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
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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
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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
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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
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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
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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
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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
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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?
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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
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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
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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
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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
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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)
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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
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Cereal Value Chain Example
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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
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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
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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
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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
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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
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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
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Real-Time and Shared IT Capabilities
Supply chain executionSupply chain execution Obtaining materialsObtaining materials Managing physical flowsManaging physical flows
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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
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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
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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
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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
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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
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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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