50531658 purchasing management
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CHAPTER2-PURCHASING2MANAGEMENT
ProfOSRao
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LearningObjectivesYoushouldbeableto:Describetheroleofpurchasingandunderstanditsimpactonanorganizationscompetitiveadvantage.Haveabasicknowledgeofmanualpurchasingandeprocurement.Understandandknowhowtohandlesmallvaluepurchaseorders.Understandsourcingdecisionsandthefactorsimpactingsupplierselection.Understandtheprosandconsofsingleversusmultiplesourcing.
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LearningObjectives-Cont.ObjectivesDescribecentralized,decentralized,andhybridpurchasingorganizationsandtheiradvantages.Describeandunderstandhowglobalizationimpacts,purchasing,anddescribeandunderstandtheopportunitiesandchallengesofglobalsourcing.Understandtotalcostofownershipandbeabletoselectsuppliersusingmorethanunitpricealone.
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ChapterTwoOutlineTheRoleofPurchasinginanOrganizationThePurchasingProcessSourons:TheMake-or-BuyDecisionRolesofSupplyBaseSupplierSelectionHowManySupplierstoUsePurchasingOrganization:CentralizedversusDecentralizedPurchasingInternationalPurchasing/GlobalSourcing
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IntroductionPurchasingObtainingmerchandise,capitalequipment;rawmaterials,services,ormaintenance,repair,andoperating(MRO)suppliesinexchangeformoneyoritsequivalent.
MerchantBuyerswholesalersandretailerswhopurchaseforresale.
IndustrialBuyerspurchaserawmaterialsforconversion,services,capitalequipment,&MROsupplies.
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TheRoleofPurchasinginanOrganizationTheprimarygoalsofpurchasingare:1.Ensureuninterruptedflowsofrawmaterialsatthelowesttotalcost,2.Improvequalityofthefinishedgoodsproduced,and3.Optimizecustomersatisfaction.
Purchasingcontributestotheseobjectivesby:Activelyseekingbettermaterialsandreliablesuppliers,Workcloselywithstrategicsupplierstoimprovequalitymaterials,andInvolvingsuppliersandpurchasingpersonnelinnewproductdesignanddevelopmentefforts.
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ThePurchasingProcessManualPurchasing-Oldersystem,pronetoduplicationofeffortanderrorStep1-MaterialRequisition/PurchaseRequisition-statingproduct,quantity,anddeliveryduedateareclearly.Step2-TheRequestforQuotation(RFQ)-Buyeridentifiessuppliers&issuesarequestforquotation(RFQ).Step3-ThePurchaseOrder(PO)-Thepurchaseorderisthebuyersoffer&becomesabindingcontractwhenacceptedbysupplier.
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ThePurchasingProcess-Cont.Process-
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ThePurchasingProcess-Cont.ProcessElectronicProcurement(e-Procurement)Step1-Materialuserinputsamaterialsrequisition-relevantinformationsuchasquantityanddateneeded.Step2-Materialsrequisitionsubmittedtobuyer-atpurchasingdepartment(hardcopyorelectronically).Step3-Buyerassignsqualifiedsupplierstobid-Productdescription,closingdate,&conditionsaregiven.Step4-Buyerreviewsclosedbids&selectsasupplier
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ThePurchasingProcess-Cont.ProcessAdvantagesforthee-ProcurementSystemTimesavingsCostsavingsAccuracyRealtimeMobilityTrackabilityMananefitstothesuppliers
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SmallValuePurchaseOrdersProcessingcostscanbesubstantial.Smallvaluepurchasesshouldbeminimizedthrough:ProcurementCreditCard/CorporatePurchasingCardBlankCheckPurchaseOrdersBlanketorOpen-EndPurchaseOrdersStocklessBuyingorSystemContractingPettyCashStandardization&SimplificationofMatls&ComponentsAccumulatingSmallOrderstoCreateaLargeOrderUsingaFixedOrderInterval
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SourcingDecisions:TheMake-orMake-orBuyDecisionOutsourcing-buyingmaterialsandcomponentsfromsuppliersinsteadofmakingthemin-house.Thetrendhasmovedtowardoutsourcing.
