Introduction to purchasing and supply chain management | Factors Driving SCM | Why Purchasing Is Important |

Introduction toIntroduction to
Purchasing and SupplyPurchasing and Supply
Chain ManagementChain Management

Chapter Overview
 A new competitive environmentA new competitive environment
 Why purchasing is importantWhy purchasing is important
 Understanding the language ofUnderstanding the language of
purchasing and supply chainpurchasing and supply chain
managementmanagement
 The supply chain umbrellaThe supply chain umbrella
Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e
22

Chapter Overview
 Four enablers of purchasing andFour enablers of purchasing and
supply chain managementsupply chain management
 The evolution of purchasing andThe evolution of purchasing and
supply chain managementsupply chain management
 Looking aheadLooking ahead
33

A New Competitive Environment
 Increasing numbers of world-classIncreasing numbers of world-class
competitorscompetitors
 Sophisticated customer baseSophisticated customer base
 More performance at a lower costMore performance at a lower cost
 Widely available information sourcesWidely available information sources
 Balance of power between buyers andBalance of power between buyers and
supplierssuppliers
 Greater outsourcingGreater outsourcing
44

Factors Driving SCM
 Low cost and wide availability ofLow cost and wide availability of
information more closely links theinformation more closely links the
members of a supply chainmembers of a supply chain
 Competition in domestic andCompetition in domestic and
international markets requiresinternational markets requires
quickness, agility, and flexibilityquickness, agility, and flexibility
55

Factors Driving SCM
 Customer expectations andCustomer expectations and
requirements are more demandingrequirements are more demanding
 Major disruptions require the ability ofMajor disruptions require the ability of
a supply chain to react rapidlya supply chain to react rapidly
 Competition between supply chains,Competition between supply chains,
not just companiesnot just companies
66

Why Purchasing Is Important
 Purchased content is a significant partPurchased content is a significant part
of the cost of goods sold (≥ 55%)of the cost of goods sold (≥ 55%)
 Move from traditional, adversarialMove from traditional, adversarial
buyer-supplier relations to improvebuyer-supplier relations to improve
supply chain performancesupply chain performance
 Purchased content’s impact on productPurchased content’s impact on product
and service qualityand service quality
77

Why Purchasing Is Important
 Participation in product and processParticipation in product and process
designdesign
 Use of cross-functional teamsUse of cross-functional teams
 Early supplier involvementEarly supplier involvement
 The supply chain’s impact onThe supply chain’s impact on
competitive advantagecompetitive advantage
88

Language of Purchasing and SCM
 Are supply chains and value chains theAre supply chains and value chains the
same?same?
 What is supply chain management?What is supply chain management?
 What is an extended enterprise?What is an extended enterprise?
99

Purchasing
 A functional group (i.e., a formal entityA functional group (i.e., a formal entity
on the organization chart) as well as aon the organization chart) as well as a
functional activity (i.e., buying goodsfunctional activity (i.e., buying goods
and services)and services)
 Aka as procurementAka as procurement
1010

Supply Management
 A strategic approach to planning forA strategic approach to planning for
and acquiring the organization’sand acquiring the organization’s
current and future needs throughcurrent and future needs through
effectively managing the supply base,effectively managing the supply base,
utilizing a process orientation inutilizing a process orientation in
conjunction with cross-functionalconjunction with cross-functional
teams to achieve the organizationalteams to achieve the organizational
missionmission
1111

Supply Management
 The identification, acquisition, access,The identification, acquisition, access,
positioning, and management ofpositioning, and management of
resources and related capabilities anresources and related capabilities an
organization needs or potentially needsorganization needs or potentially needs
in the attainment of its strategicin the attainment of its strategic
objectivesobjectives
1212

Defining Supply Management
1313
Strategic
Orientation
Cross
Functional
Groups
Process-
Driven
Approach
Supply Base
Management

Supply Chains and Value Chains
 Supply chain orientation – a higherSupply chain orientation – a higher
level recognition of the strategic valuelevel recognition of the strategic value
of managing operational activities andof managing operational activities and
flows within and across a supply chainflows within and across a supply chain
1414

Supply Chains and Value Chains
 Value chain – primary and secondaryValue chain – primary and secondary
support activities that can lead tosupport activities that can lead to
competitive advantagecompetitive advantage
 Supply chain – a set of 3 or moreSupply chain – a set of 3 or more
organizations linked directly by 1 ororganizations linked directly by 1 or
more of the upstream or downstreammore of the upstream or downstream
flows of products, services, finances,flows of products, services, finances,
and information from a source to aand information from a source to a
customer (subset of a value chain)customer (subset of a value chain)
1515

The Extended Value Chain
Support Activities
• Firm infrastructure
• Human resource management
• Technology development
• Purchasing
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
& Sales
Customer
Service
Total Supply Chain / Total Logistics Management
SuppliersSuppliers
CustomersCustomers
Materials / Supply
Management
Physical Distribution / Channel Management
Primary Activities
Materials/ServicesMaterials/Services Information/Funds/KnowledgeInformation/Funds/Knowledge

