Daily Archives: January 5, 2007

Mastering Purchasing Fundamentals, A Review Part II

To drive home my point that I believe the online course Mastering Purchasing Fundamentals from Next Level Purchasing is worth the time and investment for a purchasing professional looking to advance her knowledge and career with a training program that can lead to an industry certification, with kind permission, I am going to dive into a few topics covered in the course that represent some of the basic purchasing fundamentals that every professional buyer needs to master.

In the first lesson, which reviews the nine (tactical) steps of the purchasing process from need determination to closing out of the transaction, the course not only indicates why well written specifications are important, since they can force suppliers to quote in a standardized way that enables apples-to-apples comparisons and maximizes the probability that a product or service will meet organizational needs, but overviews different common types of specification pitfalls that decrease your chances of success. In particular, the course outlines the following six pitfalls:

Absence of Standards
Failure to make use of standard parts whenever possible, which allows for spend leverage and reduced inventory requirements.
Specifications that are unnecessarily strict add cost. For example, specifying a cord length of 15.5″, which is only supplied by one supplier at a rate higher than the 15″ and 16″ cords supplied by other suppliers. In this case, a small range of 15″ to 17″ could be used.
This usually results in continual quality problems since the delivered products, although they do meet the specifications, do not work with the products they were intended to be integrated with.
Slanted/slanting specs
Specifications written in such a way that they only allow one supplier, often results when the writer wants a specific supplier to be chosen or product literature from one supplier is heavily relied on in specification construction.
Out of date/obsolete specs
Re-use of old specifications can lead to numerous problems in addition to integration issues if the product has evolved – there could now be new government regulations from an environmental or regulatory perspective that would invalidate the materials or components identified in the old specification.
Standards differences between countries
An American gallon is not the same as a British gallon. Make sure that all measurements are using a well-defined international standard whenever possible.

The fourth lesson on conducting bidding and / or negotiation events describes a number of factors that should be considered when deciding between a bidding event and a negotiation. These include:

Market Competitiveness
Highly competitive markets often lend themselves to successful auctions while restrictive markets are often best served by negotiations.
Time Sensitivity
Bidding only makes sense if you have adequate time to prepare a complete bid package.
Purchase Value
The potential savings has to justify the effort.
Specification Clarity
Bidding requires clear specifications that will permit “apples-to-apples” comparisons of supplier offers.
Contract Type
Bidding is often better suited for fixed price / quantity events.
Selection Procedure Clarity
Bidding often requires supplier pre-qualification, which in turn requires clear criteria for supplier selection.
Ramp-Up Costs
Negotiation can be more successful if the ramp-up or set-up costs for one particular supplier is substantially less than the other suppliers.
Specification Change Likelihood
If there is a strong likelihood that the requirements will change before an event is finished, then negotiation is likely the better option.

In addition, the fifth lesson gives a detailed definition of the three primary methodologies currently used to analyze the financial aspects of a selecting a particular supplier for an award: price analysis, cost analysis, and total cost of ownership. Briefly, price analysis is the simplest methodology which compares the suppliers bids to a set of benchmark prices taken from either other competing bids, published or previously paid prices, and should cost models; cost analysis compares bids by breaking them down into their cost components; and total cost of ownership compares bids by looking at not only all of the required expenditures, but the costs incurred in acquiring, using, and disposing of the product.

Of course, this is only a sampling of the knowledge contained in the course, but I hope that this gives you some more insight into the value of continuing education and why I believe that Mastering Purchasing Fundamentals from Next Level Purchasing is certainly worth your consideration if you are going to take the next step and embark upon achieving industry certification.