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Summary Purchasing Management (SCM)
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Summary of all lectures and pre-lecture videos of Purchasing Management. Contains all you need for passing the exam.
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Purchasing management notesLecture 1
Lecture 1 - 01/02/2022
Purchasing relates to all activities for which invoices are received. You also need specifications: what
is needed for the product. If specifications are going wrong, then you will get a product that’s not
what you want to have – like height, speed, etc..
Porter’s value chain.
In this model, you can find purchasing
in the red circles.
Procurement can be purchasing in this
model.
Inbound logistics are purchasing.
Industry forces has also to do with
purchasing.
It depends on the company whether
purchasing is a support activity or a
primary activity.
Also Porter’s five forces shows the importance of purchasing: suppliers and substitute.
Talking about Supply chain relationships, you have first tier suppliers and second tier suppliers, etc..
The first tier supplier is the closest to the focal organisation.
For purchasing management, the core activity is managing supplier relationships structuring
purchasing processes internally and structuring supplier relationships externally. At this way, you
secure supply, you have consistent quality, cost reduction, product innovation and efficiency
improvement. And all through mobilizing supplier expertise. So, it’s all about managing external
resources.
Improving purchasisng performance may contribute to increased customer value. You can also look
then for higher potential for profitability, outsourcing and improved product and service quality.
Ordering is buying something about which you don’t think much. There’s a contract in place.
For buying, there’s no contract, but specifications are not needed
Sourcing – specifications needed and not yet a contract.
Purchasing, procurement already used.
Supply chain management is about looking all the way upstream
Value chain management is about looking upstream and downstream.
1
,If purchasing is a functional focus, it’s just there. It could also have a cross-functional focus, then you
also have contact with your suppliers and more as a team and connected to other parts of the
organization. You need to have internal integration / alignment; who’s going to take care of what.
You have several competitive priorities/performance outcomes: value, cost and risk.
Purchasing is important, but the world is VUCA: volatile, uncertain, complex and has ambiguity.
Lesson 2
– pre-lecture videos
Purchasing process models (PPM), can be found in several ways:
- Decision-making models: about buying decisions
- Linear: sourcing
- Strategic: supplier management for example.
- Cyclical continuous, no specified beginning and end
- Hybrid linear-cyclical.
The most important one, is linear purchasing process (Van Weele, 2018):
In the specification phase; you identify what you want.
Selection: which supplier fits specifications best
Contract: make the contract.
Ordering: ordering the materials/components.
Expediting: following-up on this order; right location/quantity/quality?
Evaluation: evaluate supplier performance.
The management part is shown in the steps below.
2
, You can only go to the next step, if one step is finished.
The cost saving potential is highest in the specification part. Second comes selection phase. Third
comes contracting. So those first two stages are important. Resistance in the business follows the
same path: highest in specification, then selection, then contracting.
A common example of purchasing processes is overspecification: specification that are more than fit
for purpose (golden screws for example).
Another example supplier or brand specifications: most buyers are involved only to a minor extent in
the specification phase. Specifications of the user are often designed ‘towards’ a particular supplier.
Inadequate supplier selection: suppliers insufficiently screened on financial status and strengths and
capabilities.
Insufficient contracting expertise: in many cases insufficient legal contracts in price.
Too much emphasis on price: price orientation leads to suppliers delivering inferior quality.
Administrative organization: order to pay cycle is insufficiently organized. This leads to invoices that
are paid without sufficient control.
An example of a cyclical model is made by Monczka, 90s.
It also has to do with enough staff and materials.
All organizations are using different PSM’s, so always take a close look to that.
For government purchasing, there’s a public procurement law: it prescribes in a formal way how to
go about government contracts. Since often, it goes wrong. If there’s an expenditure over some
threshold, then they’re obliged to do a public tendering trajectory.
There are some public procurement laws:
- Non-discrimination: no differentiation with regard to nationality of the bidder.
- Equality: obligation of the contracting authority to deal with all bidding suppliers in an equal
manner.
- Transparency: publicly announce the tender beforehand + motivating the award decision.
- Proportionality: realistic demands and procedures from the tender.
The nature of public procurement, then, has to do with public accountability and not subject to free
markets. With regards to public accountability; the legitimacy of procurement process is important.
The process is procedure driven rather than result or performance driven. This leads often to less
efficiency. And also, we have to take into account that public procurement is not always subject to
free markets; there’s not always a drive to create best value for tax payers. Sometimes they focus on
support of local economy or sustainable investments.
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