Purchasing and Supply Management- Flynn

8/18/2019 Purchasing and Supply Management- Flynn

1/9

6 J>

Purchasing and

Supply ManagementFourteenth Edition

P. Fraser John son PhDLeenders Purchasing Management

ssociation of Canada Chair ssociate Professor OperationsManagementRichard Ivey School of usinessThe University of Western Ontario

M ichie l R. Leenders DBA PMACFellowProfessor of Purchasing Managem ent

EmeritusRichard Ivey School of usinessThe University of Western Ontario

Ann a E. Flynn PhDFormerly Clinical ssociate ProfessorSupply Chain Managem entThunderbird School of GlobalManagement

Formerly ssociate ProfessorInstitute for Supply Managem ent

Boston Burr Ridge IL Dub uque IA Mad ison Wl New York San Francisco St. Louis

Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico CityMilan Montreal New Delhi S antiago Seoul Singap ore Sydney Taipei Toronto


2/9


3/9

Table of Contents xi

Supply Activities and R esponsib i l i ties 61What Is Acquired 61Supply Chain Activities 61Type of Involvement 63Involvement in Corporate Activities 63Influence of the Industry Sector on SupplyActivities 63

Supply Teams 64Leading and Managing Teams 64Cross-Functional Supply Teams 64Other Types of Supply Teams 66

Consortia 67Conclusion 69Questions for Rev iew and Discuss ion 69References 69

Cases 703-1 Iowa Elevators 703-2 Roger Haskett 73

Chapter 4Supply Processes and Technology 76

The Supply Management Process 78Strategy and Goal Alignment 78Ensuring Process Compliance 79

Information Flows 80Steps in the Sup ply Process 80

1. Recognit ion of N eed 802. Description of Ne ed 81

Purposes and Flow of a Requisition 81Types of Requisitions 82Early Supply and Supplier Involvement 83

3. Identification of Potentia l S ources 84Issue an RFx 84

4. Supplier Selection and D e te rmina tion

of Terms 855. P reparation and P lacem ent o f the

Purchase Order 856. Follow -up and Expedi t ing 88

Assess Costs and Benefits 897. Receip t and Inspection 90

Eliminate or Reduce Inspection 908. Invoice C learing and P a y m e n t 90

Aligning Supply and Accounts Payable 91Cash Discounts a nd Late Invoices 92

9. Maintenance of Records andRela t ionships 92Linking Data to Decisions 93Manage Supplier Relationships 93

Impro ving Pro cess Eff ic iency andEffectiveness 93

A Supply Process Flowchart 94Strategic Spend 95Nonstrategic Spend 95

Informat ion Systems and the Supply Process 98Benefits o f Information Systems Technology 99Technology Options 99Types of Information Systems 100Intranets and Extranets 102

Technology-Driven Eff ic iency and

Effectiveness 102Electronic Procurement Systems 103Electronic or Online Catalogs 105Electronic Da ta Interchange (EDI) 105E-Marketplaces 106Online Reverse Auctions 107Radio Frequency Identification (RFID) 109

Implications for Supply 109Policy and Procedure Manual 111Conclusion 111

Questions for Review and Discussion 112References 112Cases 113

4-1 Bright Technology International 1134-2 Hemingway College 1154-3 Portland Bus Company 116

Chapter 5Make or Buy Insourcing andOutsourcing 120

Make or Buy 121Reasons for Make instead of Buy 123Reasons for Buying Outside 123The Gray Zone in Make or Buy 124

Subcontracting 125Insourcing and O utsourcing 126Insourcing 126

;Outsourcing 127Outsourcing Supply and Logistics 129


4/9

xii Table of Contents

Supply s Role in Insourcing and Outsourcing 129Conclusion 130


5-1 B&L Inc. 1315-2 Rondot Automotive 1325-3 Alicia Wong 133

Chapter 6Need Identification andSpecification 135

Need Criteria in the Value Proposition 136/ . Strategic Criteria 136

2. Traditional Criteria 1373. Additional Current Criteria 138

Categories of Needs 140

/ . Resale 1412. Raw and Sem iprocessed Materials 1413. Parts, Components, and Packaging 1414. Maintenance, Repair, and Operating

Supplies 1425. Capital 1426. Services 145

7. Other 147Repetitive or NonrepetitiveRequirements? 147Commercial Equivalents 148Early Supply and SupplierInvolvement 149Methods of Description 149

Brand 150 Or Equal 150Specification 150Miscellaneous Methods of Description 152Combination of Descriptive Methods 153Sources of Specification Data 153

Standardization and Simplification 154Conclusion 155


6-1 Moren Corporation (A) 1566-2 M oren Corporation (B) 1586-3 Carson Manor 160

Chapter 7Quality 65

Role of Quality in SupplyManagement 166

Defining Quality 168Quality 168Function 168Suitability 168Reliability 168Quality Dimensions 169 Best Buy 169

