LECTURE No. 3. Procurement activities in logistics

1. Classification of reserves

Inventories require large capital investments, being one of the factors that determine the policies of enterprises and affect the level of logistics services as a whole.

Inventories, being a kind of insurance, have always been considered a factor that ensures the flexible functioning of logistics. There are three types of inventories: raw materials, products in progress and finished products.

In turn, they are divided into appropriate parts depending on their intended purpose: transitional, cyclical, insurance. Transitional stocks include technological stocks moving from one logistics system to another. Cyclic inventories include current inventories in one batch, or those created during the period of average production.

Safety stocks include reserve stocks, organized in case of unforeseen changes in demand, etc.

The main reason for creating inventories is the desire for economic security of subjects of production activity.

Forecasting shortages is the strongest incentive to stockpile. There are several levels of costs associated with inventory shortages.

1. Costs arising in connection with non-fulfillment or delay of the order. Lead to additional costs for promotion and shipping of scarce orders.

2. Costs of losing a regular customer. In cases where the customer is forced to look for another company, not only a trade deal is lost, but also a regular customer.

3. Costs of loss of sales in the absence of the required product (material, raw materials, etc.) - the customer is forced to look for it in another company. The price of lost or unrealized trades is lower than the price of stockouts.

It includes loss of time for manufacturing products, working time, loss of time due to transitions between complex technological processes.

Technological and transitional reserves. The volumes of transitional stocks will be large when the movement of stocks takes a long time, with long lead times for selling goods, and with large time intervals between the moment the goods are released and their arrival at the warehouse.

Cyclical stocks, or stocks of one batch of goods.

A feature of most business systems is the ordering of large quantities of goods that are excessive in volume. This forces the customer to store some of the goods in the warehouse for some time.

Buffer or safety stocks. If demand exceeds expectations, safety stock becomes the source of supply. It is extremely rare to accurately predict the demand for goods, which also applies to the timing of orders. This makes it necessary to create an "emergency source" of supplies.

Determining the level of reserve stocks depends on the timing of restoration of stock levels and the possibility of their fluctuations; from the variability of demand for certain goods during the order fulfillment period; from the currently existing customer service strategy.

It is not an easy task to determine the level of reserve stocks in conditions of instability of sales deadlines and variability in demand for goods.

The creation of inventories in firms in various sectors of the economy is determined by the characteristic role they play in the production of products. This explains the different approaches to the role of capital investment in a certain area and serves to determine the main tasks set in the production process.

At enterprises in certain sectors of the national economy, the priority task is control over resources, in others - control over finished products.

If an enterprise specializes in investment goods, then the main part of the organizational efforts falls on work in progress. Companies that produce railway and rolling stock produce products according to consumer orders. There is no need to stock up in this industry; no one will just make, for example, a diesel engine.

In the apparel industry, given the fickle nature of fashion, there is a reason for keeping a small amount of inventory. The production of semi-finished products and investing in this allows you to quickly respond to changing needs of the product market.

The situation is diametrically opposite at enterprises engaged in the production of tires. The success of the enterprise depends on how quickly demand is satisfied.

In this regard, finished products must always be in stock. Tires are rarely made to order; consumers prefer a specific brand.

In tire manufacturing plants, investment in raw material inventories and work in progress is ineffective and kept to a minimum level.

2. Basic concepts of procurement

Procurement processes relate to a wide range of raw materials and materials and cover a large number of activities.

The most important issues associated with the logistics processes of procurement are:

1) timeliness and quality of deliveries, completeness. They ensure uninterrupted service of production processes.

2) material and information processes at the procurement stage combine many functions and narrow tasks. The answers to the most important questions related to the main activities of any enterprise (mainly industrial) determine the main content of the procurement processes. Before purchasing activities, you need to answer several questions.

First, buy or produce it yourself. Before making a decision, conduct a full analysis, taking into account the interests of the enterprise divisions, and be guided by the following motives.

Our own production is distinguished by a high level of added value, the presence of unique technology, and the advanced nature of the products produced. The acquisition reduces production capacity and provides access to modern technology. The decision in favor of in-house production or acquisition is made at an early stage of product development.

Secondly, how much to buy. This issue is related to material requirements planning and inventory management.

Thirdly, when to purchase. The solution to this issue involves organizing supplies along with production needs and taking into account information about inventory management methods.

