How Procurement works in Automotive Industry ?
Every organization requires material and services to fulfill their business needs.In Automotive industry, terms like Purchasing and Procurement are used interchangeably. However, they are different from each another.Let's first understand the difference between Purchasing and Procurement.
What is Purchasing ?
It can be defined as 'Process of buying materials and services from the suppliers or vendors'. Purchasing is part of procurement which includes the activities like Ordering,follow up, expedition, receiving of goods, verification of invoices and payment to suppliers.
Objectives of Purchasing -
Purchasing is responsible for maintaining smooth flow of material without interrupting the production.
If production is interrupted it can create a delay in delivery schedules which could affect customer satisfaction and can result in business losses.So, objectives of purchasing can be defined as ' obtaining materials or services of right quantity, right quality at right time,right place and at most economical prices'.
If production is interrupted it can create a delay in delivery schedules which could affect customer satisfaction and can result in business losses.So, objectives of purchasing can be defined as ' obtaining materials or services of right quantity, right quality at right time,right place and at most economical prices'.
What is Procurement ?
Procurement is wider term which includes the activities prior to the purchasing such as Identification of need,supplier selection, creating purchasing orders /agreements, negotiations and maintaining supplier relationship,ect.
Procurement Cycle -
Procurement Cycle consist of steps shown in below snap -
1. Determination of Material Required.
Procurement activity starts with material or service requirements initiated by manufacturing department. This requirement consist of what material or services needed, how much quantity needed, when it is needed. Then procurement team analyze the requirement and finds the potential suppliers who can fulfill the requirement.
2. Request for Quotations (RFQ)
After list of potential suppliers are selected from organization's approved vendor list, team sends a request stating the requirements and asks for the supplier's price,terms and conditions to provide material or service. So, RFQ is not an order ,it is just an enquiry.
3. Vendor Selection
As soon as RFQ received from suppliers, procurement team analyze the different Vendors price,terms and conditions. Finally selects the best suitable vendor for the organization to fulfill requirement.
4. Creation of Purchase Order (PO)
Purchasing order is a legal document acts as contract between the organization and vendor. It consists of information about the material or services like price, what to supply ,how much ,when to supply, mutually agreed terms and conditions.
5. Receiving and Accepting goods
After receiving the goods to organization premises, responsiblility of accepting and posting good receipt in organization's ERP system.
6. Verification of Invoices
Vendor sends an invoices for the goods supplied to organization. Team in responsible to verify those invoices with goods receipt quantity and price mentioned in PO.
7. Payment to Vendors
If verification is done & invoice information are correct then team sends a request to finance team to release payments.
Procurement activity starts with material or service requirements initiated by manufacturing department. This requirement consist of what material or services needed, how much quantity needed, when it is needed. Then procurement team analyze the requirement and finds the potential suppliers who can fulfill the requirement.
2. Request for Quotations (RFQ)
After list of potential suppliers are selected from organization's approved vendor list, team sends a request stating the requirements and asks for the supplier's price,terms and conditions to provide material or service. So, RFQ is not an order ,it is just an enquiry.
3. Vendor Selection
As soon as RFQ received from suppliers, procurement team analyze the different Vendors price,terms and conditions. Finally selects the best suitable vendor for the organization to fulfill requirement.
4. Creation of Purchase Order (PO)
Purchasing order is a legal document acts as contract between the organization and vendor. It consists of information about the material or services like price, what to supply ,how much ,when to supply, mutually agreed terms and conditions.
5. Receiving and Accepting goods
After receiving the goods to organization premises, responsiblility of accepting and posting good receipt in organization's ERP system.
6. Verification of Invoices
Vendor sends an invoices for the goods supplied to organization. Team in responsible to verify those invoices with goods receipt quantity and price mentioned in PO.
7. Payment to Vendors
If verification is done & invoice information are correct then team sends a request to finance team to release payments.
So, this is about how purchasing and procurement works in Automotive industry.
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