McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 4 Supply Processes and Technology

4 - 2 Need for Robust Supply Processes Large number of items Large dollar volume involved Need for an audit trail Severe consequences of poor performance Potential contribution to effective organizational operations inherent in the function

4 - 3 Essential Steps in the Purchasing Process 1. Recognition of need 2. Description of need 3. Identification and analysis of possible sources of supply 4. Supplier selection and determination of terms 5. Preparation and placement of the purchase order 6. Follow-up and/or expedite the order 7. Receipt and inspection of goods 8. Invoice clearing and payment 9. Maintenance of records and relationships

4 - 4 A Sample Sourcing Process Flowchart

4 - 5 Internal Information Flows to Purchasing Purchasing engineering planning production budgeting financial control accountinglegalreceiving quality control inventory control new products production control sales forecasting

4 - 6 External Information Flows to Purchasing Purchasing general market conditions sources of supply suppliers’ capacity suppliers’ production rates labor conditions sales and use taxes, customs prices and discounts transportation rates transportation availability new product information product information

4 - 7 Internal Information Flows from Purchasing Purchasing General Management Product Development Marketing Finance Accounting Stores Legal Production Engineering Economic conditions Product and price information Competitive conditions Budget commitments Costs, prices adjustments Orders placed Contracts Source, product, price information Product availability, lead time, price and quality

4 - 8 Potential Benefits of Information Systems Technology Cost reduction and efficiency gains Data accessibility Speedier communication Dedicate resources to strategic issues Data accuracy Systems integration Monetary control

4 - 9 Information Systems

When to Use Reverse Auctions Clearly defined specifications, including technological, logistical and commercial requirements. A competitive market with qualified suppliers willing to participate. Typically, at least three suppliers are required. More than six suppliers may add unnecessary costs and complexity. An understanding of the market conditions in order to set appropriate expectations for a reserve price. Buyer and seller familiarity and competency using the auction technology. Clear rules of conduct. For example, conditions for extending auction length and award criteria. The buyer is prepared to switch suppliers if necessary. The buyer believes that the projected savings justify a reverse auction.

Key Questions When Adopting New Information Systems Technology Should we be a leader or a follower? What should be acquired through e ‑ commerce? What tools should we use to acquire those items? Who should we use as a service provider? Should we enter into an alliance, and if so, what type, or work privately?