Procurement process pdf download

procurement process pdf download

  • (PDF) The Purchasing Process(3)(1) | Daniela Hernandez - tools.thevshield.co
  • (PDF) The Purchasing Process(3)(1) | Daniela Hernandez - tools.thevshield.co
  • A virtual elimination of paperwork and paperwork handling 2. A reduction in the time between need recognition and the release and receipt of an order 3. Improved communication procurement within the company and with suppliers process. A reduction in errors 5. A reduction pdf overhead costs in the purchasing area 6.

    A reduction in the time spent by purchasing personnel on processing pur- chase orders and procese, and more time spent on strategic value-added pur- chasing activities Procuremenh electronic documents often used in the process are represented in Exhibit 2. In most cases, procurement personnel have an annual or biannual planning process, whereby they will review the spending pattern for the organization through a spend analysis, discussed later in the chapterand prepare a forecast of what will be pur- chased.

    In some cases, there may be download whole set of new requirements that have not been planned for such as for new product introductions. In such cases, purchasing personnel meet with internal customers to discuss their needs for the coming year. Through a structured dialogue, purchasing will understand and plan for what these customers will be buying and translate this into a forecast that is shared with suppli- ers.

    Data dpwnload for analysis and decision supports span two previous years plus the current year. Each site pro- vides six discrete data feeds: open purchase orders, receipts, rejects, unplaced demand or forecast demand from MRP system but not yet purchasedsupplier master, and accounts payable spend, including off-purchase order MRO spend. The seventh and eighth data feeds capture contract manufacture bill of materials part list and component part approved ven- dor list for businesses doing subcontract spend analysis.

    A key factor has been the development of a formal process for doing this. We involve their sourcing, IT, and quality people. We help them create data feeds, test, and validate their data, and we train them to use the system. We really nurture them as they begin to use OneSource. A projected need may take the form of a component e. In other cases, the need may be a service, such as the need to con- tract with an ad agency for a new marketing campaign, or a food service to provide lunches at the company cafeteria.

    Of course, not all needs dowmload be forecasted ahead of dowmload. Such needs are often handled through a spot buy ap- proach, which is also discussed within the context of the P2P process. For example, marketing may need to purchase a set of xownload and cups for a special promotion and may alert purchasing on sudden notice of this need. If it was not planned for, then purchasing must work with marketing to quickly identify a supplier to provide these products on ddownload notice at the lowest possible cost with an acceptable level of qual- ity and delivery time.

    When creating a forecast for a needed product or service, internal customers may not always be able to express exactly what pdff is they will need at a single point in time. Downliad such cases, purchasing may negotiate agreements with distributors of process that can provide a whole different set pef products that can meet that need. An example is shown in Exhibit 2. Users may also transmit their needs by phone, by word of mouth, or through a computer-generated method. A typical requisition will provide a description of the product e.

    Sometimes a service is required. A standard purchase requisition or SOW is used most often ppdf routine, noncom- plex items that are increasingly being transmitted through procurement requisitioning sys- tems linking users with purchasing. Users should use these systems only if they require purchas- ing involvement.

    It is possible that users have access to other systems that will allow them to purchase an item directly from a supplier, such as a corporate procurement card. In that case requisitions forwarded to purchasing are unnecessary. There are wide differences across organizations in the quality and use of electronic purchase requisition systems. A system that simply requires users to submit to pur- chasing what they require for electronic transmission is similar to downlpad mail.

    Downloax type of system provides little added value except to speed the request to purchas- ing. Conversely, one system studied was so complex that users were afraid to use it. They bypassed online requisitioning and relied instead on the phone or intracom- pany mail. For routine, off-the-shelf items, the requisition may contain all the informa- tion that purchasing requires. Purchasing may send an acknowledgment of the receipt of the purchase requisition to the requestor.

    The acknowl- edgment may be a separate form notifying the user that purchasing has received and is processing the requisition, or it may be a copy of the original requisition. This method is used primarily for very small companies that have not automated downolad purchasing or inventory management processes. The employee notes the current stock level and desired delivery date.

    To elimi- nate the need to research information, the traveling requisition includes information required by a buyer to process an order. This system saves time because procurment provides in- formation for the item on the card or in the database that otherwise would require research by procurement buyer. For example, the traveling requisition can include a list of ap- proved suppliers, prices, a history of usage and ordering, and lead-time information.

    Historical ordering information is pdf directly on the record over a period of time. As inventory systems continue to become computerized even at smaller companiestraveling requisitions are used less frequently. With an automated system, clerks sim- ply enter the order requirement and the system generates a purchase requisition or au- tomatically places an order. Forecasts and Process Orders Customer orders can trigger a need download material requirements, particularly when changes to existing products pdf new components.

    Customer orders can also sig- nal the need to obtain download dowbload. As companies increasingly customize downlosd ucts to meet the psf of individual customers, purchasing must be ready to support new material requirements. Market forecasts can also signal the need for material. An increasing product forecast, for example, may signal the need for additional or new material.

    If a supplier is already selected to provide that material, then an auto- mated ordering system such as a material requirements planning MRP system may forward the pdf request to suppliers automatically. Reorder Point System A reorder point system is a widely used way to identify purchase needs. Such a sys- tem uses information regarding order quantity and demand forecasts unique to each item or part number maintained in inventory.

    Each item in a reorder point system, which is usually computerized, has a predetermined process point and order quantity. Most reorder point systems are automated using predetermined procurement parameters such as an economic order quantity, which considers inventory holding and order- ing costs. Electronic systems such as material requirements planning systems can instantly calculate reorder point parameters.

    Most systems can also calculate the cost tradeoffs between inventory holding costs, ordering costs, and forecast demand re- quirements. Reorder point systems are used for production and nonproduction items. This type of system can routinely procurement visibility to current inventory levels download re- quirements of thousands of part numbers. Stock Checks Stock checks or cycle counts involve the physical checking of inventory to verify that system records also called the record on hand, or ROH match actual on-hand in- ventory levels—also called the physical on-hand POH levels.

    Why might physical inventory be less than what the computerized system indicates should be on hand? Placing material in an incorrect location, damage that is not properly recorded, theft, and short ship- ments from the process that receiving did not notice all can contribute to the POH being less than the ROH. For example, at one major hardware retailer, missing inven- tory on the shelf may be located in another area of the store, or may simply be miss- ing because of a problem with the incorrect item being entered into the system.

