Defining Purchasing,Procurement, Supply Management, Materials Management & SCM

8/9/2019 Defining Purchasing,Procurement, Supply Management, Materials Management & SCM

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DEFINITION OF PURCHASINGDEFINITION OF PURCHASING

'et in another way organization'et in another way organization

Purchasing is defined asPurchasing is defined as

! !that function responsi(le forthat function responsi(le for

o(taining (y purchase, lease or othero(taining (y purchase, lease or other

legal means, equipments, materials,legal means, equipments, materials,

supplies and services required (ysupplies and services required (y

organization for use in productionorganization for use in production


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-- In this definition, term production isIn this definition, term production isused in economic sense of creatingused in economic sense of creatingutilities ie goods and services thatutilities ie goods and services that

satisfy needs satisfy needs

In common parlances organizationalIn common parlances organizationalpurchasing can further (e defined as)purchasing can further (e defined as)

! !Process (y which organizations defineProcess (y which organizations define& compare supplies and suppliers& compare supplies and suppliers

availa(le to them,availa(le to them,


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-- solicit offers or negotiate withsolicit offers or negotiate withsources of supply or in some othersources of supply or in some other

way arrive at agreed terms ofway arrive at agreed terms of

trading,trading,

-- ma$e contracts and place ordersma$e contracts and place orders

andand finally receive, accept andfinally receive, accept and paypayfor the goods and servicesfor the goods and servicesrequired required


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Purchasing in essence is a tas$ of (uyingPurchasing in essence is a tas$ of (uying

goods ofgoods of

-- right quality,right quality,-- in the right quantitiesin the right quantities

-- at the right time and place andat the right time and place and

-- at the right priceat the right price

*hese essentials of professional purchasing are*hese essentials of professional purchasing arethough complimentary to each other yetthough complimentary to each other yetachievement of one does not guarantee the otherachievement of one does not guarantee the other


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-*here may (e a source capa(le of giving-*here may (e a source capa(le of giving

quality goods (ut may not have enoughquality goods (ut may not have enough

capacity to meet quantity requirement incapacity to meet quantity requirement in

timetime

- or the source may have capa(ilities to- or the source may have capa(ilities to

supply goods of right quality and in rightsupply goods of right quality and in rightquantities (ut may not supply at rightquantities (ut may not supply at right

price or at right timeprice or at right time


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-- But if (uyer has right $ind of sources,But if (uyer has right $ind of sources,

he may get goods of right quality, in thehe may get goods of right quality, in the

right quantities, at the right time and atright quantities, at the right time and at

right priceright price

- +or scientific purchasing greater stress- +or scientific purchasing greater stress

has to (e placed on locating, selecting,has to (e placed on locating, selecting, developing and retaining right $ind of developing and retaining right $ind of

supplierssuppliers


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-- ome(ody has rightly said that half of ome(ody has rightly said that half of

(attle in purchasing is won if we are(attle in purchasing is won if we are

a(le to locate and retain right sourcesa(le to locate and retain right sources

of supplies ie relia(le, capa(le andof supplies ie relia(le, capa(le and

resourceful suppliersresourceful suppliers


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Purchasing & ProcurementPurchasing & Procurement

In common parlances purchasing &In common parlances purchasing &

procurement are used interchangea(lyprocurement are used interchangea(ly

(ut they are different(ut they are different

-- *he term purchasing covers function of *he term purchasing covers function of

identifying & notifying need for items,identifying & notifying need for items,

locating & selecting vendors, negotiatinglocating & selecting vendors, negotiating& other terms of contract, follow up with& other terms of contract, follow up with

with vendor till receipt of ordered goodswith vendor till receipt of ordered goods


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-- procurement on the other hand impliesprocurement on the other hand implies

much (roader area & includes functionsmuch (roader area & includes functions

of purchasing, materials planning &of purchasing, materials planning &

(udgeting, inventory control, movement(udgeting, inventory control, movement "transportation#, receiving and incoming"transportation#, receiving and incoming

inspection of materials, disposal ofinspection of materials, disposal of

redundant surplus, o(solete and scrapredundant surplus, o(solete and scrap

materialsmaterials


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.o(ler & Burt in their (oo$ Purchasing &.o(ler & Burt in their (oo$ Purchasing &

supply /anagement have differentiatedsupply /anagement have differentiated

these terms as underthese terms as under

Purchasing functions comprises essentialPurchasing functions comprises essential

activities associated with acquisition of theactivities associated with acquisition of the

materials, services, equipment and sparesmaterials, services, equipment and sparesused in operation of an organizationused in operation of an organization


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/a0or activities are/a0or activities are

112oordination with user .eptts to identify2oordination with user .eptts to identify

purchase needspurchase needs

3.iscussions with sales representatives3.iscussions with sales representatives

4Identification of potential suppliers4Identification of potential suppliers

52onduct of mar$et studies for important materials52onduct of mar$et studies for important materials


