Purchasing, Supplier Management and Negotiation Assignment sample
INTRODUCTION
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In a business organization various things are associated to the purchase department of company. This report will be providing information about Negotiations and supplier selection process for business organization. Purchasing is considered as process in which organization obtain something for specific price in form of money or equivalent. Purchasing department is one of the most important department of organization that deals with all the purchase of goods or services in business organization. This is responsibility of purchasing to manage all the purchase of company and keep it effective for the business organization. Negotiation can be explained as process that is used by business organization for discussion to reach to an agreement with business clients to make effective deal with them(Constant, Calvi and Johnsen, 2020). This is process is highly required for the business organization to keep operations of organization financially effective for company. These negotiations are developed between the companies or company to customer. This is important for the organization to develop effective negotiations in order to keep their operations effective and productive. Apart from the purchasing and negotiations this is also important for the business organization to select suppliers in effective manners to manage the inventory of company effectively and buy goods for company of high quality and high durability. These all process are managed by the purchase department of organization. This is important for the purchase department to perform all these operations in effective manner to avoid extra expenses of organization in market place. This report will be providing overview of purchasing department of business organization.
This report will be focused on SASOL Limited, which is an integrated energy and chemical company. SASOL Limited is South Africa based company which was formed in year 1950 and head quarter of organization is in Sandton, South Africa. Purchasing function of organization will be analysed in company and fundamental concept of purchasing management process will be evaluated in study. Role of negotiation and approaches of negotiations will be discussed in report to analyse the effectiveness of approach that can be used in the purchasing process. Impact of negotiation will be analysed for the supplier management process of the company. Role of purchasing function will be analysed in report for different sectors in business. Purchase process that are used by different sector in business. Brief explanation to the supplier selection process will be analysed in study. Supplier selection criteria also will be analysed for the business management process. The impact of supplier management process will be evaluated in report.
PART 1
Stages of Purchasing Function in Organization
In the purchasing process different stages are considered to complete all process in effective manner. Purchase process is consists of different steps that can improve the effectiveness of purchasing process. The main stages that are followed in the purchasing process are- Problem identification, general need description, product or service specification, potential supplier search, request for proposal, supplier evaluation and selection, establishing credit and order specification and supplier performance review(Servajean-Hilst and Calvi, 2018). These are major steps that are followed in the purchasing process to improve the effectiveness of the purchase department in operations of company.
Problem Identification- This is all about the identification of various issues that are need to be considered by the purchase department for finding solution by making purchase. In this stage challenges and problems that are faced by the organization are evaluated by the purchase department in order to understand the needs of company that can be resolved by making purchase for company.
General Need Description- This process is most crucial for business organization and purchase department of company. In this process issues that are identified by the purchase department are considered to evaluate the needs of company. All the needs of organization are identified by the purchase department for the further action.
Product or Service Specification- This is stage is consists of process in which various possible solutions are considered by authorities in the purchase department. In this stage specific narrow down process is used by these authorities in order to select particular products or services as solution to the problems of company.
Potential Supplier Search- At these level possible supplier of the goods and services are identified in the market place. If organization do not have any current supplier then new options for potential supplier are considered by the purchase department. This is effective process to find supplier of required product or service.
Request for Proposal- At this level proper proposal is prepared for the shortlisted supplier. The request proposal that is developed by the purchase department is consisting of all the details of services or products that are required by the organization(Naoui-Outini and El Hilali, 2019). As per the requirement of company proper proposals are asked from the shortlisted suppliers.
Supplier Evaluation and Selection— As the proposals are received from various suppliers are analysed on based on cost and quality offered by the particular supplier. By supplier evaluation various options are considered by the purchase department for selection of particular supplier.
Establishing Credit and Order Specification- As the supplier is selected in the evaluation and selection process, further processes are started by the purchase department. In the next processes credit establishment and order specifications are planned by the purchase department of company.
Supplier Performance Review- This process is considered as post purchase process that is implemented after the completion of purchasing process. IN this stage proper evaluation of purchase goods and services is analysed by the purchase department(Arhan, 2017). This evaluation helps the purchase department to improve the purchasing process and keep it economical for organization. This process also help the organization to make supplier permanent for future purchases.
This is how complete purchase process is completed by the purchase department of organization. All these stages are included in the purchase process to improve the effectiveness of internal process of organization and fulfil the needs of organization.
