8/2/2019 50531658 Purchasing Management

1/22

CHAPTER2-PURCHASING2MANAGEMENT

ProfOSRao

8/2/2019 50531658 Purchasing Management

2/22

LearningObjectivesYoushouldbeableto:Describetheroleofpurchasingandunderstanditsimpactonanorganizationscompetitiveadvantage.Haveabasicknowledgeofmanualpurchasingandeprocurement.Understandandknowhowtohandlesmallvaluepurchaseorders.Understandsourcingdecisionsandthefactorsimpactingsupplierselection.Understandtheprosandconsofsingleversusmultiplesourcing.

2

8/2/2019 50531658 Purchasing Management

3/22

LearningObjectives-Cont.ObjectivesDescribecentralized,decentralized,andhybridpurchasingorganizationsandtheiradvantages.Describeandunderstandhowglobalizationimpacts,purchasing,anddescribeandunderstandtheopportunitiesandchallengesofglobalsourcing.Understandtotalcostofownershipandbeabletoselectsuppliersusingmorethanunitpricealone.

3

8/2/2019 50531658 Purchasing Management

4/22

ChapterTwoOutlineTheRoleofPurchasinginanOrganizationThePurchasingProcessSourons:TheMake-or-BuyDecisionRolesofSupplyBaseSupplierSelectionHowManySupplierstoUsePurchasingOrganization:CentralizedversusDecentralizedPurchasingInternationalPurchasing/GlobalSourcing

4

8/2/2019 50531658 Purchasing Management

5/22

IntroductionPurchasingObtainingmerchandise,capitalequipment;rawmaterials,services,ormaintenance,repair,andoperating(MRO)suppliesinexchangeformoneyoritsequivalent.

MerchantBuyerswholesalersandretailerswhopurchaseforresale.

IndustrialBuyerspurchaserawmaterialsforconversion,services,capitalequipment,&MROsupplies.

5

8/2/2019 50531658 Purchasing Management

6/22

TheRoleofPurchasinginanOrganizationTheprimarygoalsofpurchasingare:1.Ensureuninterruptedflowsofrawmaterialsatthelowesttotalcost,2.Improvequalityofthefinishedgoodsproduced,and3.Optimizecustomersatisfaction.

Purchasingcontributestotheseobjectivesby:Activelyseekingbettermaterialsandreliablesuppliers,Workcloselywithstrategicsupplierstoimprovequalitymaterials,andInvolvingsuppliersandpurchasingpersonnelinnewproductdesignanddevelopmentefforts.

6

8/2/2019 50531658 Purchasing Management

7/22

ThePurchasingProcessManualPurchasing-Oldersystem,pronetoduplicationofeffortanderrorStep1-MaterialRequisition/PurchaseRequisition-statingproduct,quantity,anddeliveryduedateareclearly.Step2-TheRequestforQuotation(RFQ)-Buyeridentifiessuppliers&issuesarequestforquotation(RFQ).Step3-ThePurchaseOrder(PO)-Thepurchaseorderisthebuyersoffer&becomesabindingcontractwhenacceptedbysupplier.

7

8/2/2019 50531658 Purchasing Management

8/22

ThePurchasingProcess-Cont.Process-

8

8/2/2019 50531658 Purchasing Management

9/22

ThePurchasingProcess-Cont.ProcessElectronicProcurement(e-Procurement)Step1-Materialuserinputsamaterialsrequisition-relevantinformationsuchasquantityanddateneeded.Step2-Materialsrequisitionsubmittedtobuyer-atpurchasingdepartment(hardcopyorelectronically).Step3-Buyerassignsqualifiedsupplierstobid-Productdescription,closingdate,&conditionsaregiven.Step4-Buyerreviewsclosedbids&selectsasupplier

9

8/2/2019 50531658 Purchasing Management

10/22

ThePurchasingProcess-Cont.ProcessAdvantagesforthee-ProcurementSystemTimesavingsCostsavingsAccuracyRealtimeMobilityTrackabilityMananefitstothesuppliers

10

8/2/2019 50531658 Purchasing Management

11/22

SmallValuePurchaseOrdersProcessingcostscanbesubstantial.Smallvaluepurchasesshouldbeminimizedthrough:ProcurementCreditCard/CorporatePurchasingCardBlankCheckPurchaseOrdersBlanketorOpen-EndPurchaseOrdersStocklessBuyingorSystemContractingPettyCashStandardization&SimplificationofMatls&ComponentsAccumulatingSmallOrderstoCreateaLargeOrderUsingaFixedOrderInterval

11

8/2/2019 50531658 Purchasing Management

12/22

SourcingDecisions:TheMake-orMake-orBuyDecisionOutsourcing-buyingmaterialsandcomponentsfromsuppliersinsteadofmakingthemin-house.Thetrendhasmovedtowardoutsourcing.