Fourthly, where to buy. The question speaks for itself. The enterprise must decide on the choice of procurement location and suppliers.

As with the first question, resolving this issue requires a detailed analysis of the proposed sources of supply and possible suppliers.

3. The essence of procurement activities

Enterprises, regardless of the type of activity, purchase raw materials, supplies, related products and services.

All this is necessary for the formation of economic activity, primarily production and service. Trading enterprises purchase goods for subsequent resale.

Institutions and organizations also participate in the procurement process of goods and services to perform their assigned functions.

The special role of the purchasing function for the purpose of their further processing or resale determines the prevalence of these processes for any enterprise, which makes their impact on the economics of production significant, and in some respects, decisive.

The prerequisites for the importance of purchasing processes for shaping the economy of enterprises are: the efficiency of meeting the needs for materials, energy and services. Depends on the smooth functioning of the enterprise.

The main component of the costs of operating an enterprise is the cost of the resources and materials used. There are opportunities for cost reduction here. Under the influence of purchasing processes, a significant part of working capital is formed, especially the degree and structure of inventories, as well as unfinished products.

In the procurement structure, progressive processes are increasing the share of finished parts in both the production of products and the provision of services. Without close cooperation with suppliers, a product quality strategy cannot be implemented.

The listed factors confirm the growing importance of the procurement process and the necessity of analyzing their progress.

There are other reasons that are closely related to the logistics of procurement processes and have an impact on the economics of enterprises.

1. Ensuring high dynamics of material and information flows, strengthening the market position of the enterprise leads to lower costs and improved quality of customer service.

2. Buildings and warehouses, vehicles, machines and technical equipment used for the movement and storage of materials need to involve the majority of fixed assets in the production infrastructure of logistics processes in the procurement sector.

3. The main number of employees in procurement-related departments perform physical and information functions. The presence of stocks of materials, unfinished products, goods, etc. leads to an increase in storage costs.

The listed factors prove the significant impact of procurement processes on the entire activity of the enterprise. They allow you to increase competitiveness and determine the level of costs. The process of planning and organizing procurement requires an appropriate approach, a wide range of material and raw materials resources that have varying degrees of technical readiness for use and processing.

In most enterprises, the structure of material needs is quite complex. Let us highlight several groups of procurement objects for which similar procedures for organizing this process are applied:

1) initial resources and materials to be processed at a certain enterprise during sales or technological processes;

2) finished components used in the assembly of products at the enterprise in the final phase;

3) semi-finished products to be processed;

4) assembly units and components;

5) general purpose materials;

6) solid, liquid and gaseous fuels, as well as all types of energy.

Several product groups that act as procurement items are listed here.

Some specific conditions must be met during the procurement process for products in each group. An appropriate technical infrastructure and separate agreements on the main parameters for the supply of heat, electricity or gas are required.

Agreements based on multi-year contracts are required for the supply of technically complex assemblies used as components of finished products.

Managing procurement processes is considered the most important activity of the relevant departments of the enterprise.

4. Order management, order preparation

The optimal quantity of goods determines the order size at which the cost of receiving and storing one unit of goods is minimal. But this does not mean at all that the price per unit of goods should be the lowest. It is necessary to calculate all costs associated with the order to determine its optimal size.

With any replenishment system, basic questions must be answered: when to order and how much to order. With a system of strict intervals between orders, strictly established deadlines for the provision of orders are selected, this resolves the question “when?” You need to answer the question “how much?”

To do this, select and record in accounting cards or in a computer the amount of the maximum or required stock for each product.

In the period until the next replenishment of stock, the available stock and additional receipts from the previous order must be sufficient to satisfy demand.

When working on a system of replenishing stocks at strict time intervals, nothing prevents the use of optimal orders, namely for goods of high demand at the time between deliveries.

Customers try to more accurately calculate and at the right time adjust the size of the required stock of goods, which contributes to the accuracy of order fulfillment and reduction of costs for purchasing and maintaining goods.

The optimal order sizes are selected by comparing the costs of holding inventory and the costs of orders.

To answer the question of when to order, you need to determine when to order or replenish inventory for each item.

The determination of such a moment is based on the delivery time of goods ordered.

Most organizations have a safety stock in case of supply disruptions. The scale of the safety stock is determined at the same time for each product name and is expressed as a percentage of the number of units sold during the delivery period.

