Purchasing and Supply Chain Management

Session 1

Introduction to Purchasing and Supply Chain Management

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Chapter OverviewThe changing world of purchasing and

supply management.Purchasing’s increased role in this new

world.Purchasing/supply management terms

defined.Supply chain management activities.The pillars supporting supply

management.The historic evolution of

purchasing/supply management.

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A New Competitive EnvironmentIncreased Competition changes

buyer/seller balance of power

Evolution of competitive environment:

60’s/70’s– Marketing strategies capturing loyalty.– Strong engineering, design, and manufacturing

functions to support market requirements.– Customers needs translated into products. – Need for high level quality at a reasonable cost.– Need for flexibility and responsiveness.

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A New Competitive Environment

Concept of Supply Chain Management Emerges

Evolution of competitive environment:

80’s

– Need for flexibility and responsiveness

90’s

– Organizations realized materials and service inputs from suppliers impacted ability to meet customer needs.

– Resulted in increased focus on supply base and purchasing.

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Why Purchasing is Important

As companies struggle to increase customer value by improving performance, many companies are turning their attention to purchasing and to supply management.

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Why Purchasing is Important

Results of Good Supply Management:

Potential for Profitability

Outsourcing

Improved product and service quality

EPI/ESI

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Understanding the Value Chain

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What are Purchasing and Supply Management?

• Purchasing is a functional group/activity that supplies the organization with materials. It is often referred to as procurement.

• Supply Management is a progressive approach to managing supply base and the supply chain.

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What is a Supply Chain?

• A Supply Chain is three or more organizations linked directly by one or more upstream or downstream flows of products, services, finances, and information from a source to a customer.

• The Supply Chain is a subset of the Value Chain.

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Supply Chains

• Simple supply chains pull materials directly from their origin, process them, package them, and ship them to consumers.

Conversion OEM Distributors ConsumerExtraction

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What is a Value Chain?

• A value chain is a sequence of business functions in which utility (usefulness) is added to products or services as they move from supplier to end customer

• Value chains are often viewed like a river--upstream and downstream

• NOTE: Value Chain discussion draws heavily from Michael Porter, Competitive Advantage--Creating and Sustaining Superior Performance

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Primary and Support Activities

• Primary Activities

Inbound logistics

• Includes activities associated with receiving, storing, and disseminating inputs to support the product or service, including transportation, material handling, warehousing, inventory control, vehicle scheduling, and returns to suppliers

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Primary and Support Activities

• Primary Activities

Operations

• Activities associated with transforming inputs into final form, such as machining, packaging, assembly, equipment maintenance, testing, printing, and facility operations

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Primary and Support Activities

• Primary Activities

Outbound logistics

• Includes activities associated with physically collecting, storing, and distributing a product or service to customers, such as finished goods warehousing, material handling, delivery, order processing, and scheduling

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Primary and Support Activities

• Primary Activities

Marketing and Sales

• Includes activities associated with providing a means to which buyers can purchase the product and inducing them to do so, such as advertising, promotion, sales force efforts, job quoting, channel selection, channel relations, and pricing

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Primary and Support Activities

• Primary Activities

Service

• Includes activities associated with providing service to enhance or maintain the value of the product, such as installation, repair, training, parts supply, and product adjustment

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Primary and Support Activities

• Primary Activities

• In any firm, all the categories of primary activities are present to some degree and play some role

• Key primary activities often differ from industry to industry

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Primary and Support Activities• Support Activities

Firm infrastructure

• Consists of a number of activities, including general management, planning, government affairs, finance, accounting, legal, and quality management

• While firm infrastructure is sometimes viewed as overhead, it can be a powerful source of competitive advantage

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Primary and Support Activities

• Support Activities

Human resource management

• Consists of activities involved in recruiting, hiring, training, developing, and compensating all types of personnel

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Primary and Support Activities

• Support Activities

Technology Development

• Includes activities typically associated with MIS, engineering, and R&D and involve activities that seek to improve product and processes.

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Primary and Support Activities

• Support Activities

Technology Development

• New product and process development are primary concerns of technology development support activities

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Primary and Support Activities

• Support Activities

– Procurement

• Involves activities associated with identifying, evaluating, selecting, managing, and developing sources of supply

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Primary and Support Activities

• Support Activities

– Procurement

–Though purchased inputs are commonly associated with primary activities, purchased inputs are present in every value activity, including support activities.

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Primary and Support Activities

• Support Activities

-Procurement

–Examples:»Supplies»Travel services»Media

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What is Value Chain Integration?

• Value chain integration involves bringing together different groups, functions, or organizations, either formally or informally, physically or by information technology, to work jointly and often concurrently on a common business-related assignment purpose

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Horizontal Integration Across the Value Chain

• Examples of how firms integrate across the value chain--

– Committees/groups/teams– Shared and linked information systems– Integrated performance

goals/objectives/measures– Strategy development process

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Horizontal Integration Across the Value Chain

• Examples of how firms integrate across the value chain—

– Co-location of personnel within and between the organization

– Through a process orientation– Informal or ad hoc exchange of information– Shared risk and reward projects

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Supply Chains Illustrated

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SupplyChainsIllustrated

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Relationships within the Supply Chain

• Organizations are forming partnership and alliances with others in the supply chain. These require a shared resource base so the entire chain can benefit as a whole.

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The Supply Chain Umbrella

• Encompasses activities that are part of a network supporting efficient and effective flow of goods and information across the supply chain.

• Organizations recognize value of aligning, coordinating, integrating and synchronizing these activities.

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The Supply Chain Umbrella

• Supply Chain activities include:– Purchasing– Inbound Transportation– Quality control– Demand and Supply Planning– Receiving, Materials Handling, and Storage– Material or Inventory Control

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The Supply Chain Umbrella

• Supply Chain activities include:– Order Processing– Production Planning, Scheduling, and

Control– Warehousing/Distribution– Shipping– Outbound Transportation– Customer Service

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Four Pillars of Purchasing and Supply Chain Management Strategies

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Evolution and Developmentof Purchasing

• Period One- The early years

• Period Two- Growth of Purchasing Fundamentals

• Period Three-The War Years

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Evolution and Development of Purchasing

• Period Four – The Quiet Years

• Period Five- Materials Management

• Period Six – The Global Era

• Period Seven – Supply Chain Management