From Purchasing to Supply Management

1
From Purchasing to Supply Management

• Learning objectives
• To identify the traditional roles of the
  purchasing function
• To determine the major changes which have taken
  place in the role of purchasing
• To appreciate the transition from a purchasing
  perspective to supply management

2
Purchasing

• Definition The acquisition of goods and
  services (Melnyk and Denzler, 1996)
• Purchasing function objectives
• Help identify the products and services that can
  be best obtained externally and
• Develop, evaluate, and determine the best
  supplier, price, and delivery for those products
  and services

3
Organisational vs Personal Purchasing

• Purchasing power
• Time orientation
• Judging the effectiveness of purchasing
• Cost impact of purchase decisions

4
Impact of Purchasing

• Total Sales 10m
• Purchased services and materials 7m
• Salaries 2m
• Overheads 0.5m
• Profit 0.5
• Double profits by
• Increase sales revenue by 100
• Decrease salaries by 25
• Decrease overheads by 100
• Decrease purchase costs by 7.1

5
Purchasing Costs as a Percent of Sales
Industry
Percent of Sales

• All industry
• Automobile
• Food
• Lumber
• Paper
• Petroleum
• Transportation

• 52
• 61
• 60
• 61
• 55
• 74
• 63

6
Purchasing Cycle

• Requisition is received by purchasing
• Supplier is selected
• Order is placed with vendor
• Monitoring of orders
• Receiving orders

7
Purchasing Objectives

• Support company operations with an uninterrupted
  flow of materials and services
• To buy competitively and wisely
• To keep inventory investment and inventory losses
  at a minimum
• To develop good relationships with suppliers and
  to develop effective and reliable sources of
  supply

8
Two Shifts in Focus

• Major paradigm shifts
• From a focus on internal processes to
  value-adding benefits
• Quality, Cost, Time, Technology, Continuity of
  supply
• From a tactical to a strategic focus
• Integration, Business environment, MIS, Component
  and commodity strategies, Make or Buy, Personnel
  Development

9
Volkswagen

• Brazilian plant employs 1000 workers
• 200 work for VW
• 800 work for other contractors
• Rockwell International, Cummins Engines, Deluge
  Automotiva, MWM, Remon and VDO, etc.
• VW responsible for overall quality, marketing,
  research and design
• VW looks to innovative supply chain to improve
  quality and drive down costs

10
Volkswagen

• Unusual elements
• VW is buying not only materials, but also the
  labor and related services
• Suppliers are integrated tightly into VWs own
  network, right down to assembly work in the plant
• Module consortium model

11
Major Developments

• Globalisation
• Costs, access to trading zones, improvements in
  transportation and information systems,
  technology concentration
• Outsourcing
• Focus on core competencies
• Cross-Functional Teams
• E-Commerce and E-Business
• Impacts the relationship between buyers and
  suppliers

12
Major Developments

• Supply Chains
• Supplier partnerships
• Intensive relationships, longer contracts, joint
  problem solving, information exchange, continuous
  improvement
• Keiretsu networks
• Suppliers who become part of a company coalition
• Virtual companies
• Rely on a variety of supplier relationships to
  provide services on demand

13
Keiretsu Network Strategy

• Japanese word for affiliated chain
• System of mutual alliances and cross-ownership
• Company stock is held by allied firms
• Lowers need for short-term profits
• Links manufacturers, suppliers, distributors,
  lenders
• Partnerships extend across entire supply chain

14
Virtual Company Strategy

• Network of independent companies
• Linked by technology
• PCs, faxes, Internet etc.
• Each contributes core competencies
• Typically provide services
• Payroll, editing, designing
• May be long or short-term
• Usually, only until opportunity is met

15
Materials Management
Supply Management Activities
Inventory Decisions
Procurement Process Activities
Purchasing Activities

• Raw Materials

1. EPI and ESI in product Design

• Subassemblies

1. Material Specifications
1. Identification of purchasing needs

• Parts

2. Purchasing Activities Procurement Activities
2. Materials studies and value analysis

• Supplies

Operations
2. Discussion with Sales people
Work in Progress Inventory
Finished Goods Inventory
3. Market Research
Receiving
3. Identification of Suppliers
3. Supplier qualification and selection teams
4. Purchasing Function Activities
4. Market Studies
Materials Handling
4. Partnering and strategic alliances
5. Negotiations
5. Management of Supplier quality
5. Monitoring of supply environment
6. Analysis of Proposals
Storage
6. Strategic materials acquisition plans
7. Selection of Suppliers
6. Purchase of Inbound Transportation
8. Issuance of P.O.s
7. Monitoring of continuous improvement
Production Scheduling and Control
9. Contract Administration
7. Management of Investment Recovery
10. Purchasing Records
8. Corporate strategic planning
Traffic
Tactical Focus
Strategic Focus