Safety stock prevents shortages. To determine when to order, you need to determine the level of safety stock that provides the desired degree of protection against stockouts.

The higher the order point, the lower the likelihood of a shortage, but at the same time there are higher costs for maintaining additional stock.

The task is to determine the moment of ordering so that losses from shortages are covered by the costs of maintaining additional inventory.

The probability of a shortage is the basis for determining the moment of order.

In this case, it is necessary to determine the level of risk. If an organization wants to never run out of inventory, it must have excess safety stocks, and their size is such that it is more correct to accept the shortage and try only to reduce the frequency of its occurrence.

The moment of orders must be set at the border when holding costs and losses from shortages are the smallest, or at the border at which the reduction in losses from shortages resulting from the addition of an extra unit at the time of order is equal to the surplus cost of maintaining this unit.

5. Forms of organizing procurement activities

The choice of procurement form depends on the complexity of the final product, the set of components and materials.

The main forms of procurement are:

1) purchases in large quantities (bulk purchases);

2) periodic purchases in small lots;

3) various combinations of the listed methods and purchase as needed.

Consider the most common forms:

1. Purchase of goods in one batch.

The advantages of wholesale delivery include ease of paperwork, guaranteed delivery of the entire batch, and increased trade discounts due to the purchase of goods in large quantities.

The disadvantage is the large need for warehouse space and slower capital turnover.

2. Periodic purchases in small quantities. The buyer orders the required quantity of goods, which is supplied to him in batches over a certain period of time.

The advantages of this form of procurement are the acceleration of the capital turnover process, since the goods are paid for as they are received. Savings are achieved on the storage process and warehouse space, and the costs of documenting delivery are reduced, since only one order is placed for the entire supply.

The disadvantage of this form of procurement is the likelihood of ordering an excessive quantity and the need to pay for the entire batch of goods at once.

3. Daily or monthly purchases according to quotation sheets.

Where cheap and quickly used goods are purchased, this form of procurement is widely used.

The quotation sheet contains information about the complete list of goods, the quantity of goods available in the warehouse, as well as the required quantity of goods.

The advantage of this form is to accelerate capital turnover, timely deliveries and reduce costs for warehouse activities.

4. Receiving goods as needed. This form is not only similar to the regular delivery form, but also has a number of characteristic features:

1) the number of purchases is not established here, but is determined approximately;

2) suppliers must contact the buyer before fulfilling each order;

3) the delivered quantity of goods is subject to payment, the customer is not obliged to accept and pay for the goods after the expiration of the contract.

The advantage is the absence of specific obligations to purchase a certain quantity, accelerated capital turnover, and a small amount of paperwork.

5. Purchase of goods with immediate delivery. The scope of application of this form is the purchase of infrequently used goods when it is impossible to obtain them when needed. Products are ordered as needed and delivered directly from suppliers' warehouses.

The disadvantage of this form is the increase in costs associated with the need for scrupulous paperwork for each order, an increase in the number of suppliers and the fragmentation of orders.

6. Cost structure in procurement activities

The most important element in the procurement policy is the analysis of the price of purchased goods.

Various types of calculations are used to analyze the cost of in-house production and purchase prices.

The total cost figure is divided by the product produced (simple costing method).

Costs are broken down into individual items and taken on average (calculation based on equivalent indicators).

Accurate cost accounting for each operation (permanent costing).

Additional work and services, customs duties, transportation costs, document preparation, etc. are taken into account by price analysis.

There are several types of price analysis.

1. An itemized assessment determines the net price, taking into account preparatory costs (analysis of prices along the way from the origin of the product to its receipt by the consumer). Based on presumptive evaluation criteria, it is determined how much a given product or service can cost on the market (price analysis based on its demand).

2. Additional accounting of costs for control, financing, storage (analysis of the price calculated from the total cost of work and services performed). By dividing costs into primary and subsequent ones to determine the price for a batch of goods (price analysis taking into account the possibility of increasing it for similar goods).

3. The old and new commercial proposals are compared, taking into account changes in the raw materials used, the costs of market relations (price analysis over a time period).

When developing long-term contracts taking into account the variability of price changes (analysis using moving prices).

4. Accounting for exchange rates, exchange rates, customs statistics (price analysis based on open data).

5. Price analysis for primary costs per unit of output.

6. Price analysis using the changing trend of new product development.

When making purchases, the buyer does not necessarily have to calculate the components of the price of the purchased goods. But recently, data has been exchanged between the buyer and seller, containing the composition of production costs and other elements that make up the price of the procurement product.