BackwardintegrationreferstoacquiringsourcesofsupplyForwardintegrationreferstoacquiringcustomersoperations.TheMakeorBuydecisionisastrategicdecision.
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SourcingDecisions:TheMake-orMake-orBuyDecision-Cont.DecisionReasonsforBuyingorOutsourcingCostadvantage:Especiallyforcomponentsthatarenon-vitaltotheorganizationsoperations.Insufficientcapacity:Afirmmaybeatornearcapacity.Lackofexpertise:Firmmaynothavethenecessarytechnologyandexpertise.Quality:Suppliershavebettertechnology,process,skilledlabor,andtheadvantageofeconomyofscale.
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SourcingDecisions:TheMake-orMake-orBuyDecision-Cont.DecisionReasonsforMakingProtectproprietarytechnologyNocompetentsupplierBetterqualitycontrolUseexistingidlecapacityControloflogistics-lead-timetransportation,andwarehousingcostLowercost
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SourcingDecisions:TheMake-orMake-orBuyDecision-Cont.DecisionTheMake-or-BuyBreak-EvenAnalysis
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RolesofSupplyBaseSupplyBase-suppliersthatafirmusestoacquireitsmaterials,services,supplies,andequipment.Firmsemphasizelong-termstrategicsupplieralliancesconsolidatingvolumeintooneorfewersuppliers,resultinginasmallersupplybase.Preferredsuppliersprovide:Earlysupplierinvolvement-Informationonthelatesttrendsinmaterials,processes,ordesignsInformationonthesupplymarketCapacityformeetingunexpecteddemandCostefficiencyduetoeconomiesofscale
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SupplierSelectionTheprocessofselectingsuppliers,iscomplexandshouldbebasedonmultiplecriteria:ProductandprocesstechnologiesWillingnesstosharetechnologiesandinformationQualityCostReliabilityOrderSystemandcycletimeCapacityCommunicatapabilityLocationService
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HowManySupplierstoUseSingle-sourcing-ariskyproposition.Althoughtrendsfavorfewersources,avoidsinglesource.ReasonsFavoringaSingleSupplierToestablishagoodrelationshipLessqualityvariabilityLowercostTranspioneconomiesProprietaryproductorprocessVolumetoosmalltosplit
ReasonsFavoringMorethanOneSupplierNeedcapacitySpreadriskofsupplyinterruptionCreatecompetitionInformationDealingwithspecialkindsofbusiness18
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Purchasing:Centralizedvs.DecentralizedPurchasingOrganizationdependentonmanyfactors,suchasmarketconditions&typesofmaterialsrequired.CentralizedPurchasing-purchasingdepartmentlocatedatthefirmscorporateofficemakesallthepurchasingdecisions.DecentralizedPurchasing-individual,localpurchasingdepartments,suchasplantlevel,maketheirownpurchasingdecisions.
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Purchasing:Centralizedvs.DecentralizedAdvantages-CentralizationConcentratedvolumeleveragingpurchasevolumeAvoidduplicationSpecializationowertransportationcostsNocompetitionwithinunitsCommonsupplybase
Advantages-DecentralizationCloserknowledgeofrequirementsLocalsourcingLessbureaucracy
Ahybridpurchasingorganization-bothdecentralizedatthecorporatelevelandcentralizedatthebusinessunitlevelmaybewarranted.20
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InternationalPurchasing/GlobalSourcingGlobalsourcingOpportunitytoimprovequality,cost,anddeliveryperformance.Requiresadditionalskillsandknowledgetodealwithinternationalsuppliers,logistics,communication,politicalenvironment,andotherissues.Importbrokerorsalesagent-performsserviceforafee.Importmerchant-buysandtakestitletothegoods.Tradingcompany-imports&carrieswidevarietyofgoods.
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