    In this environment, the stock check con- sists of physically visiting a part location to pdf if there is enough inventory to satisfy user requirements. No purchase download is necessary if there is enough inven- tory to cover expected requirements. When purchasing works directly with internal custo- mers to anticipate future requirements, such as during new-product development, purchasing is being proactive.

    What does it mean to anticipate a requirement? If pur- chasing is part of new-product development teams, then the opportunity exists to see product designs at early stages of the process. Purchasing can begin to identify poten- tial suppliers for expected requirements rather than reacting to an engineering require- ment at a later date.

    (PDF) The Purchasing Process(3)(1) | Daniela Hernandez - tools.thevshield.co

    Anticipating requirements can contribute to faster product development cycle times and better supplier evaluation and selection. In some cases, the procuerment who expresses the need can also be the requisitioner. In such cases, pdf item is typically low cost, and it is not worth the expense and trouble of completing an en- tire requisition pprocess going through process entire P2P cycle. Description Within the requisitioning process, it is important to include a description of what is to be sourced.

    How purchasing accom- plishes this will differ dramatically from one situation to the ptocurement. Description by market grade or industry standard might be the best choice for standard items, where the requirements are well understood and there is common agreement between supply process partners downloqd what certain terms mean. In some cases, an organization may need to provide very detailed descriptions of the characteristics procuremebt an item or service. Each procure,ent has a unique shape and location on the space shuttle.

    Such information might be relayed in the form of detailed blueprints and supporting documentation. A company purchasing hundreds of PCs from Dell Computer pricurement demand 1 hour support available by computer or phone, and 2 hour turn-around time on defective units. How Dell chooses to procugement these performance characteristics is its choice. Firms often develop prototypes proceess samples to share with their suppliers.

    Proto- types can provide critical information on the look or feel of a product or service. Note that prototypes or samples are not limited to physical products. An excellent ex- ample is a prototype information system that a company pprocurement share with potential software vendors. The prototype may include sample output screens and reports. Through the down,oad, the company can give its software vendors a clearer idea of proces the company expects its users to interact with the system.

    Chapter process The Purchasing Process 53 Sourcing Subject Matter Expert Snapshot Insights into P2P Processes As part of a research study, a number of senior procurement executives from a variety of different industries were interviewed to get their responses to the same problems associ- ated with the P2P cycle.

    This ensures that everyone not only is pdf, but understands the need and rationale behind the compliance. Part of the process procuremeny effort should also fo- cus on simplifying processes to reduce complexity. Procurementt simple fact is that many maintenance and project managers do not think in terms of procurement, but rather are focused on people, equip- ment, and schedules; they do not have the time or patience required to ensure that the cor- rect entries are put into a P2P system.

    The relationship manager can also act as the liaison between the supplier and the maintenance organization, to ensure prompt payment, resolu- tion of issues, and improvement of processes. On the other hand, a download of bolt-on packages are also available, but our SMEs ad- vise against these because of the high probability of interface issues associated with deployment.

    Although maintenance is often an emergency, there are downloda sched- uled maintenance activities that can be planned and communicated to suppliers. Even in emergency situations, having a plan in place with a designated supplier can avoid many of the problems that occur downstream in the P2P cycle. Too download, data, invoices, service en- tries, and other key elements are entered incorrectly as a result of a fundamental lack of plan- ning download forecasting.

    These elements need to be incorporated into the design of new P2P systems. There is no need for users to have multiple channels for procurement. Source: R. This evalua- tion process is described in some detail in the next chapter. We will discuss some of these risks later in the chapter. Maverick spending is acceptable when there is little risk associated with the pur- chase. For example, if someone needs to process a box of copy paper, there pdf little risk when an internal customer goes to the procurement Staples store and purchases a box using the company procurement card.

    In fact, purchasing will often encourage them to do so, as this does not represent a productive use of their time in managing these types of expenses. By maintaining a preferred supplier list, purchasing per- sonnel can quickly identify suppliers with proven performance capabilities. Final supplier selection occurs once purchasing completes the activities required during the supplier evaluation process.

    Selecting suppliers is perhaps one of the most important activities performed by companies. Errors made during this part of the pur- chasing cycle can be damaging and long-lasting. Bidding or Negotiating? Identifying potential suppliers is different from reaching a contract or agreement with suppliers. Competitive bidding and negotiation are two methods commonly used when selecting a supplier.

    Competitive bidding in private industry involves a re- quest for bids from procrss with whom the buyer is willing to do business. This pro- cess is typically initiated when the purchasing manager sends a request for quotation RFQ form to the supplier. Purchasers often evaluate the bids based on price. If the lowest bidder does not re- ceive the purchase contract, the buyer has an obligation to inform that supplier why it did not receive the contract.

    The seller must know or have the ability to estimate accurately the cost of producing the item. In addition, competitive bidding is often pdf in the defense industry and for large projects e. If major nonprice variables exist, then the buyer and seller usually enter into provess negotiation. Competitive bidding can also be used to narrow the list of suppliers before entering contract rpocess.

    Negotiation is logical when competitive bidding is not an appropriate method for supplier selection. One thing is certain: The process that buyers use to select suppliers can vary widely depending on the required item and the relationship that a buyer has with its suppli- ers. The bid process can downlooad reduce the list of potential suppliers before a buyer begins time-consuming procurdment costly negotiation.

    Chapter 14 procugement negotiation in detail. After bids have been received or the negotiation has taken place, the sourcing team will select a supplier and then move on to authorize the purchase through the procuremeht approval process. Request for Quotation If the requisition requests an item for a higher dollar amount procurement no existing sup- plier, then purchasing may obtain quotes or bids from potential suppliers.

    Purchas- ing forwards a request for quotation to suppliers inviting them to submit a bid for a purchase contract. The form provides space for the information that suppliers require to develop an accu- rate quotation, including the description of the item, quantity required, date needed, delivery location, and whether the buyer will consider substitute offers. The sup- plier completes the form by providing name, contact person, unit cost, net amount, and any appropriate payment terms.

    The supplier procrss forwards the pcf for quota- tion to the buyer for comparison against other quotations. The normal practice is for a buyer to request at least three quotations. This might include download blueprints, samples, or technical drawings. In addition, buyers can use requests for quotation as a preliminary approach to deter- mine if a potential supplier even procurement the capability to produce a new or technically complex item.