Supply Chain vs. Value Chain
 Supply chain management – endorsesSupply chain management – endorses
a supply chain orientation and involvesa supply chain orientation and involves
proactive management of the 2-wayproactive management of the 2-way
movement and coordination of goods ,movement and coordination of goods ,
services, information, and funds fromservices, information, and funds from
raw material through end userraw material through end user
1717

Cereal Value Chain Example
1818
Farmer Processor Packaging Distributor
Grocer
Consumer
Corrugated
Box Mfr
Lumber
Company
Label
Mfr
GrainGrain CerealCereal
PackagedPackaged
CerealCereal
LabelsLabels
MaterialMaterial
InformationInformation
WoodWood
PaperboardPaperboard

Critical SCM Processes
 New product developmentNew product development
 Customer-order fulfillmentCustomer-order fulfillment
 Supplier evaluation and selectionSupplier evaluation and selection
 Demand and supply planningDemand and supply planning
1919

The Supply Chain Umbrella
 PurchasingPurchasing
 Inbound transportationInbound transportation
 Quality controlQuality control
 Demand and supply planningDemand and supply planning
 Receiving, materials handling, andReceiving, materials handling, and
storagestorage
 Material or inventory controlMaterial or inventory control
2020

The Supply Chain Umbrella
 Order processingOrder processing
 Production planning, scheduling, andProduction planning, scheduling, and
controlcontrol
 Warehousing/distributionWarehousing/distribution
 ShippingShipping
 Outbound transportationOutbound transportation
 Customer serviceCustomer service
2121

Enablers of Purchasing and SCM

Capable Human Resources
 Supplier relationship managementSupplier relationship management
 Total cost analysisTotal cost analysis
 Purchasing strategiesPurchasing strategies
 Supplier analysisSupplier analysis
 Competitive market analysisCompetitive market analysis
2323

Proper Organizational Design
 Assessing and selecting the structureAssessing and selecting the structure
and formal system of communicationand formal system of communication
 Division of laborDivision of labor
 CoordinationCoordination
 ControlControl
 AuthorityAuthority
 ResponsibilityResponsibility
2424

Real-Time and Shared IT Capabilities
 Supply chain planningSupply chain planning
 Forecast accuracyForecast accuracy
 Optimized production schedulingOptimized production scheduling
 Reduced working capital costsReduced working capital costs
 Shortened life cyclesShortened life cycles
 Reduced transportation costsReduced transportation costs
 Improved customer serviceImproved customer service
2525

Real-Time and Shared IT Capabilities
 Supply chain executionSupply chain execution
 Obtaining materialsObtaining materials
 Managing physical flowsManaging physical flows
2626

Emerging SCM Technologies
 Global positioning systemsGlobal positioning systems
 Internet-based systemsInternet-based systems
 Bar codesBar codes
 Radio frequency identification devicesRadio frequency identification devices
 Wireless devicesWireless devices
2727

Roadblocks to Measurement Systems
 Too many metricsToo many metrics
 Debate over the correct metricsDebate over the correct metrics
 Constantly changing metricsConstantly changing metrics
 Old dataOld data
2828

Why Is Measurement Important?
 Supports fact-based decision makingSupports fact-based decision making
 Communicates requirements throughCommunicates requirements through
the supply chainthe supply chain
 Improves future supplier performanceImproves future supplier performance
 Recognizes outstanding performanceRecognizes outstanding performance
 Links critical measures to desiredLinks critical measures to desired
outcomesoutcomes
 Determines if initiatives are workingDetermines if initiatives are working
2929

Evolution of Purchasing and SCM
 The early years: 1850 – 1900The early years: 1850 – 1900
 Growth of purchasing fundamentals:Growth of purchasing fundamentals:
1900 – 19391900 – 1939
 The war years: 1940 – 1946The war years: 1940 – 1946
 The quiet years: 1947 – mid-1960sThe quiet years: 1947 – mid-1960s
3030

Evolution of Purchasing and SCM
 Materials management comes of age:Materials management comes of age:
mid-1960s – Late 1970smid-1960s – Late 1970s
 The global era: Late 1970s – 1999The global era: Late 1970s – 1999
 Integrated supply chain management:Integrated supply chain management:
beyond 2000beyond 2000
3131

Remainder of the Book
 Section 2 – Purchasing Operations andSection 2 – Purchasing Operations and
StructureStructure
 Section 3 – Strategic SourcingSection 3 – Strategic Sourcing
 Section 4 – Strategic SourcingSection 4 – Strategic Sourcing
ProcessesProcesses
 Section 5 – Critical Supply ChainSection 5 – Critical Supply Chain
ElementsElements
 Section 6 – Future DirectionsSection 6 – Future Directions
3232

Introduction to purchasing and supply chain management | Factors Driving SCM | Why Purchasing Is Important |

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Introduction to purchasing and supply chain management | Factors Driving SCM | Why Purchasing Is Important |