MBA Procurement and Purchasing: Cost Saving and Offer Validity

This essay examines procurement and purchasing practices, focusing on cost-saving strategies and the validity of offers and acceptances. The first part discusses various methods for reducing costs in procurement, such as leveraging designs, consolidating vendors, reducing maverick spending, improving risk management, reducing internal costs, tender management, and demand reduction, with an example of PowerCo's successful cost-saving initiatives. The second part explores situations where offers and acceptances are invalid, detailing the elements of an offer and acceptance, and the requirements for a legally binding contract. It emphasizes the importance of clear communication, intention, and the absence of counteroffers or unqualified acceptance. The assignment uses real-world examples to illustrate the concepts, ensuring a practical understanding of procurement and purchasing management.

PROCURENT AND
PURCHASING

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUCTION...........................................................................................................................1
QUESTION 1..................................................................................................................................1
Methods in which costs could be saved in the procurement practices........................................1
Conclusion...................................................................................................................................4
QUESTION 2..................................................................................................................................4
There are situation in the purchasing and procurement where the offer and acceptance are
invalid..........................................................................................................................................4
Conclusion...................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Purchasing management is the management of the purchasing process and related aspects
in an organization. Procurement refers to the strategic process of the products or the service
sourcing such as negotiation, researching and planning. Purchasing is concerned with the
activities that deal how the products or services would be ordered and acquired. It involves
decisions related with making purchase orders and for making arrangements for the funds. They
are essential part of the business operations and are required to be carried out by the managers
after analysing the options and methods that will keep the cost to the minimum. Procurement and
purchases should be made by the business after assessing the best possible options with quality
products.
QUESTION 1
Methods in which costs could be saved in the procurement practices.
Purpose of every organisation is of making the profits in sustainable way. Procurement
department of the organisation play an important role for achieving the recurring profits. Most
essential factors to be kept in mind to achieve the business results by cost effective procurement
with making savings. Procurement savings are focused over driving down the procurement costs
by improving supply chain management and decreasing the prices. Procurement saving could be
done by utilizing number of the resources. procurement savings could be stated as PowerCo
which was requiring to revamp the global strategy for procurement. After analysing all the
possible costs reductions for developing sustainable results for the development of PowerCo.
The traditional methods of procurement savings are concerned with quality, delivering,
terms, negotiations, warranty and contracts with main focus over the prices. Price has been
traditionally the major critical Key performance indicator rather than Total cost of ownership.
TCO is a theoretical aspect and not explained in the practical sense (Tas and Genis-Gruber,
2008). The procurement managers are required of leveraging the departments and the supply
chain for gaining the competitive advantage. Effective supply chain management is essential for
the success of the organisation and for building the profits. Procurements costs should be as
minimum as possible for ensuring that the profits are high for growth of the company. There are
number of practices that could be adopted by the management for procurement savings are :
Leveraging the designs for the strategic procurement.
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The practice is achieved by designing the procurement functions in a manner which are
underpinned by the two axes
Enabling the Value Creation – Values are assessed mainly from customer’s perspective then by
the stakeholders. Organisation is required to understand that exist for creating value for the
customers is paramount. In itself value is having three components, transformation from the one
stage to another is existing. All the activities involved in transformation process are done at first
instance. And, the customer is willing to pay for resulting products & services. Value creation is
concerned mainly with adding values to the purchases of the customers.
Enabling corporate strategies – Procurement department is required to be designed in a manner
in which it is fully integrated in and supporting the realisation of the corporate strategies as well
as objectives (Gavurova, Tkacova and Tucek, 2017). Activities in the procurement function
creates cause & effect relationship with the corporate strategies.
Consolidating the vendors where possible.
Management of the supplier is one if the important step for procurement savings. Taking
the time for indentifying strategic vendors & consolidating total number of the vendors that
could save time as well as money. Consolidation helps the business in getting number of benefits
that help in cost savings. It enables the company in getting high discount over the procurements
and getting higher quality goods at lower prices when the suppliers are fewer. Managing the
suppliers is essential for making the business process more efficient. It is required to have back
up of some of the vendors for the critical situations where the main vendors are not able to fulfil
the demand.