BackwardintegrationreferstoacquiringsourcesofsupplyForwardintegrationreferstoacquiringcustomersoperations.TheMakeorBuydecisionisastrategicdecision.

12

8/2/2019 50531658 Purchasing Management

13/22

SourcingDecisions:TheMake-orMake-orBuyDecision-Cont.DecisionReasonsforBuyingorOutsourcingCostadvantage:Especiallyforcomponentsthatarenon-vitaltotheorganizationsoperations.Insufficientcapacity:Afirmmaybeatornearcapacity.Lackofexpertise:Firmmaynothavethenecessarytechnologyandexpertise.Quality:Suppliershavebettertechnology,process,skilledlabor,andtheadvantageofeconomyofscale.

13

8/2/2019 50531658 Purchasing Management

14/22

SourcingDecisions:TheMake-orMake-orBuyDecision-Cont.DecisionReasonsforMakingProtectproprietarytechnologyNocompetentsupplierBetterqualitycontrolUseexistingidlecapacityControloflogistics-lead-timetransportation,andwarehousingcostLowercost

14

8/2/2019 50531658 Purchasing Management

15/22

SourcingDecisions:TheMake-orMake-orBuyDecision-Cont.DecisionTheMake-or-BuyBreak-EvenAnalysis

15

8/2/2019 50531658 Purchasing Management

16/22

RolesofSupplyBaseSupplyBase-suppliersthatafirmusestoacquireitsmaterials,services,supplies,andequipment.Firmsemphasizelong-termstrategicsupplieralliancesconsolidatingvolumeintooneorfewersuppliers,resultinginasmallersupplybase.Preferredsuppliersprovide:Earlysupplierinvolvement-Informationonthelatesttrendsinmaterials,processes,ordesignsInformationonthesupplymarketCapacityformeetingunexpecteddemandCostefficiencyduetoeconomiesofscale

16

8/2/2019 50531658 Purchasing Management

17/22

SupplierSelectionTheprocessofselectingsuppliers,iscomplexandshouldbebasedonmultiplecriteria:ProductandprocesstechnologiesWillingnesstosharetechnologiesandinformationQualityCostReliabilityOrderSystemandcycletimeCapacityCommunicatapabilityLocationService

17

8/2/2019 50531658 Purchasing Management

18/22

HowManySupplierstoUseSingle-sourcing-ariskyproposition.Althoughtrendsfavorfewersources,avoidsinglesource.ReasonsFavoringaSingleSupplierToestablishagoodrelationshipLessqualityvariabilityLowercostTranspioneconomiesProprietaryproductorprocessVolumetoosmalltosplit

ReasonsFavoringMorethanOneSupplierNeedcapacitySpreadriskofsupplyinterruptionCreatecompetitionInformationDealingwithspecialkindsofbusiness18

8/2/2019 50531658 Purchasing Management

19/22

Purchasing:Centralizedvs.DecentralizedPurchasingOrganizationdependentonmanyfactors,suchasmarketconditions&typesofmaterialsrequired.CentralizedPurchasing-purchasingdepartmentlocatedatthefirmscorporateofficemakesallthepurchasingdecisions.DecentralizedPurchasing-individual,localpurchasingdepartments,suchasplantlevel,maketheirownpurchasingdecisions.

19

8/2/2019 50531658 Purchasing Management

20/22

Purchasing:Centralizedvs.DecentralizedAdvantages-CentralizationConcentratedvolumeleveragingpurchasevolumeAvoidduplicationSpecializationowertransportationcostsNocompetitionwithinunitsCommonsupplybase

Advantages-DecentralizationCloserknowledgeofrequirementsLocalsourcingLessbureaucracy

Ahybridpurchasingorganization-bothdecentralizedatthecorporatelevelandcentralizedatthebusinessunitlevelmaybewarranted.20

8/2/2019 50531658 Purchasing Management

21/22

InternationalPurchasing/GlobalSourcingGlobalsourcingOpportunitytoimprovequality,cost,anddeliveryperformance.Requiresadditionalskillsandknowledgetodealwithinternationalsuppliers,logistics,communication,politicalenvironment,andotherissues.Importbrokerorsalesagent-performsserviceforafee.Importmerchant-buysandtakestitletothegoods.Tradingcompany-imports&carrieswidevarietyofgoods.

21

8/2/2019 50531658 Purchasing Management

22/22