Chapter 1 Introduction To Purchasing and Supply Chain Management

Purchasing
PURCHASING& Supply
& SUPPLY
Chain CHAIN
Management
MANAGEMENT,
– 5th ed. – 2012
6e
Introduction to
Purchasing and Supply
Chain Management
Chapter 1
© 2016 Cengage Learning. All rights reserved. May

not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part. SOUTH-WESTERN CENGAGE LEARNING
Learning Objectives
 Understand the differences between purchasing
and supply management
 Understand the differences between supply chains
and value chains
 Identify the activities that are part of supply chain
management
 Appreciate the importance of supply chain enablers
 Identify the historical stages of purchasing’s
evolution
2
a publically accessible website, in whole or in part. Purchasing & Supply Chain Management, 6e
Chapter Overview
 A new competitive business environment

 Why purchasing is important
 Understanding the language of purchasing
and supply chain management
 Achieving purchasing and supply chain
benefits

not be scanned, copied or duplicated, or posted to Purchasing & Supply Chain Management, 6e 3
a publically accessible website, in whole or in part.
Chapter Overview
 The supply chain umbrella – management

activities
 Four enablers of purchasing and supply
chain management
 The evolution of purchasing and supply
chain management
 Looking ahead

4
A New Competitive Environment
 Widely available information sources
 Increasing numbers of world-class global
competitors
 Sophisticated customer base
 More performance at a lower cost
 Greater levels of outsourcing
 Balance of power between buyers and
suppliers
5
Factors Driving SCM
 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

6
Factors Driving SCM
 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

7
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
not be scanned, copied or duplicated, or posted to Purchasing & Supply Chain Management, 6e 8
Increasing Value and Savings
 Suppliers have substantial impact on a
firm’s total cost
 Many product features originate from
suppliers
 In manufacturing, purchased content is
more than 55% of revenues
 Avoiding costs through early involvement in
product design stage
9
Building Relationships and
Driving Innovation
 Traditional approach is to bargain hard

for price reductions
 Newer approach is to conduct joint cost
reduction with suppliers
 Both buyer and supplier must benefit
 Suppliers can contribute innovative ideas

10
Purchasing & Supply Chain Management, 6e
Improving Quality and Reputation
 Buyer focuses on core competencies and
outsources non-core activities and
materials
 Need for ability to track materials back up
through the supplier’s supply chain
 Supplier quality  product quality
 Lapses in managing supplier quality can
potentially tarnish a buyer’s reputation
11
Reducing Time-to-Market
 Include suppliers early in product design

process to take advantage of their
expertise
 Early supplier involvement can lead to
an average of 20% improvement on
material costs, material quality, and
product development times

12
Managing Supplier Risk
 Supplier risk is magnified by sourcing

strategies that emphasize global
sourcing, single sourcing, and JIT
inventory
 Need to develop business continuity
plans to mitigate risks

13
Generating Economic Impact
 The monthly ISM Report on Business® is
a closely followed national economic
indicator
 A change index
 Manufacturing and non-manufacturing
components
 > 50 means the economy is expanding
 < 50 means the economy is contracting
14
Contributing to Competitive
Advantage
 Growing recognition of supply
management’s contribution to the firm’s
profitability
 More supply managers have earned
college degrees
 Increased number of supply managers
with certifications such as CPSM

15
Contributing to Competitive
Advantage
 Talent management
 Requires constant focus on finding,
developing, and promoting individuals
making significant contributions
 Vital to furthering supply management’s
impact on company strategies and
competitiveness

16
Language of Purchasing and SCM
 Is purchasing different from supply

management?
 Are supply chains and value chains the
same?
 What is supply chain management?
 What is an extended enterprise?

17
Purchasing
 A functional group (i.e., a formal entity

on the organization chart) as well as a
functional activity (i.e., buying goods
and services)
 Also known as procurement

18
Purchasing
 Activities
 Supplier identification and selection
 Buying
 Negotiation
 Contracting
 Supply market research
 Supplier measurement and improvement
 Purchasing systems development

19
The Five Rights of Purchasing
 Getting the “right” quality

 In the “right” quantity
 At the “right” time
 For the “right” price
 From the “right” source

20
Supply Management
 A strategic approach to planning for and

acquiring the organization’s current and
future needs through effectively managing
the supply base, utilizing a process
orientation in conjunction with cross-
functional teams to achieve the
organizational mission

21
ISM’s Definition
 The identification, acquisition, access,

positioning, and management of
resources and related capabilities an
organization needs or potentially needs
in the attainment of its strategic
objectives

22
Defining Supply Management
Strategic
Orientation
Cross
Supply Base
Functional
Management
Groups
Process-
Driven
Approach
23
Supply Management
 Strategic responsibilities
 Activities that have a major long-term impact on
firm performance
 Aligned with the overall mission and strategies of
the firm
 Managing the supply base
 Work directly with suppliers to provide world-class
performance
 A supercharged version of purchasing

24
Supply Management
 Process approach
 Identifying, evaluating, selecting, managing, and
developing suppliers to improve performance
 Move across functional area boundaries
 Cross-functional
 Sharing information
 Suppliers as an extension of the buying company

25
Supply Chains and Value Chains
 Supply chain orientation

 Higher level recognition of the strategic value
of managing operational activities and flows
within and across a supply chain
 Value chain
 Primary and secondary support activities that
can lead to competitive advantage

26
Supply Chains and Value Chains
 Supply chain
 Set of 3 or more organizations linked directly
by 1 or more of upstream or downstream flows
of products, services, finances, and information
from a source to a customer
 Subset of the value chain

