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Principles of purchasing and supply notes...

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Ear l ysuppl i eri nvol vement Defini t i on:A pr act i cet hatbr i ngst oge t heroneormor esuppl i er s wi t h buyer ’ s pr oductdesi gnt eam ear l yi nt hepr oduc tdev el opmentpr ocess.Theobj ect i vei st o ut i l i z e t he suppl i er s’ exper t i se and exper i ence i n dev el opi ng a pr oduc t s pe ci ficat i ont hati sdesi gnedf oreffect i v eandeffici entpr oduc tr ol l out . Advant agesofear l ysuppl i eri nvol vementi ncl ude: I . Reducedconcept–t ocust omerdev el opmentt i me: I I . I mpr ovedpr oduc tspeci ficat i on I I I . Enhancedqual i t y I V. Lowe rdevel opmentcost s V. Accesst onew t echnol ogi esaheadofcompet i t or s VI . Joi ntpr obl emsol vi ng VI I . I nt er changeofknowl edgeandi nf or mat i on VI I I . I mpr ovedmanuf act ur abi l i t yofpr oduc t s

Reducedconcept–t ocust omerdevel opmentt i me:Useofsuppl i er s'knowl edge and expe r t i se t o compl ementi nt er nalcapabi l i t i es r educes concept t ocus t omer cycl et i me,cost s,qual i t ypr obl ems,andi mpr ovet heover al ldesi gneffor t . I mpr oved pr oduct speci ficat i on: I n t he aut omot i v ei ndust r y ,f or i nst ance, out sour ced component s ar et ypi cal l y cl assi fied as:suppl i er pr opr i e t ar y par t s, de t ai l cont r ol l ed par t s, and s pe ci fic desi gned par t s. Re gar di ng suppl i er pr opr i e t ar y or br anded par t s, suppl i er s ar e r esponsi bl e f or f unc t i onal s pe ci ficat i onandde t ai l edengi neer i ngac t i vi t i es. Enhanced qual i t y:Ear l y suppl i er i nv ol vementhel ps i n boost i ng t he suppl i er mor aland suppl i er smay come outwi t h sugges t i ons t hatmay br i ng down t he cos toffinalpr oduc tandi mpr ovet hequal i t ysubst ant i al l y .

Lowerdevel opmentcost s:Theul t i mat esuccessofdesi gni nganew pr oduc ti s t he abi l i t yt o sel lt he pr oducti n mul t i pl e mar ket s wi t houtmaki ng si gni ficant modi ficat i ons.Thesuppl i ercan hel pensur et hatt hepr oduc twi l lbecompat i bl e wi t hi t scompe t i t or sandgl obalmar ke tbyhel pi ngcomeoutwi t ht heuni f or mi t yof desi gn,maki ngi tl essexpensi vef ort hemanuf act ur e Joi ntpr obl emsol vi ng:Exampl e:Thesuppl i ercan i dent i f y pot ent i alpr obl em upf r ont , eases communi cat i on and i nf or mat i on exchange and pr ovi de ext r a per sonnelt oshor t ent hecr i t i calpat h. Suppl i er scan al soc ont r i but ewi t ht hei roper at i onalcapabi l i t i es,t hei rknowhow i nt echnol ogyandoper at i ngi nt hei rpar t i cul arbusi nessandt hei ri nnovat i v eness anddeve l opmentcapabi l i t i es. I nt er changeofknowl edgeand i nf or mat i on:When suppl i er sar ei nv ol vedear l y i nt hepr ocess,t her ei si nt er changeofknowl edgeandi nf or mat i on. Exampl e:I n pr ede t er mi ni nghow t hepr oducti sgoi ngt o bet r anspor t ed,i ti s i mpor t ant t o know i f di ffe r ent suppl i er s have t hei r own flee t or r el y on engi neer i ng/desi gner /pr ocur ementt eam t o ar r ange shi ppi ng.Thi si nf or mat i on canbepr ovi dedbyt hesuppl i er s. I mpr oved manuf act ur abi l i t y of pr oduct s: Suppl i er s can sugges t pr ocess c hanges t hatwoul dl owerpr oduc t i on l ead t i me orr emov e st eps al t oge t herf or subs t ant i al cos t savi ngs. The r i s k however ,i st hat r ecommendat i ons can compr omi set hei nt egr i t yoft hedesi gn.The ycan al sohel pi n dev el opi ngbe t t er sol ut i onsbypr ovi di ngaccesst ohi sorhert ec hnol ogi calr esour ces,capabi l i t i es anddesi gni deas.

