Purchasing and Supply Management. Chapter 1 Purchasing and Supply Management. This is a test

Corporate Supply Challenges Need to control unit costs Need to reduce the total cost of acquisition The increasing influence of suppliers on the purchaser’s ability to respond to end-customers needs Increased reliance on fewer suppliers Trend towards reliance on suppliers for design and build responsibilities for complete subassemblies and subsystems

The Evolution of the Supply Function The Handling of Railway Supplies – Their Purchase and Disposition Published in 1887 Attention in first half of 1900s to reliable access to supply of raw materials, supplies and services Two vexing problems in the decade of the 1970s put senior management attention on the supply function: international shortage of basic raw materials price inflation

The Evolution of the Supply Function By 1990s firms faced challenges of global “supply chains” and an increased reliance on suppliers Outsourcing has led to increased reliance on suppliers for key components and services Technological developments in the early 21st century provides expectations for supply chain integration, lower transaction costs and faster response times. The Internet and B2B e-commerce

The Evolution of the Supply Function Clerical and tactical Focus on policies and procedures Key challenge: availability of supply and cost management Strategic orientation Global supply chains Executive level leadership Key challenge: Technology and the Internet early 1900s early 21st century

Evolution of the Supply Chain Pre 1939 1940-49 1950-69 1970-89 1990-1999 2000-Future Clerical World War II Managerial emphasis Purchasing strategy Integration into corporate strategy Integration with supply networks and information technology

The Buyer/Planner Concept Combines planning and purchasing functions into one position Planners: Determine what materials are needed and when Buyers: Handle sourcing and buying Charged with responsibility for a specific line of inventory Duties may include: establishing schedules, issues and analyzes quotations, places orders, monitors supplier performance, and keeps abreast of market trends, supplier capacities and technologies.

Major Logistics Activities customer service demand forecasting/planning inventory management logistics communications material handling order processing packaging parts and service support plant and warehouse site selection purchasing return goods handling reverse logistics traffic and transportation warehouse storage

Supply Chain Management “The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer. The development and integration of people and technological resources are critical to successful supply chain integration.”

Simplified One-Stage Decision Tree

Purchasing’s Operational and Strategic Contributions 1. Supply Contribution Operational Strategic Trouble Prevention Opportunity Maximization

Purchasing’s Operational and Strategic Contributions 2. Supply Contribution Direct Indirect Enhancing Performance of others Bottom-Line Impact

Purchasing’s Operational and Strategic Contributions 3. Supply Contribution Negative Neutral Positive Operationally deficient Strategically deficient Directly deficient Indirectly deficient Operationally acceptable Strategically deficient Directly acceptable Indirectly deficient Operationally acceptable Strategically acceptable Directly acceptable Indirectly acceptable

Return on Assets Factors

The Opportunities for Contribution of the Purchasing/Supply Function Profit-leverage effect Return-on-assets effect Information source Effect on efficiency Effect on competitive position and customer satisfaction Effect on image Training ground Management strategy and social policy

Characteristics of an Integrated Strategic Procurement and Sourcing Function Executive Leadership Executive committee support for integration across company and strategic business unit corporate plans Strategic Positioning External/internal customer focus Matrix management High-level positioning - second, third or fourth levels Functional Leadership Company-wide customer-focused leadership Establish integrated visions workers at results and processes Drives supply base/supplier management strategies company-wide Integration Cross-functional, cross-location teaming Part of the technology, manufacturing and SBU planning process

Characteristics of an Integrated Strategic Procurement and Sourcing Function Supply Base Strategy Quality driven Design standardization Concurrent engineering Supply base optimization Commercial strategy emerging Supplier Management Focused on supplier development Joint performance improvement efforts Value focused Total cost improvement Supplier benchmarking Measurement Customer orientation Total value/cost focused Benchmarking with best in class Systems Global databases Historical performance data Strategic EDI, Internet, EFT, CAD, CAM

Professionalism in Purchasing New assignments Education College recruitment Training programs Salary levels Professional associations

Challenges Facing Purchasing B2B e-commerce Supply chain management Measurement Purchase of non-traditional goods and services Contribution to corporate strategy Recognition by senior management