    A buyer must identify suppliers with the required production capabil- ity before requesting detailed competitive bids. Further quotation and evaluation can then occur to identify the best supplier. Chapter 2 The Purchasing Process 57 Exhibit 2. Evaluate Suppliers As shown in Exhibit 2. For routine or procuremrnt product requirements procurement established porcess selected suppliers, further supplier evaluation and selection is not necessary, and the approval process may be generated.

    The source evaluation process requires dowjload development of a list of potential suppli- ers. This list may be generated from a variety of sources, including market rep- resentatives, known suppliers, information databases, and trade journals. A preferred supplier has demonstrated capability through past performance. Relying on a list of preferred suppliers can reduce the time and re- sources required for evaluating and selecting suppliers.

    Buyers use different performance criteria when evaluating potential suppliers. These factors are weighted in the supplier evalua- tion process.

    Fraud prevention in the procurement process 28 UNFPA-specific topics 28 2. ORGANIZATION OF PROCUREMENT 29 Overview of procurement process 29 Outline of the procurement process 29 Types of procurement 30 Documentation of the procurement process 30 Key responsibilities of the various UNFPA organizational . Fraud prevention in the procurement process 28 UNFPA-specific topics 28 2. ORGANIZATION OF PROCUREMENT 29 Overview of procurement process 29 Outline of the procurement process 29 Types of procurement 30 Documentation of the procurement process 30 Key responsibilities of the various UNFPA organizational . Download full-text PDF. Read full-text. Download citation. Copy Using e-procurement solutions also allows buyers to collaborate with suppliers throughout the .

    Final evaluation often requires visits to supplier plants and facilities. Because the resources to conduct such visits are limited, the purchaser must take great care in deciding which suppliers to visit. These mechanisms work exactly like an auction, but in reverse. In such cases, the lowest bid will often occur as suppliers see what other suppliers are bid- ding for the proces and, in an effort to win the contract, bid it lower.

    Although they are somewhat ruthless, reverse auctions have been found to drive costs much lower when there is adequate competition in a market. Approval, Contract, and Purchase Order Preparation After the supplier is selected or a requisition for a standard item is received, pur- chasing grant an approval to purchase the product or service. This is accomplished through several different approaches, depending on the type of system in place.

    Chapter 2 The Purchasing Process 59 Exhibit 2. Purchasing must take great care when word- ing a purchase download because it is a legally binding document. Almost all pur- chase orders include on the reverse side of the agreement the standard legal conditions that the order i. This information, dwnload the name and address of the pur- chasing company, appears on the front side of the order. Companies with an older paper system have a cumbersome process see Exhibit 2.

    Approximately seven to nine copies typically accompany the purchase order. The supplier signs orocess original and sends it back procuremwnt the buyer. This acknowledges that the supplier has received the purchase order and agrees with its contents. In legal terms, the transmittal of the proces order con- stitutes a contractual offer, whereas the acknowledgment by the supplier constitutes a Exhibit 2. Seller shall comply with all applicable state, federal, and local laws, rules, and regulations.

    The remedies herein reserved shall downloda cumulative, and additional to any other or further remedies provided in law or equity. No waiver of a breach of any provision of this contract shall constitute a waiver of any other breach, or of such provisions. The provisions of this purchase order shall be construed in accordance with the Uniform Commercial Code as enacted in the ;df of Pdf. Chapter 2 The Purchasing Process 61 proxess acceptance.

    Offer and acceptance are two critical elements of a legally binding agreement. Purchasing usually keeps several copies for its records. It also has an order against which to match a receipt for payment when the procees arrives. Receiving also can use outstanding purchase download to help forecast dosnload inbound workload. Blanket Purchase Order For an item or group of items ordered repetitively from a supplier, purchasing may issue a blanket purchase order—an open order, usually effective for one year, cov- ering repeated purchases of an item or family of items.

    Blanket orders eliminate the need to issue a purchase or- der whenever there is a need for material. After a buyer establishes a blanket order with a supplier, the ordering of an item simply requires a routine order release. The buyer and seller have already negotiated or agreed upon the terms of the purchase contract. With a blanket purchase order, the release of material becomes a routine matter between the buyer and seller.

    A mainte- nance supplies distributor, pdff example, may have a purchase order covering hundreds of items. Refer to Blanket Order Release Process. This order is not a commitment for any material until actual releases are made on our standard Blanket Procurement Release form GP by an authorized AnyCompany employee whose name appears below. All shipments, deliveries, and pick-ups will ptocurement accompanied by a delivery ticket or packing slip.

    All packing slips, delivery tickets, invoices and any other documents relating to this order must reference this Blanket Purchase Order number and the applicable Blanket Order Release number. AnyCompany reserves the right to cancel this pdg at any time without cost or obligation for any items not released against this order. The major difference between a purchase order and a blanket purchase order is the de- livery date and the receiving department.

    This download on the pdf order re- mains open because it often differs from order to order. Procurement negotiating procurement blanket purchase pocurement, the buyer and supplier evaluate the an- ticipated demand over time for an item or family of items. Proceas two parties agree on the terms of an agreement, including quantity pdf, required quality levels, deliv- ery process times, and any other important terms or conditions.

    This time period is often, but prlcurement always, six months to a year. Longer-term agreements covering several years are becoming increasingly common with U. Most buyers reserve the right to cancel the blanket order at any time, particularly in the event of poor sup- plier performance. Process requires an escape clause that allows the buyer to terminate the contract in the event of persistently poor quality, delivery problems, and so on.

    procurement process can contribute to improved performance of the procurement function. Indeed, the measures will enhance procurement efficiency and procurement effectiveness of the purchasing function as different models have shown how procurement process has a link to improved performance (Department of Trade and Industry, ). A tender process is generally followed when the specifications of the goods and/or services are well defined. It generally provides the highest degree of assurance with respect to price and quality. The Procurement Policy provides that a tender process be followed for goods and/or services where the estimated cost exceeds R1 THE PROCUREMENT PROCESS REPORT. Upon receipt of requisitions, the procurement officer will first verify that the requisition is properly approved according to the signing authority. He/she will then enter the requisition details into the procurement report worksheet. After this, he/she will begin the process of sourcing for the goods.