QUESTI ON 1B Di scussf act or st hathav el edt opar adi gm shi f ti npur chasi ngandsuppl i es10mar ks Whati sa' Par adi gm Shi f t ? A par adi gm shi f ti sa maj orc hangei n how somepr ocessi sac compl i shed.A par adi gm shi f tcanhappe n whenne wt echnol ogyi si nt r oducedt hatr adi cal l yal t er st hepr oduc t i on pr ocessofagood. Ther ol eand cont r i but i on ofpur chas i nghasi ncr eased st eadi l yov ert hepas t50 y ear s , wi t h dr amat i cupsur gei ni nt er es ti nt heac t i vi t yt aki ngpl ac er e l at i v e l yr ecent l y .Ther e ar eanumberofr easonsf ort hi ss hi f ti ni mpor t anc eandr ecogni t i on,andt hemai none s ar esummar i z edasf ol l ows: Leadi ng –edge concept s: or gani z at i ons empl oyi ng l eadi ng edge appr oac hes t o manageme ntofmat er i al sar eput t i ngi nt opr ac t i cei nt egr at i v ei deas ,whi c har e ,atl eas ti n par t ,based on s t r at egi c and i nt egr at i v er ol es ofpur c hasi ng.Exampl e:j us ti nt i me pol i ci es,Cus t omerf oc us ,t ot alqual i t ymanagement . I ncr easi ngenvi r onment alawar eness:Ther ec ogni t i ont hati ti sgoodbusi nesssens et o “ gr een”andt obes eent ober esponsi bl ei nt hi sr es pec thasdawnedonmanybusi nesses. A gr eat erc onc er n wi t he ffe cton wast eand bypr oduc t s,wi derconcer n f ort heus eof r e t ur nabl epac kagi ng,al lhav ei mpl i cat i on on pur c hasi ngandar eaffect i ngper c ept i on of t hef unc t i on Cus t omer Demands: The c us t omer i s s een by many as be i ng al l i mpor t ant . Or gani z at i ons ar e mor e c ust omer s dr i ven and t hi s dr i vi ng f or ces i mpac t upon pur c hasi ng . Advanci ng Technol ogy:Technol ogy and associ at ed compl exi t y has meantt hatmost busi nesses now spec i al i z ei n nar r ower r ange ofac t i vi t i es and ar ec ompe l l ed t o buy gr eat erpr opor t i on oft hei rr equi r ementf r om t hos ewho hav es peci ale xpe r t i se,pat ent , i nt e l l ec t ualpr oper t yorde si gnr i ght sassoc i at edwi t hcompl exadv anc et ec hnol ogy . Gover nmentI nt er vent i on:Ther ear evar yi ngdegr eesofgov er nmentand t r adi ngbl oc i nv ol v ementi nt he mar ke tpl ac e.Thi s can t ake f or m ofpr i ce c ont r ol s orcont r olof monopol i esandr es t r i ct i v epr ac t i ces,heal t h andsaf e t yandsoon.I nt er es thasbe en t he pr i vat i z at i onofl ar gepar toff or merpubl i csec t or ,Wi t hpr i v at i z at i on,pur chasi ngf unct i on be gant oc opypr ac t i ce sf oundi npr i v at esec t or . I nt egr at edsys t ems As a syst em bec omes mor ei nt egr at ed wi t hi n an or gani z at i on and t he pr ovi si on of i nf or mat i on i ncr eas es,so t hel i ke l i hood ofdi sc ov er i ng i neffici enci eswi t hi nt hesyst em al so i ncr eases .I nputact i vi t i es ar et her ef or e cr uc i alt ot he dev el opmentofi nt egr at ed sys t em;t hei rs t age ofdev el opmentmus tmat ch whati sr equi r ed t o make i nt egr at ed sys t emswor keffe ct i v e l y