Determining the Best Buy 170The Cost of Quality 170

Prevention Costs 172

Appraisal Costs 172Internal Failure Costs 172External Failure Costs 172Morale Costs 173An Overall Quality-Cost Perspective 173

Quality Management Tools andTechniques 173

Total Quality Managem ent (TQM) 173Continuous Improvement 175Quality Function Deployment (QFD) 175

Six Sigma 176Statistical Process Control (SPC) 177Sampling, Inspection, and Testing 180The Quality Assurance and Quality C ontrolGroup 184Assuring the Quality of PurchasedServices 185Supplier Certification 189

Quality Standards and AwardsPrograms 190

ISO 9000 Quality Standards 190ISO 14000 Environmental Standards 191The Malcolm Baldrige National (U.S.) QualityAward 192The Deming Prize 192

Conclusion 192


7—1 The Power Line Poles 1947-2 Air Quality Systems, Inc. 196


5/9


6/9

xiv Table of Contents

hapter 10Price 253Relation of Cost to Price 254

Meaning of Cost 255

How Suppliers Establish Price 256The Cost Approach 257The Market Approach 257

Government Influence on Pricing 257

Legislation Affecting Price Determination 258Types of Purchases 259

Raw Materials/Sensitive C ommo dities 260Special Items 260Standard Production Items 260Small-Value Items 261

Capital Goods 262Services 262Resale 262

The Use of Quotations and CompetitiveBidding 262

Steps in the Bidding Process 263Firm Bidding 264Determination of Most Advantageous Bid 264Collusive Bidding 265Public-Sector Bidding 265

The Problem of Identical Prices 267Discounts 268Cash Discounts 268Trade Discounts 269Multiple Discounts 270Quantity Discounts 270The Price-Discount Problem 2 70Quantity Discounts and Source Selection 272Cumulative or Volume Discounts 272 '

Contract Options for Pricing 273

Firm-Fixed-Price (FFP) Contract 273Cost-Plus-Fixed-Fee (CPFF) Contract 273Cost-No-Fee (CNF) Contract 273Cost-Plus-Incentive-Fee (CP IF) Contract 273Provision for Price Chang es 273Contract Cancellation 275

Forward Buying and Commodities 276Forward Buying versus Speculation 2 76Organizing or Forward Buying 277Control of Forward Buying 277The Comm odity Exchanges 278

Limitations of the Exchanges 279Hedging 279Sources of Information Regarding Price Trends 280

Conclusion 281Questions for Review and Discussion 282

References 282Cases 282

10-1 Cottrill Inc. 28210-2 Coral Drugs 28410-3 Price Forecasting Exercise 286

hapter 11Cost Management 288Strategic Cost Management 290

Sources of Com petitive Advantage 290Frameworks for Cost Managem ent 290

Cost Management Tools and Techniques 293

Total Cost of Ownership 293Target P ricing 299The Learning Curve or Manufacturing ProgressFunction 300Value Engineering and Value Analysis 301Activity-Based Costing 301

Negotiation 302

Negotiation Strategy and P ractice 303Framework or Planning and Preparing forNegotiation 304

Conclusion 306


11-1 Deere Cost Management 30811-2 McMichael Inc. 30911-3 City ofGranston 310

hapter 12Supplier Selection 313

The Supplier Selection Decision 314Decision Trees 315

Identifying Potential Sources 316Information Sources 317Standard Information Requests 321

Additional Supplier Selection Decisions 322Single versus Multiple Sourcing 322


7/9

Table of Contents xv

Manufacturer versus Distributor 324Geographical Location of Sources 325Supplier Size 326

Supplier Development/Reverse Marketing 326Evaluating Potential Sources 328

Level 1—Strategic 328Level 2—Traditional 333Level 3 — Current Additional 335

Ranking Potential Suppliers 340Conclusion 340


12-1 Loren Inc. 34212-2 Russel Wisselink 346

12-3 Kettering Industries Inc. 348

Chapter 3Supplier Evaluation and Supp lierRelations 352Measuring Supplier Performance 353

Key Supplier Performance Indicators 353Evaluation Methods 354

Informal and Semiformal Evaluation andRating 354Executive Roundtable D iscussions 354Formal Supplier Evaluation and Rating 355Weighted Point Evaluation Systems 356

Supplier Ranking 357

Unacceptable Suppliers 357Acceptable Suppliers 358Preferred Suppliers 358Exceptional Suppliers 358

Supplier Relations 359Supplier Relations Context 360Supplier Goodwill 360The Purchaser-Supplier Satisfaction Matrix 361Supplier Relationship Man agement 364

