THE PURCHASING ORGANIZATION
Purchasing History
The Dark Ages
Decentralized Purchasing System
Individual Departments and Users handle own
purchasing
User is better aware of own needs
Possibly faster… simply picks up the phone
and orders
Purchasing History
The Middle Ages
CT
to make buying decisions.
Move to Centralized
Purchasing
TRA
created and given authority
CON
Purchasing Agent position
Purchasing History
Centralized Purchasing System
Standardized Procedures
Cut down on administrative duplication and lower
administrative costs
Combined requirements increase business volume and
get suppliers interested
Policy and Regulatory compliance
Better control over purchase commitments and dollars
Enable the development of specialization and expertise in
purchasing decisions
A better use of City staff time
But a Centralized System
• Can be overly bureaucratic
• Cause internal political strife
• Too much “busy work” for the purchasing
professional
– Questionable value add on individual small value
purchases
Purchasing History
Purchasing Today
Centralized/Decentralized
Application of Purchasing Policy
Standardized competition methods and specifications
Regulatory compliance: AIT, WCB, Insurance, etc.
Centralized agency handling RFQs, RFPs, and Tenders with
user department participation
Supplier performance - Involvement from Purchasing and
User Departments
Management of delivery and lead times
Delegation of low value acquisitions to individual departments
Purchasing Cards
Contract Management
• Purchasing Manages contracts, individual
departments buy items on contract
• Examples
– Purchasing Card
– Stationery
– Consumable supplies
• Large Service Contracts
– Janitorial
– Construction (partner with Facilities)
Purchasing Procedures
• Recognition of need
• Requisition approval
• Placement of the
purchase order
• Follow-up and
expediting
• Receipt and approval
of goods/services
Purchasing Procedures
Recognition of Need
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•
•
•
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Planned v. Unexpected demands
Identify quantity and specifications
Date the item or service is required
Emergency and rush orders
Conformance to specification
(Approved Products List)
• Small v. large orders
• Stores purchases
Purchasing Procedures
Requisition Approval
• Specifications set by user
• Purchasing suggests
alternatives
• Authority level
• http://www.mala.ca/policies/policy.a
sp?rdPolicyNumber=42.09
• Council/Board approval
Purchasing Procedures
Purchase Order
• Regular PO - linked to requisitions
• Open PO - use where the PO value and
purchase quantity are indeterminate
• Reserve or EPO - used sparingly in case of
urgency
CON
TRA
CT
Purchasing Procedures
Follow-up and Expediting
Follow-Up: Ensuring that
product is delivered on
time as ordered
Expediting: Convincing
the supplier to take
extraordinary measures to
deliver before the agreed
date
Purchasing Procedures
Receiving
Central Receiving
Receiving at Point of Use
Verifying that delivery
matches order
Communicate with
Accounting
Purchasing Considerations
• Purchasing policy
• Getting the best value
• Dealing with Suppliers
• Ethics and the Law
Purchasing Policy
• Applies to ALL acquisitions of goods
and/or services
• Varies by organization e.g.
– Acquisitions up to $5,000 - direct purchase or
tender
– From $5,000 to $25,000 require written
quotations
– From $25,000 to $100,000 require public
tender
– From $100,000 to $250,000 require public
tender and approval of deputy city manager
– $250,000 and above require approval by
Council/Board
• http://www.mala.ca/purchasing/policy.htm
Getting the Best Value
Prequalifications
Expressions of Interest
Cooperative Purchasing
Purchasing Methods
- Direct Award
- Tendering
Getting Best Value
Direct Award
• Law of contracts
• Purchasing card
• Purchase orders
• Pricing already set
• Low value
• Single source
Getting Best Value
Tendering
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Law of competitive bidding
No fishing expeditions
Obligation on all parties
Very structured
Budget in place
Contract A and contract B
Getting Best Value
Tendering
• May be preceded by pre-qualification
(RFEI) Request for Expression of Interest
• Request for quotation (RFQ)
• Invitation to tender
• Request for proposal (RFP)
Getting Best Value
Request for Quotation (RFQ)
• May be verbal, written fax or e-mail
request
• 3 bids and a buy
• Quick purchases, standard commodities
• Price the dominant decision factor
Getting Best Value
Invitation to Tender
• Projects of sufficient size, complexity,
political sensitivity,
• detailed specifications
• Prime evaluation criterion is cost
• We know “what” is wanted and “how” it
is to be done
Getting Best Value
Request for Proposal (RFP)
• Similar to invitation to tender. Award is
determined by several criteria, not just cost
• Seeks creative input of marketplace - details
“what”, “when” and “why” but not “how”
• Greater flexibility in tender wording
• Appraisal Criteria detailed in request
Getting Best Value
Competition Timeline
Document preparation (2 weeks)
Advertising (1 week)
Tendering period (3 weeks)
Site meeting
Closing date and tender opening
Evaluation (1 week)
Approvals (1day – 4 weeks)
Award
Commencement/Delivery
(2 +weeks)
Appraisal of Responses
• The key areas for evaluation are summarized as follows:
Mandatory Elements:
Performance on Rated
Criteria:
Design Functionality
Aesthetics Life-Cycle
Cost
Total
Pass/Fail
Maximum Points to be
Awarded:
45 points
10 points
45 points
100 points
Suppliers
Suppliers
• Finding qualified suppliers
– Market the Bid Opportunity!
