Learning Outcomes

After completing this lesson, learners will be able to:

  • Explain procurement planning.
  • Distinguish between MRP I and MRP II.
  • Identify procurement risks and continuity controls.
  • Describe procurement planning for capital projects.
  • Develop clear specifications.
  • Explain supplier-order placement and tracking.
  • Distinguish between ATP and CTP.
  • Explain automated replenishment and VMI.
  • Describe essential procurement controls.

1. Procurement Planning

Procurement planning determines:

  • What must be acquired
  • How much is required
  • When it is needed
  • How it will be sourced
  • Which suppliers may be used
  • What budget is available
  • Which risks and controls apply

The objective is to make the correct goods, services or works available at the required quality, time and total cost.

2. Procurement-Planning Process

  1. Confirm organisational requirements.
  2. Analyse demand.
  3. Review inventory and existing contracts.
  4. Prepare specifications.
  5. Research the supply market.
  6. Assess risks.
  7. Select a sourcing method.
  8. Estimate costs and confirm the budget.
  9. Prepare the procurement schedule.
  10. Assign responsibilities and obtain approval.
  11. Implement and monitor the plan.

3. Procurement Plan

A procurement plan should record:

  • Requirement and specification
  • Quantity
  • Required date
  • Estimated value
  • Budget
  • Sourcing method
  • Potential suppliers
  • Responsible employees
  • Milestones
  • Risks and controls
  • Performance measures

4. MRP I and MRP II

Material Requirements Planning I

MRP I calculates the materials and components needed for production.

It uses:

  • Master production schedule
  • Bill of materials
  • Inventory records
  • Lead times
  • Existing orders

Manufacturing Resource Planning II

MRP II coordinates wider manufacturing resources, including:

  • Materials
  • Capacity
  • Labour
  • Equipment
  • Finance
  • Production schedules
MRP I MRP II
Focuses mainly on materials Covers wider manufacturing resources
Calculates quantities and timing Integrates materials, capacity, labour and finance
Supports purchasing Supports broader production planning

5. Procurement Risk and Continuity

Procurement risks include:

  • Supplier failure
  • Quality problems
  • Delivery delays
  • Capacity shortages
  • Price increases
  • Currency fluctuations
  • Customs delays
  • Transport disruption
  • Single-source dependence
  • Political or regulatory changes

Possible continuity controls include:

  • Alternative suppliers
  • Multiple sourcing
  • Safety stock
  • Framework agreements
  • Supplier due diligence
  • Early-warning systems
  • Contingency plans
  • Contractual performance requirements

6. Global Trade Restrictions

International procurement may be affected by:

  • Import and export controls
  • Customs requirements
  • Tariffs and duties
  • Sanctions
  • Quotas
  • Product standards
  • Licensing
  • Country-of-origin requirements
  • Local-content requirements

The organisation must confirm current requirements before placing an international order.

7. Capital-Project Procurement

Capital projects may include warehouses, production facilities, equipment and information systems.

Planning should address:

  • Approved business case
  • Detailed technical specification
  • Budget and cash flow
  • Project and procurement schedules
  • Supplier capability
  • Long lead times
  • Milestone payments
  • Installation and commissioning
  • Change control
  • Warranties

A late critical item can delay the entire project.

8. Specifications

A specification defines what the supplier must provide.

It may include:

  • Scope
  • Product or service description
  • Quantity
  • Functional requirements
  • Technical requirements
  • Quality standards
  • Delivery requirements
  • Service levels
  • Safety requirements
  • Acceptance criteria
  • Documentation
  • Warranty requirements

Specifications must be clear, complete, measurable and unbiased.

9. Supplier-Order Process

Requirement approved
        ↓
Supplier selected
        ↓
Purchase order issued
        ↓
Supplier confirms order
        ↓
Order is tracked
        ↓
Delivery is received and inspected
        ↓
Invoice is verified and paid

10. Purchase Orders

Before issuing a purchase order, confirm:

  • Approved requirement
  • Available budget
  • Approved supplier
  • Agreed price
  • Product specification
  • Quantity
  • Delivery date
  • Delivery location
  • Payment terms
  • Authorised approval

The supplier should confirm whether it accepts the order details.

11. Order Tracking

Order tracking involves:

  1. Recording the purchase order.
  2. Obtaining supplier confirmation.
  3. Monitoring preparation or production.
  4. Tracking dispatch and transport.
  5. Identifying possible delays.
  6. Communicating exceptions.
  7. Updating the expected delivery date.
  8. Confirming receipt and condition.
  9. Recording supplier performance.

12. ATP and CTP

Available to Promise

ATP identifies the quantity a supplier can commit from available or planned supply.

Capable to Promise

CTP determines whether the supplier has the materials, capacity, labour and logistics required to fulfil the order.

ATP CTP
Checks available or planned supply Checks complete fulfilment capability
Answers “What is available?” Answers “What can be produced and delivered?”

13. Automated Replenishment

Automated replenishment creates or recommends supplier orders using:

  • Reorder points
  • Minimum and maximum levels
  • Forecasts
  • Lead times
  • Actual consumption
  • Existing orders

It improves speed and consistency but depends on accurate system information.

14. Vendor-Managed Inventory

Under Vendor-Managed Inventory, the supplier monitors and replenishes agreed customer inventory.

A VMI arrangement should define:

  • Inventory ownership
  • Minimum and maximum levels
  • Replenishment authority
  • Information sharing
  • Delivery frequency
  • Performance targets
  • Responsibility for excess stock

15. Procurement Control

Procurement control ensures that activities comply with:

  • Approved plans
  • Budgets
  • Contracts
  • Delegated authority
  • Policies
  • Specifications
  • Ethical standards
  • Applicable requirements

Controls include:

  • Approved requisitions
  • Budget checks
  • Supplier approval
  • Competitive sourcing
  • Purchase-order approval
  • Delivery inspection
  • Invoice matching
  • Supplier-performance monitoring
  • Record keeping

16. Separation of Duties

Different employees should perform key stages such as:

  • Requesting
  • Approving
  • Ordering
  • Confirming receipt
  • Approving payment

This reduces the risk of error, unauthorised purchasing and fraud.

17. Three-Way Matching

Before payment, the organisation may compare:

  1. Purchase order
  2. Goods or service receipt
  3. Supplier invoice

Differences in quantity, price or delivery must be resolved before payment.

18. Performance Control

Procurement may monitor:

  • Cycle time
  • On-time supplier delivery
  • Supplier quality
  • Lead time
  • Purchase-order accuracy
  • Contract compliance
  • Price variance
  • Emergency purchases

Investigate and correct performance deviations.

19. Lesson Summary

  • Procurement planning aligns requirements, budgets, suppliers, risks and schedules.
  • MRP I focuses on materials; MRP II coordinates wider manufacturing resources.
  • Continuity controls reduce the effect of supplier and market disruptions.
  • Capital-project procurement requires detailed schedules and controls.
  • Specifications establish measurable supplier requirements.
  • Supplier orders must be authorised, confirmed and tracked.
  • ATP indicates available supply, while CTP considers complete fulfilment capability.
  • Automated replenishment and VMI depend on reliable information.
  • Procurement controls protect budgets, compliance and ethical conduct.
PreviousNext