Introduction to Purchasing and Supply Chain Management

1. Introduction to Purchasing and Supply Chain Management Chapter 1

2. Current business trend • Co… vs. Co…

3. A New Competitive Environment • Increasing numbers of world class global competitors • Sophisticated customer base • More performance at lower cost • Widely available information sources • Balance of power between buyers and suppliers • Greater levels of outsourcing

4. Factors Driving SCM • Low cost and wide availability of information more closely links members of a supply chain • Competition in domestic and international markets requires greater quickness, agility, and flexibility

5. Factors Driving SCM • Customer expectations and requirements are constantly changing and more demanding • Major supply disruptions require the ability of a supply chain to react rapidly • Competition is now between supply chains, not just between companies

6. Why Purchasing Is Important • Increasing value and savings by supply management or marketing? • Building relationships and driving innovation • Improving quality and reputation • Reducing time-to-market • Generating economic impact • Contributing to competitive advantage

7. Increasing Value and Savings • Suppliers have substantial impact on a firm’s total cost • Many product features originate from suppliers • In manufacturing, purchased content is more than 55% of revenues • Avoiding costs through early involvement in product design stage

8. Building Relationships andDriving Innovation • Traditional approach is to bargain hard for price reductions • New approach is to conduct joint cost reduction with suppliers • Both buyer and supplier must benefit • Suppliers can contribute innovative ideas

9. Improving Quality and Reputation • Buyer focuses on core competencies and outsources non-core activities and materials • Need for ability to track materials back up through supplier’s supply chain • Supplier quality  product quality (Example of Heparin)

10. Reducing Time-to-Market • Include suppliers early in product design process to take advantage of their expertise • Early supplier involvement can lead to an average of 20% improvement on material costs, material quality, and product development times

11. Generating Economic Impact • The monthly ISM Report on Business is a closely followed national economic indicator • A change index • Manufacturing and non-manufacturing components • > 50 means economy is expanding • < 50 means economy is contracting

12. Contributing to Competitive Advantage • Growing recognition of supply management’s contribution to firm’s profitability • More supply managers have earned college degrees • Increased number of supply managers with certifications such as CPSM

13. Language of Purchasing and SCM • Is purchasing different from supply management? • Are supply chains and value chains the same? • What is supply chain management?

14. Purchasing • A functional group (i.e., a formal entity on the organization chart) as well as a functional activity (i.e., buying goods and services) • a.k.a. as procurement

15. Purchasing • Activities • Supplier identification and selection • Buying • Negotiation and contracting • Supply market research • Supplier measurement and improvement • Purchasing systems development

16. Supply Management • A strategic approach to planning for and acquiring the organization’s current and future needs through effectively managing the supply base, utilizing a process orientation in conjunction with cross-functional teams to achieve the organizational mission

17. ISM’s Definition • The identification, acquisition, access, positioning, and management of resources and related capabilities an organization needs or potentially needs in the attainment of its strategic objectives

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

19. Supply Management • Strategic responsibilities • Activities which have a major long-term impact on firm performance • Managing the supply base • Work directly with suppliers to provide world-class performance

20. Supply Management • Process approach • Collaborating with and coordinating other functional areas as they pertain to suppliers • Move across functional area boundaries • Cross-functional • Sharing information • Suppliers as an extension of the buying company

21. The Supply Chain Umbrella • Purchasing • Inbound transportation • Quality control • Demand and supply planning • Receiving, materials handling, and storage • Material or inventory control

22. The Supply Chain Umbrella • Order processing • Production planning, scheduling, and control • Warehousing/distribution • Shipping • Outbound transportation • Customer service

23. Enablers of Purchasing and SCM

24. Capable Human Resources • Supplier relationship management • Total cost analysis • Purchasing strategies • Supplier analysis • Competitive market analysis • Need for close collaboration with suppliers • Need for close internal coordination

25. Proper Organizational Design • Assessing and selecting structure and formal system of communication • Division of labor • Coordination • Control • Authority • Responsibility

26. Real-Time Collaborative Technology Capabilities • Supply chain planning • Improve forecast accuracy • Optimize production scheduling • Reduce working capital costs • Shorten life cycles • Reduce transportation costs • Improve customer service

27. Real-Time Collaborative Technology Capabilities • Supply chain execution • Obtaining materials • Managing physical flows • Lean supply

28. Emerging SCM Technologies • Global positioning systems (GPS) • Internet-based systems • Bar codes • Radio frequency identification devices (RFID) • Hand-held, wireless devices • Voice recognition

29. Right Measures andMeasurement Systems • Roadblocks • Too many metrics • Debate over the correct metrics • Constantly changing metrics • Old data

30. Right Measures andMeasurement Systems • Overcoming roadblocks • Know what to measure • Have a process in place to measure it • Have accessibility to the data

31. Why Is Measurement Important? • Supports fact-based decision making • Communicates requirements through the supply chain • Improves future supplier performance • Recognizes outstanding performance • Links critical measures to desired business outcomes • Determines if initiatives are working

32. Evolution of Purchasing and SCM • The early years • 1850 – 1900 • Growth of purchasing fundamentals • 1900 – 1939 • The war years • 1940 – 1946 • The quiet years • 1947 – Mid-1960s

33. Evolution of Purchasing and SCM • Materials management comes of age • Mid-1960s – Late 1970s • The global era • Late 1970s – 1999 • Integrated supply chain management • The 21st century