The Challenge of Purchasing and Supply Management Marketing 3860 – Purchasing July 12, 2004 Kimball Bullington, Ph.D. Associate Professor of Operations Management Middle Tennessee State University

How do the 4P’s relate to purchasing?  Product  Price  Promotion  Place

From Purchasing to Supply Management Materials Management -High transportation cost -High inventory costs Supply Management -High costs -Scarcity: national or international Source Management -Unique items -Custom-made items -High technology items Purchasing Management -Commodity items -Standard products

The Evolution of the Supply Function  Clerical & technical  Focus on policies & procedures  Key challenge: availability of supply & cost mgt.  Strategic orientation  Global supply chains  Executive level leadership  Key challenge: Technology & the Internet Early 1900’s Early 2000’s

From Purchasing to Supply Management Organizational Changes

Corporate Supply Challenges  Need to control unit costs  Need to reduce the total cost of acquisition  Increasing influence of suppliers on the purchaser’s ability to respond to end-customers needs

Corporate Supply Challenges  Increased reliance on fewer suppliers  Trend towards reliance on suppliers for design & build responsibilities for complete subassemblies and subsystems

Effect of Supply Base Size & Variation on Supply Chain Reliability

Terminology - Purchasing  Identify need  Locate / select supplier  Negotiate price & terms  Expedite deliveries

Terminology - Procurement  Purchase  Store / warehouse inventory  Manage traffic  Receive incoming materials  Inspect incoming materials  Salvage obsolete materials

Terminology - Materiel  Manage materials for military or gov’t operations

Terminology – Materials Mgt.  Integrate related materials functions including: Procurement materials planning materials control (inventory)

Terminology – Integrated Logistics  Strategic supply issues  Sourcing  Transportation  Information technology and information flow associated with managing supply

Significance of Material Dollars U.S. manufacturing firms purchased materials totaling $1,975,362,000 in Leenders, Fearon, Flynn, & Johnson 2002

Differences Between Commercial & Consumer Acquisition ConsumerCommercial # of Suppliers ManyFew NeedsGenericSpecialized VolumeMinisculeSignificant PowerNoneSignificant Time HorizonShortLong

Profit-Leverage Effect  Profit improvement is often easier to achieve through purchasing cost reductions than equivalent sales increases. (This is especially true of low margin operations.)

Purchasing as a Profession  Increasing in importance  Increasing in pay  Strategic assignments  Long-range perspective  College degrees more common 

Challenges  Business-to-business e-commerce  Supply Chain Management  Measurement  Purchase of nontraditional goods & services  Contribution to corporate strategy  Recognition by senior management

Opportunities for Contribution of the Purchasing / Supply Function  Profit-leverage effect  Return-on-assets effect  Information source  Effect on efficiency

Opportunities for Contribution of the Purchasing / Supply Function  Effect on competitive position & customer satisfaction  Effect on image  Training ground  Management strategy & social policy

Purchasing’s Operational & Strategic Contributions

Reverse Marketing Purchasing is sometimes referred to as “reverse marketing”. What does this mean?