Streamlining the sales development process for procurement with airSlate SignNow

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[Music] [Music] Hello friends welcome to the class so today uh we'll continue from we had left uh behind you know so in the last lecture we had talked about the importance of the function of the purchasing department or the purchasing function goals right so where we understood how purchasing plays a very vital role in the success of a B2B firm now that could be through you know an uninterrupted supply of materials could be through a low price or you know improved profitability of the firm or even creating a new compet position in the market so all these are very important goals that the purchasing department has to uh you know uh look into and besides this we also talked about the uh you know a model which is called as popularly the the calic model right and where we try to understand how a company or a firm can divide its uh requirements of materials into four different parts so leverage items uh strategy items bottleneck items and not so critical items and we also looked at more holistically into that how you know what time Horizon how it is differing ing to Time Horizon ing to the key performance criterias and then uh you know the decision making part so all these things we discussed in the last class so what I've done is today I'll just you know we'll I'll take you across through some more key uh important issues involved with the purchase of a uh know uh B2B firm right so let's start the lecture so this is the example which I have brought which is connected to the Kix model and uh I wanted to explain you again the same thing so if you look at this case this is a case of tataa motors right and uh what I The Heading says materials required at tataa Motors Now tataa Motors is one of the largest automobile manufacturing companies in India and globally also it's a large player and this company has purchased lots of materials and components right so some of the principal uh you know materials being the steel sheets and plates alloy wheels tires fuel injection systems batteries electrical wiring systems electronic information systems and displays then interior system such as seat cockpits doors plastic finishers and plastic functional Parts glass and consumables you know such as paints oils thinner welding consumables chemicals adhesives and cant and fuels right so this is only maybe I could get something I this is from the Tata Motors website I have collected so uh besides this there could be there could be many more products and raw materials but this is something which I have largely which are used I've have noted down now the company also requires besides this you know like it's mentioned Aggregates excels engines and gear boxes for its Vehicles sometimes which are manufactured in-house or by its subsidiaries and then Affiliates joint ventures through operation uh you know joint ventures and operations and strategic suppliers so the company uh gets these uh things done from its uh Clos ones some close suppliers and Affiliates and through some joint ventures right so now taking this example what I expect uh you people to do is try to create the cix model and try to explain the role of each product through the profit impact and the supply risk and try to place them as a uh you know the Strategic or a leverage or a bottleneck item or not so critical item right so this is the task which I have brought for you create a cix model for the products used by Tata Motors right please take your time and do this exercise this will give you a good clarity about how the cic model can be important so for this maybe you have to go a little deep you may have to speak to some executive or tat Motors or some distributor somebody who has the knowledge of this uh you know of these products and how important they are and how supplier risk is uh you know prevalent in the market they will be able to help you out okay so uh today we'll talk about few other things for example the purchasing cycle now a typical purchasing cycle in any organization is how it looks and this is very important for a from a student's point of view uh or who is going to join organization that there are few steps for example if you can see there are about 10 12 steps in this model so where it starts with a starting point that how a purchase happens now first a user Department issues a purchasing requisition a purchase requisition right which is largely uh written as PR okay so the user Department issues a purchase requisition and this requisition goes to the uh know to the inventory Department control department and there they check they try to see if the item is in stock or not for example you need certain items uh for your for the manufacturing department requires certain items so they will issue a PR and this PR will go to the know purchase department and here they will check the the inventory control uh you know uh department or inventory control team they will check if the item is in stock or not okay and once the item is if the item is not in stock right if it is not in stock then automatically they'll uh pass it on to the next uh phase so here the purchasing department investigates the potential sources uh the suppliers who can supply this uh these raw materials to us and they would then negotiate and finally Select A supplier so this process is also a very tedious and consuming time consuming process and then after this is over then they would place a PO which is called a purchase order okay now once the purchase order is placed the vendor or the supplier acknowledges the receipt of it and then a follow-up inquiry goes on at this stage so the buying Department the purchasing team would continuously uh go for a routine uh reminder and a checkup right so to see where what is the stage where the product is at the moment have they started manufacturing have the dispatched the product and