St r uct ur alchanges Mov est owar dsmat er i almanagementandl ogi st i cconcepthav ei nt ur n he l pedt odev el op t he pur chas i ng and suppl yf unc t i on. I n most cases amount of at t ent i on pai dt o pur c hasi ngandsuppl yhasr i sen. Per f or manceMeas ur ement Ther e has be en mor eemphas i si nr ec entyear s on measur ement .Wi t hi n or g ani z at i on t hatmeas ur est hecont r i but i on ofpur chas i ngandsuppl yf unc t i on,i t ss t at usi sus ual l y affec t ed i n apos i t i v eway .Seni ormanagementbecomeawar eofi t scont r i but i on t oc os t r educ t i on andi t ss t r at egi ccapabi l i t i es,andi nc ons equencei sf armor el i ke l yt opr omot e i t sdev e l opment . Al t er nat i veanswer : Tabl e1Hi st or yofPur chasi ng Per i od

St at us

Lat e1890s

Pur c hasi ngr ar el yus edasadi ffer entdepar t me ntexc epti nt he r ai l r oad.

Ear l y1900s

Pur c hasi ngc onsi der edc l er i calwor k.

Wor l dWarIandI I Pur c hasi ngf unct i oni ncr easedi ni mpor t anc eduet ot hei mpor t anc eof obt ai ni ngr aw mat er i al s,ser vi c es,andsuppl i est oke ept hemi nesand f ac t or i esr unni ng . 1950sand1960s

Cont i nuedt ogai ns t at ur e ,pr oc essesmor er efine d,andmor et r ai ned pr of essi onal s .St i l lc onsi der edor derpl aci ngc l er i cali nas t affsuppor t posi t i on.

Lat e1960s–e ar l y 1970s

I nt egr at edmat er i al ssyst emsi nt r oduced,mat er i al sbe camepar tof s t r at egi cpl anni ng,andi mpor t anceofdepar t menti ncr eased.

1970s

Oi lembar goandshor t agesofbasi cr aw mat er i al st ur nedt hef oc usof t hebusi nesswor l dt opur c hasi ng.

1980s

Adv entofj ust i nt i mewi t hanemphas i soni nv e nt or yc ont r oland suppl i erqual i t y;quant i t y ,t i mi ng,anddepe ndabi l i t ymadepur c hasi ng acor ner st oneofcompe t i t i v eadv ant age .

Ear l y1990s

Val uepr opos i t i onofpur chasi ngcont i nue dt oi ncr ease;c os t s avi ngs be camet hebuz z wor d.

Lat e1990s

Pur c hasi nge v ol v edi nt ost r at egi cs our ci ng,cont r act swe r emor el ong t er m,andsuppl i err e l at i onshi pbui l di ngandsuppl i err e l at i ons hi p managements t ar t ed.

2000s

Pur c hasi ngs hi f t edi t smyopi cf oc usoncos tt omuchbr oadert er ms. Someoft hewi de l yus eddev e l opment s:s pendanal ysi s,l owcost c ount r ys our ci ng,pr ocur ementt echnol ogyev ol v ed( ERP,esour ci ng) , pr oc ur e mentout sour c i ngevol v ed( P2P) ,t ot alcostofowne r shi p,dat a

Per i od

St at us mi ni ngandbenc hmar ki ng,andl eanpur chasi ng.

