What is purchasing?
MS6323
Strategic Sourcing and Procurement
KK Lam
Week 1a
Summer 2015
2
What is purchasing?
Or Part of Supply Chain (Manufacturing)
Perspectives on purchasing
1
As a function
– To perform specialised tasks
2
As a process
– To achieve an output
3
As a link in the supply chain
4
As a relationship
5
As a discipline
– Knowledge based
6
As a profession
– Demonstrable skills and knowledge
– With production and warehousing
– Internal and external focus
3
SCM activities and main business processes
(Source: Ernst and Young Consulting)
4
The Role of Purchasing in an
Organization
What is purchasing?
Definitions
The primary goals of purchasing are:
The classic definition
1.
To buy materials of the
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In a production environment, it is often considered one component of supply chain management. •
Strategic sourcing techniques are also applied to non traditional area such as services or capital. (wiki)
•
The term "strategic sourcing" was popularized through work with a variety of blue chip companies
•Is it transactional, commercial or strategic?
•Depth of knowledge and skill
11
Its popularity coincides with the trend of outsourcing!
12
Steps - the steps in a strategic sourcing process are (- wiki):
1. Assessment of a company 's current spending (what is bought, where, at what prices?).
2. Assessment of the supply market (who offers what?).
Bottomline: Profit-Leverage Effect
Consider a firm with revenue of $100m, purchases of
$60m, and profit of $8m (before tax). A 10% reduction in purchase spend would result in an increase in profit of
75% -- a leverage of 7.5.
3. Total cost analyses (how much does it cost to provide those goods or services?). 4. Identification of suitable suppliers.
5. Development of a sourcing strategy (where to purchase, considering demand and supply situations, while minimizing risk and costs).
Will it be easier to achieve a $6m increase in profit by sales or by cost?
6. Negotiation with suppliers (products, service levels, prices, geographical coverage, etc.).
7. Implementation of new supply structure.
8. Track results and restart assessment (continuous
1. Identify four main points that would be included in a contract of employment. If possible, use an example contract to support your answer (feel free to obscure any confidential information).
There are several different types of business ownership which are most commonly used in business’ and company’s today, these include; Co-operative which is a business owned by its employees, Partnership which is a business owned by between 2 and 20 people, Private limited which is a business owner by a small groups of people who have shares and a Public limited business is owned by private individuals by shares bought and sold on the stock market. A charity is a business with the purpose to help the public, the government is a business owned by the government and lastly a sole trader which is a business owned by only one person.
{Build the Supply Base: supplier selection1. supplier evaluation- find potential suppliers, supplier certification (qualification, education, certificationISO 9000,14000). 2. Supplier development- integrate supplier in system, quality require, product specs, schedule/delivery, procurement polices, training, engineer/production help, information transfer procedures. 3. Negotiation- significant element, strategies: Cost based price model (open books to supplier, based on time and materials) Market based price model (based on published, auction, index prices: commodities) Competitive bidding (most common, no longterm relationship, request for rfq). 4. Contracting- share risks, benefits, incentives. Centralized purchasing, E procurement (online catalogs/exchanges, online auctions).} Logistics MGT- obtain efficient operations through integration of all material acquisition, movement, and storage activities. Frequent for outsourcing, allow competitive advantage from reduce costs and improve customer service. 1.Shipping systems: truck(flexible, moves majority manufactured goods) rail( large loads, containers) Airfreight( fast/flexible light loads, expensive) water( used for bulky low value cargo, oldest way of transportation) Pipelines( transport oil, gas,
On 04/19/2016 I, Deputy Daniel Pruitt was dispatched to 24010 West 105th Street South for a runaway complaint.
1. Complete the table below with descriptions of different methods of communication. You should include two verbal, two non-verbal and two written methods of communication.
Procurement management is the processes to purchase or acquire the products, services or results needed from outside the project team to perform the work. Project Procurement Management involves not just purchasing products, services or results, but also ensuring that those that are purchased are right for the project, meets standards and is based on project requirements. This life cycle includes tracking from order through deployment and completing with invoice reconciliation.
