Purchasing and Vendor Management
What Is Purchasing? `
Purchasing Purchasing is a functional group and a functional activity. activity.
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Objectives of Purchasing may be defined as: to buy materials of the right quality, in the right quantity from the right source delivered delivered to the right place at the right time at the right price.
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Purchasing Purchasing is proactive. proactive.
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Purchasing Purchasing is transactional as well as relational
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Purchasing Purchasing is strategic. strategic .
Perspectives on Purchasing `
Purchasing Purchasing as a function: people use specialized knowledge skills and resources to perform specialized tasks.
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Purchasing Purchasing as a process
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Purchasing Purchasing as a link in the supply or value val ue chain.
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Purchasing Purchasing as a relationship
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Purchasing Purchasing as problem solving
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Purchasing Purchasing as a discipline. discipline .
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Purchasing Purchasing as a profession.
Definition of Purchasing: The process undertaken by the organizational unit that, either as a function or as part of integrated supply chain, is responsible for procuring or assisting users to procure, in the most efficient manner, required supplies at the right time, quality, quantity and price and management of sup supplier lierss, ther hereby eby cont ontribu ributi tin ng to the com competit etitiv ive e advantage of the enterprise and the achievement of its its corp corpor orat ate e str strateg ategy y.
Purchasing and Change `
Globalization
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Informat Information ion Techn Technolog ologyy
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Changing production production and management philosophies.
Changing Aspects of Purchasing `
Structure: Horizontal, flatter, involving self-managed teams and cross-functional relationships. It is an integrated part of Supply Chain Management.
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Procedures: Based on IT applications; rapid, low cost. Incr Increa ease sed d emph emphas asis is on cent center er-l -led ed user user proc procur urem emen ent. t.
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Purch urchas ase e Cons Consid ider erat ation ions: s: Subcontract or outsource non-cor non-core e busine business. ss.
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lobal, increa creassed use of Sourcing: reducing supplier base, glob purcha purchasin singg consorti consortia. a.
Changing Aspects of Purchasing `
Supplie plierr Relat elatio ion nship hips: long-term partnerships and collaborations; win-win negotiations, sharing of information.
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Quality and Specifications: supplier specifications of desi design gn and and qual qualit ityy.
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Inventory and Lead times: requi equirrement ements, s, thus thus obvia obviati ting ng wast waste. e.
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Purchasing Performance: Assessed mainly on its value-ad -added activ ctiviities as part of supply chain.
Low
due
to
JIT
Purchasing Process Cycle
4.
Identify user need for product product or service. ser vice. Evaluate potential suppliers. Bidding negotiation, & supplier selection. Purchase approval.
5.
Release & receive purchase requirements.
6.
Measure Measure supplier performance.
1. 2. 3.
Improving the Purchasing Process ` ` ` ` ` ` ` `
Online-requisitioning systems from users to purchasing Procurement cards Electronic purchasing commerce Long-term purchase agreements Online ordering systems to suppliers Electronic Data Interchange Online ordering through electronic catalogs Allowing users to contact suppliers directly
Purchasing Integration Purchasi Purchasing ng in 1940s² 1940s² VA & VE. Purchasing ng in 1950s² 1950s² System System Contrac Contracting ting Purchasi Purchasing ng in 1960s² 1960s² Material Material Manage Management ment Purchasi Purchasin singg in 1970s² 1970s² MRP Purcha
Purcha Purchasin singg in 1980s² 1980s² JIT Purchasin singg in 1990s² 1990s² SCM Purcha
Purchasing Integration Integration can occur in many forms: 1. Sourcing 2. New-product development teams 3. Cross-location teams 4.
Cross-organizational Cross-organizational teams.
Characteristics Characteristi cs of External Integration `
One or more number of suppliers for each purchased purchased item or family of items.
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A win-win approach
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Joint efforts to improve supplier performance.
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Joint efforts to resolve resolve conflicts.
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Open exchange of information
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A credible commitment c ommitment to t o work together t ogether..
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A commitment to quality & defect-free defect-free products.
Evolving from Adversarial to Collaborative relationships Phase I: Traditional raditi onal school of management Phase II: II: Arms-length Arms-le ngth relationship relations hip Phase III: III: Closer-buyer Closer-buyer seller sell er relationshi rela tionships ps Phase IV: IV: Total otal trus trustt
Stages of Supplier Integration
One-night stand [competitive leverage]
Regular date [preferred supplier]
Going steady [performance partnerships]
Living together together [strategic alliances]
Marriage Marriage [co-business integration]
Types of Purchasing Strategies: `
Long term Supplier Relationship
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Early supplier design involvement
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Supplier Development
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E-Reverse Auctions [e-RAs]
Early-Supplier Involvement [ESI] Advantages: 1.
Reduced concept-to-customer development development time.
2.
Improved product specifications.
3.
Enhanced quality
4.
Access to new technology
5.
Lower development costs.
6.