if they have dispatched where is it in the logistic and once it is done the material is shipped by the supplier or the vendor and the receiving department in the buyer uh buyer organization he checks the material against you know packing slip and the purchase order and issues a receiving report what he does once he checks whether everything is intact or not and then they will give a p receiving uh report then the vendor also Al sends a invoice to the accounting department so the vendor also will send a invoice to the accounting department and here the purchasing department will compare the receiving report and the purchase order invoice so that they would see if there is any uh you know uh same material what we have asked for same if it is in the same specification or not same quantity or not so everything would be checked okay and finally the accounting team would you know from uh the accounting team which is uh here now verifies that the vendor has met everything rightly and finally the payment would be done so this is how the entire process of a typical purchasing cycle looks like but it is it looks very simple to you from outside but entire organizations uh there are entire team of people who are involved for large organizations because they make hu there are large number of vendors available with them and the specifications that they require might be changing with time to time and the number of orders they might be placing is different and there are so so many logistical Partners also involved in the process who are supplying so maybe the supplier is not the one who's supplying so that might be supplied through some other logistical partner so all these things makes it a very complicated process so there's a regular purchase Department who is doing it right now if you look at the you know activity for example as I said the user Department issues the uh you know the pr so who does it now the user department so user Department could be be generally the production Finance marketing R&D or HR department now then it is the material is checked in the stock book right so who does this part now this is done by the purchase department so the purchasing Department's function uh you know role is to check whether the inventory or the material that the user has asked for is it available with us or not okay then the purchasing department does all this you know negotiation and selection of the suppliers okay the supplier acknowledges the PO so who who whose responsibility so the supplier's responsibility right then the next step is followup who does it the purchasing department then the supplier dispatches the material so whose responsibility anything happens in the way the logistical partner doesn't you know dispatch in the right time or doesn't make it available to us in the right time who whatever happens the responsibil of the supplier not of the buying organization then you know on receipt of the material you know the material receip report is made whose responsibility is that stores Department then the quality control Department inspects the material and issues the inspection report so whether everything is correct intact or not so Quality Control Department so and finally the purchase Department issues supplier invoice to accounts department so again a job of responsibility of the purchase department and finally the accounts department so these are the different people involved in the purchase this is how a typical organization looks like and that's why in a purchasing uh you know in any organization most of the Departments are involved either through by becoming a user or by being a part of the purchase department or the quality control department stores whatever it is so the entire department in some way is involved in the uh you know uh purchasing function of an organization so this is how a typical you know purchase requisition form PR form looks like and this is a purchase order form and this is the material received report form so this is something for your advantage you can just pause the video and you can just look at how this if you have never seen a purchase requis form or a purchase order form or a receip order form Report Form then you can please look at it now for example in a purchase uh requisition form what is written which department wants it what is the reason for the need of this product when is the delivery required what is the location of the delivery so all these item description quantity unit price everything is given similarly the purchase order is placed now now who is placing the order the contact name the vendor who is the vendor every detail is given out here so all these things uh if you look at it little uh you know with time if with patients you will realize it's a simple form made with lot of uh you know uh clarity about who requires it and when he requires how much he requires and everything is in clear order okay so purchase requisition versus purchase order sometimes people get confused now what is the difference between them now purchase requisition is a internal document and purchase order is an external document that means this this document goes outside okay and this requisition is something which go moves from one Department to the other within the company okay and in terms of information it uh purchase requisition PR provides you the description of the requested goods and services and purchase order gives you a PO number and the order details how many where and all purpose is the permission to purchase goods or services here is the confirmation of an order so if a PO is placed then it's a confirmation of the order okay who can submit it any employee within the organization and but here the purchasing order can only be placed by the purchasing department nobody else who is the receiver of the pr now the receiver of the purchasing requisition purchase equation is the purchasing department so since this is the main Department who is looking into