Introduction
Purchasing and supply management (PSM) is a valuable tool for any business, organization, or government that needs to acquire goods and services from one or more external suppliers. Through effective scheduling, tracking, and performing procurement activities, organizations can optimize their return on investments while minimizing costs and risks associated with external resources.
Definition
Purchasing and supply management is a comprehensive set of processes and activities directed at providing the right quantity of goods or services at the right time, at the right price, and at the right quality to the right supplier in order to optimize the value of the investment and minimize cost and risk or waste.
Processes and Activities
The key processes involved in purchasing and supply management are strategic procurement, demand planning and forecasting, ordering and inventory control, supplier selection, negotiation and contract creation, sourcing, receiving, evaluation and payment.
Strategic Procurement
Strategic procurement is a process of determining the most cost-effective, risk-minimizing strategies for procurement. This includes conducting an analysis of the need, understanding the industry dynamics, defining the supplier base and researching current costs and trends.
Demand Planning and Forecasting
Demand planning and forecasting is a critical aspect of purchasing and supply management as it helps ensure that the organization has the proper quantity and quality of goods and services to meet its needs. Through demand planning and forecasting, organizations can identify and manage fluctuations in the demand for goods and services over time.
Ordering and Inventory Control
Ordering and inventory control involves creating an ordering system to manage ordering and receiving of goods and services, and to ensure that the inventory levels stay within desired limits. It also involves creating reports to track and monitor inventory levels.
Supplier Selection
Supplier selection is an important part of the overall purchasing and supply management process. Organizations must select suppliers that can provide goods and services at the right quality, at the right price, and on time. Organizations must also evaluate the cost of transportation, storage, and insurance when selecting a supplier.
Negotiation and Contract Creation
Negotiation is an important part of purchasing and supply management as it helps organizations to obtain the best price for their goods and services. Negotiation can also involve creating and managing contracts in order to ensure that the terms of the agreement are met.
Sourcing
Sourcing is the process of identifying potential sources of goods and services for an organization. This involves researching the market and conducting a detailed analysis of the suppliers, their products and services, pricing, and delivery methods.
Receiving
Receiving is an important part of the purchasing and supply management process as it ensures that all goods and services are delivered on-time, with the correct specifications and quality.
Evaluation and Payment
Evaluation and payment are the final steps in purchasing and supply management and involve assessing the performance of the supplier and making payment for the goods and services.
Conclusion
Purchasing and supply management is an important process for organizations that need to acquire goods and services from external suppliers. By following this process, businesses and organizations can optimize their investments and minimize costs and risks associated with external resources. This process involves a number of processes and activities, such as strategic procurement, demand planning and forecasting, ordering and inventory control, supplier selection, negotiation and contract creation, sourcing, receiving, evaluation and payment. Through effective management of their purchases, businesses and organizations can ensure that they obtain the most value from their external resources.