Interchange of knowledge.
7.
Improved manufacturing.
Steps in Supplier Development Step 1: Identify critical products for development. Step 2: Identify critical suppliers. Step 3: Appraise Supplier performance. Step 4: Determine the gap between present and desired desired supplier performance.
Steps in Supplier Development Step 5: Form cross-functional supplier development. Step 6: Meet with suppliers· top management team. Step 7: Agree how the perceived gaps can be abridged. Step 8: Set deadlines for achievement. Step 9: Monitor improvements
Supplier Performance Measurement Supplier P upplier Performance measurement includes the methods and systems to collect and provide provide information infor mation to measure, measure , rate, rate , or rank ra nk supplier performance on a continuous c ontinuous basis. The measurement measurement system is a critical part par t of the sourc sourcing ing process process² ² essential essentially ly serving as ¶supplier·s report card·.
Supplier Measurement Decisions Objective [Q [Quantitative Measures]: 1. Delivery Performance: A buyer can assess how well well a supplier satisfies the quantity and due-date commitment. 2. Quality Performance: A buyer can compare a supplier·s quality against some previously specified performance objective. 3. Cost Reductions: Comparing supplier· supplie r·ss cost against other suppliers within the same industry.
Supplier Measurement Decisions Subjective [Q [Qualitative Measures]: 1.
Problem resolution resolutio n ability abil ity..
2.
Technical echnical ability ability
3.
Ongoing progress report
4.
Corrective action response
5.
Supplier cost reduction ideas.
6.
Supplier New-Product New-Product support. suppor t.
7.
Buyer/Seller
Compatibili Com patibility ty..
Measurement Areas:
Operational Purchasing
Coordination with other functions
Purchasing Organization and system
Budget Performance
Creative Performance
Policy Development
Planning & forecasting
Measurement Areas: Area
Measure
Quality
Percentage of rejects in goods received; percentage of parts rejected in production & raw materials rejected.
Quantity
Percentage of stock which has not moved over a specified period; number nu mber of production stock-outs; number of emergency orders; comparison of stock with target stock.
Timing
Supplier¶s actual delivery performance against promised; time taken to process requisitions; time taken for action.
Price
Prices against standard; prices paid for key items compared with market indexes; price at the time of purchase against price at the time of use.
Operational Cost
Cost of processing an order; progressing progr essing costs as percentage of total; communication costs.
Types of Supplier Measurem Measurement ent Techniques
Categorical System Weighted-P Weighted-Point System Cost Based System
Supply-Base Optimization Advantages: a)
Buying
from World-class orld-cl ass suppliers
b)
Use of full-service full-ser vice suppliers suppliers
c)
Reduction of supply base risk
d)
Lower
supply base maintenance costs
e)
Lower
total product cost
f)
Ability
to pursue complex purchasing strategies.
Risks
in Maintaining Fewer Suppliers 1.
Supplier Dependency
2.
Absence of competition
3.
Supply disruptions
4.
Over aggressive supply reductions
Approaches to Supply Base reduction Twenty-Eighty Rule
´Improve mprove or Elseµ Approach Approach
Triage riage Approac Approach h
Competency Staircase Approach
Purchasing Structure Centralized Purchasing: `
Economies of Scale:
1.
Forecasting Forecasting benefits
2.
Negotiation on quantities
3.
Compete for preferred supplier status
4.
Reduction in prices by spreading overheads.
5.
Professional can be employed.
Centralized Purchasing `
Coor d d ination
1.
Strategic focus possible
2.
Uniform policies policies can be adopted such as ¶single sourcing·
3.
Competitive buying is eliminated.
of Activ ities:
Centralized Purchasing `
Control
1.
Separate profit centre
2.
Budgetary control
3.
Uniformity of prices.
4.
Inventories can be controlled.
5.
Performance can be monitored
of Activ ity:
Decentralized Purchasing `
Closer to users and better understanding of local needs.
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Response time to divisional or plant needs maybe maybe rapid and of high quality.
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Possibly closer relationship with suppliers.
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Selecting local suppliers leads to lower transportation costs.
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Geographical, Geographica l, cultural, cultural , political politi cal aspects a spects ma maybe ybe considered.
Centralized Purchasing Activities `
Determination of major purchasing strategies and policies such as vertical integration, outsourcing, single and partnership sourcing.
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Purchase of o f leverage, leverage, bottleneck, bottleneck, strategic strate gic products.
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Purchase of capital equipment and systems.
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Negotiating for bulk purchases.
Centralized Purchasing Activities `
Purchasing research into market conditions, vulnerability and similar matters.
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Rationalization of share of orders to be received by specific suppliers.
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Control of group inventory. inventory.
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Staff training and development. development.
Decentralized Purchasing Activities `
Small-value orders and maintenance, repair and operating (MRO) (MRO) items.
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Items used only for that plant.
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Emergency purchases.
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Local buying to save save transport costs.
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Staff purchases.
