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
- Confirm organisational requirements.
- Analyse demand.
- Review inventory and existing contracts.
- Prepare specifications.
- Research the supply market.
- Assess risks.
- Select a sourcing method.
- Estimate costs and confirm the budget.
- Prepare the procurement schedule.
- Assign responsibilities and obtain approval.
- 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:
- Recording the purchase order.
- Obtaining supplier confirmation.
- Monitoring preparation or production.
- Tracking dispatch and transport.
- Identifying possible delays.
- Communicating exceptions.
- Updating the expected delivery date.
- Confirming receipt and condition.
- 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:
- Purchase order
- Goods or service receipt
- 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.