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![Page 1: Ch 2 Pp Slides](https://reader031.fdocuments.in/reader031/viewer/2022013114/55377404550346f8658b4d71/html5/thumbnails/1.jpg)
CHAPTER 2- PURCHASING CHAPTER 2- PURCHASING MANAGEMENTMANAGEMENT
Principles of Supply Chain Management:
A Balanced Approach
![Page 2: Ch 2 Pp Slides](https://reader031.fdocuments.in/reader031/viewer/2022013114/55377404550346f8658b4d71/html5/thumbnails/2.jpg)
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Learning ObjectivesLearning Objectives
You should be able to:– Describe the role of purchasing and understand its impact on
an organization’s competitive advantage.– Have a basic knowledge of manual purchasing and e-
procurement.– Understand and know how to handle small value purchase
orders.– Understand sourcing decisions and the factors impacting
supplier selection.– Understand the pros and cons of single versus multiple
sourcing.
![Page 3: Ch 2 Pp Slides](https://reader031.fdocuments.in/reader031/viewer/2022013114/55377404550346f8658b4d71/html5/thumbnails/3.jpg)
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Learning Objectives- Cont.Learning Objectives- Cont.
– Describe centralized, decentralized, and hybrid purchasing organizations and their advantages.
– Describe and understand how globalization impacts, purchasing, and describe and understand the opportunities and challenges of global sourcing.
– Understand total cost of ownership and be able to select suppliers using more than unit price alone.
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Chapter Two OutlineChapter Two Outline
• The Role of Purchasing in an Organization• The Purchasing Process• Sourcing Decisions: The Make-or-Buy Decision• Roles of Supply Base• Supplier Selection• How Many Suppliers to Use• Purchasing Organization: Centralized versus • Decentralized Purchasing• International Purchasing/Global Sourcing
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
IntroductionIntroduction
Purchasing- Obtaining merchandise, capital equipment; raw materials, services, or maintenance, repair, and operating (MRO) supplies in exchange for money or its equivalent.
Merchant Buyers-wholesalers and retailers who purchase for resale.
Industrial Buyers- purchase raw materials for conversion, services, capital equipment, & MRO supplies.
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
The Role of Purchasing in an The Role of Purchasing in an OrganizationOrganization
The primary goals of purchasing are:1. Ensure uninterrupted flows of raw materials at the lowest total cost,
2. Improve quality of the finished goods produced, and
3. Optimize customer satisfaction.
Purchasing contributes to these objectives by: – Actively seeking better materials and reliable suppliers,
– Work closely with strategic suppliers to improve quality materials, and
– Involving suppliers and purchasing personnel in new product design and development efforts.
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
The Purchasing ProcessThe Purchasing Process
Manual Purchasing-Older system, prone to duplication of effort and error
Step 1-Material Requisition/Purchase Requisition- stating product, quantity, and delivery due date are clearly.
Step 2- The Request for Quotation (RFQ)- Buyer identifies suppliers & issues a request for quotation (RFQ). Step 3- The Purchase Order (PO)- The purchase order is the buyer’s offer & becomes a binding contract when accepted by supplier.
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
The Purchasing Process- Cont.The Purchasing Process- Cont.
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
The Purchasing Process- Cont.The Purchasing Process- Cont.
Electronic Procurement (e-Procurement)
Step 1- Material user inputs a materials requisition- relevant information such as quantity and date needed.
Step 2- Materials requisition submitted to buyer- at purchasing department (hardcopy or electronically).
Step 3- Buyer assigns qualified suppliers to bid- Product description, closing date, & conditions are given.
Step 4- Buyer reviews closed bids & selects a supplier
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
The Purchasing Process- Cont.The Purchasing Process- Cont.
