Chapter Three Purchasing and Materials Management

THE LOWEST TOTAL COST .THE OBJECTIVES OF PURCHASING 1. PROVIDE APPROPRIATE LEVELS OF SUPPLY + 2. THE APPROPRIATE LEVEL OF QUALITY + 3.

MISSING THE POINT: PURCHASE PRICE Vs. TOTAL COST • Determining the “price” a company pays goes beyond the dollar cost. • TOTAL COST = PURCHASE PRICE + DELIVERY + STORAGE + SERVICE .

WHAT COMPANIES REALLY PAY FOR OWNERSHIP • Cost of ownership goes beyond the price paid for a product • TOTAL COST OF OWNERSHIP = PRODUCT PRICE + + + + + + + DELIVERY INSTALLATION MAINTENANCE / REPAIR POWER COSTS SUPPLY COSTS OPERATING COSTS FINANCING .

USING VALUE ANALYSIS THE OBJECTIVES OF VALUE ANALYSIS: • REDUCE COSTS AND/OR • IMPROVE DESIGN What is Currently Being Done COMPARE BENEFITS RECEIVED FUNCTIONS OF PRODUCT COST OF MATERIALS WORK PROCESS INVOLVED New Alternatives Being Considered OUTCOME: GREATER VALUE FOR LESS COST .

Step 8 Evaluation of product performance Step 7 Selection of an order procedure Step 6 Evaluation of proposals and selection of a supplier Step 5 Acquisition and analysis of proposals Step 4 Search for qualified suppliers Step 3 Development of detailed specifications Step 2 Definition of the product-type needed Step 1 Recognition of a need .

PURCHASING PARTNERSHIPS ARE MADE WITH VENDORS WHO PROVIDE: • High-purchase-volume materials. components or strategic products • Information and training for effective product use • Services requiring specialized knowledge for cost reductions and/or performance • Materials unavailable elsewhere .

IMPROVE PERFORMANCE: STAYING AHEAD OF PURCHASING TRENDS 1. REDUCE PURCHASING COSTS • CUTBACK ON EMPLOYEES • • • • REDUCE NUMBER OF VENDORS/ TRANSACTIONS BUILD RELATIONSHIPS CENTRALIZE PURCHASING ACTIVITIES USE THE INTERNET .

OUTSOURCE IN-HOUSE ACTIVITIES • • • TRAINING MANUFACTURING PROCESSING ACTIVITIES • INVOLVE SUPPLIERS (ESI) .IMPROVE PERFORMANCE: STAYING AHEAD OF PURCHASING TRENDS (continued) 2.

INCREASE PROFESSIONALISM THROUGH CERTIFICATION PROGRAMS AND ESTABLISH A CODE OF ETHICS . SUPPLIERS.IMPROVE PERFORMANCE: STAYING AHEAD OF PURCHASING TRENDS (continued) 3. CUSTOMERS 4. CROSS-FUNCTIONAL TEAMS – MADE UP OF COMPANY DEPARTMENTS.

WHAT IS A CROSS-FUNCTIONAL TEAM? 2. DO YOU KNOW HOW TO GET YOUR COMPANY INCLUDED IN YOUR CLIENT’S CROSS-FUNCTIONAL TEAM? 4. CAN YOU RECOGNIZE ONE AT YOUR CLIENT’S ORGANIZATION? 3.SALES SURVIVAL QUESTIONS: CAN YOUR SALESPEOPLE ANSWER THE FOLLOWING QUESTIONS? 1. WILL YOUR COMPANY GIVE YOU THE PEOPLE RESOURCES TO SUPPORT YOUR CLIENT’S NEEDS? .

SUCCESSFUL CROSS-FUNCTIONAL PURCHASING TEAMS DEPEND ON: • APPROPRIATE LEADERSHIP • FACE-TO-FACE COMMUNICATION • CONTINUITY– IN IT FOR THE LONG TERM • TOP-LEVEL COMMITMENT to provide for key individuals’ full participation • EMBRACING DIVERSITY of experience. and corporate philosophy . backgrounds. outlooks.

Changing company focus: MAKE-OR-BUY? Purchasing Determines Who Provides Best Value for Lowest Cost Best-Value Provider Action In-House Partner •Training •Transaction Processing •Paper Processing •Product Design •Product Manufacturing •Component Part Manufacturing •R&D •Marketing Sales Advertising Research Support •Human Resources Administration .

Components or Services UNACCEPTABLE RISK Retain Production and Provide Services .MAKE-OR-BUY DECISION ANALYSIS RISK ASSESSMENT FINANCIAL RISKS Resource Allocation Investment of Resources Accurate Cost Analysis Legal Issues MANUFACTURING RISKS Reliability Expertise Equipment Patent Protection MARKETING RISKS Customer Impact Supplier Impact POLITICAL RISKS Management commitment/ willingness to partner Turf Battles Internal Strife ACCEPTABLE RISK Buy the Products.

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