, Purchasing is
just a subset of Procurement.
* In terms of product quality: Procurement will be the department that must
periodically evaluate the quality of products. Purchasing will depend on the
requirements of superiors regarding the evaluation table.
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1.1 Introduction to purchasing activities:
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1.1 Introduction to purchasing activities:
The Procurement process covers the following activities:
Planning
Sourcing
Supplier Selection
Negotiation
Transaction and Contract management
Supplier Performance Management
Supplier Sustainability Issues
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1.1 Introduction to
purchasing activities:
• 1.1.3 Supply Management:
Supply Management is the strategy
of planning and sourcing a
company's current and future
needs through effective
management of its supply base,
using process-oriented approaches
combined with cross-functional
teams (CFTs) to achieve the
organization's mission.
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1.1 Introduction to purchasing activities:
Why do businesses need
supplier management?
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Why do businesses need supplier management?
• More convenient in business:
Delivering the right quantity, ensuring quality, on time and also supporting businesses in
payment and cost issues à Contributing to effectively increasing business profits.
Management and a strong, trustworthy relationship with suppliers will help businesses
operate more effectively than competitors who cannot do this.
• Get support from the supplier:
Suppliers can share information and skills that help businesses manage inventory and
build better purchasing processes.
Provides effective support in developing new products and in sales activities.
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1.1 Introduction to purchasing activities:
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1.2 Relationship of Purchasing and Supply Chain
Management
“Most businesses consider purchasing to be one of the core activities of supply chain
management”
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1.2 Relationship of Purchasing and Supply Chain
Management
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Teamwork:
Choose any product and draw an overview diagram focusing on
Upstream (no need to mention Downstream, and only need to be at
level 1)
Specify the raw materials that the item needs (at least 5 raw materials).
Set up the lead time for each raw material (set up yourself), and specify
the required date for the goods to arrive and the date to start ordering.
Specify the lead time for each stage in it. (Example: Issue PO: 3 days,
Delivery: 5 days, etc.)
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1.2 Relationship of Purchasing and Supply Chain Management
1. Importance of purchasing activities:
Increase product value and reduce production costs
Reduce time to market
Improve product quality and reputation
Build relationships with suppliers and drive product
improvement
Manage supplier risk
Effect on the economy
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1.2 Relationship of Purchasing and Supply Chain
Management
What are some macroeconomic
indicators that you know, and what
do they mean?
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1.2 Relationship of Purchasing and Supply Chain Management
1.2.2 Purchasing Managers' Index (PMI):
PMI Index or Purchasing Managers Index, translated into
Vietnamese as purchasing managers index. A measure of the
performance of the economy and manufacturing industry
PMI is configured from 5 components with different important
numbers including:
New orders, output, employment, delivery time and
inventories.
PMI index classification:
PMI is divided into two types: manufacturing PMI and non-
manufacturing PMI 21
1.2 Relationship of Purchasing and Supply Chain Management
1.2.2 Purchasing Managers' Index (PMI):
• Manufacturing PMI:
– New goods 30%;
– Production 25%;
– Supplier deliveries 15%z
– Inventory 10%;
– Employment 20%
• Non-manufacturing PMI:
– Business activity divided by season
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1.2 Relationship of Purchasing and Supply Chain Management
A/ How to calculate PMI (Purchasing Managers' Index):
The Vietnam PMI is compiled by IHS Markit from responses to a monthly questionnaire sent to
purchasing managers in a group of about 400 manufacturers.
The PMI can be calculated using the following formula:
PMI = (P1 x 1) + (P2 x 0.5) + (P3 x 0)
P1 is the percentage of respondents who said the economic situation “improved”
P2 is the percentage of respondents who said the economic situation “remained unchanged”
P3 is the percentage of respondents who said the economic situation “decreased”
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1.2 Relationship of Purchasing and Supply Chain Management
B/ Importance of PMI (Purchasing Managers' Index):
PMI is an important measure of the economy:
PMI > 50: The production situation is developing and
production activities are expanding
PMI = 50: balance in production and business activities.