the purchasing it's obvious the name suggested and who is responsible who is the receiver in case of the purchasing order not the vendor the supplier okay so these are the two documents which are very important in any during any purchasing process and one is largely an internal document the other is a external document now since I have been saying that purchasing has become a very important function and slowly it has evolved with time right if you look at large companies like Toyota Honda you talk about you know any big names which are generally given example in any any classroom right in India tatas you know the beras so how can you make you know use procurement or purchasing or sometimes you understand it as sourcing how can you take advantage of it so this is a model which says that the levels of procurement development now procurement can also become a part important part of the company's strategic uh know uh goals and it can really contribute to the profitability of an organization now procurement has evolved in the in with time now initially procurement is or today also some firms are still uh in that you know level so it can be uh such that a company firm might be still at level one or it might be level two but the most advanced is level four right now what it says what are these labels saying the first level is something which says Buy For Less in any procurement process the first level starts with leveraged buy or buy for less that means the organization should always the thought process behind this leveraged buy is that a organization should always buy at the cheapest cost now here the cheapest cost which they mean is actually the quoted price or the listed price but slowly you evolve through the process and the second level says a linked buy which says buy for better right now what is buy for better we'll see we'll see I'll explain each of these levels more descriptively and the third level is saying value buy that means you consume better you you value Buy is like adding more value to the buying process and here you talk about looking to the consumption pattern and fourth levels talks about the selling you know selling better or integrated sell now let's look at each one of them what do they mean now for example the first one leveraged buy now what it says Consolidated or Supply base optimization now the buyer creating a supply base and taking advantage of it so you have large for example there's a very famous company called Le and fun right now le and fun is an organization which helps uh in the supply chain process for many organizations so it provides information so this kind of companies are there or who help you in creating an supply chain optimization right now what happens in this leverage buy is that if you see utilize your supplier fixed cost more in a advantageously right and exploit competitive Supply based structure leverage your buyer share and announce negotiation and Contracting skills basically what happens here is you are trying to extract maximum through negotiation through your uh exercising your power your you know ability to um bargain better so leverage buy is the first level right the second level if you come if you move from leveraged buy comes to buy better or linked buy now what does it mean now this says supplier buyer integration happens right and because of the link cost minimization happens okay let's see what it uh tells about now the most important points here are improved coordination so when you are linked when the buyer and seller are linked okay so they connected that means so there's an improved coordination and forecasting accuracy and predictability so now as the buyer and seller are linked so they understand each other's needs better as a result of it what happens the forecasting becomes more accurate and better and there is no wastage of inventory there's no uh unnecessary blockage of capital and the company gains optimize logistical flows so the logistical arrangements are also more smooth in nature okay so elimination of redundant non-value added activities so you can remove many of the non-value added activities and finally you know Improvement in the supplier cost prod so what it basically in this stage what happens in the first stage there was no linking in the second stage we are linking these two the buyer and seller to a great uh uh level so that one can know each other's uh know requirements and they can help in help each other so as a result it has been seen when companies move from leveraged buy to linked bu almost they save up to 25% of the cost almost 25% of the cost so this is when you move from this level to the second level it's a great saving for companies the third level is value buy now what does value buy means value buy or value management it talks about increased and early supplier involvement in solution design so nowadays large corporation and successful corporations right they have started this uh concept of involving the supplier as a partner and the supplier helps them not only in the design but also product development process okay so as a result what happens there is a reduction in complexity and the specifications are more simplified in nature standardization increases and the response time is very less because it is very fast respond because you can understand each the buyer supplier understand each other much better okay so all these things are as you know uh performance in incentives are given so all these points help in adding more value to the buyer okay so value buy is to understand how to optimize your buying process right so where are you going to what are your unnecessary activities that you can reduce how can you can take advantage of your suppliers skill and resources all these things will come here right the fourth uh point is integrated sell or sell better right so one was Buy For Less the other was buy better the other was the third was consume better so that means you are consuming