Procurement and Supply Management

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Chapter 4

• Procurement and Supply Management

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Learning Objectives

• Understand the role and nature of procurement and
  supply management in a supply chain context.
• Explain the different types of inbound systems.
• Discuss the major materials management activities.

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Learning Objectives cont

• Understand the procurement process.
• Explain the risk/value technique for determining
  purchased item importance.
• Identify the 4 steps necessary for effective
  procurement.
• Explain the criteria for evaluating vendors.
• Examine the role of E-commerce in the procurement
  process.

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Figure 4-1 A Food System Supply Chain
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Materials Management

• Definition
• The planning and control of the flow of
  materials that are part of the inbound logistics
  system, it consists of all those activities
  necessary to acquire goods and services
  consistent with user requirements.
• Importance
• Contributes to the competitive advantage
• Add value, assure quality
• Significant portion of the logistics costs

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Materials ManagementActivities

• Materials Management Activities
• Procurement
• Production planning
• Inbound transportation
• Receiving
• Quality control
• Inbound warehousing
• Inventory management and control
• Salvage and scrap disposal

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Materials ManagementImportance of Item and
Service Purchased

• Products and services purchased by a company are
  not all the same.
• Some are more important than others and require
  greater procurement attention.
• The quadrant technique enables the supply chain
  manager to assess the relative importance of each
  item based on the degree of perceived value and
  risk.

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Figure 4-3 Item Procurement Importance Matrix
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Figure 4-2ProcurementProcess
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Procurement 4 Steps in Managing Procurement

• Determine the type of purchase
• Identify the levels of investment
• time and information
• Perform the procurement process
• Collect data on time and information
• Evaluate the effectiveness of the procurement
  process
• Were the users needs satisfied?
• Was the investment necessary?

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ProcurementManaging the Procurement Process

• Supplier/Vendor Evaluation and Relationships
• Maintaining a true partnership with a firms
  vendors is a critical part of a successful supply
  chain.
• Number of vendors shrinks.
• TQM and JIT begins with the vendors.

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Figure 4-4 Overview of Vendor Selection Criteria
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ProcurementThe Special Case of Procurement Price

• 4 generic sources of price
• Commodity markets
• Price lists
• Price quotations
• Negotiation

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Figure 4-5 Hierarchy of Price Measurement
Approaches
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Figure 4-6 Total Procurement Price
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Materials ManagementOther Materials Management
Activities

• Warehousing
• Type of facilities required
• Production Planning and Control
• Coordinating product supply with product demand

• Transportation
• Vendor control
• Modal choice
• Rush shipments
• Inspection
• Damage claims

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Figure 4-7 Overview of Production Planning and
Control
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Materials ManagementOther Materials Management
Activities

• Salvage and Scrap Disposal
• Value of scrap may be income to the firm.
• Disposal must adhere to environmental regulations.

• Quality Control
• Quality standards
• did customer receive what was ordered?
• Quality implications
• GIGO concept
• Sample inspection
• statistical QC from vendor to assure 100 quality

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E-Procurement

• Common uses of E-commerce
• Research vendor and product information
• Electronic check of available stock
• Price negotiation
• Order products or services
• Check on the status of an order
• Issue invoice and receive payment

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Figure 4-8 Advantages of E-Procurement
effectiveness
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E-Procurement

• Disadvantages
• Security of electronic messages
• Lack of face-to-face contact
• Other technological concerns
• Standard protocols
• System reliability

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Types of E-commerce Models

• Buy-side system
• Administered by the buyer
• Pre-approves vendor access
• Expensive and usually the domain of large
  companies
• On-line trading community
• Maintained by a third party
• Used by multiple buyers and sellers

• Sell-side system
• Administered by the seller
• Usually free to the buyer
• Electronic marketplace
• Administered by a third party
• Collection of electronic catalogs
• One-stop sourcing for buyers