Transcript CHAPTER 1 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

CHAPTER 2- PURCHASING
MANAGEMENT
Principles of Supply Chain Management:
A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD
Learning Objectives
You should be able to:
– Describe the role of purchasing and understand its impact on
an organization’s competitive advantage.
– Have a basic knowledge of manual purchasing and eprocurement.
– Understand and know how to handle small value purchase
orders.
– Understand sourcing decisions and the factors impacting
supplier selection.
– Understand the pros and cons of single versus multiple
sourcing.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
2
Learning Objectives- Cont.
– Describe centralized, decentralized, and hybrid purchasing
organizations and their advantages.
– Describe and understand how globalization impacts,
purchasing, and describe and understand the opportunities and
challenges of global sourcing.
– Understand total cost of ownership and be able to select
suppliers using more than unit price alone.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
3
Chapter Two Outline
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The Role of Purchasing in an Organization
The Purchasing Process
Sourcing Decisions: The Make-or-Buy Decision
Roles of Supply Base
Supplier Selection
How Many Suppliers to Use
Purchasing Organization: Centralized versus
Decentralized Purchasing
International Purchasing/Global Sourcing
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
4
Introduction
PurchasingObtaining merchandise, capital equipment; raw materials, services,
or maintenance, repair, and operating (MRO) supplies in exchange
for money or its equivalent.
Merchant Buyerswholesalers and retailers who purchase for resale.
Industrial Buyerspurchase raw materials for conversion, services, capital equipment,
& MRO supplies.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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The Role of Purchasing in an
Organization
The primary goals of purchasing are:
1. Ensure uninterrupted flows of raw materials at the lowest total cost,
2. Improve quality of the finished goods produced, and
3. Optimize customer satisfaction.
Purchasing contributes to these objectives by:
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Actively seeking better materials and reliable suppliers,
Work closely with strategic suppliers to improve quality materials, and
Involving suppliers and purchasing personnel in new product design
and development efforts.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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The Purchasing Process
Manual Purchasing-Older system, prone to duplication of effort
and error
Step 1-Material Requisition/Purchase Requisition- stating product,
quantity, and delivery due date are clearly.
Step 2- The Request for Quotation (RFQ)- Buyer identifies suppliers
& issues a request for quotation (RFQ).
Step 3- The Purchase Order (PO)- The purchase order is the buyer’s
offer & becomes a binding contract when accepted by supplier.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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The Purchasing Process- Cont.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
8
The Purchasing Process- Cont.
Electronic Procurement (e-Procurement)
Step 1- Material user inputs a materials requisition- relevant
information such as quantity and date needed.
Step 2- Materials requisition submitted to buyer- at purchasing
department (hardcopy or electronically).
Step 3- Buyer assigns qualified suppliers to bid- Product
description, closing date, & conditions are given.
Step 4- Buyer reviews closed bids & selects a supplier
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
9
The Purchasing Process- Cont.
Advantages for the e-Procurement System
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Time savings
Cost savings
Accuracy
Real time
Mobility
Trackability
Management
Benefits to the suppliers
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
10
Small Value Purchase Orders
Processing costs can be substantial. Small value
purchases should be minimized through:
•Procurement Credit Card/Corporate Purchasing Card
•Blank Check Purchase Orders
•Blanket or Open-End Purchase Orders
•Stockless Buying or System Contracting
•Petty Cash
•Standardization & Simplification of Matls & Components
•Accumulating Small Orders to Create a Large Order
•Using a Fixed Order Interval
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
11
Sourcing Decisions: The Make-orBuy Decision
• Outsourcing -buying materials and components from suppliers
instead of making them in-house. The trend has moved toward
outsourcing.
• Backward integration refers to acquiring sources of supply
• Forward integration refers to acquiring customer’s operations.
The Make or Buy decision is a strategic decision.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
12
Sourcing Decisions: The Make-orBuy Decision- Cont.
Reasons for Buying or Outsourcing
• Cost advantage: Especially for components that are non-vital to the
organization’s operations.
• Insufficient capacity: A firm may be at or near capacity.
• Lack of expertise: Firm may not have the necessary technology
and expertise.
• Quality: Suppliers have better technology, process, skilled labor,
and the advantage of economy of scale.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
13
Sourcing Decisions: The Make-orBuy Decision- Cont.
Reasons for Making
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Protect proprietary technology
No competent supplier
Better quality control
Use existing idle capacity
Control of logistics- lead-time transportation,
and warehousing cost
• Lower cost
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
14
Sourcing Decisions: The Make-orBuy Decision- Cont.
The Make-or-Buy Break-Even Analysis
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Roles of Supply Base
Supply Base- suppliers that a firm uses to acquire its materials,
services, supplies, and equipment.
Firms emphasize long-term strategic supplier alliances consolidating
volume into one or fewer suppliers, resulting in a smaller supply
base.
Preferred suppliers provide:
– Early supplier involvement- Information on the latest trends in materials,
processes, or designs
– Information on the supply market
– Capacity for meeting unexpected demand
– Cost efficiency due to economies of scale
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
16
Supplier Selection
The process of selecting suppliers, is complex and should
be based on multiple criteria:
– Product and process
technologies
– Willingness to share
technologies and
information
– Quality
– Cost
– Reliability
– Order System and cycle
time
– Capacity
– Communication capability
– Location
– Service
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
17
How Many Suppliers to Use
Single-sourcing- a risky proposition. Although trends favor
fewer sources, avoid single source.
Reasons Favoring a Single
Supplier
Reasons Favoring More than
One Supplier
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• Need capacity
• Spread risk of supply
interruption
• Create competition
• Information
• Dealing with special kinds of
business
To establish a good relationship
Less quality variability
Lower cost
Transportation economies
Proprietary product or process
Volume too small to split
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
18
Purchasing: Centralized vs.
Decentralized
Purchasing Organization dependent on
many factors, such as market conditions
& types of materials required.
– Centralized Purchasing- purchasing
department located at the firm’s corporate
office makes all the purchasing decisions.
– Decentralized Purchasing- individual,
local purchasing departments, such as
plant level, make their own purchasing
decisions.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
19
Purchasing: Centralized vs.
Decentralized
Advantages- Centralization
– Concentrated volumeleveraging purchase volume
– Avoid duplication
– Specialization
– Lower transportation costs
– No competition within units
– Common supply base
Advantages- Decentralization
– Closer knowledge of
requirements
– Local sourcing
– Less bureaucracy
A hybrid purchasing organization- both decentralized at
the corporate level and centralized at the business unit
level may be warranted.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
20
International Purchasing/Global
Sourcing
Global sourcing– Opportunity to improve quality, cost, and delivery performance.
– Requires additional skills and knowledge to deal with
international suppliers, logistics, communication, political
environment, and other issues.
• Import broker or sales agent- performs service for a fee.
• Import merchant- buys and takes title to the goods.
• Trading company- imports & carries wide variety of goods.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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