BBM 222

PRI NCI PLESOF PURCHASI NG & SUPPLY

QUESTI ON 1A Wi t hai dofr el evantexampl es,di scussmaj orcont r i but i onsofpur chasi ng andsuppl i esmanagementi nt oday’ sor gani zat i on 15mar ks I . I dent i f yi ng sour ces of Suppl y: Pur chasi ng manager s go t hr ough an i mpor t antandcompl exsel ect i onpr ocesst oi dent i f yandobt ai nt hesour cebest sui t ed t o sat i s f yt he fir m’ sr equi r ement s .I tbegi ns wi t h a scan ofavai l abl e i nf or mat i on sour ces and fini shes wi t ht he sel ec t ed suppl i er t ot he fir ms appr ov edsuppl i er s’l i st . I I . Sel ect i ngSour cesOfSuppl y : Pur c hasi ngand suppl y hascont r i but ed t o Ge t t i ng t he Ri ghtSuppl i erf ort he busi ness,t hi st hey do t hr ough Suppl i er Sel ect i onPr ocesswhi c hi nv ol v esi dent i ficat i onofor gani zat i on needs,spendi ng t i meonr esear c h byaski ngar oundpeopl eorot herbusi nesseswi t hfir st hand exper i enceofsuppl i er s and whocan gi veyou usef uladvi ce,and t hr ough Cr edi tchec ki ngpot ent i alsuppl i er st o ensur et hatt hesuppl i erhassuffici ent l y s t r ong cash flow t o del i v er whati s needed when neede d.The pur c hasi ng depar t menti nt er act swi t hsuppl i er s,r ecei v esquot at i onsf r om t hem andpl aces or der sf r om t hem. I I I . I nf or mat i on Sour ce:Thecont act soft hesuppl yf unc t i on i nt hemar ke t pl ace pr ovi de a usef ulsour ce of i nf or mat i on f or var i ous f unct i ons wi t hi n t he or gani zat i on.Pr i mar yexampl esi ncl udei nf or mat i onaboutpr i ces,avai l abi l i t y ofgoods ,new sour ces ofsuppl y ,new pr oduct s,and new t echnol ogy ,al lof i nt er es tt o many ot herpar t s oft he or gani zat i on.New mar ke t i ng t echni ques anddi s t r i but i onsys t emsusedbysuppl i er smaybeofi nt er es tt ot hemar ke t i ng gr oup. News about maj or i nv es t ment s, mer ger s, acqui si t i on candi dat es, i nt er nat i onalpol i t i caland economi c devel opment s , pendi ng bankr upt ci es, maj orpr omot i ons and appoi nt ment s ,and cur r entand pot ent i alcus t omer s mayber e l evantt omar ket i ng,financ e,r esear c h,andt opmanagement . I V. Conduct i ng mar ket st udi es f or mat er i al Pur chases: I fpur chasi ng and suppl y doesn’ tdo i t sj ob,t he fir m wi l lnothave t he r equi r ed mat er i al s or ser vi ceswhen needed,ofdesi r ed qual i t y ,and ata pr i cet hatwi l lkeep endpr oductcost scompe t i t i veandundercont r ol .Theabi l i t yoft heor gani z at i ont o secur er equi r ement sofbe t t erqual i t y ,f ast er ,atabet t erpr i cet hancompet i t or s, wi l lnotonl yi mpr ovet heor gani zat i on’ scompe t i t i veposi t i on,butal soi mpr ove cus t omersat i s f act i on.Exampl e: Suppl y mar ke tanal ysi s shoul d becar r i ed

outi nr espec tofpur chasewhen t hey;di fficul tt opur chaseduet ocompl exi t y i nv ol v ed,i nv ol vehi gh l evelofexpendi t ur eor pur c hasesofspeci al i z ed i t ems suc haschemi cal s.