Reducing Maverick Spending
Maverick spending are also known as the tail spend and rogue spends that accounts for
the around 80% of the purchases made in the company which lacks the centralised purchases to
pay process of procurement. It kills all the potential for the procurement savings. Organisation
are required of conducting the spend analysis to identify the uncontrolled spending. After they
are found they could be assigned to the suppliers (Philippart, 2016). It is required for reducing
the spending and saving the costs increasing the potential for profits.
Improving the Risk Management
Risks are associated with every business. one of the major risks is associated with the
vendors. Consolidating the vendors and suppliers where possible. Management risks should
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involve that the business do not too much depend on the major vendors. It refers to paying
attention over the contracts with suppliers and making timely actions for avoiding the logistics
issues. It should keep back up for the important goods. This is essential for the smooth running
of the business operations (Yang and Chou, 2017). Risks management risks focused over
reducing the uncertainties giving rise to extra costs and also over cost avoidance that is the form
of saving. Forming strategies to reduce rate of the cost increase or the negotiating contract with
value adding services like the extended warranties and free shipping.
Reducing internal costs
By streamlining the processes companies could reduce the operational cost. The
procurement department is required to work with the other departments for defining transparent
processes. It increases the visibility of the overall spending of the procurements and accuracy of
informational data. This is essential for reducing the cost and expenditures. Category
management of the various functions of the business to identify the various opportunities that are
available for saving the money and cutting down the internal costs (Anane, 2020). It helps the
company in reducing the costs and raising the profits levels by the creation of exclusive
agreements.
Comparing the best prices with the tender management.
The tender management is the part of goods sourcing strategy. it provide numerous
companies the ability of providing the company with opportunities of bidding for the work. Bids
should involve how the companies will be solving the business problems and providing
competitive prices for work (Meehan and Menzies, 2016). The designing process and the
writing of these proposals is also called tenders, it includes competitive pricing called tender
management. This provides the company with the opportunities of procuring at best prices.
Cot saving in relation to the demand
Studies have shown that investment in the supply chain management helps the business
in generating adequate return. Cost savings could also be made by decreasing the demand. When
the overall consumption is reduced it helps the business in taking cost cutting measures and also
in eliminating the hidden cost that leads to saving in long run (Tan and Goh, 2017).
Up Skill employees
Investing funds in training and development of employees will help them in becoming
more empowered and productive. This helps the company in reducing the bottom line in the long
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run. When trainings are provided to the employees this enables them to make better negotiation
skills which help in establishing better supplier relationship and easier management of the
supplier contracts (Goodwin and et.al., 2017). Investing in the employees will bring more
benefits to the company and will also enhance the professional skills of the employees.
Example
The best example of procurement savings could be stated as PowerCo which was requiring
to revamp the global strategy for procurement. After analysing all the possible costs reductions
for developing sustainable results for the development of PowerCo. By adopting the procurement
strategies and action plan (Bain & Company, 2019). It helped the company to make a cost saving
of around 31 millions in its first year. It helped in achieving savings of around 11%.
Conclusion
Company investments substantial part of cost in the procurement of goods and services. it
is essential for the business to consider that the company undertakes the above mentioned steps
in their processes for saving the cost. Saving the procurement cost will increase the profit
margins of the company and also the productivity and efficiency of the business.
QUESTION 2
There are situation in the purchasing and procurement where the offer and acceptance are
invalid.