Partnerships 365

SEM ATECH 's Partnering Perspective 365Early Supplier/Supply Involvement (ESI) 366Partner Selection 367The Longer Time Perspective 367Co-location/In-plants 368Concerns about Partnerships 368

Strategic Alliances 369Conclusion 370


13-1 APCEurope 37113-2 Plastic Cable Clips 3 7513-3 Delphi Corporation 378

Chapter 4Global Supply Management 383The Importance of Global Supply 384

Reasons for Global Purchasing 385Potential Problem A reas 390

Selecting and Managing OffshoreSuppliers 398

Global Sourcing O rganizations 398Intermediaries 399Information Sources for Locating and EvaluatingOffshore Suppliers 400

Incoterms 401/Group E—Departure 402

Group F—Main Carriage Unpaid 402Group C — Main Carriage Paid by Seller 402Group D—Arrival 403

Tools for Global Supply 404

Countertrade 404Foreign Trade Zones 407Bonded Warehouses 409Temporary Importation Bond (TIB) and D utyDrawbacks 409

Regional Trading Agreements 409

North American Free Trade Agreement (NAFTA) 410The European Union (EU) 410ASEAN 410Mercosur 410Andean Community 411The W orld Trade Organization (WTO ) 411

Emerging Markets 411Conclusion 412


14-1 Trojan Technologies 41314-2 Marc Biron 415


8/9

xvi Table of Contents

hapter 15Legal and Ethics 417Legal Authority of Buyer and Seller 418;,

Legal Authority of the Buyer 419

Personal Liability 420Authority of Suppliers' Representatives 421

The Uniform Commercial Code 422

Purpose of a Uniform Com mercial Code 422The Purchase Order Con tract 423Acceptance of Offers 424Purchases Made Orally—Statute of Frauds 425Inspection 426Acceptance and Rejection of G oods 426'Warranties 428

Title to Purchased G oods 429Protection against Price Fluctuations 429Cancellation of Orders and Breach ofContract 430

Common Law and the Purchase of Services 431Principles of the Law of Software Contracts 437E-Commerce and the Law 437

Electronic Signatures 438U.S. Uniform Electronic T ransactions Act 439Antitrust and E-Marketplaces 439

Intellectual Property Laws 440

Copyright Law 441Patents 441Trademarks 442Industrial Design 442Geographical Indication 443

Product Liability 443Alternative Dispute Resolution 444

Comm ercial Arbitration 444Mediation 445Internal Escalation 445

Regulatory>Requirements 445

The Sarbanes-Oxley Act 446Environmental R egulations 446

Eth ics 447

Perceptions 451Conflict of Interest 451Gifts and Gratuities 451Promotion of Positive Relationships withSuppliers 454Reciprocity 454

Corporate Social Responsibility (CSR) 455Conclusion 455

Questions for Review and Discussion 456References 456

Cases 457

75-7 R ocky Plains Brewing Ltd. 45715-2 Sinclair & Winston 459

Chapter 6O the r Supply Responsibilities 463Receiving 464Logistics and Warehousing 465Inbound and Outbound Transportation 466Production Planning 466

Accounts Payable 466Investment Recovery 466Categories of M aterial for Disposal 468Responsibility for M aterial Disposal 4 71Keys to Profitable D isposal 472Disposal Channels 472Disposal Procedures 4 74Selection of Disposal Partners 475

Conclusion 476


16-1 Ross Wood 47816-2 Raleigh Plastics 4 79

Chapter 7Supply Function E valuation andTrends 481Organizing for Supply Research 483

Full-Time or Part-Time Research Positions 483

Cross-Functional Teams 484Supply Research Opportunities 486

Purchased Materials, Products, or Services 486Commodities 489Suppliers 490Assessing Research R esults 493

Supply Planning Process 493Supply Budgets 493Performance Measurement Systems 494

The Value of Supply Metrics 494


9/9

Table of Contents xvii

The Challenges 495Measuring Supplier Performance 496Supply Management Performance Metrics 496

Establishing Metrics 498

Efficiency Metrics 498

Effectiveness Metrics 498Operating Reports 499Validating Results 500Appraising Team Performance 500Supply Performance Benchm arking 501

What Is Happening in Supply Management 502

Emph asis on Total Quality Mana gement andCustomer Satisfaction 502Corporate Social Responsibility andSustainability 503

Globalization versus Local Sourcing 504Risk Management 505Safety and Security 505

Supply Processes and Technology 505Supply Organizations 506External and Internal C ollaboration 506Metrics and Performance Measurement 507Innovation 507

Public Procurement 507Conclusion 507


7-1 Randall Corporation 50917-2 Fairview School Board 51017-3 Tanton Foods 511

Indexes

Case Index 513Subject Index 514

Purchasing and Supply Management- Flynn

Documents

Transcript of Purchasing and Supply Management- Flynn