27
The Extended Value Chain
• Firm infrastructure
Support • Human resource management
Activities • Technology development
• Purchasing
Materials/Services Information/Funds/Knowledge
Customers
Suppliers
Inbound Outbound Marketing Customer

Operations
Logistics Logistics & Sales Service
Primary Activities Exhibit 1.2
Materials / Physical Distribution /

Supply Management Channel Management
Total Supply Chain / Total Logistics Management

28
Supply Chains vs. Value Chains
 Supply chain management

 Endorses a supply chain orientation and
involves proactive management of two-way
movement and coordination of goods, services,
information, and funds from raw material
through end user

29
Supply Chain & Value Chain Management

30
Supply Chain Management

31
32
Cereal Value Chain Example
Grain Cereal Packaged Cereal
Farmer Processor Packaging Distributor
Packaged
Cereal
Paperboard
Grocer
Exhibit 1.3
Corrugated Packaged
Box Mfr Cereal
Wood Consumer
Labels
Lumber Label Material flows

Company Mfr
Information flows

33
The Supply Chain Umbrella
 Purchasing
 Inbound transportation
 Quality control
 Demand and supply planning
 Receiving, materials handling, and storage
 Material or inventory control

34
The Supply Chain Umbrella
 Order processing
 Production planning, scheduling, and
control
 Shipping/Warehousing/Distribution
 Outbound transportation
 Customer service

35
Enablers of Purchasing and SCM
Human Organizationa Information Measuremen

Resources l Design Technology t
View the supply chain Use data from visible

holistically Centrally-led supply teams Demand planning
sources
Manage critical Executive responsibility Order commitment,
Quantify what creates
relationships for coordinating scheduling, and
value
purchasing and supply production management
Analyze competitive chain activities
Distribution and Use goals that change
markets Collocation of supply over time
transportation scheduling
personnel with internal
Engage in fact-based customers Rely on benchmarking
decision making Material replenishment
Cross-functional teams to to establish
manage supply chain performance targets
Practice advanced
cost management processes Reverse auctions
Link to business goals
Supply strategy and objectives
Understand e- Requisition to pay systems
coordination and review
business systems
sessions between Feature efficiency and
business units effectiveness measures
Analyze big data Intranets
Executive buyer-supplier
council to coordinate with Assign ownership and
©Utilize mobile
2016 Cengage devices
Learning. All rights reserved. May
suppliers Webinars and podcasts accountability
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

37
Proper Organizational Design
 Assessing and selecting structure and

formal system of communication
 Division of labor
 Coordination
 Control
 Authority
 Responsibility

38
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

39
Real-Time Collaborative
Technology Capabilities
 Supply chain execution software
 Obtain materials
 Manage physical flows
 Lean supply

40
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 (hidden information )
 Radio frequency identification devices (RFID)
thiết bị nhận dang tso vô tuyến

41
Right Measures and
Measurement Systems
 Roadblocks
 Too many metrics
 Debate over the correct metrics
 Constantly changing metrics
 Old data

42
Right Measures and
Measurement Systems
 Overcoming roadblocks
 Know what to measure
 Have a process in place to measure it
 Have accessibility to the right data

43
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
44
Evolution of Purchasing and SCM
 The early years
 1850 – 1900
 Growth of purchasing fundamentals
 1900 – 1939
 The war years
 1940 – 1946
 The quiet years
 1947 – Mid 1960s

45
Evolution of Purchasing and SCM
 Materials management comes of age

 Mid-1960s – Late 1970s
 The global era
 Late 1970s – 1999
 Integrated supply chain management
 The 21st century

46
Looking Ahead
 Section 2 – Purchasing Operations and

Structure
 Section 3 – Strategic Sourcing
 Section 4 – Strategic Sourcing Process
 Section 5 – Critical Supply Chain Elements
 Section 6 – Future Directions

47

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Purchasing

© 2016 Cengage Learning. All rights reserved. May

 A new competitive business environment

© 2016 Cengage Learning. All rights reserved. May

 The supply chain umbrella – management

© 2016 Cengage Learning. All rights reserved. May

 Low cost and wide availability of

© 2016 Cengage Learning. All rights reserved. May

 Customer expectations and requirements

© 2016 Cengage Learning. All rights reserved. May

 Traditional approach is to bargain hard

© 2016 Cengage Learning. All rights reserved. May

 Include suppliers early in product design

© 2016 Cengage Learning. All rights reserved. May

 Supplier risk is magnified by sourcing

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Is purchasing different from supply

© 2016 Cengage Learning. All rights reserved. May

 A functional group (i.e., a formal entity

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Getting the “right” quality

© 2016 Cengage Learning. All rights reserved. May

 A strategic approach to planning for and

© 2016 Cengage Learning. All rights reserved. May

 The identification, acquisition, access,

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Supply chain orientation

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

Inbound Outbound Marketing Customer

Primary Activities Exhibit 1.2

Materials / Physical Distribution /

Total Supply Chain / Total Logistics Management

 Supply chain management

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

Lumber Label Material flows

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

Human Organizationa Information Measuremen

View the supply chain Use data from visible

© 2016 Cengage Learning. All rights reserved. May

 Assessing and selecting structure and

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Capture and share real-time or near real-

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

© 2016 Cengage Learning. All rights reserved. May

 Materials management comes of age

© 2016 Cengage Learning. All rights reserved. May

 Section 2 – Purchasing Operations and

© 2016 Cengage Learning. All rights reserved. May

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