Offer & acceptance is defined as the process through which seller and buyer create legal
and binding contract. Process starts when an offer is made by the prospective buyer makes the
offer. The offer is either accepted or rejected or counter offer may also be made by the seller. On
counter option buyer is also having the same options of accepting, rejecting or rejecting with
counter offer. Purchasing professionals have a number of objectives including cost control,
developing and managing supplier relationship, encouraging innovation and diversification of
the supply chain. When one of the parties accepts offer of other party or the counter offer and
communicates the acceptance of the counter offer to offering party, contract for purchase is
created. Offer & acceptance are the methods of analysing process of the negotiation for deciding
whether & when contracts are made and what are its contents. Offer & acceptance is the
traditional method in contract law for determining whether the agreement has been made has
been made between the parties or not (Jackson and et.al., 2020). As the contract is agreement,
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offer is indication from one person to the other of the willingness of the offeror for entering into
contract or agreement without further negotiation. Contract comes into existence when the
offeror has been communicated the acceptance of the offer by the offeree.
For knowing the validity of the offer and acceptance, it is essential to understand the offer and
acceptance.
Elements offer
Under the contract party making the offer is known as the offeror. It is a person who is
willing of making payments to other party in form of compensation for using or acquiring the
ownership of goods and services (Gijare, Vasireddy and et.al.,2019). Resultant of agreement is
the legally binding contract. Offer has two parts which are :
Expression – It is when parties articulate in any form inclination for entering into the contract
and for making legally binding contract on acceptance by the both parties. Expression could take
number of forms such as personal discussions to the letter laying out basic terms.
Intention – It is slightly vague concept & is often left over the courts for determining whether
the intention was breached or not by the party (Offer and acceptance, 2019). Intention involves
presumption by the both parties that agreement will have legal binding & comes down with
belief that no party will be beginning the discussion without the intention of living on their side
of bargain.
Offer
 Compulsorily be distinguished from the invitations to treat
 Could be impelled or explicit
 Could be made to specific person or general public
 Must be communicated.
Elements of Acceptance
Acceptance is final agreement between both the parties for giving consent to terms of
offer. Terms of offer are should be negotiated between the parties before the acceptance. When it
shown that by conduct or communication that parties intend of agreeing with final terms of
contract, in such case formal acceptance to the offer is not essential for contract to be legally
binding.
It is essential for the acceptance to be in form of the signature over a paper, as it is mainly
accepted agreement among the parties (Albuja-Cruz and et.al., 2018). If the parties perform an
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act which will not otherwise happen, like the paintings, professional services than it may be
interpreted as the acceptance.
Acceptance
 It is not cross offer, counter offer and enquiry
 Musts be clear, absolute and unqualified.
 Mode as per manner stated by the offer.
 Must have been communicated to offeror.
Nature of offer
Valid contract will not come in existence unless offeror has made the offer and other
party has accepted by the offeree. Offers are generally conditional which means offeree is
required to do something and give promise in the exchange. Initial offers are tentative. Once the
offeree agrees or accepts to fulfil conditions containing offers, contract is created and promises
become binding. For the validity of contract is must contain terms of contract which either
implies or express.
Acceptance of the Offer
Acceptance of offer could be made either verbally or else in writhing. It could be inferred
also from conduct of parties. But there are rules that are required to be complied before the
acceptance of offer is made valid. The first acceptance must have been communicated by offeree
to offeror in manner requested or implied in offer (Alidmat and Ayassrah, 2019). Second
acceptance should be unequivocal and unconditional.
Invalid offer and acceptance in purchase of goods
An organisation is required to undertake number of transactions for carrying out the
business. It is the daily work of company to enter into contract for both the sales and purchase of
the goods and services. Company enters into contract for the purchase of goods required for the
business. The agreements between the company and seller are required to be properly created.
Company faces situation when the offers and acceptance are not valid in the procurement and
purchase of goods and services (Wey, and et.al., 2018). A company making purchases stands on
the position of offeree as goods are sold by the supplier. For instance if the offer made by the
suppliers are accepted by the company without making return communications and the goods are
sold by suppliers to the other party. Company cannot claim the agreement to be valid as the
essential of acceptance were not fulfilled.
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If the offer is made by supplier without acceptance of something in return it will not amount
to valid agreement. Also the acceptance tend to be invalid when the company is not able to fulfil
the conditions associated to the offer. Most of the purchase orders come with the conditions
which are required to be complied by the company. There are situation where the offer made by
supplier is invalid. The offer is invalid where the company has accepted the offer after the expiry
of time within which it was required to be accepted. There are situations where the offer made by
supplier is accepted by the company by making counter conditions related to the payments
methods and other like situations (Smits, 2016).