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67egotiation with potential suppliers67egotiation with potential suppliers

8Analysis evaluation of proposals8Analysis evaluation of proposals

9election of suppliers9election of suppliers

:Issuance of purchase orders:Issuance of purchase orders

;Administration of contracts and resolution of ;Administration of contracts and resolution of


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1=1= /aintenance of variety of purchase/aintenance of variety of purchaserecordrecord

--

>arlier the purchasing functions which>arlier the purchasing functions which

handled as a !staff support (ecamehandled as a !staff support (ecame

su(sequently more professional withsu(sequently more professional withmanagerial emphasizesmanagerial emphasizes

-- ?rganizations that have seen strategic?rganizations that have seen strategic

potential inherent in this function havepotential inherent in this function have

enhanced its (asic activities (yenhanced its (asic activities (y


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expending them and developing procurementexpending them and developing procurement

or supply management operationsor supply management operations

ProcurementProcurement

Process or concept, encompasses a widerProcess or concept, encompasses a wider

range of supply activities than included inrange of supply activities than included in

purchasing functions and it typically includespurchasing functions and it typically includesa (roadened view of traditional (uying rolea (roadened view of traditional (uying role

with more (uyer participation in relatedwith more (uyer participation in related

materials activities i ematerials activities i e


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1 Participation in development of material &1 Participation in development of material &

service requirement & their specificationsservice requirement & their specifications

3 2onduct of materials studies & manage-3 2onduct of materials studies & manage-

ment of value analysis activitiesment of value analysis activities

44 2onduct of more extensive material2onduct of more extensive materialmar$et studiesmar$et studies


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5 2onduct of all purchasing functions5 2onduct of all purchasing functions

6 /anagement of supplier quality6 /anagement of supplier quality

8 Purchase of in(ound transportation8 Purchase of in(ound transportation

9 /anagement of investment recovery activities9 /anagement of investment recovery activities"salvage of surplus and scraps#"salvage of surplus and scraps#

- In essence, procurement tends to (e (roader- In essence, procurement tends to (e (roaderand more proactive with some focus of strategicand more proactive with some focus of strategic

matter as compared to typical purchasing conceptmatter as compared to typical purchasing concept


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Supp! managementSupp! management

! !upply /anagement is a processupply /anagement is a processresponsi(le for development andresponsi(le for development andmanagement of an organizations totalmanagement of an organizations total

supply system- (oth internal and externalsupply system- (oth internal and externalcomponents components

At operational level, it includes andAt operational level, it includes and

expands activities of purchasing functionsexpands activities of purchasing functionsand the procurement processand the procurement process


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Its ma0or focus, however, is strategicIts ma0or focus, however, is strategic*his is reflected in the activities added to*his is reflected in the activities added tothe scope of its responsi(ilities- all ofthe scope of its responsi(ilities- all of

which have two characteristics )which have two characteristics )

"1#"1# *hey deal with activities which have*hey deal with activities which havegreater potential impacting success ofgreater potential impacting success oforganizationorganization

"3#"3# *hey tend to (e interdisciplinary in*hey tend to (e interdisciplinary innature and integrate supply action withnature and integrate supply action withthose of other $ey players in the organizationthose of other $ey players in the organization


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Acti"ities incu#e# in Supp! Acti"ities incu#e# in Supp!

$anagement$anagement

"1#"1# >arly purchasing involvement ">PI# and>arly purchasing involvement ">PI# and

early supplier involvement ">I# in productearly supplier involvement ">I# in productdesign and su(sequent spec developmentdesign and su(sequent spec developmentfor important items, typically through crossfor important items, typically through crossfunctional teamsfunctional teams

"3#"3# 2onduct of all purchasing functions &2onduct of all purchasing functions &procurement process activitiesprocurement process activities

"4# @eavy use of crossfunctional teams in"4# @eavy use of crossfunctional teams insupplier qualification & selectionsupplier qualification & selection


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"5#"5# @eavy use of purchasing partnering@eavy use of purchasing partneringarrangements and strategic alliances witharrangements and strategic alliances withsuppliers- to develop close and mutuallysuppliers- to develop close and mutually(eneficial lin$ages with $ey suppliers in(eneficial lin$ages with $ey suppliers invalue chain and to control quality and costvalue chain and to control quality and cost

"6# 2ontinuous identification of threats and"6# 2ontinuous identification of threats andopportunities in firm%s supply environmentopportunities in firm%s supply environment

"8# .evelopment of strategic, long term"8# .evelopment of strategic, long termacquisition plan for all ma0or materialsacquisition plan for all ma0or materials


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"9# /onitoring of continuous improvement in"9# /onitoring of continuous improvement inthe supply chainthe supply chain