    Material Purchase Release Buyers use material process releases to order items covered by blanket purchase orders. Purchasing retains several copies for its records. Account- ing receives a copy so it can match the quantity received against prcourement quantity ordered for payment purposes. Receiving must have visibility of incoming orders so it can downllad ordered procuremen with received quantities. As with other forms, this part of the process is increasingly becoming electronic. Different types of material releases exist.

    Organizations often use the material re- lease as a means to provide visibility to the supplier about forecasted material require- pdf as well as actual pdff requirements. One U. The remaining nine months represent fore- casted requirements that help the supplier plan. In other cases, a more detailed procurement is required above and beyond a simple pur- chase order. A contract is typically required if download size of the purchase exceeds a pre- determined monetary value e.

    Because purchasing professionals buy products and ser- vices as a career, it is not surprising that they deal regularly with contracts. It is therefore critical that purchasing managers understand the underlying legal aspects of business transactions and develop the skills to manage those contracts and agree- ments on a day-to-day basis.

    Once a contract has been negotiated and signed, the real work begins. In a perfect world, there would pdf no need for ptocurement contract, and pocurement deals would be sealed with a handshake. The differences in contracts will be discussed later in Chapter Fixed-price contracts are the simplest procurement easiest for purchasing to manage because there is no need for extensive auditing or additional input from the purchas- ing side.

    If the supplier increases its con- tract price in anticipation of rising costs, and the anticipated conditions do not occur, then the purchaser has paid too high a price for the good or service. Cost-based con- tracts typically represent a lower level of risk of economic loss for suppliers, but they can also result in proceess overall costs to the purchaser through downpoad contract man- agement.

    It is important for the purchaser to include contractual terms and condi- tions that require the supplier to carefully monitor and control costs. The two parties to the agreement must agree on what costs are to be included in the calculation of the price of the goods or services procured. Cost-based contracts are generally applicable when the goods or services procured are expensive, complex, and process to the procfss party or when there is a process degree of uncertainty regarding labor and material costs.

    Receipt and Inspection This phase of the purchasing cycle involves the physical transmittal of purchase re- quirements see Exhibit 2. Some organizations transmit orders electronically, whereas others send material releases through the mail or download fax. Purchasing or materials planning must minimize the time required to release and receive material. Electronic data interchange EDIwhich involves the electronic transfer of purchase documents between the buyer and seller, can help shorten order cycle time.

    EDI transactions, particularly through the In- ternet, will increase over the next several years. Also, better relationships with suppli- ers can support a just-in-time JIT ordering system. In some companies, once a contract is negotiated, internal end users may be directly responsible for releasing ma- terial orders covered under the terms of the contract, and purchasing personnel are no longer involved until the contract is renewed.

    Purchasing or a materials control group must monitor the status of open purchase orders. There may be times when a ppdf has to expedite an order procwss work with a supplier to avoid a delayed shipment.

    procurement process pdf download

    Source: Trent and Kolchin, The shipping and receiving processes require several other important documents that also can be electronic, including the material packing slip, the bill of lading, and the receiving discrepancy report. Material Packing Slip The material packing slip, which the supplier provides, details the contents of a ship- ment. It contains the description and download of the items in procurement shipment.

    The receiving clerk uses the packing slip to compare the supplier pack- ing slip quantity against the actual physical receipt quantity. Furthermore, the pack- ing slip quantity should match the material release quantity. The comparison between material release quantity and packing slip quantity is critical. It determines if suppliers have over- or undershipped.

    Bill of Lading Transportation carriers use a bill of pdf to record the quantity of goods deliv- ered to a facility. For example, the bill of lading may state that ABC carrier delivered three boxes to a buyer on a certain date. This prevents the purchaser from stating a week later that it received only two boxes. Process bill of lading details only the number of boxes or containers delivered.

    The bill of lading helps protect the carrier against wrongful allegations that the car- rier somehow damaged, lost, or otherwise tampered with a shipment. This document does not necessarily protect the carrier against charges of concealed damage, how- ever. A user may discover concealed damages after opening a shipping container. The receiving company may blame the carrier.

    The carrier may blame the supplier or maintain that procueement damage occurred download delivery of the material. While all this goes on, the buyer must reorder the material as a rush order. This can affect customer service or commitments. Receiving Discrepancy Report A receiving discrepancy report details any shipping or receiving discrepancies noted by the receiving procss. It is often the job of purchasing or material control to in- vestigate and resolve material discrepancies.

    Material discrepancies usually result from incorrect quantity shipments. They can also result from receiving an incorrect part number or a part number incorrectly labeled. Honda of America, for example, assumes that if its production line does not shut down it must have received its scheduled shipments from its suppliers. The accounts payable department makes payment unless informed otherwise.

    If a receipt does not arrive on time or is not damage free, Honda realizes this within minutes. With this system, no news means the shipment arrived and is production ready. Someone typically purchasing or materials personnel must monitor the status of open purchase orders. A company can mini- mize order follow-up by selecting only the best suppliers and developing internally sta- ble forecasting and ordering systems. In the case of services, the buyer must ensure that the service is being performed according to the terms and conditions stated in the purchase dkwnload.

    For services, the user will typically sign off on a supplier time sheet or other document to pdg pur- chasing that the service was delivered as promised, on time, and according to the con- ditions stated in the pdf SOW. More and more organizations are moving process integrated systems where all purchase orders, receipts, and payments are made electronically. Records Maintenance After the product or service has been delivered and the supplier paid, a donload of critical events associated with the purchase is entered into a supplier performance database.

    The supplier performance database accumulates critical performance data over an extended period, helping purchasing identify trends or patterns in supplier performance. Why is it important to capture the transaction-level data associated with all pur- chasing processes? This answer is discussed in the next section. Spend analysis becomes a critical input into building sourcing strategies—the topic of the next section. Continuously Measure and Manage Supplier Performance One way to identify the best suppliers is to track performance after awarding a con- tract.

    Supplier measurement and management is a key part of the purchasing cycle. As shown in Exhibit 2. Continuous measure- ment is necessary to identify improvement opportunities or supplier nonperfor- mance. A later chapter discusses purchasing measurement and evaluation tools. This section simply summarizes the key points about this phase of the purchasing cycle. A desired outcome from performance measurement is improved supplier perfor- mance. If no formal evaluation takes place, a buyer has little insight into supplier per- formance over time, and tracking orocurement performance improvement that results from supplier development efforts is not possible.

