Jeremy Ferrer
Webinar :
Cross-border Purchases and VAT: Optimization Strategies
Tuesday Sept. 10, 2024 at 11 am (France)
Before talking about Purchasing process Strictly speaking, let's start with the definition of the term Purchasing in business.
Purchases are for the company, a set of all the resources, products and services, necessary for the production and maintenance of its commercial activities, negotiated under certain conditions.
The practices or purchasing process can be divided into two main areas: strategic (direct) purchases and non-strategic (indirect) purchases.
Les Purchasing process businesses come in three forms: comparative selection, negotiation and source uniqueness.
Here is the main comparison and selection process used in Purchasing:
1. The buyer issues a request for the required information concerning the purchase (tenders) and the documents relating to the request;
2. The supplier prepares the documents and submits the responses in accordance with the requirements of the applicant;
3. The purchaser reviews the documents returned by the supplier and determines the candidate supplier.
(The number of candidate suppliers selected is less than the number of suppliers who submitted the response documents, and the specific number depends on the procurement project);
4. The buyer reserves the right to continue negotiations with the selected candidate supplier;
5. The buyer determines the final supplier selected and sends a notification of the results to all suppliers who have submitted the required documents;
6. The buyer signs a purchase contract with the selected supplier.
1. The buyer sends the company's purchase project via a call for tenders issued to suppliers;
2. The supplier prepares and submits the preliminary response documents in accordance with the requirements of the documents provided by the purchaser;
3. The buyer conducts one or more rounds of negotiations with all suppliers who return the documents in accordance with the preliminary document. Then, the supplier makes one or more sets of responses according to the requirements of the buyer;
4. Purchases are evaluated based on the supplier's latest set of responses and the supplier is finally determined;
5. The buyer sends a notification of the results of the decision to all suppliers who have returned response documents;
6. The buyer signs a contract with the supplier.
Solicitation in the Purchasing process involves obtaining information from a potential seller who is qualified to complete the job. This step is called: source qualification.
The channels for obtaining information are as follows:
At this stage, a supplier is selected based on established evaluation criteria.
There are several evaluation methods:
As a rule, no fewer than three contractors are required to participate in the tender.
Once the supplier is selected, the buyer and the seller sign a post-negotiation contract.
Contract management in the Purchasing process is the process to ensure that buyers and sellers meet the terms of the contract.
Generally, it includes the following levels of integration and coordination:
1) Allow the supplier to work at the appropriate time.
2) Monitor the supplier's costs, schedules, and technical performance.
3) Verify and ensure the quality of the products of the supplier and its subcontractors.
4) Change control to ensure that all changes are properly approved and that all those involved are properly informed of the changes.
5) According to the terms of the contract, establish a link between the progress of the seller's performance and the payment of fees.
6) Purchase audit.
7) Formal acceptance and submission of the contract.
In The purchasing process, it is based on the needs of the company's commercial strategy.
The purchasing manager formulates and executes the strategic purchasing plan to ensure the supply of the company's materials.
Through the internal analysis of customer demand, the supply market, competitors and the global study of supply, the company has the basic information necessary to carry out a detailed Benchmark.
It should set long and short-term procurement goals for materials, procurement strategies, and the action plans needed to achieve the goals, and find appropriate procurement resources through the implementation of specific actions to meet cost, quality, time, and technology indicators.
The strategic procurement plan includes what procurement technology to use, which suppliers to deal with, what relationships to build, how to cultivate and establish a supplier group that contributes to the company's competitive advantage, how to implement daily procurement, and how to establish contracts.
It is when the buyer sends the purchase request information to the supplier in the form of an order form in accordance with the agreement and the determined supply conditions and the company's material request schedule.
Then, the supplier organizes and monitors the entire logistics process to ensure that the material arrives on time and thus ensures the normal functioning of the client company.
Purchase objects are divided into direct items (nomenclature items) and indirect items.
Direct materials will be used to constitute all or part of the products or services provided by the purchasing company, to its customers. Indirect products and services, on the other hand, will be produced and operated within the company. Used and consumed in its regular activities.
Remember that the term Purchasing represents the process by which a commercial organization seeks to supply itself with goods and services regularly in order to maintain normal functioning.
The basic principles of procurement are profitability, quality, progress and fair competition.
In other words, procurement refers to the purchase of products and services, in order to obtain the right quantity and quality of resources needed by the company at the right time, in the right place and at the best price.
Talk about Purchasing process, it also means talking about the buyer or the person who makes the purchases. The essential skills of a good buyer are the ability to know costs and analyze value, forecast, express needs, communicate and coordinate interpersonal, as well as strong professional knowledge.
In addition to the necessary capabilities of the buyer, a reasonable purchase plan should be in place in the business.
Some fundamental principles must be applied by the purchaser. Appropriate suppliers must be selected, and to this must be added good overall management of relationships to ensure their sustainability.
The company's normal production should never be affected by the decisions of the purchaser and the purchaser should always seek to reduce procurement costs as much as possible.
The quantity that should be purchased during this period = the production consumption during the current period + the planned inventory at the end of the period — the estimated inventory in the previous period — the quantity purchased but not inventoried from the previous period
Establish a consistent procurement plan in advance. Research current market conditions and then capture factors and events that affect costs.
Look for quotes from a number of qualified manufacturers at these events. Set a reserve price or budget and use negotiation techniques.
Then choose the supplier with the best price and play on the quantity or on a possible discount according to the negotiated payment terms to reduce costs as much as possible.
In the procurement and procurement processes, there is also the purchase price. This should always be negotiated as much as possible while maintaining a win-win relationship for both parties.
