Introduction to Introduction to Purchasing and Supply Purchasing and Supply

Chain ManagementChain Management

Chapter 1Chapter 1

Current business trend

Co… vs. Co…

2

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

3

Factors Driving SCM

Low cost and wide availability of information more closely links members of a supply chain

Competition in domestic and international markets requires greater quickness, agility, and flexibility

4

Factors Driving SCM

Customer expectations and requirements are constantly changing and more demanding

Major supply disruptions require the ability of a supply chain to react rapidly

Competition is now between supply chains, not just between companies

55

Why Purchasing Is Important

Increasing value and savings by supply management or marketing?

Building relationships and driving innovation

Improving quality and reputation Reducing time-to-market Generating economic impact Contributing to competitive advantage

6

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

77

Building Relationships andDriving Innovation

Traditional approach is to bargain hard for price reductions

New approach is to conduct joint cost reduction with suppliers

Both buyer and supplier must benefit Suppliers can contribute innovative

ideas

88

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

(Example of Heparin)

99

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

1010

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

1111

Contributing to Competitive Advantage

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

1212

Language of Purchasing and SCM

Is purchasing different from supply management?

Are supply chains and value chains the same?

What is supply chain management?

1313

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)

a.k.a. as procurement

1414

Purchasing

Activities Supplier identification and selection Buying Negotiation and contracting Supply market research Supplier measurement and improvement Purchasing systems development

1515

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

1616

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

1717

Defining Supply Management

1818

Strategic Orientation

Cross Functional

Groups

Process-Driven

Approach

Supply Base Management

Supply Management

Strategic responsibilities Activities which have a major long-term

impact on firm performance

Managing the supply base Work directly with suppliers to provide

world-class performance

1919

Supply Management

Process approach Collaborating with and coordinating other

functional areas as they pertain to suppliers

Move across functional area boundaries

Cross-functional Sharing information Suppliers as an extension of the buying

company2020

The Supply Chain Umbrella

Purchasing Inbound transportation Quality control Demand and supply planning Receiving, materials handling, and

storage Material or inventory control

2121

The Supply Chain Umbrella

Order processing Production planning, scheduling, and

control Warehousing/distribution Shipping Outbound transportation Customer service

2222

Enablers of Purchasing and SCM

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

2424

Proper Organizational Design

Assessing and selecting structure and formal system of communication

Division of labor Coordination Control Authority Responsibility

2525

Real-Time Collaborative Technology Capabilities

Supply chain planning Improve forecast accuracy Optimize production scheduling Reduce working capital costs Shorten life cycles Reduce transportation costs Improve customer service

2626

Real-Time Collaborative Technology Capabilities

Supply chain execution Obtaining materials Managing physical flows Lean supply

2727

Emerging SCM Technologies

Global positioning systems (GPS) Internet-based systems Bar codes Radio frequency identification devices

(RFID) Hand-held, wireless devices Voice recognition

2828

Right Measures andMeasurement Systems

Roadblocks Too many metrics Debate over the correct metrics Constantly changing metrics Old data

2929

Right Measures andMeasurement Systems

Overcoming roadblocks Know what to measure Have a process in place to measure it Have accessibility to the data

3030

Why Is Measurement Important?

Supports fact-based decision making Communicates requirements through

the supply chain Improves future supplier performance Recognizes outstanding performance Links critical measures to desired

business outcomes Determines if initiatives are working

3131

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

3232

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

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