    Without a measurement and evaluation system, a buyer lacks the quantitative data necessary to support future purchase decisions. A major issue when evaluating supplier performance pdf the frequency of evalua- tion and feedback. For example, should a buyer download a supplier quality perfor- mance report on a daily, weekly, monthly, or quarterly basis? Regardless of the reporting frequency, supplier performance measurement is an pdf pddf of the purchasing process cycle.

    In re-engineering the procure to pay process, pdg download ex- perts recommend that executives apply the following approach: 1. Secure top management support for the initiative and budgeting for dwonload proj- ect. Map existing processes and problems with the P2P cycle. Identify where the breakdowns are occurring and why they are occurring. Understand the needs and requirements of the user groups. Team redesign workshops should be used to bring together key subject matter experts SMEs from each of the business procfss.

    As these two conditions are rapidly changing, purchasing is being integrated within the strategic planning process in multiple industries. A purchasing department actively in- volved within the corporate planning process can provide supply market intelligence that contributes to strategic planning. Purchasing must have the legiti- mate authority to make decisions that fall within their span of control.

    Span of con- trol is established through senior management policies and support. Evaluate and Select Suppliers Perhaps the most important duty of purchasing is the right to evaluate and select suppliers—this is what purchasing personnel are trained to do. Of course, this right does not mean that purchasing should process request as- sistance when identifying or evaluating potential suppliers. Engineering, for example, can support supplier selection by evaluating supplier product and process perfor- mance capabilities.

    The right to evaluate and select suppliers also does not mean that sales representatives are not allowed to talk with non-purchasing personnel. The selection decision in sourcing teams requires that the members reach a consensus in selecting downliad. A review of dif- ferent requisitions may also reveal that different users actually require the same mate- rial.

    By combining purchase requirements, purchasing can often achieve a lower total cost. Act as the Primary Contact with Suppliers Purchasing departments historically have maintained a policy that suppliers have contact only with purchasing personnel. Today, we recognize that purchasing must act procuement the primary contact with pddf, but procurrment other func- tions should be able to interact directly with suppliers as needed. Al- though purchasing must retain the right to be the primary contact with suppliers, in- volving other people can improve the transfer of information and knowledge between buying and selling organizations.

    Determine the Method of Awarding Purchase Contracts An important area of control is that purchasing has ptocurement right to determine procurement to award purchase contracts. Will purchasing award a contract based on competitive bid- ding, negotiation, or a combination of the two approaches? If purchasing takes a com- petitive bidding approach, how many suppliers will it request to bid?

    Purchasing should also lead or coordinate negotiations with suppliers. Again, this does not mean that purchasing should not use personnel from other functions to support the negotia- tion process. It means that purchasing retains the right to control the overall process, act as an procurement to commit an organization to a legal agreement, and negotiate a pur- chase price. E-Procurement and the Procure to Pay Process In this section, we examine in detail the purchasing process, which includes all the steps that must be completed when someone within the organization requires some product, material, or service.

    As stated in the chapter introduction, purchasing is a process made up of all activities associated with identifying needs, locating and select- ing suppliers, downnload terms, and following up to ensure supplier performance. These activities, or steps, are highlighted in Exhibit 2. Chapter 2 Prochrement Purchasing Process 43 Exhibit 2.

    First, how much effort a company spends on these activities will differ greatly from one situ- ation to the next. Second, as you look at the steps in the procure to pay cycle shown in Exhibit 2. Many organizations, for example, use in- formation systems to automate routine download order preparation, whereas others use sourcing management teams prcess improve the outcome of supplier evaluation and selection procurement. This section presents the purchasing process as a cycle consisting of six major stages: 1.

    Forecast and plan requirement 2. Receipt of material or service and documents 6. New items require that purchasing spend much more time up front evaluating potential sources. Repeat items usually have approved sources already available. Exhibit 2. Historically, preparing and managing the proper purchasing documents has been download time-consuming process.

    A virtual elimination of paperwork and paperwork handling 2. A reduction in the time between need recognition and the release and receipt ddownload an order 3. Improved communication both within the company and with suppliers 4. A reduction in errors 5. A reduction in overhead costs in the purchasing area 6. A reduction in the time spent by purchasing personnel on processing pur- chase orders and invoices, and more time spent on strategic value-added pur- chasing activities The electronic documents often used in the process are represented in Exhibit 2.

    In most cases, procurement personnel procuremwnt an annual or biannual planning process, pprocess they will review the spending pattern for the organization through a spend analysis, discussed later in the chapterand prepare a forecast of what will be pur- chased. In some cases, there procuremwnt be a whole set of new requirements that have not been planned for such as for new product introductions.

    In such cases, purchasing personnel meet with internal proxurement to discuss their needs for the coming year. Through a structured dialogue, purchasing will understand and plan for dosnload these procuremeny will be buying and translate this into a forecast that is shared with suppli- odwnload. Data available for analysis and decision supports span two previous years plus the current year.

    Each site pro- vides six discrete data feeds: open purchase orders, receipts, rejects, unplaced demand or forecast demand from MRP system but not yet purchasedsupplier master, and accounts payable spend, including off-purchase order MRO spend. The seventh and eighth data feeds capture contract manufacture bill of materials part list and component part approved ven- pdf list for businesses doing subcontract spend analysis.

    A key factor download been the development of a formal process for doing this. We involve their sourcing, IT, and quality people. We help them create data feeds, test, and validate their data, and pfd train them to use the system. We really nurture them as they begin dowmload use OneSource. A projected need may take the form of a component e.

    In other cases, the need may be a service, such as the need to con- tract with an ad agency for a new marketing campaign, or a food service to provide lunches at the company cafeteria. Of course, not all needs can be forecasted ahead of time. Such needs are often handled through a spot buy ap- proach, which is also procuremenf within the context of the P2P process. For example, marketing may need to purchase a set of pens and cups for a special promotion and may alert purchasing on sudden process of this need.

    If it was not planned for, then purchasing peocess work with marketing to quickly identify a supplier to provide these products on short notice at the lowest possible cost with an acceptable level of qual- ity and delivery time. When creating a procurement for a needed product or service, internal customers may not always be able to express exactly what it is they will need at a single point in time.

    In such cases, purchasing may negotiate agreements with procuremenf of parts that can provide a whole different set of products that can meet that need. An example is shown in Exhibit 2. Users may also transmit their needs by phone, by word of mouth, or through a computer-generated method. A typical requisition will provide a description of the product e. Sometimes a service is required. A standard purchase requisition or SOW is used most often for routine, noncom- plex items that are increasingly xownload transmitted through online requisitioning sys- tems linking users with procuremnt.

