Chapter 01 Introduction To Purchasing and Supply Chain Management

Chapter 1
Introduction to Purchasing and

Supply Chain Management
Monczka/Handfield/Giunipero/Patterson, Purchasing & Supply Chain Management, 6 th 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.
Chapter Overview (1 of 2)
• A new competitive business environment

• Why purchasing is important
• Understanding the language of purchasing and supply chain management
• Achieving purchasing and supply chain benefits
Chapter Overview (2 of 2)
• The supply chain umbrella – management activities

• Four enablers of purchasing and supply chain management
• The evolution of purchasing and supply chain management
• Looking ahead
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
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
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
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
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 supplier’s supply chain
• Supplier quality → product quality
• Lapses in managing supplier quality can potentially tarnish a buyer’s reputation
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
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
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 economy is expanding
• < 50 means economy is contracting
Contributing to Competitive Advantage (1 of 2)
• Growing recognition of supply management’s contribution to firm’s

profitability
• More supply managers have earned college degrees
• Increased number of supply managers with certifications such as CPSM
Contributing to Competitive Advantage (2 of 2)
• 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
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?
Purchasing (1 of 2)
• A functional group (i.e., a formal entity on the organization chart) as well as a

functional activity (i.e., buying goods and services)
• a.k.a. as procurement
Purchasing (2 of 2)
• Activities
• Supplier identification and selection
• Buying
• Negotiation
• Contracting
• Supply market research
• Supplier measurement and improvement
• Purchasing systems development
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
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
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
Defining Supply Management
Supply Management (1 of 2)
• Strategic responsibilities
• Activities which 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
Supply Management (2 of 2)
• 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
Supply Chains and Value Chains (1 of 2)
• 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
Supply Chains and Value Chains (2 of 2)
• 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
The Extended Value Chain
Exhibit 1.2
Supply Chains versus 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
Cereal Value Chain Example
Exhibit 1.3
The Supply Chain Umbrella (1 of 2)
• Purchasing
• Inbound transportation
• Quality control
• Demand and supply planning
• Receiving, materials handling, and storage
• Material or inventory control
The Supply Chain Umbrella (2 of 2)
• Order processing
• Production planning, scheduling, and control
• Shipping/Warehousing/Distribution
• Outbound transportation
• Customer service
Enablers of Purchasing and SCM (1 of 2)
Human Resources Organizational Design

• View the supply chain holistically • Centrally-led supply teams
• Manage critical relationships • Executive responsibility for coordinating
• Analyze competitive markets purchasing and supply chain activities
• Engage in fact-based decision making • Collocation of supply personnel with
internal customers
• Practice advanced cost management
• Cross-functional teams to manage supply
• Understand e-business systems chain processes
• Analyze big data • Supply strategy coordination and review
• Utilize mobile devices sessions between business units
• Executive buyer-supplier council to
coordinate with suppliers
Enablers of Purchasing and SCM (2 of 2)
Information Technology Measurement

• Demand planning • Use data from visible sources
• Order commitment, scheduling, and • Quantify what creates value
production management
• Use goals that change over time
• Distribution and transportation scheduling
• Rely on benchmarking to establish
• Material replenishment performance targets
• Reverse auctions • Link to business goals and objectives
• Requisition to pay systems • Feature efficiency and effectiveness
• Intranets measures
• Webinars and podcasts • Assign ownership and 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
Proper Organizational Design
• Assessing and selecting structure and formal system of communication

• Division of labor
• Coordination
• Control
• Authority
• Responsibility
Real-Time Collaborative Technology Capabilities (1 of 2)
• Supply chain planning software

• Improve forecast accuracy
• Optimize production scheduling
• Reduce working capital costs
• Shorten cycle times
• Cut transportation costs
• Improve customer service
Real-Time Collaborative Technology Capabilities (2 of 2)
• Supply chain execution software

• Obtain materials
• Manage physical flows
• Lean supply
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
Evolution of Purchasing and SCM (1 of 2)
• The early years

• 1850 – 1900
• Growth of purchasing fundamentals
• 1900 – 1939
• The war years
• 1940 – 1946
• The quiet years
• 1947 – Mid-1960s
Evolution of Purchasing and SCM (2 of 2)
• Materials management comes of age

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

Chapter 01 Introduction To Purchasing and Supply Chain Management

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 01 Introduction To Purchasing and Supply Chain Management

Uploaded by

Copyright:

Available Formats

Chapter 1

Introduction to Purchasing and

• A new competitive business environment

• The supply chain umbrella – management activities

• Increasing numbers of world class global competitors

• Low cost and wide availability of information

• Customer expectations and requirements

• Increasing value and savings

• Suppliers have substantial impact on a firm’s total cost

• Traditional approach is to bargain hard for price reductions

• Buyer focuses on core competencies and outsources non-core activities and

• Include suppliers early in product design process to take advantage of their

• Supplier risk is magnified by sourcing strategies that emphasize global

• The monthly ISM Report on Business® is a closely followed national

• Growing recognition of supply management’s contribution to firm’s

• Is purchasing different from supply management?

• A functional group (i.e., a formal entity on the organization chart) as well as a

• Getting the “right” quality

• A strategic approach to planning for and acquiring the organization’s current

• The identification, acquisition, access, positioning, and management of

• Supply chain orientation

• Supply chain management

Human Resources Organizational Design

Information Technology Measurement

• Supplier relationship management

• Assessing and selecting structure and formal system of communication

• Supply chain planning software

• Supply chain execution software

• Support fact-based decision making

• The early years

• Materials management comes of age

• Section 2 – Purchasing Operations and Structure

You might also like