THE PURCHASING ORGANIZATION Purchasing History Decentralized Purchasing System The Dark Ages zIndividual Departments and Users handle own purchasing.

THE PURCHASING ORGANIZATION

Purchasing History

Decentralized Purchasing System

The Dark Ages

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

Purchasing Agent position

created and given authority

to make buying decisions.

Move to Centralized

Purchasing

The Middle Ages

Purchasing History

Standardized ProceduresCut down on administrative duplication and lower

administrative costsCombined requirements increase business volume and

get suppliers interestedPolicy and Regulatory complianceBetter control over purchase commitments and dollarsEnable the development of specialization and expertise in

purchasing decisions A better use of City staff time

Centralized Purchasing System

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 Today Centralized/DecentralizedApplication of Purchasing Policy Standardized competition methods and specificationsRegulatory compliance: AIT, WCB, Insurance, etc.Centralized agency handling RFQs, RFPs, and Tenders with

user department participationSupplier performance - Involvement from Purchasing and

User DepartmentsManagement of delivery and lead timesDelegation of low value acquisitions to individual departmentsPurchasing Cards

Purchasing History

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

• 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

Recognition of Need

Purchasing Procedures

• Specifications set by user• Purchasing suggests

alternatives• Authority level• http://www.mala.ca/policies/

policy.asp?rdPolicyNumber=42.09

• Council/Board approval

Requisition Approval

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

Purchasing Procedures

Purchasing Procedures

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

Follow-up and Expediting

Purchasing Procedures

Central Receiving

Receiving at Point of Use

Verifying that delivery

matches order

Communicate with

Accounting

Receiving

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

Purchasin

g Policy

Getting the Best Value

Prequalifications

Expressions of Interest

Cooperative Purchasing

Purchasing Methods

- Direct Award

- Tendering

Direct Award

• Law of contracts

• Purchasing card

• Purchase orders

• Pricing already set

• Low value

• Single source

Getting Best Value

Tendering

• Law of competitive bidding • No fishing expeditions• Obligation on all parties• Very structured• Budget in place• Contract A and contract B

Getting Best Value

Getting Best Value

• May be preceded by pre-qualification (RFEI) Request for Expression of Interest

• Request for quotation (RFQ) • Invitation to tender• Request for proposal (RFP)

Tendering

Getting Best Value

• May be verbal, written fax or e-mail

request

• 3 bids and a buy

• Quick purchases, standard commodities

• Price the dominant decision factor

Request for Quotation (RFQ)

Getting Best Value

• 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

Invitation to Tender

Getting Best Value

• 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

Request for Proposal (RFP)

Getting Best Value

Document preparation (2 weeks)Advertising (1 week)Tendering period (3 weeks)Site meetingClosing date and tender openingEvaluation (1 week)Approvals (1day – 4 weeks)AwardCommencement/Delivery

(2 +weeks)

Competition Timeline

Timeline

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

• www.city.nanaimo.bc.ca/b_purchasing

• www.bcbid.gov.bc.ca/open.dll/welcome

CITY OF NANAIMOH A R B O U RT H E C I T Y

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

Suppliers

The Purchasing Department

• 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– 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• 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/

Gino Di Menna C.P.P. Purchasing Manager, City of Nanaimo

Thanks To:

CITY OF NANAIMOH A R B O U RT H E C I T Y

Professional Purchasing Pays

• Rusty Joerin C.P.P.– Purchasing Manager Malaspina University-College

• [email protected] 250-740-6234• http://www.mala.ca/purchasing/