TABLE OF CONTENTS Robert Guttman, Jayant Kalagnanam, Rakesh Mohan, and Moninder Singh
Recent developments in IT have focused on providing a platform that facilitates and streamlines the activities of the purchasing department within an enterprise. Cost savings that are realized in these activities have a direct impact on the bottom line of an organization and the growing number of testimonials about excellent ROI has prompted companies to consider sourcing and procurement as the next large IT investment. The purpose of this chapter is to provide an overview of the various functions in sourcing and procurement and the techniques that are required to enable a large enterprise to rationalize their sourcing and procurement function.
In an enterprise there are two kinds of procurement:
Direct Procurement: relates to the commodities and parts that are used in the products/services produced and sold by a company. For example, a computer manufacturer would procure chips, memory, hard drive, monitors etc for assembling computers as opposed to a chocolate manufacturer that needs to buy sugar, milk, cocoa etc for manufacturing chocolates. This implies that the specification of the commodities changes quite dramatically across industry verticals and one needs to develop a repository of features differentiated by industry. In addition, sourcing of direct commodities is directly influenced by the design and manufacturing functions within the organization. For example, the screws that are used in the design of a pump need to consider the standard sizes that are available and the supply pool available from within the procurement...
