3 types of purchase in procurement you will be dealing with as a procurement professional are straight re-buy, modified re-buy and new buy
Remember not every purchase you undertake will follow the steps you see in procurement cycle or even require detailed justification from a business case.
For some purchases, detailed analysis will have already been done while for others a new analysis will be required
THE 3 TYPES OF PURCHASES IN PROCUREMENT
STRAIGHT RE-BUY
In this case you are just buying items already sourced from a supplier
As a buyer you are reordering a product or service without making any significant changes to the previous order.
This type of purchasing decision is common for routine, low-risk purchases where the buyer has already identified a reliable supplier and is satisfied with the product or service.
Here is how this will typically work in practice;
Imagine a small sized business that regularly orders office equipment for a particular supplier.
It is brought to the attention of the office manager that supplies such as pens, notepads and printing papers are running low.
Rather than seeking out new suppliers, the manager decides to go with the supplier they are used to and has been supplying the same products, since the supplier is reliable.
The manager ends up placing an order with the supplier for the exactly the same set of office suppliers without any modifications
Given that there are no modifications to what is ordered, the supplier processes the order based on the previous terms and conditions. Since it’s a straight re-buy, there are no negotiations or changes in specifications.
The office supplies are then delivered, inspected and the business makes payments as per the agreement (which is based on how they have been doing things previously)
How will the business needs affect straight re-buys?
Business needs might influence procurement decisions by suggesting the need to;
- Optimize inventory replenishment methods– remember there is a cost associated with holding inventories and at the same time there are costs associated with stockouts.
- Periodically review existing specification and arrangements against supply market developments to ensure that they still represent the optimum solutions
- Periodically re-open existing long-term contracts to competition to ensure that existing suppliers remain competitive
- To collaborate with engineering, quality, marketing and user departments in systematic value analysis of products – this way you are looking at all the elements that make up a product or service and investigating whether they are really necessary and whether they could be done more efficiently or cheaply
In other words, whether the straight rebuy should be a straight rebuy or whether it might be modified in order to better meet business needs
MODIFIED RE-BUY
In modified re-buy some aspect of the purchase has been changed here is how that could happen in a practical sense;
Think of a company that has been using the same developer for their customer relationship management (CRM) software needs.
The company has been using the same CRM software for a while, but as a result of changes to their business needs and technological advancement, they want to modify their purchase. This will mean new features and functionalities.
Rather than sticking with the existing CRM software developer, the company decides to look at other software suppliers available in the market who might offer more advanced features and better integration capabilities.
The company issue out a request for proposal to the identified software development companies, showing their updated requirements. In this case, things like advanced analytics, mobile compatibility and improved customization options.
Based on the response the company goes with a company that best meet these needs
Just so we are on the same page, I need for you to understand that it is not always the case that a company will go for a new vendor or supplier, a company can have a deal with the existing supplier but have aspects about the contract to supply the software modified to reflect what is needed…ok!
A business case justification for the modification may be required, for high-value, strategically important or high-risk procurements
Modification of the requirement may represent an opportunity to revisit specifications or contracts, in order to seek to meet business needs more efficiently or effectively
How will business needs affect modified re-buys?
Business needs my affect modified re-buys or re-specifications by suggesting a need to;
- Review existing specification and arrangement against supply market developments. This will ensure that they still represent the optimum solutions
- To challenge modified specification put forward by engineering, design or user functions, in order to promote commercial consideration such as value, environmental sustainability and leveraging supplier relationships and expertise.
- To re-open existing contracts to competition, this way you ensure existing suppliers remain competitive
- To re-negotiate contract terms and build additional business benefits, such as quality improvements, collaborative waste or cost reductions or additional KPIs (Such as environmental or social sustainability standards)
NEW PURCHASE
As one of the 3 types of purchase in procurement, a new purchase as the name suggest we are making a new buy which has not been specified or sourced before.
So, in this case you may end up following the steps in the procurement cycle.
How will the business needs affect new purchase?
The business needs will influence the process by suggesting the need or opportunity;
- To engage is a systematic purchasing research
- To engage in value engineering
- To develop specifications, supplier performance measure and contract terms
In conclusion
We have talked about 3 types of purchase in procurement you will deal with in procurement
- Straight re-buy of items already sourced from a supplier
- Modified re-buy, where some of the requirement has changed
- New buy, where the requirement had not previously been specified or sourced
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