Purchasing and Vendor Management

Supply Management and Government Procurement

Supply management refers to the process that supports the needs of the organization including managing the distribution of products and services, and processes that are necessary to execute the tasks. Moreover, Citing Turner (2011), supply management encompasses the consolidation of business activities such as quality assurance, purchasing, and transport, warehousing, control of inventory and distribution of materials into a management department. Retail stores such as Wal-Mart is keen on their supply management to keep the cost stable and utilize resources effectively to realize higher profits and increase the efficiency of the operations.

The unique characteristics of the U.S procurement system include the following. The first feature is the system of checks and balances. This unique feature is as a result of the federalist system. It is useful in keeping the government from concentrating powers in one branch. Second, we have the overriding influence of the executive branch. The government procurement has a dominating executive branch. According to Thai (2008), the role of the executive branch is to implement statutes and authorize the appropriation for the procurement process. The third feature is the organizational structure managed by the federal procurement agencies. The government structures include the unitary and federal systems. The government entities including the federal, state and local portray unique procurement organizational structure based on the environment, size and procurement requirements.

Buyer-Supplier Relationship

Buyer-supplier relationships refer to commercial transactions that include the purchase and supply of products and services. Their association can be complex since each one of them would like to maximize the use of resources, time and investment. The three types of buyer-supplier relationship are transactional, alliance and collaborative relationships.

Transactional relationships focus on exchanging basic products at a competitive price. In this relationship, neither party is concerned with the well-being of the other. Due to the absence of concern, the parties are always reluctant to extend the relationship. The advantage of this type of relationship is that it requires less purchasing time and efforts to set the price. Regarding skills level on procurement, transactional relationships are not strict on managerial expertise.

Collaborative relationships aim to enhance the social, economic and technical connection between the buyers and suppliers.  A retail store such as Wal-Mart engages in this relationship to increase value, attain mutual benefits and lower total costs. Also, factors that buyers and suppliers consider in this relationship include trust building, interdependence, communication, and commitment. The advantage is that there is reduced chances of supply disruption because both parties value each other depending on respect and long-term relationships.

Alliance relationships entail the presence of institutional trust. Many supply alliances fail because of the inability to the parties to develop and manage the institutional trust. Therefore, supply alliances thrive because of the human and physical asset specialization. The benefits of this relationships include reduced total costs, improved quality, continuous supply and increased inflow of technology.

Significance of Specification and Standards

In supply management, standards and specifications offer guidance and instruction on the design, construction, manufacturing and testing of goods and service. Firms use standardization to create a competitive advantage over rivals. The significance of specification is that it establishes the intangible services that the organization should provide (Bajec & Jakomin, 2010). These services include warranty, support, and maintenance. Second, specifications are useful in communicating with potential suppliers on the items that are required. Also, with specifications, expertise in the supply management department can get information on the items to buy or service to expect.

Regarding standardization, the benefits include mass production. The creation of standardized parts allows the management to reduce costs and improve production (Bajec & Jakomin, 2010). Second, standardization improves the coordination with the suppliers. The buyer and selling company such as Wal-Mart will have effective communication due to the performance and characteristics of a standard component.

The categories of specifications include performance specifications that describe an item in terms of its requirement. Function and fit specifications provide a description of the functions of the item and its fitness into the system. Market grades entail examining the quality of an item by comparing with the standards that were agreed earlier. Complex specifications include commercial standards, which describes the workmanship and quality of materials that the organization should use to manufacture items. Design specifications encompass the situation where organizations prepare their own specifications to create competition.

Insourcing and Outsourcing Issues

Insourcing entails using the organization’s resources to provide goods and services. Bajec and Jakomin (2010) assert that firms insource to reverse the previous buying decision. Conversely, outsourcing involves transferring the business process to external service providers. This means that all the business activities that were handled internally would be procured from outside by supply chain partners.

Insourcing issues include the following. First, with insourcing, it means that the company will have to manage new activities, ensure customer satisfaction and incur the labor costs. All these operations were the responsibilities of the outsourcing company. Therefore, the organization will experience problems when managing these activities at the initial stages since they would not be in line with the strategic missions of the organization.

With outsourcing, the issues in the global supply management include differences in culture. According to Bajec and Jakomin (2010), a new entrant will encounter cultural differences, which include social activities, religions and how the society operates. Although most suppliers prepare themselves through cultural education programs, the costs and challenges that relate with cultural alignment may pose a threat. Another issue is confidentiality. This entails the intellectual property rights and confidential information that competitors may access, and this will jeopardize the operations of the company. Selection of suppliers may be an issue due to the existence of unreliable suppliers in the market. The unreliability of suppliers is enough for the firm to reconsider the make-buy decision.

General Types of Contract Compensation

A firm fixed price contract refers to the agreement that the supplier has an obligation to deliver the item specified by the contract for a fixed price. Under this agreement, the supplier cannot receive more than the amount agreed. A firm fixed price with price adjustment encompasses an agreement that includes clauses on economic price adjustment (Thai, 2008). Firms use this contract to identify economic contingencies that include labor market conditions. Incentive contracts are agreements that are used to motivate suppliers so that they can improve cost and schedule performance. Under this contract, the buyer and the seller share the cost responsibility.

The fixed price incentive fee refers to the agreement that the supplier and buyer agree on the ceiling price during the negotiation process. This contract is different from the others because of the price flexibility. The buying and selling firms achieve price flexibility through financial incentives. Cost plus incentive fee refers to the contract where the supplying firm is reimbursed for the allowable cost as far as the recommended ceiling (Thai, 2008). The contractor gets an incentive to lower the cost of production.

With the cost plus fixed fee, the buying and selling firms negotiate and maintain the fee at a fixed price. However, in situations when there are changes in the scope of the contract, the parties may change the fee. Cost sharing refers to a contract where the buyer and seller agree to share the costs since they consider the deal as fair.

Explain the Objectives of Negotiation

Negotiation refers to the process that people use to solve differences. In situations when there is any disagreement between the buyer and supplier, the objective is to reach to a best possible outcome that would be appreciated. The negotiation process includes preparing a negotiation. Before the buyer and supplier make a deal, they need to gather information that would help them execute the best possible deal (Stoshikj, 2014). In this stage, the parties will set their objectives on the anticipated outcome of the deal. The second stage is opening the negotiation. It entails building an environment for negotiation, understanding and listening to the supplier’s offer. Third, the parties will have to conduct the negotiation. A good negotiator will have to information from the other party by asking relevant questions. During the negotiation process, the ethics that the parties should consider is transparency. The negotiation process should result in buy-in and not tricks (Stoshikj, 2014). Also, the negotiation partner should be treated with respect and honesty if the partners would like to have a successful process. The last stage is closing the negotiation. After revisiting your objectives and feels that the outcome is acceptable, then you will have to close the deal.



Bajec, P. & Jakomin, I. (2010). A make-or-buy decision process for outsourcing. Scientific Journal of Traffic and Transport Research, 22(4), 285-291.

Stoshikj, M. (2014). Integrative and distributive negotiations and negotiation behavior. Journal of Service Science Research, 6(1), 29-69.

Thai, K. V. (Ed.). (2008). International handbook of public procurement. CRC Press.

Turner, R. W. (2011). Supply management and procurement: From the basics to best-in-class. Fort Lauderdale, FL: J. Ross Pub.


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