chapter 11

CHAPTER 11

ProcurementProcurement

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Learning Objectives

To understand the relationship between supply management and logistics

To understand steps in selecting a supplier

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Learning Objectives

To recognize the potential of e-procurement To learn about quality programs

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Supply Management

Key Terms

– E-procurement

– Global sourcing

– Import quotas

Key Terms

– ISO 9000

– Make or buy

– Procurement card

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Supply Management

Key Terms– Purchase order

– Purchasing ethics

– Request for Proposal (RFP)

Key Terms– Request for

Quotation (RFQ)– Six Sigma– Supplier

development

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Supply Management

Supply management is “ the identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives.” Institute of Supply Management

Similar in meaning to procurement, purchasing

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Purchase for Use in Manufacture

Make or buy– Availability of trained labor– Physical capacity

Purchase orders are a commitment to buy– Indicate quantities and qualities desired– Indicate dates by which the materials must be

delivered

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Figure 11-1: Use of Bar Codes Throughout a Manufacturing Process

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Figure 11-2: Flow of Information, Products, Cash, Orders, etc., within a

Manufacturing Firm

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Purchase for Use in Manufacturing

MRP Systems manage production inventory Just-in-Time (JIT) and Kanban were initially

developed to improve quality JIT II ties together information systems and

employees of suppliers and firms Supplier Product Integration refers to the

acquisition of components, rather than individual parts

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Purchasing for Resale

Objective is to buy merchandise that can be marked up and resold to others at a profit

Quality of product and timing of arrival are important

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Procuring Services

Request for Proposal (RFP) Request for Quotation (RFQ) Examples of procured services

– Legal, accounting, computer and software consultants

– Building maintenance– Printing– Landscape work– Janitorial services

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Global Sourcing

Global sourcing applies to buying components and inputs anywhere in the world

Import quotas are absolute numeric limits on the items imported from specific countries within a specific time frame

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E-Procurement

E-procurement is the business-to-business purchase of supplies and services via the Internet

Procurement cards

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Figure 11-3: A Configuration of Internet Messaging to Provide for Secure

Transmission

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Quality Programs

Important to match quality levels of all buyers and sellers in the supply chain

ISO 9000 ISO 14000 Six Sigma

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Supplier Selection and Management

Supplier management is charged with keeping existing suppliers happy

Selecting vendors depends on:– Delivery– Facilities and capacity, geographic location– Performance history– Price and quality– Technical capability– Warranties and claim policies

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Supplier Development

Supplier development is any effort of a buying firm to increase performance of the supplier

Strategic goals to develop suppliers– Increase supplier financial strength– Improve management and technical capabilities– Improve ability to develop new products

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Supplier Development

Performance goals for suppliers include:– Better quality products– Lower prices– Improved delivery performance– Increased overall responsiveness– Maintenance of quality controls in the supplier

organization

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Purchasing Ethics

Breaches of purchasing ethics include:– Accepting lavish gifts– Bribes– Kickbacks

Areas of ethical concern:– Handling confidential information– Purchasing for one’s private use– Interfering with a legitimate bidding process– Conflicts of interest