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SU 1 CH 1: Intro to Purchasing & Supply Chain M
(P& SCM)
1.1 New Competitive Env
Incr numbers of world-class competitors (domestically & internationally)
Forced orgs to improve internal process
Sophisticated cust (industrial & cons) demand price reductions
Info available over internet alters balance btwn buyers & sellers
Abundance of comp & choice have cond cust to want higher quality, faster delivery & tailored prods
Social media spreads prod info at accelerated rate, incl word of mouth
Changes made companies realise how NB it is to M their supply base
Must be involved in M on/ serious interest in suppliers that provide materials/ services
Concerned with network of downstream firms resp for delivery & aftermarket service of prod to end cust
Led to emergence of supply chain M
Factors Driving SCM
1 Cost & availability of info res among firms in supply chain allow easy linkages that eliminate time delays
2 Competition in domestic & international markets req quickness, agility & flexibility
3 Cust expectations & req are more demanding
4 Ability of supply chain to react rapidly by M risk minimises disruptions & mitigate impact on lost sales
5 Competition btwn supply chains, not just companies; 1s with best supply chains will be market winners &
gain comp adv
1.2 Why Purchasing is NB
1. Increased value & savings
Focus on P&S M to incr cust value by improving perf
Supplier capabilities can differentiate final goods & incr their value to cust
2. Building relats & driving innovation
Relat with suppl to jointly reduce costs & contr innovative ideas to add value
Buyer & suppl must agree to acceptable paybacks so that each realizes a positive gain, with this
cooperation, a level of trust is est which sets stage for innovations
3. Improving quality & reputation
P&S impacts quality coz firms are seeking to incr proportion of parts & services outsourced to
concentrate on specialities
This incr importance of relat btwn purch, suppl & quality
4. Reducing time to market
Purch acts as liaison btwn suppl & engineers & can help improve prod & process designs
Purch can begin to add value & contr to incr competitiveness by involving suppl early in design
process
5. Generating economic impact
Power of org purchasers as a group is significant
ISM report on busn is indicator of economic activity – monthly survey of purchasing M & is monitored
by financial market
6. Contributing to competitive adv
1
, Effective purch is NB to gaining com adv
Indication of enhanced status, reputation & recognition is higher salaries to purch professionals
1.3 Language of P & SCM
Purchasing/ procurement
Functional group (formal entity on org chart) & functional activity (buying goods & services)
Activities incl suppl IDing & selection, buying, negotiating, contracting, supply market research & eval
Referred to as “the 5 rights” – right quality, in right quantity, at right time, for right price, from right source
Supply M/ strategic sourcing
Strategic approach to planning for & acquiring orgs current & future needs through effectively managing
supply base, using process orientation in conjunction with cross-functional teams to achieve org mission
Identification, acquisition, access, positioning & M of res & related capabilities org needs/ potentially needs in
attainment of its strategic obj
Key elements of def: supply M is planning & acquiring current & future needs of org via
1. Strat orientation - req pursuing strat resp (activities with major impact on LT perf of org) & must be
aligned with overall mission & strats (excl routine decisions)
2. Supply base M - progressive approach to M supply base that differs from arms-length approach with
sellers, req purch professionals to work directly with suppl
3. Process driven approach – process approach to obtaining goods, process of IDing, evaluating,
selecting, M & developing suppl for ultimate suppl chain perf
4. Cross-functional groups – suppl M is cross-functional – it involves purch, engineering, suppl quality
assurance, suppl & other functions to work together on mutual goals (LT win-win relat)
Broader & more inclusive than purchasing
Organisationally, leading & coordinating strat suppl M activities is resp of purchasing
Supply Chains & Value Chains
Supply chain orientation – higher level recognition of strategic value of managing operational activities & flows
in & across supply chain
Supply chain (SC) – set of 3/ more orgs linked directly by 1/ more of upstream/ downstream flows of prods,
services, finances & info from source to cust
Supply chain M - endorses supply chain orientation & involves proactive M of 2-way movement &
coordination of goods, services, info & funds from raw material through end user
SCM req coordination of activities & flows extending across boundaries
Supply chains composed of interrelated activities that in/external to firm & diverse in scope
Supply chains are visualised as composed of processes rather than discrete activities
Egs of critical org processes in SC – new-prod dev, cust-order fulfilment, suppl eval & selection &
demand & supply planning
SC as series of systematic processes makes sense coz
Processes move across functional boundaries, which aligns with SC orientation
Well-communicated processes accelerate learning as become familiar with process
Formal SC processes can build in best practices & knowledge that enhance success
Orgs can document, measure & improve SC processes
2
, Value chain (VC)– primary & secondary support activities that can lead to competitive adv when done properly
Diff btwn SC & VC – conceptualise SC as subset of VC, all personnel in org are part of VC, but not SC
Primary activities in VC are operational part (SC), incl primary & support activities
VC focuses on internal participants, SC focuses on in/ external participants
