POLITEKNIK NEGERI BATAM

PURCHASING
AND SUPPLIER
SELECTION
AB041 Supply Chain Management
APPLIED BUSINESS ADMINISTRATION PROGRAM

PRESENTED BY
ALRIDO MARTHA DEVANO, S.T., M.A.B.
 1 Stategic role of purchasing

2 Purchasing Portfolio

AGENDA 3 Supplier Selection

4 Knowledge Based Sourcing

PURCHASING DEFINITION
Classical and composite definition

Purchasing is to obtain materials and/or services of the right quality in the

Classical definition right quantity from the right source, deliver them to the right place at the
right price

Purchasing is the process undertaken by the organizational unit which, either

as a function or as a part of an integrated supply chain, is responsible for
Composite definition procuring supplies of materials and services of the right quality, quantity, time,
and price, and the management of the suppliers, thereby contributing to the
competitive advantages of the achievement of the corporate strategy

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OPERATIONAL
PORCESS OF
PURCHASING
FUNCTION
KRALJIC
PURCHASING
PORTFOLIO
MATRIX
LEVERAGE Are those we buy from suppliers that will have a
significant impact on the finance of our own final
PRODUCTS product

It is relatively easy to buy from the supply market, hence

low market risk

Example: Wood (for furniture manufacture). A large

portion of the cost comes from wood prices and the
furniture prices are dependent on the wood cost in the
marketplace.

For leverage products, Kraljic proposes a purchasing

strategy of competitive bidding.

Competitive bidding will only work if there is more than

one supplier. Alternative suppliers in this case available
and substitution if the supplier is possible.
ROUTINE
PRODUCTS Are those materials that have a very little financial
impact on the buyer's own products also there are plenty
to choose from in the marketplace.

For this kind of product, Kraljic proposed a purchasing

strategy of system contracting plus e-commerce
solutions

The strategy is chosen because these products have large

varieties and high logistics complexity and are often
labor-intensive in handling.
STRATEGIC
PRODUCTS Are those components have a high level of financial
impact on the final products.

They are expensive to develop and manufacture, and

often involve high-technology content. Not usually
available in the marketplace, thus high supply risk.

Example: Engines for automobile

For this product, Kraljic proposed a purchasing strategy

of performance-based partnership. That is to create a
partnership relation with the supplier and work together
to develop and manufacture the components
BOTTLENECK Are those components that may or may not cost too
PRODUCTS much in comparison with the total material cost. The
producer must have them and they are very difficult to
get a hold of.

The supply risk for those components is high, and the

availability of the components is not guaranteed.

Example: the small amount of precious metal required

for the exhaust purification system. Without it, the
automobile will not pass the environmental standard
and will not be allowed on the road.

Kraljic recommended a purchasing strategy of securing

supply and searching for alternatives.
SUPPLIER SELECTION
APPROACHES

Based on the product that the supplier can deliver. Check the product prototype to see if the
Based on the product
quality and technical specs can be met, and delivery terms can be satisfactory

Based on the capability that the supplier displays. Check that supplier has the design and
Based on the capability development capability, strategic investment in technology and skills, and scratch management.
It aims for a long-term relationship.

Combination of It applies when some parts are to be outsourced to a new supplier. It shall support sustainable
product and capability supply chain development.

Back to Agenda 04
 Set up Selection criteria Initial contact/test
PROCESSES
OF
SELECTING
SUPPLIERS Formal evaluation Price quotation

Financial data Reference checking

Audits, assessments or
Supplier visit
surveys
TOOLS FOR SUPPLIER
SELECTION
You define the selection criteria first, for example quality, delivery and service; then you make three
Categorical method category judgements: good (+), unsatisfactory (-), and neutral (0) against the criteria for each
supplier;

Similarly, you set up the required criteria against the alternative suppliers. It makes use of some
available data on quality performance; service standard and delivery reliability for instance. With
Cost ratio method
those historically collected data, you will be able to establish the corresponding cost ratios for each
criterion in terms of how much the penalty cost needs to be added.

Linear-averaging method This method takes care of these preferences by assigning a weight to each criterion.

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CATEGORICAL METHOD

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COST RATIO METHOD

Back to Agenda 04
LINEAR-AVERAGING METHOD

Back to Agenda 04
KNOWLEDGE BASED SOURCING
Operational Focuses Characteristics Changes

Product centered purchasing: usually in tangible Passive: lack of strategic directions and mainly
measured with five rights reactive to operational requirements.

Process centered purchasing: process through which Independent: Purchasing may have adopted the
the outcomes are delivered latest tech & process, but not the strategy aligned
with the competition

Relational purchasing: inter-organizational Supportive: purchasing starts to support the firm's

relationships for supplier integration and competitive strategy by adopting techniques that
engagement strengthen the competitive position

Performance centered purchasing: managing Integrative: Purchasing strategy is fully integrated

purchasing functions contribution to overall with the company's purchasing function

Back to Agenda 05
THANK YOU!

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