Concept of Purchasing Management
Purchase management is considered as process of managing all the purchasing process of organization. The purchase management process is also considered as process of managing purchase that is related various aspect of the organization.In the purchasing management process various aspects are considered by the purchase and management of organization(Muringa, 2018). These aspects are- supplier management, cost and cost reduction. These are common processes that are used in the purchasing process to keep operations of organization economical and effective.
Supplier Management- This process is explained as process in which it is ensured that organization get best deal and products for the price they have paid for it. This process can help the purchase department to maintain the productivity and profitability of organization in market place.
Cost and Cost Reduction- Cost is considered as price that will be paid for products and goods. This is important for the purchase department to manage the purchasing cost as low as possible to keep the marginal profit of organization high. Cost reduction process is considered as approach that is used by the purchase department to reduce the cost of goods that is buy them in the purchasing process.
Impact of Purchasing on Business Operations
Impact of purchasing process is high on the operations of the business organization. All the internal process of organization based on availability of raw material in organization and availability of financial capital in accounts of company. Purchase department of company is associated to both aspects that are related to the internal operations of company. For example if the products or raw material that is purchased by the purchase department is of high cost than it can affect the financial stability of organization and it will reduce the marginal profit of company. So, this is important for the organization to keep the cost of purchased goods to save cost for the organization(Kakwezi and Nyeko, 2019). This can improve the profitability of company and it will also improve the marginal profit of organization this is how keeping purchase cost low higher profit can be generate by the organization.The Other thing that need to be considered by the purchase department is related to the quality of goods that is purchased by the purchase department of the company. Quality is major factor that is related to the operation processes of company. This is important for the organization keep the quality of raw material high in order to improve the internal operations and process of company. Good quality of raw material can reduce the operational cost of company. It also can affect customer satisfaction, and it can affect the profitability of organization in target market. This is how purchasing can affect the internal operations of organization.
Role of Negotiation in Business organization
In different ways negotiation is considered as important process that is used by the purchase department in order to reduce the cost of purchases that are made by the purchasing department of company. Some of major role of negotiations in the purchase department and organization are- this is most beneficial for the organization because it can save cost of the company and help the organization to purchase goods as per the requirement of company at suitable cost. This process can help the organization to get better quality goods at effectively low cost(Chiweshe, 2018). This ca be consider as win situation for organization because it can improve the operational profit of organization and negotiations canbe used to gain higher marginal profit in market place. This process can be used by the organization to improve the final profit of company and it also can improvise the operations of company. Negotiation process is also effective process to develop effective relation with supplier and find best suitable and beneficial supplier in market. This is how various roles can be performed by the purchase department in organization to improve profit in market place.
Negotiation Process in Supplier Management of Organization
Supplier management is considered as process that is used by the business organization to get effective and better quality products or services at effectively low cost. This is all related to the profitability and saving cost for the organization. There are different operations are made by purchase department in the supplier management process and negotiation process is important part of the supplier management in order to make effective business deals. In business organization range of purchases are made by the purchase department of organization and negotiation process can help the department to make effective deals to get better benefits from the supplier(Ning, 2019). Negotiation process cannot be considered as process in which only profit of organization is considered, in this process profit and benefit of both parties is considered to make the deal effective. This is how effectiveness of the supplier management can be performed. Negotiation is considered as effective process to develop better supplier base and develop effective relation with the supplier of company.
Negotiation Approaches Used in Business Organization
In the business organization and purchase department different negotiation approaches are used to make effective deals for the business organization.These approaches of negotiations are used in different conditions to develop effective deals for business organization. Most common negotiation approaches that are used by organization are- Distributive or Win/Loss Approach, lose - lose approach, compromise approach and interactive or win -win approach. This approaches are used by the purchase department in order to make deals with suppliers.
Distributive or Win/Loss Approach
This approach of negotiation cannot be considered as effective approach for the business organization. This approach is considered one time negotiation approach for company where one party gain other lose in the deal. In this process both parties in deal show intentions to get benefit from the deal and through this approach only one organization can take the advantage of the situation.
Lose - Lose Approach
In this negotiation deal both parties negotiate outside the target ranges and this process ended with lose on both ends. This approach can be used by the business organization or purchase department in order to gain success for the organization.
Compromise Approach
In this process both parties in deal give up on something to get benefit from the deal. This approach is considered as compromising approach because both parties have to lose something in order to generate benefit(Kivikko, 2020). This approach of negotiation is also not effective for the supplier management and purchasing process in business organization
Interactive or Win -Win Approach
This approach is considered as most effective approach in the purchasing or negotiation process. Fromthe perspective of business organization this is most effective approach to develop effective relation with suppliers. In this approach organization can develop effective relationship with suppliers.
