12s-1 Purchasing and Supplier Management

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Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-2 Purchasing and Supplier Management

Chapter 12 Supplement

Purchasing and Supplier Management

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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12s-3 Purchasing and Supplier Management

Purchasing

•

Purchasing

is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.

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Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-4 Purchasing and Supplier Management

Goal of Purchasing

• Develop and implement purchasing plans for products and services that support operations strategies

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Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-5 Purchasing and Supplier Management

Duties of Purchasing

• Identifying sources of supply • Negotiating contracts • Maintaining a database of suppliers • Obtaining goods and services • Managing supplies

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Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-6 Purchasing and Supplier Management

Purchasing Interfaces

Legal Operations Accounting Purchasing Data processing Design Receiving Suppliers

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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12s-7 Purchasing and Supplier Management

Purchasing Cycle

Legal

• Requisition received

Operations

• Supplier selected • Order is placed • Monitor orders • Receive orders

Purchasing Receiving Suppliers Accounting Data process ing Design

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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12s-8 Purchasing and Supplier Management

Value Analysis vs Outsourcing

• Value analysis – Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance • Outsourcing – Buying goods or services from outside sources rather than making or providing them in-house

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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12s-9 Purchasing and Supplier Management

Deciding Factors for Outsourcing

• Cost to make vs. cost to buy • Stability of demand • Quality from suppliers • Maintaining close control • Idle capacity available

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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12s-10 Purchasing and Supplier Management

Deciding Factors for Outsourcing

• Lead times for each alternative • Who has patents, expertise, etc.

• Stability of technology • Consistency/conflict with current operations

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Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-11 Purchasing and Supplier Management

Factors for Make or Buy Decisions

• Available capacity • Expertise • Quality considerations • Nature of demand • Cost • Core elements • Strategy

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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12s-12 Purchasing and Supplier Management

Determining Prices

• Predetermined or fixed prices • Competitive bidding • Negotiated purchasing

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Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-13 Purchasing and Supplier Management

Determining Prices

• Published price lists – fixed or predetermined prices • Competitive bidding – e.g. government purchases of standard goods or services • Negotiating – win-win transaction

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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12s-14 Purchasing and Supplier Management

Myths of Negotiated Purchasing

• Negotiation is a win-lose confrontation • Main goal is to obtain the lowest price • Each negotiation is an isolated transaction

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Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-15 Purchasing and Supplier Management

Centralized vs Decentralized Purchasing

• Centralized purchasing – Purchasing is handled by one special department • Decentralized purchasing – Individual departments or separate locations handle their own purchasing requirements

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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12s-16 Purchasing and Supplier Management

Suppliers

• Choosing suppliers • Evaluating sources of supply • Supplier audits • Supplier certification • Supplier relationships

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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12s-17 Purchasing and Supplier Management

Factors in Choosing a Supplier

• Quality and quality assurance • Flexibility • Location • Price

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Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-18 Purchasing and Supplier Management

Factors in Choosing a Supplier

• Product or service changes • Reputation and financial stability • Lead times and on-time delivery • Other accounts

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Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-19 Purchasing and Supplier Management

Evaluating Sources of Supply

•

Vendor analysis

: Evaluating the sources of supply in terms of price, quality, reputation, and service

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Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-20 Purchasing and Supplier Management

Evaluating Sources of Supply

• Vendor analysis - evaluating the sources of supply in terms of – Price – Quality – Services – Location – Inventory policy – Flexibility

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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12s-21 Purchasing and Supplier Management

Supplier as a Partner

Aspect

Number of suppliers Length of relationship Low price Reliability Openness Quality Volume of business Location Flexibility

Partner

One or a few Long-term Moderately important High High Insured at the source High Proximity may be stressed for short lead times Relatively high

Adversary

Many; play one off others May be brief Major consideration May not be high Low Buyer inspects May be - many suppliers Widely dispersed Relatively low

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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12s-22 Purchasing and Supplier Management

Supplier Partnerships

• Ideas from suppliers could lead to improved competitiveness – Reduce cost of making the purchase – Reduce transportation costs – Reduce production costs – Improve product quality – Improve product design – Reduce time to market – Improve customer satisfaction – Reduce inventory costs – Introduce new products or services

Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill Ryerson