":# Active participation in the corporate":# Active participation in the corporatestrategic planning processstrategic planning process

upply /anagement concept, representsupply /anagement concept, represents

advance stage in evolutionary developmentadvance stage in evolutionary development

of the purchasing procurement supplyof the purchasing procurement supplysphere activity "cope is further widensphere activity "cope is further widen


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.evelopment of supply chain management.evelopment of supply chain management

which also includes & integrate, apart fromwhich also includes & integrate, apart from

activities of purchasingprocurement of activities of purchasingprocurement of

materials, itsmaterials, its transformation intointermediates & finished products and

distri(ution of finished goods to customers#

/a0or characteristics that differentiates itfrom conventional purchasingprocurement

is that it focuses heavily on strategic aspect of $eyis that it focuses heavily on strategic aspect of $eyelements of firm%s supply systemelements of firm%s supply system


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Supp! Chain $anagement%DeiningSupp! Chain $anagement%Deining

.efining the term.efining the term

A supply chain is aA supply chain is a

- networ$ of facilities & distri(ution- networ$ of facilities & distri(ution

option that perform functions of option that perform functions of - procurement of materials- procurement of materials

- transformation of these materials into- transformation of these materials into

intermediates & finished productsintermediates & finished productsand and

- distri(ution of finished goods to- distri(ution of finished goods tocustomers customers


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*raditionally these functions*raditionally these functions

operated independently having theiroperated independently having theirown o(0ectives which at time seenown o(0ectives which at time seenconflicting and need for integratingconflicting and need for integratingthese functions feltthese functions felt

2/ is a strategy through which this2/ is a strategy through which thisintegration can (e achievedintegration can (e achieved


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upply chain exists (oth in services &upply chain exists (oth in services &

manufacturing organization thoughmanufacturing organization though

complexity of chain may vary fromcomplexity of chain may vary from

industry to industry and firm to firmindustry to industry and firm to firm

2/ can (e compared with well2/ can (e compared with well

(alanced and practiced relay team(alanced and practiced relay team


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uch a team is more competitive &uch a team is more competitive & cohesivecohesivewhenwhen

- each player $nows how to (e positioned- each player $nows how to (e positioned

for hand-off for hand-off

- relationships are stronger (etween- relationships are stronger (etween

who directly pass-on the (atonwho directly pass-on the (aton

- (ut entire team needs to ma$e- (ut entire team needs to ma$ecoordinated efforts to win the race coordinated efforts to win the race


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2/ can also (e defined as2/ can also (e defined as

! !a networ$ of autonomous or semi-a networ$ of autonomous or semi-

autonomous (usiness entities collectivelyautonomous (usiness entities collectivelyresponsi(le forresponsi(le for

- procurement, manufacturing &- procurement, manufacturing &

distri(ution activitiesdistri(ution activities- associated with one or more families of - associated with one or more families of

related products related products


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ee & Billington have defined 2/ asee & Billington have defined 2/ as

! !A supply chain is networ$ of facilitiesA supply chain is networ$ of facilities

that procure raw materialsthat procure raw materials

- transform them into intermediate goods- transform them into intermediate goods

- and than finished products and- and than finished products and- deliver the products to customers- deliver the products to customers

through a distri(ution system through a distri(ution system


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$aterias $anagement$aterias $anagement

/aterials /anagement concept is quite/aterials /anagement concept is quitedifferent from purchasing procurementdifferent from purchasing procurementsupply management conceptsupply management concept

It is (asically an organization concept that,It is (asically an organization concept that,from the managerial prospective, isfrom the managerial prospective, isdesigned to enhance coordination anddesigned to enhance coordination and

control of various materials activitiescontrol of various materials activities


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+irst it may (e achieved (y developing a+irst it may (e achieved (y developing astraightforward set of reporting,straightforward set of reporting,communication, and control procedurescommunication, and control proceduresdesigned to enhance coordinated decisiondesigned to enhance coordinated decisionma$ing among the involved groupma$ing among the involved group

econd approach involves an organizationalecond approach involves an organizational

rearrangement that consolidates some ofrearrangement that consolidates some ofthe individual material activities into largerthe individual material activities into largergroups for administrative purposesgroups for administrative purposes


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In this case coordination typically is easierIn this case coordination typically is easierto achieve (ecause one manager has lineto achieve (ecause one manager has lineresponsi(ility and authority for thoseresponsi(ility and authority for those

activities grouped in his her operating unit,activities grouped in his her operating unit,with possi(ilities of developing a morewith possi(ilities of developing a moreeffective team- oriented operationseffective team- oriented operations

pecific materials activities typically foundpecific materials activities typically foundin a materials management organizationin a materials management organization

are)are)


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11 Purchasing & supply managementPurchasing & supply management

activitiesactivities

33 Inventory managementInventory management

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Defining Purchasing,Procurement, Supply Management, Materials Management & SCM

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