From the above approaches organization can develop long term goals and achieve them.
Impact of Negotiation Process in Supplier Management in Organization
The impact of supplier management is crucial for business organization. This process can help the organization to gain higher benefits in market place. Supplier management can be considered as most effective process to get goods and services to lower cost. This is important process for organization. It also can be used by the organization to meet purchase requirement at low effective cost and gain higher productivity in market place. Negotiation process can help the purchase department of organization to handle processes in purchase management process. Various approaches of negotiations can be used by the purchase department to maintain profitability and continuity in the operations of organization. Negotiation the supplier management process can improve the effectiveness of the supplier management process(Kim and Chung, 2018). By using win - win approach organization can help organization to develop better relationship with suppliers in market place. Negotiation process can be used by the purchase department to force the supplier to reduce the cost of goods that organization need to purchase.
PART 2
Role of Purchasing in Different Sector
Purchasing is considered as process that is used by the organization to purchase goods and services from the market place and suppliers. This process also can be considered as procurement of the goods in the business process. This process is used by the purchase department of organization to acquire required goods and services at some cost. This process is considered as the procurement of goods, services and resources in organization. Purchasing process can be used by the organization to make the goods and services to the different department of the company to keep their operations continues(Sapkota and Bhusal, 2017). Purchasing process is important to meet the requirements of organization by purchasing suitable goods and services. Purchasing is not only about purchasing goods and services, it is also related to make products, services and resources at best possible price. Purchasing process can help the organization to get goods and services and lower cost to generate higher profit. This is also part of the purchasing department to complete all the paper and accounting work of purchase process to gain higher profit in operations.
Purchasing Processes
There are different purchasing processes are used by the organization in purchasing process to make resource available in organization at effective cost. The most common purchasing process that are used by business organization are- Bulk Purchasing, Hand to Mouth Purchasing and Speculative Purchasing. These are most common and effective purchasing process that are common for the business organization.
Bulk Purchasing
Bulk purchasing is considered as process in which organization use to make purchase in bulk. This approach is used by organization who do have effective inventory management system and this process is also used by those organization that produce in bulk amount. In this process large quantity is purchased by the organization to meet the production objective. This process is most economical for organization but sometimes this approach can cause loss to the organization because in this process sometimes some part of the received goods is not as per the need of organization sometimes some part of the purchased material found damaged(Maier, Rück and Brem, 2017). This approach is most economical for organization but it is consists of huge risk.
Hand to Mouth Purchasing
This purchase process is not considered as effective approach to purchase goods for organization. In this process, specific purchase is made by the purchase department of organization as per the requirement of the production department of company. This is also considered as risk purchasing process because in this process cost of material of goods could be high. Sometimes it can affect the continuity of the production line operations.
Speculative Purchasing
This process is considered as process in which organization used to make stock of the material or goods to prevent the expenses of organization. This process also can be considered as stocking process in which purchase department of company purchase goods when the price of product or raw material is low. This approach is also risky approach for organization because frequent change in the cost of raw material can cause los to company.
Impact of Purchasing on Different Sector in Business
Impact of purchasing department is mostly profitable for the business organization. Mainly the purchase process in organization is administrate by the human resource management and purchase department of company(Lilja and Lennartsson, 2020). The impact of purchase department is highly beneficial for the business organization because it can reduce the work load on the management of organization. This is role of the purchase department of company to purchase required goods and services for organization to address operational issues in company and make the resources available to the company at low and effective cost. This is how the impact of purchasing process in beneficial for the different sector of company. This process is also beneficial for organization because it can help the various sector in business organization to make raw material within time.
Supplier Selection Methods in Business Management
Supplier selection process is also considered as process of supplier evaluation. In this process various suppliers are considered by the organization to keep purchasing process economical for organization.There are different approaches are used in the supplier selection method which are- Categorical method, weighted-point method and Cost Ratio Method. These are most effective supplier selection process for business organization.
Categorical Method
This process is considered as most effective process to select specific process to select supplier to make the goods, services and products to organization within the time limit. In this process suppliers are differentiated in different categories like Good, Poor, and Excellent. By this categorization of suppliers effective supplier can be selected in the process. As per the requirement purchase department ca select specific supplier to get required material with in time limit. This process of supplier selection can is highly beneficial for business organization.