This practice has become especially widespread when concluding long-term supply contracts.

Transport costs are in the field of view of the logistics authorities. The type of transport, speed of delivery, batch size of cargo, method of packaging, methods of transshipment in the case of multimodal transport are taken into account along with the transportation distance.

7. Documentation of the order

The use by most firms in a market economy of previously established documents in many cases does not meet modern requirements.

Regarding the maintenance of procurement documentation, it is advisable for the heads of the relevant departments to develop standard forms.

They recommend:

1) designate it, in order to distinguish the order form from other documents, with the word “order” or “purchase order”;

2) assign a serial number to the document. It is used in documents attached to a copy of the order (bill of lading, invoice, etc.).

The presence of a serial number will help you quickly find the right document;

3) indicate the name and address of the company. This information serves as information to the supplier with whom he will have a business relationship, where to deliver the goods and send the invoice;

4) the order form must indicate an official, preferably the person at the origin of the order. This will help the supplier, if necessary, resolve problems he has with a specific person.

He can also address questions of interest to him related to the order;

5) the date, name and address of the supplier are indicated.

6) set deadlines and indicate the quantity of goods to be delivered;

7) describe the product. The purchase order must clearly identify the required items with references to the purchase proposal and specification request;

8) if the delivery address is not identical to the main address of the enterprise named in the order form, it must be indicated;

9) the price of the goods must be indicated on the order form in order to avoid conflicts when paying for the goods supplied;

10) you need to provide your bank details so that various financial misunderstandings do not arise.

To properly process supply transactions, it is necessary to carefully work with the documents reflecting them.

A copy of the order is sent to the consumer's departments to check for compliance with the delivery notices of the received goods.

When checking, the description of the goods is used.

Shipment notification is sent by the supplier after the products are prepared for shipment. This document indicates the order number and delivery time.

When a supplier uses the transport of another company, a supplier document is drawn up. It states:

1) address of the sender and his name, description of the product, number of pieces, weight of the product, specifics of transportation, name of the supplier. To inform consumer departments about the fact of delivery of goods, to control the compliance of the notice of shipment of goods by the accounting department, copies of the order and invoice are confirmation of receipt of the delivery;

2) the number of the covering letter, the delivery date, the method of transportation, the sender - all this is in the goods registration book along with their brief description. Some enterprises do not use these types of notifications, preferring to store the necessary information directly on the computer, but if the supplier is dishonest, it is better to have written documents;

3) it would not be superfluous to describe in some document the defects and other shortcomings of the goods provided so that the purchasing department can take the necessary measures.

8. Procurement efficiency

The basis for the economic efficiency of purchasing logistics is the search for the necessary materials of satisfactory quality and their purchase at minimum prices.

The issue of prices is the main one in market research conducted by the relevant departments of enterprises, but the analysis of possible logistics costs and delivery times also plays an important role. For a wholesale buyer, accurate cost calculations are required. Calculation of costs for the acquisition of raw materials often determines the further strategy for the production and marketing of final products.

Successful procurement requires the use of extensive information about the markets in which it occurs. Optimization of a link in the procurement logistics chain affects not only external factors, but also internal priorities associated with the difference in understanding of optimal work and the importance of other links, which triggers the importance in the search for economic compromises between various structural divisions. The effectiveness of the process is facilitated by adherence to ethical partnership standards. At the core is an optimized relationship between manufacturer, lender and supplier.

9. Acceptance of delivered products

Product acceptance, documentation of deliveries, and checking the quantity and quality of goods are important in the implementation of the procurement plan.

When accepting products, you must make sure that the goods received correspond to a certain quality, are in the required quantity, and received from your supplier at the agreed time for the agreed fee. In order to reduce time, effort and money, care must be taken to ensure that warehouses, unloading and receiving areas are as close as possible to each other and close to production facilities. To save costs on loading and unloading operations, it is necessary to draw up a delivery schedule agreed with all suppliers. It stipulates that raw materials are supplied on strictly defined days, and other materials are supplied as needed.

These measures will allow workers not to be taken away from the main production to unload transport that arrived at the wrong time.

Acceptance of goods is carried out on the basis of documents drawn up upon delivery.

Author: Mishina L.A.

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