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PURCHASING & SUPPLY CHAIN MANAGEMENT, 4ePURCHASING & SUPPLY CHAIN MANAGEMENT, 4e

CENGAGE LEARNINGCENGAGE LEARNINGMonczka – Handfield – Giunipero – PattersonMonczka – Handfield – Giunipero – Patterson

Introduction to Introduction to Purchasing and Supply Purchasing and Supply

Chain ManagementChain ManagementChapter 1Chapter 1

Chapter Overview

A new competitive environmentA new competitive environment Why purchasing is importantWhy purchasing is important Understanding the language of Understanding the language of

purchasing and supply chain purchasing and supply chain managementmanagement

The supply chain umbrellaThe supply chain umbrella

Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e22

Chapter Overview

Four enablers of purchasing and Four enablers of purchasing and supply chain managementsupply chain management

The evolution of purchasing and supply The evolution of purchasing and supply chain managementchain management

Looking aheadLooking ahead


A New Competitive Environment

Increasing numbers of world-class Increasing numbers of world-class competitorscompetitors

Sophisticated customer baseSophisticated customer base More performance at a lower costMore performance at a lower cost

Widely available information sourcesWidely available information sources Balance of power between buyers and Balance of power between buyers and

supplierssuppliers Greater outsourcingGreater outsourcing


Factors Driving SCM

Low cost and wide availability of Low cost and wide availability of information more closely links the information more closely links the members of a supply chainmembers of a supply chain

Competition in domestic and Competition in domestic and international markets requires international markets requires quickness, agility, and flexibilityquickness, agility, and flexibility


Factors Driving SCM

Customer expectations and Customer expectations and requirements are more demandingrequirements are more demanding

Major disruptions require the ability of Major disruptions require the ability of a supply chain to react rapidlya supply chain to react rapidly

Competition between supply chains, Competition between supply chains, not just companiesnot just companies


Why Purchasing Is Important

Purchased content is a significant part Purchased content is a significant part of the cost of goods sold (≥ 55%)of the cost of goods sold (≥ 55%)

Move from traditional, adversarial Move from traditional, adversarial buyer-supplier relations to improve buyer-supplier relations to improve supply chain performancesupply chain performance

Purchased content’s impact on product Purchased content’s impact on product and service qualityand service quality


Why Purchasing Is Important

Participation in product and process Participation in product and process designdesign

Use of cross-functional teamsUse of cross-functional teams Early supplier involvementEarly supplier involvement The supply chain’s impact on The supply chain’s impact on

competitive advantagecompetitive advantage


Language of Purchasing and SCM

Are supply chains and value chains the Are supply chains and value chains the same?same?

What is supply chain management?What is supply chain management? What is an extended enterprise?What is an extended enterprise?


Purchasing

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

Aka as procurementAka as procurement


Supply Management

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


ISM’s Definition

The identification, acquisition, access, The identification, acquisition, access, positioning, and management of positioning, and management of resources and related capabilities an resources and related capabilities an organization needs or potentially needs organization needs or potentially needs in the attainment of its strategic in the attainment of its strategic objectivesobjectives


Defining Supply Management

1313

Strategic Orientation

Cross Functional

Groups

Process-Driven

Approach

Supply Base Management

Supply Chains and Value Chains

Supply chain orientation – a higher Supply chain orientation – a higher level recognition of the strategic value level recognition of the strategic value of managing operational activities and of managing operational activities and flows within and across a supply chainflows within and across a supply chain


Supply Chains and Value Chains

Value chain – primary and secondary Value chain – primary and secondary support activities that can lead to support activities that can lead to competitive advantagecompetitive advantage

Supply chain – a set of 3 or more Supply chain – a set of 3 or more organizations linked directly by 1 or organizations linked directly by 1 or more of the upstream or downstream more of the upstream or downstream flows of products, services, finances, flows of products, services, finances, and information from a source to a and information from a source to a customer (subset of a value chain)customer (subset of a value chain)


The Extended Value Chain

Support Activities

• Firm infrastructure• Human resource management• Technology development• Purchasing

Inbound Logistics

OperationsOutbound Logistics

Marketing & Sales

Customer Service

Total Supply Chain / Total Logistics Management

Su

pp

lier

sS

up

pli

ers

Cu

stom

ersC

usto

mers

Materials / Supply Management

Physical Distribution / Channel Management

Primary Activities

Materials/ServicesMaterials/Services Information/Funds/KnowledgeInformation/Funds/Knowledge