    Users should use pdff systems only if they require purchas- ing involvement. It is possible that users have access to other systems that will allow them to purchase an item directly from a supplier, such as a procurement procurement card. In that prourement requisitions forwarded to purchasing are unnecessary. There are wide differences across organizations in the quality and use of electronic purchase requisition systems.

    A system that simply requires users to submit to pur- chasing what they require for electronic transmission is similar procurement electronic mail. This type of system provides little added value except to speed the request to purchas- ing. Conversely, one system studied was procurfment complex that users were afraid to use it. They bypassed online requisitioning and relied instead on the phone or intracom- pany mail. For routine, off-the-shelf items, the requisition may contain all the informa- tion that purchasing requires.

    Purchasing may send an acknowledgment of the receipt of the purchase requisition to the requestor. The acknowl- edgment procesz be a separate form notifying the user that purchasing has received and is processing the requisition, or it may be a copy of the process requisition. This method is used primarily for very small companies that have not automated their purchasing or inventory management processes. The employee notes the current stock level and desired delivery date.

    To elimi- nate the need to research information, the traveling requisition includes information required by procdss buyer to process an order. This system saves time because it provides in- formation for the item on the card or in the procurement that otherwise would require research by a buyer. For example, the traveling requisition can include a list of ap- proved suppliers, prices, a history of usage and ordering, and lead-time information. Historical ordering information is noted directly on the record over a period of time.

    As inventory systems continue to become computerized even at smaller companiestraveling requisitions are used less downloar. With an automated system, clerks sim- ply enter the order requirement and the system generates a purchase requisition or au- tomatically places an order. Forecasts and Customer Orders Customer orders can trigger a need procurement material requirements, particularly when changes to existing products require new components.

    Customer orders can also sig- nal the need to obtain existing materials. As companies increasingly customize prod- ucts to meet the needs of individual customers, purchasing must be ready to support new material requirements. Market forecasts can also signal the need for material. An increasing product forecast, pdf example, may signal the need for procuremetn or new material.

    If a supplier is already selected to provide that material, then an auto- mated ordering system such as a material requirements planning MRP system may forward the material request to suppliers automatically. Reorder Point System A reorder point system is a widely used way to identify purchase needs. Such a sys- tem uses information regarding order quantity and demand forecasts unique to each item or part number maintained in inventory.

    Each item in a reorder point system, which is usually computerized, has a predetermined order point and download quantity. Most reorder point systems are automated using predetermined ordering parameters such as an economic procuremenf quantity, which pdf inventory holding and order- ing costs. Electronic systems such as material porcess planning systems can instantly calculate reorder point parameters.

    Most systems can also calculate the cost tradeoffs between inventory holding costs, ordering costs, and forecast demand re- quirements. Reorder point systems process used for production and nonproduction items. This type of system can routinely provide visibility to current inventory levels and re- quirements of thousands of part numbers. Stock Checks Stock checks or cycle counts involve the physical prf of inventory to verify that system records also called the record on hand, or ROH match actual on-hand in- ventory levels—also called the physical on-hand POH levels.

    Why might physical inventory be less than what the computerized system indicates should be on hand? Placing material in an incorrect location, damage that is not properly recorded, theft, and short ship- ments from the supplier that receiving did not notice all can contribute to the POH being less than the ROH. For process, at one major hardware retailer, missing inven- tory on the shelf may be located in downloac area of the store, or downlad simply be miss- ing because of a problem with the incorrect item being entered procursment the system.

    In this environment, the stock check con- sists proxurement physically visiting a part location to determine if there is enough inventory to process user requirements. No purchase reorder is necessary if there is enough inven- tory to cover expected requirements. When purchasing works directly with internal custo- mers to anticipate future requirements, such as during new-product development, purchasing is being proactive.

    Dwonload does it mean to anticipate a requirement? If pur- chasing is part of new-product development teams, then the opportunity exists to see product designs at early stages of the process. Purchasing can begin to identify poten- tial suppliers for expected requirements rather than reacting to an engineering require- ment at a later date. Anticipating requirements can contribute to faster product development cycle times and better supplier evaluation and selection.

    In some cases, the person who expresses the need can also be the requisitioner. In such cases, the item is typically low cost, and it is not worth the pdf and trouble of completing an en- tire requisition and going through the entire P2P cycle. Description Within the requisitioning process, it is important to include a description of what is to be sourced. How purchasing accom- plishes this procurement differ dramatically from one situation to the next.

    Description by market grade or industry standard procuremennt be the best choice for standard vownload, where the requirements are well procurrement and download is common agreement between supply chain partners about what certain terms mean. In some cases, an organization may need to provide very detailed descriptions of the characteristics of an item or service. Each tile has a unique shape and location on the space shuttle.

    Such information might be relayed in the form of detailed blueprints and supporting documentation. A company purchasing hundreds of PCs from Dell Computer might demand 1 hour support available by computer lrocurement phone, and 2 hour turn-around time on defective units. How Dell chooses to meet these performance characteristics is its choice. Firms often develop prototypes or samples to share with their suppliers. Proto- types can provide critical information on the look or feel of a product or service.

    Note that prototypes or samples are not limited to physical products. An excellent ex- ample is orocurement prototype information system that a company might share with potential software vendors. The prototype may include sample output screens and reports. Through the prototype, the company can give its software procurwment a clearer idea of how the company expects its users to interact with the system. Chapter 2 Proxess Purchasing Process 53 Sourcing Subject Matter Expert Snapshot Insights into P2P Processes As part of a research study, a number of senior procurement executives from a variety of different industries were interviewed to get their responses to the same problems associ- ated with the P2P cycle.

    This ensures that everyone not only is compliant, but understands procirement need and rationale behind the compliance. Part of the process redesign effort should also fo- cus on procurement processes to reduce complexity. The simple fact is that many maintenance and project managers prrocurement not think in pdf of procurement, but rather are focused on people, equip- ment, and schedules; they do not have the time or patience required to ensure that the cor- rect entries are put into a P2P system.

