The selection of the right supplier(s) to be given LPO will not only depend on price delivery, quantity and quality considerations. Other factors that will contribute to the operating efficiency of the buyers organisations must be considered. Such factors include the geographical location of the suppliers is the buyer the impact of patents, copy rights/license on the availability of appliers, supplier’s capacity and the probable use of multiple sourcing, supplies security guaranteed by absence of strike, development, design and tooling costs for special orders, internal and external quality comparisons, after sales services provided, customers preferences,
preferential payment arrangements and the willingness or otherwise of a buyers’ organisation to develop a supplier where non or little exists.
All the above factors will influence the choice of particular supplier
Negotiation becomes imperative where there is disagreement or potential disagreement between suppliers and buyers over terms of trade/purchase. Negotiation is any form of verbal communication in which the participants seek to exploit the relative strengths of their bargaining positions to achieve explicit or implicit objectives within the overall purpose of seeking to resolve the identified area of trade disagreement
Negotiation is most necessary in the area of capital items (eg construction work) where an item is designed and manufactured to purchaser specification quality, quantity or the deliver time can not be easily ascertain due to costs arising from unforeseen contingencies, etc.
Price quotations (published price lists) and negotiations are not the only methods by which the buyer can obtain the right price. The third method is by competitive bidding. It is a method of pricing in which request for bids are usually sent to three to eight vendors in the private sector. In the government public sector, purchasers do not restrict the number of bidders to only eight. Rather, all vendors desiring to bid are permitted to do so.
Under competitive bidding, industrial buyers generally but not always, give the order to the lowest bidder. By law, government buyers are routinely required to give the order to the lowest bidder, provided he is deemed qualified to perform the contract.
2. Ordering Stage:
This is a crucial stage at which the buyer and the supplier formalize their agreement to supply goods and services at a price and on terms which have been agreed to during competitive bidding/negotiation and to accept and pay for them.
An order, is an instruction to a supplier, trader or manufacturer to supply something. The “Purchase-Order Form” serves as order and as evidence of the contract. The form communicates all necessary particulars of the purchaser requirements including the price, delivery time, and other descriptions and specifications.
A number of ordering methods may be used by the buyer to purchase goods and services. They include verbal order, normal purchase order, blanket orders (period contracts), call-off orders, schedule orders (open contracts), electronic mail order, standing orders, cash purchase, telephone order system and petty-cash order.
The ‘purchase order’ states what the buyer is offering to buy and the condition under which he is willing to buy. Once the supplier agrees to supply according to the instructional and the terms specified, the buyers is legally committed to pay.
The supplier can indicate acceptance by performance of the contract, but the buyer must always demand formal acceptance from the supplier through the use of “acknowledgment of order: which forms part of the purchase order and which must be torn out when completed by the supplier and mailed to the buyer. Where the supplier breach any of the conditions of the contract, the buyer reserves the right to reject/cancel the order within reasonable time.
Change Order/Amendments And Cancellations
After an order has been issued, changes in company requirements frequently require a change in the contract. Changes in design or conditions of business are some of the things that may cause changes in the original order. This may cause revision in quantity, scheduling
or specifications. This change can be done either by correspondence or with the use of a form known as the change order or change notice. In some cases, it merely reads; please change our original order of the above number to read as follows: The requirement as revised are then stated. In some cases the body of the form is divided into two parts, the first part states the order as originally issued and the second gives the desired revision.
Notification Of Amendments Or Cancellation
The following important points must be considered.
1. The supplier must be notified in writing on a clearly marked document which cannot be confused with order form.
2. The effect on the original order or contract must be clearly indicated.
3. The supplier must acknowledge acceptance.
4. The effect on payment, or the need for cancellation charges should be clearly specified
5. All such charges should be recorded by both parties.
3. Expediting Stage
Progressing or expediting is a follow-up activity that keeps track of purchase orders, material requisitions and production schedules. It is the function of seeing that deliveries are made by the required dates.
Progressing checks delays or bottlenecks in operation. This function may also be called “delivery assurance/control”. Progressing activity can be both internal and external. Internal progressing ensures that actual production activities conform to original plans made in programs and schedules of the production control department. The aim is to ensure that materials are available for production schedules of the production control department, and also to ensure that materials are available for production purposes at all times without interruption.
External progressing on the other hand relates to order follow-ups for orders placed with suppliers and are thus external to the buying firms. The aim is to ensure that quantity and delivery requirements are met satisfactorily.
Expediting activity also encompass for reject materials to be returned and replaced as well as dealing with claims for damaged and lost materials. This part of expediting function is called Shortage Chasing. The other part is the pre-delivery follow-up. This ensures that the supplier does not forget the delivery date. Methods used include a reminder card, letter or phone call before due date, regular visits, and delivery confirmation cards to supplier for a reply. Part of the essence of expediting is to avoid Early Delivery and Late Delivery, because of its consequences on business operation. The effect of this has been discussed earlier under “Right time”.
4. Receiving And Inspection Stage
The purchase transaction is regarded as completed when the goods are received, accepted, and paid for by the buyer. The procedure for goods reception and inspection consist of the following.
i. Supplier sends ‘advice note’ to the purchase progressing section where they are noted on the progress records and then forwarded to stores receiving section. The advice note indicated that goods have been dispatched by the supplier.
ii. The receiving department must always cross-check advice notes everyday, so that if any consignment is over due, action can be taken to progress them.
iii. When goods arrive, the stores department must take delivery from carrier by signing the carrier note (consignment note) or stamp the note with imprint ‘subject to inspection’.
iv. The stores department then enters full details of each consignment on a “goods received note” (GRN). Then check the GRN against the advice note or consignment note from the supplier to see what was ordered and advised has been actually delivered. Notify the supplier of any discrepancy.
The processes of checking normally include weighing, measuring, physical counting of the quantity, physical examination of the goods or their box labels to check description, etc.
v. The “works technical staff” are then invited to carry out technical inspections to see if specifications have been complied with. The staff use measuring equipment and test devices as appropriate to see if the goods conform to the specifications. This must be carried out within forty-eight hours on receipt of goods by the stores department. For this purpose, goods requiring technical inspection are “guaranteed” and segregated to enable this inspection to be carried out. It is important that the stores department specialized in routine checks while the technical inspection must be carried out by the works technical staff. This technical inspection maybe done pre-delivery at the suppliers’ premises. The supplier must also be notified by means of GRN. The technical inspection department should issue inspection certificate or rejection notes where appropriate to the purchasing department instead of sending same to the supplier.
vi. If goods received are satisfactory, usually a GRN or SRV (Stores Receipt Voucher) is prepared to notify interested departments as well as to record the receipts. The goods are then stored away or sent to the originator/user of the materials. Also, a copy of the GRN can be as stores inward note to advice the stores of the quantity they are receiving.
vii. If goods are found to be unsatisfactory, the purchasing department is notified so that suitable arrangement can be made to settle their disposal or returned to the supplier. When goods are rejected, it is advisable to inform the supplier in writing and to request his confirmation of receipt of the advice and if necessary, that he raises a credit note in the buyer’s favour. Deliveries in excess of the quantity ordered or advised, or of a superior quality, must also be notified to the supplier, the acceptance of goods or otherwise being subject to an agreement between the two parties.
Notification of Carrier
When goods are delivered by public carrier and there is discrepancy or damage, the carrier as well as the supplier must be informed. This enables them to inspect and deal with any subsequent claim for compensation. Both supplier and carrier have to be informed of such discrepancies within the period allowed for this, in the relevant contract.