– BC Bid, Newspaper ads, Call and Fax Notice
– http://www.bcbid.gov.bc.ca/open.dll/welcome?language=En
– http://www.mala.ca/purchasing/tenders.asp
– Search web, Yellow pages and Contact list
CITY OF NANAIMO
T H E
H A R B O U R
C I T Y
• www.city.nanaimo.bc.ca/b_purchasing
• www.bcbid.gov.bc.ca/open.dll/welcome
Suppliers
Supplier Selection
Input from User Departments
Based on the criteria stated in the RFP
Price, specifications, availability, creativity,
personnel, experience, references
Open and Transparent
Be prepared to de-brief the loosing
bidders
The Purchasing Department
•
•
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ETHICAL
OPEN
FAIR
ACCOUNTABLE
The Professional Purchaser
• Who Are They?
• What Do The Know?
• How Did They Get The
Knowledge?
• Where Do You Find
Them?
• When Do You Need
Them?
Every Business Buys
• Some do it better than
others
• Purchasing is a learned
skill
• There are accreditation
programs that offer
purchasing skills
Who Are They?
• Business People
• Regular Folks With a
Specialized Skill Set
• Good Listeners
• Analytical
• Astute
• Ethical
• Negotiators
What Do They Know?
• Lever Your Profits Up
– Every dollar saved goes
straight to the bottom
line
• How to extract value
from the supply chain
– Cost of goods
– Transaction costs
What More Do They Know?
• How to organize around
the supply function
• Different acquisition
methods
• Analysis of what you
buy
• How to reduce
inventory
Anything Else?
• Integrate the supply
function with the
strategic direction of the
company
– Make or Buy
– Strategic Alliances
– Minimize Product
Liability
– Project Management
How Did They Learn All This?
• Professional Associations
– Purchasing Management Association of Canada
– PMAC Accreditation Program
• http://pmac.ca/education/education.asp
– US based Institute of Supply Management
• http://www.ism.ws/Certification/CPMEvolution.cfm
– National Association of Education Buyers
– And others
PMAC Accreditation
• Business Courses
• 4 Principles Courses
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Principles of Buying
Principles of Logistics and Transportation
Principles of Quality
Principles of Inventory and Operations
• 12 Seminar Days
• One week “live in” Course
Business Courses
• Mandatory Courses
– Marketing: Consumer analysis, marketing mix, channels of
distribution, market research, advertising, pricing, sales management.
– Macroeconomics: Basic understanding of macroeconomics, insight
into the economic policies which affect business conditions and
decisions.
– Introduction to Management: Basic management concepts including
common management methods in decision making, analysis, planning
and control.
– Managerial Accounting: Cost analysis, budgeting, performance
analysis, information and control systems.
– Organizational Behaviour: Human behaviour (individual, group and
organization), productivity, motivation, and communication.
Electives:-5 Required
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Business policy: Organization objectives, strategy, policy, strategic analysis,
environmental analysis, strategy implementation and the role of the top executive.
Microeconomics: Factors affecting the determination of prices, production levels,
employment and wages and profits in individual industries under varying competitive
conditions are considered. Particular attention is directed to competition policy,
government regulation, income distribution, labor unions and taxation.
Financial Management: The financial structure of an organization, stocks, bonds,
liquidity, leverage, cash flows, ROI, financial statements, funds flow and ratio analysis,
financing, earnings retention, dividend policy, leasing, mergers, consolidation of holding
companies, etc.
Law: A review of basic law and the law of contracts, agency, etc.
Public Administration: Management of public institutions, public finance, policy and its
relationship to the political structures of Canada.
Computer Science: Basic computer theory and applications in business, exposure to
programming and systems analysis.
Operations Management: Operations and process analysis, standards, scheduling and
control, technology, capacity and operations strategy.
Visit http://pmac.ca/education/CPP_management_courses.asp for details
Where Do You Find Purchasers?
• Most larger
organizations have a
purchasing specialist or
department
• http://www.pmac.ca/
Thanks To:
CITY OF NANAIMO
T H E
H A R B O U R
C I T Y
Gino Di Menna C.P.P.
Purchasing Manager, City of Nanaimo
Professional Purchasing Pays
• Rusty Joerin C.P.P.
– Purchasing Manager Malaspina University-College
• [email protected]
250-740-6234
• http://www.mala.ca/purchasing/