Purchasing and Supply Chain Management Particularities of the companies market and the role of purchase within the company. (What is purchasing?)

As a link in the supply chain What is Purchasing? Perspectives on Purchasing - To perform specialised tasks 1 As a function - To achieve an output 2 As a process - With production and warehousing 3 As a link in the supply chain - Internal and external focus 4 As a relationship - Knowledge based 5 As a discipline - Demonstrable skills and knowledge 6 As a profession

MARKETING STRUCTURE AND DEMAND What is Purchasing? MARKETING STRUCTURE AND DEMAND Business markets contain fewer but larger buyers. Business customers are more geographically concentrated. Business buyer demand is derived from final consumer demand. Demand in many business markets is more inelastic—not affected as much in the short run by price changes. Demand in business markets fluctuates more, and more quickly.

NATURE OF THE BUYING UNIT TYPES OF DECISIONS AND THE DECISION PROCESS What is Purchasing? NATURE OF THE BUYING UNIT Business purchases involve more buyers. Business buying involves a more professional purchasing effort. TYPES OF DECISIONS AND THE DECISION PROCESS Business buyers usually face more complex buying decisions. The business buying process is more formalized. In business buying, buyers and sellers work more closely together and build close long-run relationships.

What is Purchasing?

The Classic Definition What is Purchasing? Definitions The Classic Definition To buy materials of the right quality , in the right quantity from the right source delivered to the right place at the right time at the right price. To be Contrasted with Modern Definition The process undertaken by the organisational unit that, either as a function or as part of an integrated supply chain, is responsible for procuring or assisting users to procure in the most efficient manner the required supplies at the right time, quality, quantity and price and the management of suppliers, thereby contributing to the competitive advantage of the enterprise and the achievement of its corporate strategy.

The scope of purchasing To supply the organisation with a flow of materials and services to meet its needs. To ensure continuity of supply by maintaining effective relationships with existing sources and by developing other sources of supply either as alternatives or to meet emerging or planned needs. To buy efficiently and wisely, obtaining by ethical means the best value for every EURO spent. To maintain sound co-operative relationships with other departments, providing information and advice as necessary to ensure the effective operation of the organisation as a whole. To develop staff, policies, procedures and organisation to ensure the achievement of these objectives.

More specific objectives To select the best suppliers in the market. To help generate the effective development of new products. To protect the company’s cost structure. To maintain the correct quality/value balance. To monitor supply market trends. To negotiate effectively in order to work with suppliers who will seek mutual benefit through economically superior performance. To adopt environmentally responsible supply management.

The Evolution of Purchasing What is Purchasing? The Evolution of Purchasing The Reck and Long Model Stage Characteristics Concerned with the five rights that concentrate exclusively upon the purchasing of tangible products and outcome dimensions. 1. Product centered Moves beyond a concern with outcomes and begins to measure the process through which the outcome is delivered. 2. Process centered Process and relationally focused, expanded to include purchaser-supplier relationships. 3. Relational Focused on best product management methods. Employs an integrated methodology to manage relationships, processes and outcomes. 4. Performance centered

What is Purchasing? Purchasing and Change Globalisation Impact Information Technology Impact Chasing Production & Management Philosophies Impact Transgression of national boundaries Advantage of cost Specialised labour skills Emerging economies Slicker transactions Quality of management data Strategic link with suppliers Paperless environment Competitive advantage Outsourcing Supply chain management Supply networks

What is Purchasing? Purchasing in the Future Increase in strategic importance Automated tactical activities Master contracts Electronic purchasing Strategic purchasing competency centres Shared supply chain resources Profit contribution Changed emphasis on individual skills

The increasing importance of purchasing and supply in the manufacturing sector

Changing purchasing roles: reactive and proactive buying

The ‘transactional’ relationship

The ‘mutual’ relationship

Pareto´s principle – 80 % of expenditures will be with 20 % of suppliers The ‘Procurement Positioning’ tool

Total acquisition costs and total cost of ownership The price/cost iceberg

A four-stage purchasing development model

A four-stage purchasing development model (Continued)

The purchasing development matrix (Source: Jones, 1997) Aims: Identify the development of profiles Weaknesses Provide benchmarking

What is Purchasing? Must Accommodate World-class Purchasing TQM JIT Total cycle time reduction Long-range planning Supplier relationship engineering Strategic cost management Performance accountability Professional flexibility and development Service excellence Corporate social responsibility

The Status of Purchasing and Supply Management What is Purchasing? The Status of Purchasing and Supply Management Bigger quantity – better price (better position of purchasing on supply market – better impact on results) Status Influenced by: Leverage Power of purchasing to enhance profitability Focus Is it transactional, commercial or strategic? Professionalism Perception of influencers Academic activity Depth of knowledge and skill Future focus