Weighted-Point Method
In this process different supplier are provided with rating in different areas like quality, cost service quality and relationship with organization. These ratings are given by the organization after making purchase(Agrogiannis and Kinias, 2018). This rating system is most effective to make purchase decision within the time. As per the requirement of goods and services purchase department can select different supplier.
Cost Ratio Method
Cost ratio method is considered as most effective process for the organization to keep their operations economical. In this process ratio of product quantity and cost is considered for the selection of supplier. On basis of these analysis proper suppliers are considered by the organization to get goods and services at best effective cost. This can help the organization get products and services at economic cost.
Criteria Used for Supplier Selection Method in Business Management
There are different processes are used by the organization for the supplier selection process. Some of the main criterions that are used in the supplier selection process are related to the various economical and operational factors. Some of the major criterions are considered by the purchase department organization are- cost, quality and safety, delivery, services, corporate social responsibility, simplicity, level of risk and agility. These criterions are mainly used by the organization in the supplier selection process.
Impact of Supplier Selection on Business Operation
The impact of supplier selection process is high on the performance and operations of the organization. Various aspects of organization are highly dependent on the supplier selection process. Success of organization is also depended on the selection of right supplier. If the selected supplier are fulfilling all the requirements of organization then it could be high beneficial for organization. Effective supplier selection process can help the organization to perform various business operations within the time.
CONCLUSION
The above report is concluding importance of purchase department of organization. Effectiveness of various operations that are performed by the purchase department in organization are considered in the report to understand the importance of purchase department in business organization. Supplier management process that are used by the business organization and purchase department has been analysed in the study in order to evaluate the importance of supplier management process. There are different processes are used by the purchase department to make deal with suppliers. In the dealing process importance of negotiation approaches also has been concluded in report. Later in this study importance of supplier selection process also has been evaluated to analyse the approaches that can be used by organization for the supplier selection process.
References
Books and Journals
Agrogiannis, S. and Kinias, I., 2018. Sustainable Purchasing and Supply Chain Management: The Entrepreneurial Role of the Purchasing Function. Advances in Research, pp.1-23.
Arhan, L.M., 2017. THE ROLE OF THE PURCHASING DEPARTMENT IN PRODUCT INNOVATION: THE CASE OF FAST MOVING CONSUMER GOODS COMPANIES IN FRANCE.
Chiweshe, N., 2018. An evaluation of the contribution of the purchasing function towards cost reduction in public sector companies in Zimbabwe. A case study of Chitungwiza Central Hospital from 2013-2016 (Doctoral dissertation, BUSE).
Constant, F., Calvi, R. and Johnsen, T.E., 2020. Managing tensions between exploitative and exploratory innovation through purchasing function ambidexterity. Journal of Purchasing and Supply Management. 26(4). p.100645.
Kakwezi, P. and Nyeko, S., 2019. Procurement processes and performance: Efficiency and effectiveness of the procurement function. International Journal of Social Sciences Management and Entrepreneurship (IJSSME). 3(1).
Kim, D.H. and Chung, S.H., 2018. The Function of Strategic Purchasing and Its Application to the Korean National Health Insurance System. The Journal of the Korea Contents Association. 18(1). pp.504-516.
Kivikko, E., 2020. Process mapping for project execution from the perspective of the purchasing function: Case ABB Power Grids Finland Oy.
Lilja, S. and Lennartsson, S., 2020. Risk evaluation of the supply chain at Alimak: Purchasing department.
Maier, M.A., Rück, P. and Brem, A., 2017. How to integrate suppliers into the innovation process? An explorative case of champion formalization in the purchasing department in times of open innovation. International Journal of Innovation and Technology Management. 14(06). p.1750036.
Muringa, S., 2018. Impact of e-procurement on the purchasing function of Manufacturing companies: case of Mutare Bottling Company (Doctoral dissertation, BUSE).
Naoui-Outini, F. and El Hilali, N., 2019. Innovative suppliers and purchasing function interaction: An exploratory research in the car rental sector. Journal of Innovation Economics Management. (1). pp.171-192.
Ning, L., 2019. Modern tendencies of purchasing functioning management. ????????????? ??????? ? ?????????? ?????????. (9). pp.282-285.
Sapkota, V.P. and Bhusal, U.P., 2017. Governance and Purchasing Function under Social Health Insurance in Nepal: Looking Back and Moving Forward. Journal of Nepal Health Research Council. 15(1). pp.85-87.
Servajean-Hilst, R. and Calvi, R., 2018. Shades of the innovation-purchasing function—the missing link of open innovation. International Journal of Innovation Management. 22(01). p.1850008.