Extended value chain/ enterprise – expanded VC to incl suppl & cust up/downstream from org, not only
internal participants (multiple levels of suppl & cust form foundation)
Success is function of effectively M linked group of firms past 1st level suppl/ cust
Recognise competition is no longer btwn firms but btwn coordinated SC/ networks of firms
Purch is support activity, meaning it provides service to internal cust
It is central link with suppl providing direct materials (upstream/ left side of pic) but can support materials/
service req of any internal group
Direct material – items provided by suppl & used directly during production/ service delivery)
Becoming incr resp for sourcing indirect goods req by internal groups, eg computers, office supplies
Right side of model is cust/ downstream part of SC, meeting expectations is NB to org so focal point of SC
activities
Repr linear view but not always the case
Flow of materials, info, funds & knowledge across SC are often fragmented & uncoordinated
Shows suppl linking with inbound logistics then operations, which is normal with direct materials, but
indirect items & finished goods sourced externally can mean suppl delivering to any part of SC
1.4 Achieving P&SC Benefits
Innovative products
Better supply chain activities to M prod demand - inventory investment, channel distr, SC relats
Reduced prod lines, forecasted sales weekly, relied on suppl to M inv for std prods
Partnership with suppl to build components close to facilities with JIT delivery, simplified distr channel
1.5 Supply Chain Umbrella (M activities)
1. Purchasing
Major SC activity in most orgs
2. Inbound transportation
Larger orgs have specialised transport function to M physical & info links btwn buyer & suppl
May have minimal common purch req across units, but can coordinate purch of transport services
3. Quality control
Lately all orgs recognise importance of suppl quality & need to prevent instead of detect quality probs
Emphasis shifted from detecting defects at time of receipt/ use, to prevention early in materials-
sourcing process (work with suppl to dev proper quality control processes)
4. Demand & supply planning
Demand planning - IDs all claims/ demand on output, incl forecasts of anticipated demand, inv
adjustments, orders taken but not filled, aftermarket req
Supply planning – process of taking demand data & dev supply, production & logistic network capable
of satisfying demand req
5. Receiving, materials handling & storage
Inbound material must be physically received as it moves from suppl to purch
Receiving, materials handling & storage are part of materials M
6. Material/ inventory control
Materials control – det appropriate quantity to order based on projected demand & M material
releases to suppl; incl generate materials release, contact suppl directly & monitor status of inbound
shipments (purch dept is resp)
Inv control – det inv level of finished goods req to support cust req, emphasising physical distr
(outbound/ downstream) side of SC
7. Order processing
Ensure cust rec materials when & where they req
Repr link btwn producer & external cust
3
, 8. Production planning, scheduling & control
Production plan relies on forecasts from marketing to estimate volume of materials req in ST
Operations resp for carrying out production plan & meeting cust order due dates; order processing,
production planning & ops must work together
9. Warehousing/distribution
Before prod is shipped to cust, may be stored in warehouse/ distr centre
Orgs try make prod only after rec cust order & info systems becoming more sophisticated so
warehousing becoming less NB
10. Shipping
Physically getting prod ready for distr to cust
Req packing to prevent damage, any special labelling, shipping docs, arranging transportation
11. Outbound transportation
Few orgs own transportation link to cust
Full service transport providers (3rd party logistics) are M entire distr networks
12. Customer service
Wide set of activities attempting to keep cust satisfied with prod
3 primary elements of cust service are pre-transaction, transaction & post-transaction activities
1.6 Four Enablers/ Pillars of P& SCM
1 Capable Human Res
Effective SCM req close collaboration with suppl & internal coord with various functions to coord activities
with material flow across SC (relat with key suppl become basis for purch strats)
Access to right skills req sound HR strat that incl internal dev of high-potential indivs, recruiting talent & hiring
promising graduates
2 Proper Org Design
Org design – process of assessing & selecting structure & formal system of communication, division of labour,
coordination, control, authority & resp req to achieve org goals
Formal charts show org design but are incomplete, its more than just lines & boxes
3 Real-Time Collaborative Tech Capabilities
Incr info tech allow enhanced collaboration btwn parties in SC
Primary SC applications involved in SC collaboration
1. Supply chain planning
Improve forecast accuracy Shorten life cycles
Optimise prod scheduling Reduce transportation costs
Reduce working capital costs Improve cust service
2. Supply chain execution
Obtain materials& M physical flow from suppl through downstream distr (summed up as lean
logistics, lean operations/ lean supply)
Regardless of type of into tech used, SC systems should capture & share info on real-time basis about material
& prod movement across SC
4 Right Measures & Measurement Systems
Roadblocks btwn Measurement & Perf
1. Too many metrics 3. Constantly changing metrics
2. Debate over correct metrics 4. Old data
Why is Measurement NB
1. Objective measurement supports fact-based decision making
2. Communicates req through SC & promotes cont improvement & change
3. Improves future suppl perf
4. Recognises outstanding perf
5. Conveys what is NB by linking critical measures to desired outcomes
4
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