Chapter 1 - Introduction To Purchasing and Supply Chain Managment

Chapter 1:
Introduction to Purchasing and

Supply Chain Management
Learning Objectives
After today’s lecture, you should be able to:
LO1 - Understand the differences between purchasing and supply
management
LO2 – Understand the legal considerations for procurement
LO3 - Identify the activities that are part of supply chain management
LO4 - Understand how technology is changing the purchasing job
Monczka/Handfield/Giunipero/Patterson, Purchasing & Supply Chain Management, 6th Edition. © 2016 Cengage. All Rights
Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
A New Competitive Environment
• Increasing numbers of world class global competitors
• Sophisticated customer base
 More performance at lower cost
• Widely available information sources
• Balance of power between buyers and suppliers
• Greater levels of outsourcing
Factors Driving SCM (1 of 2)
• Low cost and wide availability of information

 More closely links members of a supply chain
• Higher levels of competition in domestic and international markets
 Requires greater quickness, agility, and flexibility
Factors Driving SCM (2 of 2)
• Customer expectations and requirements

 Constantly changing and more demanding
• Ability of an organization’s supply chain to identify and
mitigate risk
 Minimize disruptions
• Competition is now between supply chains, not just between
companies
• Mainly Strategic activities including
• Strategic bottleneck and leverage items
• Make/buy/outsource decisions
• Sourcing and appraising suppliers including global
suppliers
• Rationalizing the supplier base
Supplier • Developing supplier potential
Management • Early supplier involvement
• Negotiation
• Supplier Relationships
• Capital equipment purchasing
• Benchmarking
Procurement • Monitoring supplier performance
• Ethical and environmental issues
• Mainly transactional and commercial activities

including:
• Non-critical items
• Ordering or calling off suppliers/services
Purchasing
• Expediting
• Maintaining inventory
• Receipt and storage of supplies
• Arranging payment
The Five Rights of Procurement
Getting the “right” quality
In the “right” quantity
At the “right” time
For the “right” price
From the “right” source
Why Purchasing Is Important
• Increasing value and savings
• Building relationships and driving innovation
• Improving quality and reputation
• Reducing time-to-market
• Managing supplier risk
• Generating economic impact
• Contributing to competitive advantage
• https://www.youtube.com/watch?v=fWs-E4luouY
Class Discussion: What are some legal
considerations of procurement?
Legal Scope of Procurement
Legal strategic considerations Corporate strategic relevance
Applying buying organization procurement T&Cs Supplier’s obligations and liabilities very clear
Product liability accountability Reduces corporate exposure to product liability
claims
Clarity of specifications Management of quality standards
Apply damages for supplier’s non-performance Resistance of claims for corporate non-
performance
Bank/parent company guarantees Provides safeguards for specified events
Supplier’s insurance provision Management of risk exposure
Supplier’s key personnel provision Reduces risk associated with knowledge and skills
provision
Jurisdiction No exposure to off-shore jurisdictions
Supply Chain Management is…
“…the management of the flow of goods and services and includes all
processes that transform the raw materials into final products. It involves
the active streamlining of a business’s supply-side activities to maximize
customer value and gain a competitive advantage in the marketplace”.
– Investopedia
“…the management and oversight of a product from its origin until it is

consumed. SCM involves the flow of materials, finances, and information.
This includes product design, planning, execution, monitoring and control.”
- Techopedia
The Supply Chain Umbrella
• Purchasing
• Inbound transportation
• Quality control
• Demand and supply planning
• Receiving, materials handling, and storage
• Material or inventory control
• Order processing
• Production planning, scheduling, and control
• Shipping/Warehousing/Distribution
• Outbound transportation
• Customer service
Class Activity: The Supply Chain of
Running Shoes
Technological Considerations
Technology Strategic Considerations Corporate Strategic Relevance
Conduct continuous improvement research into Awareness of technology improvements/new
technology improvements technology available
Supplier obligations for continuous improvement Ensure technology supply is not static
Financial investment with strategic suppliers to Joint development of technology with potential
enhance technology benefits of joint IPR hostage scenarios
Supplier guarantee/warrantee provision Reputational management
Early supplier engagement in our technology Partnering collaboration
research and development
Supplier promotional support for new technology Financial assistance with new technology launch
introduction
Outsourcing to access high-cost technology Manage cost of introducing new technology
Enablers of Purchasing and SCM
Capable Human Resources
Proper Organizational Design

Real-Time Collaborative
Technology Capabilities
Right Measures and
Measurement Systems
Capable Human Resources
• Supplier relationship management
• Total cost analysis
• Purchasing strategies
• Supplier analysis
• Competitive market analysis
• Need for close collaboration with suppliers
• Need for close internal coordination
Proper Organizational Design
• Assessing and selecting structure and formal system of communication
• Division of labor
• Coordination
• Control
• Authority
• Responsibility
Real-Time Collaborative Technology Capabilities
• Supply chain planning software

 Improve forecast accuracy
 Optimize production scheduling
 Reduce working capital costs
 Shorten cycle times
 Cut transportation costs
 Improve customer service
Key SCM Technologies
• Capture and share real-time or near real-time data across the supply
chain
 Global positioning systems (GPS)
 Internet-based systems
 Bar codes
 Radio frequency identification devices (RFID)
Right Measures and Measurement
Systems (1 of 2)
• Roadblocks
 Too many metrics
 Debate over the correct metrics
 Constantly changing metrics
 Old data
Right Measures and Measurement
Systems (2 of 2)
• Overcoming roadblocks
 Know what to measure
 Have a process in place to measure it
 Have accessibility to the right data
Why Is Measurement Important?
• Support fact-based decision making
• Communicate requirements throughout the supply chain
• Improve future supplier performance
• Recognize outstanding performance
• Link critical measures to desired business outcomes
• Determine if new initiatives are working
QUESTIONS?
Homework
• Read Chapter 1
• Discussion Post: What is the difference between a Supply

Chain and a Value Chain? Illustrate with an example.

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Chapter 1:

Introduction to Purchasing and

LO2 – Understand the legal considerations for procurement

LO4 - Understand how technology is changing the purchasing job

• Low cost and wide availability of information

• Customer expectations and requirements

• Mainly transactional and commercial activities

Getting the “right” quality

In the “right” quantity

At the “right” time

For the “right” price

From the “right” source

“…the management and oversight of a product from its origin until it is

Capable Human Resources

Proper Organizational Design

• Supply chain planning software

• Discussion Post: What is the difference between a Supply

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