V. Tr ai ni ng Gr ound:ThePur chasi ng suppl y ar ea al so i s an exce l l entt r ai ni ng gr ound f or new manager s.The needs oft he or gani zat i on may be qui ckl y gr asped.Exposur et ot hepr essur eofdeci si on maki ngunderunc er t ai nt ywi t h pot ent i al l y ser i ous consequences al l ows f or eval uat i on of t he i ndi vi dual ’ s abi l i t yandwi l l i ngnesst omakesounddeci si onsandassumer esponsi bi l i t y . Cont ac t swi t h manypeopl eatvar i ousl evel sand a var i et yoff unc t i onsmay assi stt he i ndi vi duali nl ear ni ng abouthow t he or gani zat i on wor ks.Many or gani zat i onsfindi tusef ult oi ncl udet hesuppl yar eaaspar tofaf or malj ob r ot at i on syst em f orhi gh pot ent i alempl oyees.Exampl es ofseni orcor por at e execut i ves wi t h si gni ficantsuppl y expe r i ence i ncl ude Mar y Bar r a,CEO of Gener alMot or s VI . Managi ng Suppl i erDel i very and PaymentPr ocesses:I tcont r i but esi nt he managementofl ogi st i cs whi ch i s‘ Tot almanagementoft he key ope r at i onal f unc t i ons i nt he suppl y chai n -pr ocur ement ,pr oduc t i on and di st r i but i on. Pr ocur ementi ncl udespur chasi ng and pr oductdevel opment .Thepr oduct i on f unc t i on i ncl udes manuf ac t ur i ng and assembl i ng, whi l et he di s t r i but i on f unc t i oni nr ev ol veswar ehousi ng,i nv ent or y ,t r anspor tandr ede l i ver y’ . Exampl eofl ogi st i cac t i vi t i es:Cus t omerser vi cePackagi ng I nv ent or ymanagementPl antandwar ehousi ngsi t el ocat i on Logi st i cscommuni cat i ons-Pr ocur ement Mat er i al shandl i ngRev er sel ogi st i cs Or derpr ocessi ngTr afficandt r anspor t at i on Mat er i al sboughtbyt hepur chasi ngdepar t mentar es t or edbyt hem unt i lt hey ar eneededbyt hevar i ousdepar t ment sandofficesoft heor gani z at i on.Havi ng boughtt hec ommodi t i esori t ems,t hepur chasi ngdepar t mentsuppl i est hese i t emst oot herdepar t ment soft hecompanyoror gani zat i on.Si mpl yput ,i ti si n c har geofdi st r i but i ngt hei t emswi t hi nt hecompany . VI I . Coor di nat i ngpur chaseneedswi t h userdepar t ment s:I thasf ost er edsound cooper at i ve r el at i onshi p wi t h ot her depar t ment si n t he or gani zat i on by mai nt ai ni ng sound cooper at i v e r e l at i onshi ps wi t h ot her depar t ment s, pr ovi di ng i nf or mat i on and advi ce as necessar yt o ensur et he effect i v e oper at i onoft heor gani zat i onasawhol e .

Exampl e:Pur c hasi ngdepar t mentwor ki nghandi n handwi t h andpr oduct i onor user depar t ment si n pr epar at i on ofmat er i alschedul es t o mee tj us t i nt i me r equi r ement s, ensur i ng t hat del i v er y sc hedul es ar e mai nt ai ned, Cont r ol of i nv ent or yt o meet pr oduct i on r equi r ement s and i n qual i t y cont r olor def ec t de t ec t i onandcor r ect i on

VI I I . Over seei ngsuppl ycont r act s:I ti sconc er nedwi t hov er seei ngt heacqui si t i on ofqual i t ygoodsand ser vi cesf ort heor gani z at i on wi t h an obj ec t i veofpr ofit maxi mi zat i on f or pr i vat e or gani z at i on and maxi mi z i ng t he val ue ofpubl i c f undsf orpubl i cor gani z at i on. Exampl es:Cr eat i on:Whi l s tmanyc ompani eswor kf r om st andar d cont r act s, t heydohavet obecr eat edi nt hefir stpl aceandt heyof t enneedt obechanged asnegot i at i onspr ogr ess.

Negot i at i on:Oft he cont r act st o ensur et hat ,t he bestpossi bl e cont r ac ti s avai l abl et obot hpar t i es. Adher ence:Tot hecont r act sandal lofi t ssec t i onsandai ms. Managi ng Changes:t hatmay be r equi r ed as t he r el at i onshi pc hanges and pr obl emsar i se.

Document i ng:Anychangest hatmayhavebeenagr eed.

Anal ysi ng:Thebenefit st hataccr ueormaybeavai l abl ef r om t hecont r ac t . Ot her si ncl ude:  Achi evementofcompanygoal sandobj ect i v es  Pr omot i onofsoci alandenvi r onment alawar eness  I thasi mpr ovedeffici encyt hr oughi nnovat i on  Posi t i oni ngt heor gani z at i oni ngl obalmar ket  Dev el opi ngr equest sf orpr oposal s  Mee t i ngwi t handnegot i at i ngdet ai l sofsuppl i erCont r act s:...