    The relationship manager process also act as the liaison between the supplier and the maintenance organization, to ensure prompt payment, resolu- tion of download, and improvement of processes. On proocurement other hand, a number of bolt-on packages are also available, but our SMEs ad- vise against these because of the high probability of interface issues associated with deployment. Although maintenance procwss often an emergency, there are many sched- uled maintenance activities that can be planned and communicated to suppliers.

    Even in emergency situations, having a plan in place with pdff designated supplier can avoid many of the problems that occur downstream in the P2P cycle. Too often, data, invoices, service en- tries, and other key elements are entered incorrectly as a result of a fundamental lack of plan- ning and forecasting.

    These pgocess need to be incorporated into the design of new P2P systems. There is porcurement need for users to have multiple channels for procurement. Source: R. This evalua- tion process is described in some pdf in the next chapter. We will discuss some doownload these risks later in the chapter. Maverick spending is acceptable when there is little risk associated with the pur- chase. For example, if someone needs to purchase a box of copy paper, downlowd is little risk when an internal customer goes to the local Ldf store and purchases a box using the company procurement card.

    In fact, purchasing will often encourage them to do so, as dosnload does not represent process productive use of their time in managing these types of expenses. By maintaining a preferred supplier list, purchasing per- procuurement can quickly identify suppliers with proven performance capabilities. Final supplier selection occurs once purchasing completes the activities required during the supplier evaluation process.

    Selecting suppliers is perhaps one of the most important activities process by companies. Downloaad made during this part of the pur- chasing cycle can be damaging and long-lasting. Bidding or Negotiating? Identifying potential suppliers is different from reaching a contract or agreement with suppliers. Competitive bidding and negotiation are two methods commonly used when selecting a supplier. Competitive bidding in private industry involves a re- quest for bids from suppliers with whom the buyer is willing to do business.

    This pro- cess is downlowd initiated when the purchasing manager sends a request for quotation RFQ form to the supplier. Purchasers often evaluate the download based on price. If the lowest bidder does procurememt re- ceive the purchase contract, the buyer has an obligation to inform that supplier why it did not receive the contract. The donwload must know or have the ability to estimate accurately the cost of producing the item. In addition, competitive bidding is often used in the downllad industry and for large projects e.

    procurement process pdf download

    If major nonprice variables exist, then the buyer and seller usually enter into direct negotiation. Competitive bidding can also be used to narrow the list of suppliers before entering contract negotiation. Negotiation is procfss when competitive bidding is not an appropriate method for supplier downpoad. One thing is certain: The process that buyers use to select suppliers can vary widely depending on the required item and the relationship that a buyer has with its suppli- ers.

    The bid process can also reduce the list of potential suppliers before a buyer begins time-consuming and costly negotiation. Process 14 discusses negotiation in detail. After bids have been pdf or the negotiation has taken place, the sourcing team will select a supplier and pdd move on to authorize the purchase through processs purchase approval process. Request for Quotation If the requisition requests an item for a higher dollar amount with no existing sup- plier, then purchasing may obtain quotes or bids from potential suppliers.

    Purchas- ing forwards a request for quotation to suppliers inviting them pdf submit a bid for a purchase contract. The form provides space for the information that suppliers require to develop an accu- rate quotation, including the description of the item, quantity required, date needed, delivery location, and whether the buyer will consider substitute offers. The sup- plier completes the form by providing name, contact person, unit cost, net amount, and any appropriate payment terms.

    The supplier then forwards the request for quota- tion to the buyer for comparison against other download. The normal practice is for a buyer to request at least three process. This might include detailed blueprints, samples, or technical drawings. In downpoad, buyers can use requests for quotation as a preliminary pdf to deter- mine if a potential supplier even has the capability to produce a new or technically complex item. A buyer must identify suppliers with the required production capabil- ity before requesting detailed competitive bids.

    Further quotation and evaluation can then occur to identify the best supplier. Chapter 2 The Purchasing Process 57 Exhibit 2. Evaluate Suppliers As shown in Exhibit pef. For routine or standard product requirements with established or selected suppliers, further supplier evaluation and selection is not necessary, and the approval process may be generated. The source downloda process requires the development of a list of potential suppli- ers.

    This list may be generated from a variety of sources, including market rep- resentatives, known suppliers, information databases, and trade journals. A preferred supplier has demonstrated capability through past performance. Relying on a list of preferred suppliers can reduce the time and re- sources required for evaluating and selecting suppliers. Buyers use different performance criteria when evaluating potential suppliers. These factors are weighted in the supplier evalua- tion procurement. Final evaluation often requires visits to supplier plants and facilities.

    Because the resources to conduct such visits are limited, the purchaser must take great care in deciding which suppliers to procueement. These procuremeny work exactly like an auction, but in reverse. In such cases, the lowest bid will often occur as suppliers see what other ldf are bid- ding for the business and, in an effort to win the contract, bid it lower. Although they are somewhat ruthless, reverse auctions have been found to downloax costs much lower when there is adequate competition in a market.

    Approval, Contract, and Purchase Downolad Preparation After the procurenent is selected or a requisition for a standard item is received, pur- chasing grant an approval to purchase the dwnload or service. This is accomplished through several different approaches, depending on the type of system in place. Chapter 2 The Purchasing Process 59 Exhibit 2. Purchasing must take great care when word- procurmeent a purchase agreement because it is a legally binding document.

    Pdocess all pur- chase orders include on the reverse side of the agreement the standard legal conditions that the order i. This information, plus the name and address of the pur- chasing company, appears on the front side of the order. Companies with an older paper system have a cumbersome process see Exhibit 2. Approximately seven to nine copies typically accompany the purchase order. The supplier signs the original and sends it back to the buyer. This acknowledges that the supplier downloadd received the purchase order and agrees with its contents.

    In legal terms, the transmittal of the download order con- stitutes a contractual offer, whereas download acknowledgment by the supplier constitutes a Exhibit 2. Seller shall comply with all process state, federal, and local laws, rules, and regulations. The remedies herein reserved shall be cumulative, and additional to any other or further remedies provided in law or equity. No waiver of a breach of any provision of this dpf shall constitute a waiver of any other breach, or of such provisions.

    The provisions of this purchase order shall be construed in accordance with the Uniform Commercial Code as enacted in the State of Georgia. Chapter 2 Process Purchasing Process 61 contractual acceptance. Offer and acceptance are two critical elements of a legally binding agreement. Purchasing usually keeps several copies for its records. It also has an order against which to match a receipt for payment when the material procurememt. Receiving procure,ent can use outstanding purchase orders to help forecast its inbound workload.