PMI < 50: That means business is showing signs of a sharp
decline.
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1.2 Relationship of Purchasing and Supply Chain Management
Exercise:
A company operates in the field of thermos production. In a survey of purchasing
staff in that company in September compared to August.
Number of purchasing staff in the company: 15
• 9 employees answered: Better
• 5 employees answered: No Change
• 1 employee answered: Worse
Calculate PMI in September? And what does the calculated PMI index show?
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1.2 Relationship of Purchasing and Supply Chain Management
C/ Advantages and disadvantages of PMI index:
- Advantages of PMI
PMI is based on real data
PMI provides comprehensive information about the current business situation
The Purchasing Manager Index report is published regularly every month.
- Disadvantages of PMI index
Only reflects the production status in that field.
Internal research can be internal.
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1.3. Objectives of purchasing management
a/ Supply assurance
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1.3. Objectives of purchasing management
b/ Manage the supply process effectively and achieve high performance
Continuous training and professional development of purchasing department staff
Ensure spending budget
Develop new purchasing channels, ensure payment capacity and satisfaction of internal
customers.
c/ Cooperate with other departments in the enterprise
Accurately understand the material and supply needs of other departments and divisions in the
enterprise
Have close relationships with other departments in the spirit of support and cooperation
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1.3. Objectives of purchasing management
d/ Supplier performance evaluation
Price
Quality
Technology
Delivery of goods and services
Ability to develop new products
e/ Develop supply strategies to achieve business goals
Update supply chain shifting trends and exploit them to bring efficiency to the business
Research new raw materials, supplies, and technologies
Develop new suppliers and contingency plans to minimize risks
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1.4. Purchasing method
MANUFACTURER PURCHASES ITEMS?
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1.4. Purchasing method
1. Types of goods and services that must be purchased at the business
2. Raw materials
3. Semi-finished products, components
4. Finished products
5. Warranty, repair and operating equipment
6. Tools, production support products
7. Services
8. Fixed assets
9. Transportation vehicles and services. 33
1.4. Purchasing method
1.4.2 Classification of purchasing methods:
A. Based on the purchase scale
Buy according to demand
Buy in large batches
B. Based on the form of purchase
Centralized purchasing
Decentralized purchasing
Linked purchasing, distributed consumption
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1.4. Purchasing method
1.4.2 Classification of purchasing methods:
C. Based on credit term
Buy and pay (buy and pay immediately)
Buy and deliver first
Buy and pay first, receive later
D. Based on the source of goods
Buy domestically
Buy from abroad (import)
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1.4. Purchasing method
1.4.2 Classification of purchasing methods:
C. Based on credit term
Buy and pay (buy and pay immediately)
Buy and deliver first
Buy and pay first, receive later
D. Based on the source of goods
Buy domestically
Buy from abroad (import)
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1.5. Position of the purchasing department in the enterprise
The position of the purchasing department in a business can vary depending on:
Industry
History
Owner's business philosophy
Purchasing costs
Type of goods purchased
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1.5. Position of the purchasing department in the
enterprise
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1.5. Position of the purchasing department in the
enterprise
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1.6. Important issues when working in purchasing
Skills a Purchasing Manager Needs:
Strategic Purchasing Thinking
Strong Negotiation Skills
Excellent Relationship Management
Improved Time Management
Analytical and Decision Making Skills
Conflict Resolution Skills
Financial Management Skills 40
1.6. Important issues when working in purchasing
1.6.2 Principles of effective purchasing:
Purchase from many suppliers.
Must maintain the initiative with suppliers.
Must ensure the reasonableness of interests between the two parties.
1.6.3 Procurement risks that businesses need to know:
Poor internal demand analysis.
Poor supplier selection and management.
Lack of corporate social responsibility
Ineffective contract management
Fraud and corruption by purchasing staff 41
Thanks!
Any questions?
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