Supply Chain vs. Value Chain

Supply chain management – endorses Supply chain management – endorses a supply chain orientation and involves a supply chain orientation and involves proactive management of the 2-way proactive management of the 2-way movement and coordination of goods , movement and coordination of goods , services, information, and funds from services, information, and funds from raw material through end userraw material through end user


Cereal Value Chain Example


Farmer Processor Packaging Distributor

Grocer

Consumer

Corrugated Box Mfr

Lumber Company

LabelMfr

GrainGrain CerealCereal

Packaged Packaged CerealCereal

LabelsLabels

MaterialMaterial

InformationInformation

WoodWood

PaperboardPaperboard

Critical SCM Processes

New product developmentNew product development Customer-order fulfillmentCustomer-order fulfillment Supplier evaluation and selectionSupplier evaluation and selection Demand and supply planningDemand and supply planning


The Supply Chain Umbrella

PurchasingPurchasing Inbound transportationInbound transportation Quality controlQuality control Demand and supply planningDemand and supply planning Receiving, materials handling, and Receiving, materials handling, and

storagestorage Material or inventory controlMaterial or inventory control


The Supply Chain Umbrella

Order processingOrder processing Production planning, scheduling, and Production planning, scheduling, and

controlcontrol Warehousing/distributionWarehousing/distribution ShippingShipping Outbound transportationOutbound transportation Customer serviceCustomer service


Enablers of Purchasing and SCM

Capable Human Resources

Supplier relationship managementSupplier relationship management Total cost analysisTotal cost analysis Purchasing strategiesPurchasing strategies Supplier analysisSupplier analysis Competitive market analysisCompetitive market analysis


Proper Organizational Design

Assessing and selecting the structure Assessing and selecting the structure and formal system of communicationand formal system of communication

Division of laborDivision of labor CoordinationCoordination ControlControl AuthorityAuthority ResponsibilityResponsibility


Real-Time and Shared IT Capabilities

Supply chain planningSupply chain planning Forecast accuracyForecast accuracy Optimized production schedulingOptimized production scheduling Reduced working capital costsReduced working capital costs Shortened life cyclesShortened life cycles Reduced transportation costsReduced transportation costs Improved customer serviceImproved customer service


Real-Time and Shared IT Capabilities

Supply chain executionSupply chain execution Obtaining materialsObtaining materials Managing physical flowsManaging physical flows


Emerging SCM Technologies

Global positioning systemsGlobal positioning systems Internet-based systemsInternet-based systems Bar codesBar codes Radio frequency identification devicesRadio frequency identification devices Wireless devicesWireless devices


Roadblocks to Measurement Systems

Too many metricsToo many metrics Debate over the correct metricsDebate over the correct metrics Constantly changing metricsConstantly changing metrics Old dataOld data


Why Is Measurement Important?

Supports fact-based decision makingSupports fact-based decision making Communicates requirements through Communicates requirements through

the supply chainthe supply chain Improves future supplier performanceImproves future supplier performance Recognizes outstanding performanceRecognizes outstanding performance Links critical measures to desired Links critical measures to desired

outcomesoutcomes Determines if initiatives are workingDetermines if initiatives are working


Evolution of Purchasing and SCM

The early years: 1850 – 1900The early years: 1850 – 1900 Growth of purchasing fundamentals: Growth of purchasing fundamentals:

1900 – 19391900 – 1939 The war years: 1940 – 1946The war years: 1940 – 1946 The quiet years: 1947 – mid-1960sThe quiet years: 1947 – mid-1960s


Evolution of Purchasing and SCM

Materials management comes of age: Materials management comes of age: mid-1960s – Late 1970smid-1960s – Late 1970s

The global era: Late 1970s – 1999The global era: Late 1970s – 1999 Integrated supply chain management: Integrated supply chain management:

beyond 2000beyond 2000


Remainder of the Book

Section 2 – Purchasing Operations and Section 2 – Purchasing Operations and StructureStructure

Section 3 – Strategic SourcingSection 3 – Strategic Sourcing Section 4 – Strategic Sourcing Section 4 – Strategic Sourcing

ProcessesProcesses Section 5 – Critical Supply Chain Section 5 – Critical Supply Chain

ElementsElements Section 6 – Future DirectionsSection 6 – Future Directions


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