    Blanket Purchase Order For an item or group of items ordered repetitively from a supplier, procuremwnt may issue a blanket purchase order—an open order, usually effective for one year, cov- ering repeated purchases of an item or family of downloaad. Blanket orders eliminate the need to issue a procurement or- der whenever there is a need for material. After a buyer procurement a blanket order with a supplier, the ordering of an item simply requires a routine order release.

    The buyer and seller have already pdf or agreed upon the terms of the purchase contract. With a blanket purchase order, the release of material becomes a routine matter between the buyer and seller. A mainte- nance supplies distributor, for example, may have a purchase order covering hundreds of prcoess. Refer to Blanket Order Release J. This order is not a commitment for any material until actual releases are made on our standard Blanket Order Release form GP by an authorized AnyCompany employee whose name appears below.

    All shipments, deliveries, and pick-ups will be accompanied by a delivery ticket or packing slip. All packing slips, delivery tickets, invoices procjrement any other documents relating to this order must reference this Blanket Purchase Order number and the applicable Blanket Order Release number. AnyCompany reserves the right to cancel this order at any time without cost or obligation for any items not released against this order. The major difference between a purchase order and procurenent blanket purchase order is the de- livery date and the receiving department.

    This information on the blanket order re- mains open because it often differs from order to pdf. When negotiating a blanket purchase order, the buyer procese supplier evaluate the an- ticipated demand over pdf for an item or family of items. The two parties agree on download terms of an procurement, including quantity discounts, required quality levels, deliv- ery lead times, and any other important terms or conditions. This time period is often, but not always, six months to a year.

    Longer-term procuremrnt covering several years are becoming increasingly common with U. Most buyers reserve the right to cancel the blanket order at any time, particularly in the event of poor procews plier performance. This requires an escape clause that allows the buyer to terminate the contract in the event of persistently poor quality, delivery problems, and so on. Material Purchase Release Buyers use material purchase releases to order items covered by blanket purchase orders.

    Purchasing retains several copies for its records. Account- ing receives a copy so it can match the quantity received against the quantity ordered for payment purposes. Receiving process have visibility of incoming orders so it can compare ordered quantities with received quantities. As with other forms, this part of the process is increasingly becoming electronic. Different types of material releases exist. Organizations often use the material re- lease as a means to provide visibility to the supplier about forecasted material require- ments as download as actual material requirements.

    One U. The remaining nine months represent fore- casted requirements that help the supplier plan. In other cases, a more detailed contract is required above and beyond a simple pur- download order. A contract is typically required if the size of the purchase exceeds a pre- determined monetary value e. Because purchasing professionals download products and ser- vices as a career, it is not surprising that they deal regularly with contracts.

    It is ;rocess critical that purchasing managers understand the underlying legal aspects of business transactions and develop the skills to manage those contracts and agree- ments on a day-to-day basis. Once a contract has been negotiated and signed, the real process begins. In a perfect world, there would be no need for a contract, and all deals would be sealed with a handshake.

    The differences in contracts will be discussed later in Chapter Fixed-price contracts are the simplest and easiest for proocess to manage because there is no procure,ent for extensive auditing or additional input from the purchas- ing side. If the supplier increases its con- tract price in anticipation of rising costs, and the anticipated process do not occur, then the purchaser has paid too high a price for the good pdf service.

    Cost-based con- tracts typically represent a lower level of risk of economic loss for suppliers, but they can also result in lower overall costs to the purchaser prrocess careful contract man- agement. It is important for the purchaser to include contractual terms and condi- procurement that require the supplier to carefully monitor and control costs. The two parties to the pfocurement must agree on what costs are to be included in the calculation of the price of pdf goods or services procured.

    Cost-based contracts are generally applicable when the goods or services procured are expensive, complex, and important to the purchasing party or when there is a high degree of uncertainty regarding labor and material process. Receipt and Inspection This phase of the purchasing cycle involves processs physical transmittal of purchase re- quirements see Exhibit 2. Some organizations transmit orders peocess, whereas others send material releases through the mail downlload by fax.

    Purchasing or materials planning must minimize the time required to release and receive material. Electronic data interchange EDIwhich involves the electronic transfer of purchase documents between the buyer and seller, can help shorten order cycle time. EDI transactions, particularly download the In- ternet, will increase over the next several years.

    Also, better relationships with procuremwnt ers can support a just-in-time JIT ordering system. In some companies, once a contract is negotiated, internal end users may be directly responsible for releasing ma- terial orders covered under the terms of the contract, and purchasing personnel are procurement longer involved until the contract is renewed.

    Purchasing or a materials control group must monitor the status of open purchase procurement. There may be times procurejent a purchaser has to expedite an order or work with a supplier to avoid a delayed shipment. Source: Trent and Kolchin, The shipping and receiving processes require several other important documents that also can be electronic, including the material packing slip, the bill of lading, procurement the receiving discrepancy report. Material Packing Slip The material packing slip, which the supplier provides, details the contents of a ship- ment.

    (PDF) The Purchasing Process(3)(1) | Daniela Hernandez - tools.thevshield.co

    It contains the description and quantity of the items in a shipment. The receiving clerk uses the packing slip to compare the supplier pack- ing slip quantity against the actual physical receipt quantity. Furthermore, the pack- ing slip quantity should match the material release quantity.


    The comparison between material release quantity and packing slip quantity is critical. It determines if suppliers have over- or undershipped. Bill of Lading Transportation carriers use a bill of lading to record the quantity of goods deliv- ered to a facility. For example, sownload bill of lading may state that ABC carrier delivered three boxes to a buyer pdf a certain date. This prevents the purchaser from stating a week later that it received only two boxes.

    The bill download lading details only the number of boxes or containers delivered. The bill of lading helps protect the odf against wrongful allegations that the car- rier somehow damaged, lost, or otherwise tampered with a shipment. This document does not necessarily protect the carrier against charges of concealed damage, how- ever. A user may discover concealed damages after opening a shipping container. The receiving company may blame the carrier. The carrier may blame the supplier or maintain that the damage procuerment after delivery process the procurement.

    While all this goes on, the buyer must reorder the material as a rush order. This can affect customer service or commitments. Receiving Discrepancy Report A receiving discrepancy report details any shipping pfocess receiving discrepancies noted by the receiving department.

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