Advantages for the e-Procurement System
– Time savings– Cost savings– Accuracy– Real time– Mobility– Trackability– Management– Benefits to the suppliers
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Small Value Purchase OrdersSmall Value Purchase Orders
Processing costs can be substantial. Small value purchases should be minimized through: •Procurement Credit Card/Corporate Purchasing Card•Blank Check Purchase Orders•Blanket or Open-End Purchase Orders•Stockless Buying or System Contracting•Petty Cash•Standardization & Simplification of Matls & Components•Accumulating Small Orders to Create a Large Order•Using a Fixed Order Interval
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Sourcing Decisions: The Make-or-Sourcing Decisions: The Make-or-Buy DecisionBuy Decision
• Outsourcing -buying materials and components from suppliers instead of making them in-house. The trend has moved toward outsourcing.
• Backward integration refers to acquiring sources of supply
• Forward integration refers to acquiring customer’s operations.
The Make or Buy decision is a strategic decision.
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Sourcing Decisions: The Make-or-Sourcing Decisions: The Make-or-Buy Decision- Cont.Buy Decision- Cont.
Reasons for Buying or Outsourcing • Cost advantage: Especially for components that are non-vital to the
organization’s operations.
• Insufficient capacity: A firm may be at or near capacity.
• Lack of expertise: Firm may not have the necessary technology and expertise.
• Quality: Suppliers have better technology, process, skilled labor, and the advantage of economy of scale.
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Sourcing Decisions: The Make-or-Sourcing Decisions: The Make-or-Buy Decision- Cont.Buy Decision- Cont.
Reasons for Making
• Protect proprietary technology • No competent supplier• Better quality control• Use existing idle capacity• Control of logistics- lead-time transportation,
and warehousing cost• Lower cost
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Sourcing Decisions: The Make-or-Sourcing Decisions: The Make-or-Buy Decision- Cont.Buy Decision- Cont.
The Make-or-Buy Break-Even Analysis
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Roles of Supply BaseRoles of Supply Base
Supply Base- suppliers that a firm uses to acquire its materials, services, supplies, and equipment.
Firms emphasize long-term strategic supplier alliances consolidating volume into one or fewer suppliers, resulting in a smaller supply base.
Preferred suppliers provide:– Early supplier involvement- Information on the latest trends in materials,
processes, or designs– Information on the supply market– Capacity for meeting unexpected demand– Cost efficiency due to economies of scale
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Supplier SelectionSupplier Selection
– Product and process technologies
– Willingness to share technologies and information
– Quality– Cost– Reliability
– Order System and cycle time
– Capacity– Communication capability– Location– Service
The process of selecting suppliers, is complex and should be based on multiple criteria:
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
How Many Suppliers to Use How Many Suppliers to Use
Reasons Favoring a Single Supplier
• To establish a good relationship• Less quality variability• Lower cost• Transportation economies• Proprietary product or process• Volume too small to split
Reasons Favoring More than One Supplier
• Need capacity• Spread risk of supply
interruption• Create competition• Information• Dealing with special kinds of
business
Single-sourcing- a risky proposition. Although trends favor fewer sources, avoid single source.
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Purchasing: Centralized vs. Purchasing: Centralized vs. Decentralized Decentralized
Purchasing Organization dependent on many factors, such as market conditions & types of materials required.
– Centralized Purchasing- purchasing department located at the firm’s corporate office makes all the purchasing decisions.
– Decentralized Purchasing- individual,
local purchasing departments, such as plant level, make their own purchasing decisions.
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
Purchasing: Centralized vs. Purchasing: Centralized vs. Decentralized Decentralized
Advantages- Centralization– Concentrated volume-
leveraging purchase volume– Avoid duplication– Specialization– Lower transportation costs– No competition within units– Common supply base
Advantages- Decentralization– Closer knowledge of
requirements
– Local sourcing
– Less bureaucracy
A hybrid purchasing organization- both decentralized at the corporate level and centralized at the business unit level may be warranted.
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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
International Purchasing/Global International Purchasing/Global SourcingSourcing
Global sourcing- – Opportunity to improve quality, cost, and delivery performance. – Requires additional skills and knowledge to deal with
international suppliers, logistics, communication, political environment, and other issues.
• Import broker or sales agent- performs service for a fee. • Import merchant- buys and takes title to the goods. • Trading company- imports & carries wide variety of goods.