only what you require you are not wasting unnecessary uh capital on that the fourth is sell better now integrated cell is integrate multi Company products or services and channel so if you look at any B2B firm for example any large industrial firm now they have several products right and the products can have the product mix can be different the channel distribution can be different so it may be very complicated so in this point the companies try to bring in a Synergy in selling the product now they try to design the products in a manner so that they can improve in their logistical uh you know performance now what do I mean by this now you might be get thinking let's say if you create products of very different kind of designs or specifications so it might create a problem in during the logistical process right so some designs might not be compatible they might not be able to gel with and they will space unnecessary there will be unnecessary wastage of space and uh you know uh space so in such a situation for example one recent phenomena is a modular design now because of modular design there has been significant logistical Improvement for organizations organizations have been able to save lot of cost in uh Logistics just because of this design uh support right here the companies try to introduce creative risk sharing so the buyer and supplier they gel hand so in the during the forward integration right so which is a part of the uh vertical integration the forward integration they both try to share the risk and the company tries to exploit the supplier capabilities to the and potential so whatever the suppliers abilities are there suppliers market knowledge local market uh understanding everything the buyer might take advantage of during its selling its products okay and managing the complex channel uh relationships and even cross utilizing infrastructure and operating resources so these kind of uh you know uh advantages the companies can take and this is generally happens during the evolution of a company during its entire supply chain process okay so this model has been taken from the Strategic sourcing a journal which was published in international Journal of logistics management so you can check this original model so written by Anderson and Cass very popular model now this can really add value to any organization if one one can understand it more deeply and tries to spend a lot of time into that they can really make lot of uh you know advantages they can create a lot of Prof a lot of profit for the company right because every stage they can add certain value okay now since talking about purchasing then sourcing we are using we sometimes use different terms like for example we used purchasing we used sourcing nowadays we talk about strategic sourcing now what is the Strategic sourcing and is it different the question is no it is not different but yes in the orientation it is the way you understand it that is different right but otherwise one if if nobody if somebody doesn't understand anything he would say it's a simple purchasing process but strategic sourcing is more than purchasing because it it involves a lot of different aspects which help in optimizing the purchasing process or uh bringing in more benefits to the organization okay so what is the definition sourcing in business is the act of searching comparing and evaluating different goods and suppliers in order to obtain the most suitable resource for its for the desired purpose okay now this is the understanding now the definition says strategic sourcing is a procurement process that continuously improves now the word is continuously improves and re evaluates the purchasing activities so otherwise it's purchasing only but when that purchasing is done with continuous Improvement then we say it's a it's no more a purchasing but it is kind of a strategic sourcing so organizations can strategize because they can find out those bottlenecks or those places where there is a lot of potential right to for improvement so they can identify those and they can bring in changes now look at this example sourcing at tataa Motors now Tata Motors uh tatas are example are a classic uh you know case in India so a very successful organization very strong brand uh know having a strong brand and uh you know a company with diverse products okay now how sourcing is done in tataa Motors now the company has what it does is the company goes for a long-term purchase agreements for some of the critical components such as transmissions and engines so as they are manufacturers of you know automobiles large and know cars and even trucks and all so they go for purchasing agreements for some of the critical components and the company has established you know contracts with some commodity suppliers for example some regular products are there commodity means some products which are very basic very general in nature right so so they have uh gone for contracts with some of the commodity suppliers to cover its own as well as the suppliers requirements and tat Motors tatas are very famous for even giving a helping hand to their suppliers and helping in their supplier development process okay so this is done to you know mitigate or reduce the effect of the volatility in the commodity prices right so most of this because every organization as you have seen they if the commodity if it's a commodity the supply risk is low then you would like to take advantage of the prices by uh buying it at the cheapest cost maybe the company has also undertaken special initiatives to reduce material consumption through value engineering and value analysis techniques so data Motors has not only stayed up to that it has also taken advantage by reducing material consumption by using certain techniques like value engineering and value analysis in in this what happens the company tries to go through a reverse mechanism and tries to understand the process of manufacturing of