Examples
Case of Cave & Payne 1789, where the highest bid was made by the defendant for the
goods of plaintiff at auction sales. The bid was withdrawn by the defendant before fall of
hammer of auctioneer. The judgement was held in the case that defendant is not bound of
purchasing the goods. The bid was an offer that the defendant was entitled of withdrawing any
time before acceptance is signified by the auctioneer by knocking down of hammer.
Conclusion
For an agreement be valid and binding the condition related with the offer and acceptance
are required to be fulfilled accurately by both the parties. An offer is not valid if the terms and
conditions associated with it are not specified properly. Similarly the acceptance should be also
communicated with the offeror.
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REFERENCES
Books and Journals
Tas, B.K.O. and Genis-Gruber, A., 2008. E-procurement savings and the competition effect:
Analysis of cultural differences through a unified model. TOBB University of Economics
and Technology, Department of Economics Working Paper. (08-15).
Gavurova, B., Tkacova, A. and Tucek, D., 2017. Determinants of Public Fund's Savings
Formation via Public Procurement Process. Administration & Public Management Review.
(28).
Philippart, M., 2016. The procurement dilemma: short-term savings or long-term shareholder
value?. Journal of Business Strategy.
Anane, A., 2020. The Influence of Green Procurement Practice on Organisational Performance.
Ghana Water Company Ltd. and Bayport Savings and Loans Plc as Point of
Convergence. Journal of Economics, Management and Trade. pp.43-63.
Goodwin, C., and et.al., 2017. The City of Ottawa Combined Sewage Storage Tunnel: Achieving
CSO Control Objectives with Innovation in Design and Procurement. Proceedings of the
Water Environment Federation, 2017(15). pp.591-616.
Tan, L.K. and Goh, S.H., 2017. A Price Review Framework for Maintenance, Repair and
Operations Procurement Contracts in the Public Sector. In Global Public Procurement
Theories and Practices (pp. 173-198). Springer, Cham.
Meehan, J. and Menzies, L., 2016. Aggregation versus value based procurement in public
healthcare procurement.
Yang, J.B. and Chou, H.Y., 2017. Key challenges in executing energy-savings performance
contracts in public buildings: Taiwan experience. Journal of the Chinese Institute of
Engineers. 40(6). pp.482-491.
Jackson, K.R., and et.al., 2020. Changes in offer and acceptance patterns for pediatric kidney
transplant candidates under the new Kidney Allocation System. American Journal of
Transplantation.
Gijare, A.S., Vasireddy and et.al., Mastercard International Inc, 2019. Offer and acceptance
matching to obtain physical cash. U.S. Patent Application 16/141,207.
Albuja-Cruz, M., and et.al., 2018. Examination of Nondesignated Preliminary Surgery Residents
Recruited Since the Inception of Supplementary Offer and Acceptance Program: Lessons
Learned From a Large Academic Program. Journal of surgical education. 75(2). pp.294-
298.
Alidmat, A.O.H. and Ayassrah, M.A., 2019. The Use of Offer and Acceptance and their
Commissive Implication in the Sulha Tribunal. International Journal of English
Linguistics. 9(6).
Wey, A., and et.al., 2018. A kidney offer acceptance decision tool to inform the decision to
accept an offer or wait for a better kidney. American Journal of Transplantation. 18(4).
pp.897-906.
Smits, K., 2016. Legal regulation of offer and acceptance in law of obligations. Балтийский
юридический журнал. (4). pp.85-92.
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Online
Bain & Company. 2019. [Online]. Available through : <
https://www.bain.com/client-results/uncovering-major-savings-in-procurement/ >.
Offer and acceptance. 2019. [Online]. Available through :
< https://www.upcounsel.com/meaning-of-offer-and-acceptance >.
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