The Challenge of Purchasing and Supply Management Marketing 3860 – Purchasing July 12, 2004...
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Transcript of The Challenge of Purchasing and Supply Management Marketing 3860 – Purchasing July 12, 2004...
The Challenge of Purchasing and Supply Management
Marketing 3860 – PurchasingJuly 12, 2004Kimball Bullington, Ph.D.Associate Professor of Operations ManagementMiddle Tennessee State University
How do the 4P’s relate to purchasing?
Product Price Promotion Place
From Purchasing to Supply Management
Materials Management-High transportation cost-High inventory costs
Supply Management-High costs-Scarcity: national or
international
Source Management-Unique items-Custom-made items-High technology items
PurchasingManagement-Commodity items-Standard products
The Evolution of the Supply Function
Clerical & technical Focus on policies &
procedures Key challenge:
availability of supply & cost mgt.
Strategic orientation
Global supply chains
Executive level leadership
Key challenge: Technology & the Internet
Early 1900’s Early 2000’s
From Purchasing to Supply Management Organizational Changes
P rod u c tion
E n g in eerin g
S h ip p in g , Tra ffic
P u rch as in g
P rod u c tion &In ven to ry C on tro l
M an u fac tu rin g
O rd erP rocess in g
S h ip p in g , Tra ffic
P u rch as in g
P rod u c tion , &In ven to ry C on tro l
W areh ou s in g
M ate ria lsM an ag em en t
O rd erP rocess in g
A ccou n tin g
Treasu rer
F in an ce
S a les
P rom otion
M arke tR esearch
W areh ou s in g
M arke tin g
P res id en t
Corporate Supply Challenges
Need to control unit costs
Need to reduce the total cost of acquisition
Increasing influence of suppliers on the purchaser’s ability to respond to end-customers needs
Corporate Supply Challenges
Increased reliance on fewer suppliers
Trend towards reliance on suppliers for design & build responsibilities for complete subassemblies and subsystems
Reliability = Pn
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6
Supply Chain Quality (Sigma Level)
Reliab
ilit
y
2005001000
Effect of Supply Base Size & Variation on Supply Chain Reliability
Reliability = Pn
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6
Supply Chain Quality (Sigma Level)
Reliab
ilit
y
200*
500*
1000*
200
500
1000
Effect of Supply Base Size & Variation on Supply Chain Reliability
Terminology - Purchasing
Identify need Locate / select supplier Negotiate price & terms Expedite deliveries
Terminology - Procurement
Purchase Store / warehouse inventory Manage traffic Receive incoming materials Inspect incoming materials Salvage obsolete materials
Terminology - Materiel
Manage materials for military or gov’t operations
Terminology – Materials Mgt.
Integrate related materials functions including: Procurement materials planning materials control (inventory)
Terminology – Integrated Logistics
Strategic supply issues Sourcing Transportation Information technology and
information flow associated with managing supply
Significance of Material Dollars
U.S. manufacturing firms purchased materials totaling
$1,975,362,000 in 1998.
Leenders, Fearon, Flynn, & Johnson 2002
Differences Between Commercial & Consumer Acquisition
Consumer Commercial
# of Suppliers
Many Few
Needs Generic Specialized
Volume Miniscule Significant
Power None Significant
Time Horizon Short Long
Profit-Leverage Effect
Profit improvement is often easier to achieve through purchasing cost reductions than equivalent sales increases. (This is especially true of low margin operations.)
Purchasing as a Profession
Increasing in importance Increasing in pay Strategic assignments Long-range perspective College degrees more common www.ism.ws
Challenges
Business-to-business e-commerce Supply Chain Management Measurement Purchase of nontraditional goods &
services Contribution to corporate strategy Recognition by senior management
Opportunities for Contribution of the Purchasing / Supply Function
Profit-leverage effect
Return-on-assets effect
Information source
Effect on efficiency
Opportunities for Contribution of the Purchasing / Supply Function
Effect on competitive position & customer satisfaction
Effect on image
Training ground
Management strategy & social policy
SupplyContribution
OperationalTrouble
Prevention
StrategicOpportunity
Maximization
Purchasing’s Operational & Strategic Contributions
SupplyContribution
DirectBottom-line
Impact
IndirectEnhancing Performance
Of Others
Purchasing’s Operational & Strategic Contributions
Purchasing’s Operational & Strategic Contributions
SupplyContribution
NegativeOperationally -Strategically -
Directly -Indirectly -
NeutralOperationally +Strategically -
Directly +Indirectly -
PositiveOperationally +Strategically +
Directly +Indirectly +
Reverse Marketing
Purchasing is sometimes referred to as “reverse marketing”. What does this mean?