a product now just imagine this is a product being manufactured and there are let's say 1 2 3 4 5 6 steps okay now if a deep interpretational analysis tells that two and three can be let's say merged right so now what has happened one so two and three together four five six so there are now five steps okay so this activity has helped in reducing one step now one step reduction means 16% efficiency has improved simple so this is just a example I've given now just imagine a product like a automobile where you have thousands of components and where you have different uh jobs uh in hand right processes that are being undertaken so if you do a value analysis maybe you can find out certain you know different kinds of steps that can be eliminated or replace certain products with some new materials which is more cheaper or effective so by doing these kind of activities or this kind of you know uh practices the company can reduce its cost of operation okay so tataa Motors has been very successful in doing it and uh if you look at today tataa Motors is is in a very fast growing uh company automobile company in uh in India and uh even in the world okay so they have Brands like jaguar and all with them and what are the steps in strategic sourcing so maybe I'll wind up this class with this uh slide so steps in strategic sourcing is for example it starts with an internal need analysis so when you want to when a company gets into strategic sourcing the first step is to look at the internal need why do you need it why should we we even do it these kind of questionss should be asked by the company right so what is my vision statement my mission statement what is my goal what values I'm going to impart so looking into all the company does an internal need analysis and once it is does that then it goes for a market assessment now supplier market assessment so so they should because if you want to do a develop a product you need to understand you can't you will not be producing all the parts right all the services so you need help from outside so the supplier market assessment has to be done and then a portfolio analysis is to be done like for example you need to understand what kind of an item is it is it a strategic item is it a you know bottleneck item leverage item what is it exactly ingly you develop a supplyer relationship right you do a supply relationship analysis now which kind of suppliers are can be can supply to us what is their position what is their relationship and how can we establish a good relationship with them the next step in strategic sourcing is to look at risk assessment now when you talk about risk assessment for example coid 19 I have written now you you cannot predict a pandemic but still you can you can surely know assess certain other kinds of risk for example political risks right some uh maybe natural Calamity is a different issue but political risk you that doesn't happen in one day right so you can assess you let's say the Russia Ukraine War has resulted in different political relationships now India has buying oil from Russia now the USA might not like it similarly USA might have a different opinion about those countries which are supporting Russia so these kind of equations Will Go On Now what kind of an impact that will have on our business is very important and that we need to understand then finally you go for negotiation and supplier selection and a continuous improvement process so these are the six steps that is involved in strategic sourcing okay now I'll finish maybe this is an example of Starbucks now Starbucks what it does it's a you know all of you know the very famous chain right so you must have gone into Starbucks cafe and uh you have taken its coffee so what Starbucks does for its coffee purchasing strategy it builds relationship with Growers and exporters and checking on agricultural conditions and crop yield and searching out varieties and sources that would meet the Starbucks standard so Starbucks is a has is one of the most popular brands in the world global brand now it has a certain standard so it it wants that all the raw material that it uses should also meet that quality otherwise the brand will get the image will get affected okay then they use you know fixed price purchase commitments and purchasing future contract so that if there is any price fluctuation and all they will not not be affected too much so they kind of a do a future contracts and all so that they can hedge themselves okay Starbucks contributes you know to the sustainability of coffee Growers also and helps in Environmental Conservation now that is not directly one might think not directly linked to Starbucks but this by this process they create a good relationship with the farmers and those producers okay and obviously everybody has a responsibility to the for the environment which they also understand it purchasing and marketing fair trade certified coffee so so they have a very established mechanism of purchasing a you know good quality product and you know certifying their vendors for ingly and finally they promote the coffee cultivation methods that protect biodiversity and maintain a healthy environment so basically these are some of the steps that uh you know Starbucks uses in its sourcing strategy as a part of part of the sourcing strategy strategy to improve not only its profitability but it also indirectly helps its brand building it helps in Saving themselves from against any price uh fluctuations any political turmoils any kind of situation and finally they add to the environmental uh health and all so this is what Starbucks does right so well I'll wind up this lecture here because I think it's quite uh you know uh we are through with the day and uh I think you are clear with what I have tried to explain today and we'll meet in the next lecture with some uh more of the things right so till then all the best have a nice time thank you very [Music] much [Music] a