The buyer should use the purchase requirements, analyze the quality of the material and price changes according to the market situation, and then choose the best option at the lowest price.
Conduct cost analysis, price analysis, market research, and then retrieve quotes from multiple manufacturers.
Use the resources that are available. Openly engage all suppliers through presentations. Read professional journals, association journals. Call professional consultants and participate in product exhibitions.
Raw material supplier, small service provider, temporary supplier.
1. Supplier research and new product development
2. Assessment and certification of the status of the new supplier's quality system (capacity, equipment, delivery, technology, quality, etc.) to ensure the quality of the supplier.
3. Price comparison and negotiation with suppliers.
4. Review the price, capacity, quality, and delivery of the former supplier to determine the stable supply capacity of the original supplier.
5. Track and control changes in raw material prices and market conditions in time to improve product quality and reduce procurement costs.
6. Orchestration planning. Material order and delivery control.
7. Management training for department employees.
8. Communication and coordination with suppliers and other services.
Who is the purchasing engineer in the Purchasing process ? What are its functions?
1. Evaluation of the main raw materials.
2. Preliminary confirmation of the quality of material samples from the supplier.
3. Initial production and modification of material samples.
4. Look for alternative materials.
5. Preparation of technical and quality documents for the purchasing department.
6. Communication and coordination with various departments on technical and quality issues.
7. Communication and coordination with suppliers on technical and quality issues.
1. Issuance of the order form.
2. Control of the delivery of equipment.
3. Survey on the material conditions of the market.
4. Verify the quality and quantity of the item
5. Management of the abnormal quality and quantity of elements
6. Communication and coordination with suppliers on delivery date and volume
The strategic costing process consists of four steps:
By using these four steps, the following question can be answered:
Should my business increase its production capacity?
What are the strengths and weaknesses of the competitors?
What strategy will make my business stronger than the competition?
How will this process affect your business results and cash flow?
1. Estimate the cost of a supplier's product or service
A lot of data can be obtained by visiting the supplier's facilities, observing and asking questions appropriately to estimate relative costs. Remember that to estimate the cost of a supplier, you need to understand the materials used in the product, the number of operators who make the product, and the total investment in all equipment used directly in the production process.
2. Calculate the cost of competitors' products and services
Competitor estimates can provide the information needed for your business to take the initiative on its own. This preventive position keeps the company in the leading position in the industry, and ultimately keeps it profitable over time.
Competitiveness assessment isn't just about comparing your peers in the industry. It's about doing a detailed study of their activities, investments, costs, cash flows and fully understanding their strengths and weaknesses.
This information may not be easy to obtain, but it allows you to make reliable business decisions, keep your business competitive, and become the “leader.”
The patent contains a wealth of information. In patent content, you usually get two main pieces of information: the materials used and the manufacturing process.
With the information produced through patents and an understanding of the manufacturing process, your company's technical staff can write organization charts and estimate the investment in replacing manufacturing equipment.
Market overviews by segment, company financial statements, executive profiles, and company history can also provide you with a wealth of information about your competitors.
By consulting professional magazines that contain information such as sales and market data, you can get a very comprehensive overview of the situation.
Once you are sure of this information, you can calculate the cost of competitors' products and services.
3. Define the “target” costs of your business and identify areas for improvement in your products and processes
Before you start identifying areas that need attention and implementing cost improvements, you must first estimate the cost of your competitors and compare it to the real costs of your business.
4. Determine the value for the business of making these process and product changes in continuous improvement
Any change that society considers can have a short and long term effect.
To discover the long-term effects of defined changes in your financial situation, take a good look at cash flow. Cash flow gives you a bigger picture than net income alone.
Cash flow is as important to a business as blood is to the human body.
If the cash outflow is greater than the inflow, the business will not be in good health and could eventually die.
You can use cash flow analysis to determine the health of a business and develop a financial plan.
Cash flow is the amount of capital inflows from companies minus outflows.
The main source of cash inflows is turnover.
These rules apply to all businesses in the market.
Only by staying strategically at the forefront of controlling costs, reducing them, understanding the situation of competitors, and making smart decisions about possible expansion or even downsizing, can businesses gain sustainable prosperity.
Here are some tips to optimize the buying process :
1. Problem discovery: At this point, user demand is high. Only the applicants know their specific needs, not the decision-makers.
2. Project feasibility study: The applicant reported the problems encountered to his hierarchy and the question of the purchase and the allocated budget is raised by the purchasing department.
3. Project Approval: A procurement project team composed of users (applicants), technical service, financial services, decision-making services, etc. is generally formed.
4. Determine technical procurement standards: The establishment of procurement standards by purchasers. Usually, the buyer uses the technical department to analyze the requirements and then convert the requirements into procurement standards.
5. Call for tenders: Once procurement standards are formulated, buyers will issue a call for tenders where suppliers can submit their response along with a price offer.
In general, regardless of how the supplier recommends the benefits of their product, the purchaser will not change the established purchase plan unless a fatal defect is found.
Because for their part, the modification of this purchasing plan would immediately affect the anticipated costs.
6. Evaluating offers: Buyers generally negotiate with more than two sales manufacturers in order to evaluate and compare and obtain better business conditions.
This step establishes the selected supplier.
7. Contract analysis: At this stage of the Purchasing process, customers will strive for some added value through business negotiations. Technical product standards and specifications, quantities, and payment methods are all part of the contract review.
8. Signature of an agreement: this stage of the buying process consists in signing a contract, delivering the product and implementing the installation. The signing of the contract does not mean the end of the transaction.
The sale starts at this very moment.
Supplier personnel must meet their commitments under the contract, deliver on time, and complete on time.
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