The topic selected is (Strategic Procurement & Supply Chain Management). For this study, we have selected Toyota Motor Corporations as our company of choice. Toyota is without doubt the best in the world, with its many philosophies and principles on how to make the best out of the least; JIT, lean production and elimination of waste and the desire for continuous improvement are just a few ways how Toyota has become the best in the auto industry. Toyota as a name, a company, and as a brand has become synonymous with Quality.
It is quite challenging to discuss about procurement management without stating the importance of its strategies. There are four main basic procurement strategies that serve different functions within a procurement management. To begin with, a “Partnership” strategy focuses mainly on constructing mutual commitment in long term relationship with suppliers. While a “Secure Supply” strategy aims to secure short and long term supply while reducing risk from suppliers. In addition, a “Category Management and E-Procurement solutions” serves as a tool to reduce logistic complexity, improve operational efficiency, and attempts to reduce the number of suppliers. Lastly, a “Competive Bidding” strategy emphasizes on obtaining the “Best Deal” for short term transactions with suppliers.(van weele) Each of these four strategies involves a unique purchasing methodology, which implies that the complexity is embedded in an individual strategic implication. Therefore, it requires different tools to accomplish the specific strategical characteristics. A business entity may need to support and execute procurement decisions with other strategic apparatus with analytical methods, including market analysis, uncertainty analysis, price forecasting, supplier relationship and along with others.(Harvard)
Unlike traditional supplier/buyer relationships that had a narrow focus, contemporarily such relationships are becoming more strategic thereby yielding adequate reduction of risk and good technological leverage etc. It should be recognized that this relationship is the most powerful process of consumer satisfaction.
The procurement section of Target’s supply chain is an essential part of how it replicate costs to customer requirements. The overall affiliation between customer fulfillment and the supply chain are closely linked to products that are designated based on benchmarks that have been appropriately matched to target costing structured with market criticism and feedback provided. When focusing on purchasing products to sell to customers, the organization selects and processes the best option that best matches Target’s
W.C. Benton, J. (2010). Purchasing and Supply Chain Management (2nd ed.). New York: McGraw-Hill Irwin.
4.Given the 4 areas of the company, choose some supply chain processes and suggest appropriate performance metrics.
to have good strategic development. Since these purchases are the main source of their business products, risk will need to be minimal.
The scope of this investigation is limited to a pure academic exercise of Supply Chain Analysis in a real world situation. Even though, the study aims to provide insight on how to improve Tsingtao’s Supply Chain. The report is also limited to a specific division in South China. This method was chosen to enable detailed analysis of a current supply chain in action. Moreover, anglicizing on the Tsingtao’s supply chain in general would be too complex, and therefore not generate meaningful outcomes or strategies. In addition, the availability of information limits the study to a suggestion of a series of broader initiatives.
One factor that adds to the success of Toyota’s supply chain is their relationship with their suppliers and how they do business with those suppliers. Toyota does not simply give their supply contracts to the highest bidder; instead they work incredibly closely with their suppliers so that they can get the highest quality products possible. Toyota uses long-term, just-in-time contracts with all of their suppliers (Winfield & Hay, 1997). Toyota does not engage in any kind of mutual contracts, such as buy-back or revenue-sharing; however, they do take multiple steps to ensure a mutual benefit when they pair up with a supplier. Toyota invests in their suppliers to help them develop products (Liker & Choi, 2004). They also ensure that they share information with their suppliers in a structured fashion. They believe that targeted information leads to results and they ensure that specific communication is relayed to their suppliers at set times and in set ways (Liker & Choi, 2004). Perhaps the most unique aspect of Toyota’s relationships with their suppliers is that they embark on joint improvement ventures together. They set up study groups with suppliers to help both parties learn how to improve operations and send executives and engineers to the supply plants to help them improve processes (Liker & Choi, 2004). These kinds of benefits are described in the contracts Toyota keeps with their suppliers (Toyota Supplier, 2011). The close relationships that