Purchasing & Supply Chain Management 7th Edition Chapter 1 PDF

Purchasing & Supply Chain Management...

Purchasing & Supply Chain Management 7th edition Chapter 1 Introduction to Purchasing and Supply Chain Management ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1  Learning Objectives By the end of this chapter, you should be able to: Understand the differences between purchasing and supply management Understand the differences between supply chains and value chains Identify the activities that are part of supply chain management Understand how technology is changing the purchasing job Appreciate the importance of supply chain enablers Identify the historical stages of purchasing’s evolution ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2  Chapter Overview A new competitive environment Managing the supply base Why purchasing is important Understanding the language of purchasing and supply chain management Achieving purchasing and supply chain benefits The supply chain umbrella – functional activities Four enablers of purchasing and supply chain management The evolution of purchasing and supply chain management ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3  A New Competitive Environment Increasing numbers of world-class competitors A more sophisticated customer base − Demanding greater performance at a lower cost immediately Ability to be in constant contact – 24/7/365 − Mobile devices − Cloud-based computing − Real-time communication technologies ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4  A New Competitive Environment Increased use of sophisticated technologies − Blockchain − Artificial intelligence and automation − Robotics Widely available information sources Availability of low-cost alternatives – a moving target − Outsourcing, offshoring, re-shoring, and near-shoring ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5  Managing the Supply Base Need to actively manage supply chains − Upstream (suppliers) and downstream (customers) Low cost and increased availability of information Level of competition Customer expectations and requirements Identification and mitigation of supply chain risk Competition is between supply chains, not individual firms ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6  Why Purchasing Is Important Increasing value and savings Building relationships and driving innovation Improving quality and reputation Reducing time-to-market Managing supplier risk Generating economic impact Contributing to competitive advantage ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7  Increasing Value and Savings Improving performance − Supplier performance and expertise helps differentiate products and services Purchased content is about 55% of cost-of-goods-sold Early supplier involvement in product and component design Proactively avoiding costs through early supplier involvement in design of products and components ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8  Building Relationships and Driving Innovation Traditional approach of hard bargaining for price reductions Newer approach is to jointly reduce costs with suppliers Expect suppliers to contribute to innovate ideas to add value Both supplier and buyer must receive acceptable payback from their investments ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9  Improving Quality and Reputation Buyer specialization on its core competencies with supply base support based on its own expertise and core competencies − Non-core competencies are candidates for outsourcing to the experts − Greater emphasis on relationship management Supplier quality can dramatically impact buyer quality − Lapses in supplier quality can potentially tarnish a buyer’s reputation ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10  Reducing Time-to-Market Supplier impact on product and process design and function Early supplier involvement can lead to a 20% improvement in material costs, material quality, and new product development lead times Supplier suggestions can contribute to product and process improvements ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11  Managing Supplier Risk Supplier risk is magnified by sourcing strategies that emphasize global sourcing, single sourcing, and lean operations Need to monitor supply base for risk exposure and develop business continuity plans to mitigate potential risks ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12  Generating Economic Impact The ISM Report on Business is a popular and closely watched national economic indicator in the U.S. − Monthly surveys of purchasing managers in both manufacturing and non-manufacturing industries − Based on a change index (month over month) − Generally, a rating > 50 indicates that the economy is expanding; a rating < 50 indicates that the economy is contracting − Regional reports for larger metropolitan areas are also available ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13  Contributing to Competitive Advantage Growing acknowledgement by executives of supply management’s contribution to a firm’s profitability More supply managers have received college degrees and earn more money than those without a degree − More colleges and universities now offer degrees in supply chain management Continuing education through certifications also increases pay Importance of managing talent − Focus on finding, developing, and promoting high performers ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14  Understanding the Language of Purchasing and Supply Management Is purchasing different from supply management? Are supply chains and value chains the same? What is supply chain management? What is an extended enterprise? ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15  Purchasing A dual role − A functional group (formal entity in the organizational chart) − A functional activity (buying goods and services) Also known as procurement or acquisition ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16  Purchasing Typical activities − Supplier identification and selection − Buying − Negotiation and contracting − Supply market research − Supplier measurement and improvement − Purchasing systems development ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17  The Five Rights of Purchasing Getting the “right” quality In the “right” quantity At the “right” time For the “right” price From the “right” source ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18  Supply Management Our definition − “A strategic approach to planning for and acquiring the organization’s current and future needs through effectively managing the supply base, utilizing a process orientation in conjunction with cross- functional teams (CFTs) to achieve the organizational mission.” ISM’s definition − “The identification, acquisition, access, positioning, and management of resources and related capabilities an organization needs or potentially needs in the attainment of its strategic objectives.” ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19  Supply Management … is planning and Strategic acquiring the current and Orientation future needs of an organization via … Cross- Supply Base Functional Management Groups Process- Driven Approach ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20  Supply Management – Strategic Orientation Has a major impact on long-term performance Should not pursued in isolation but aligned with overall mission and strategies of the organization Is different from tactical, routine, or day-to-day activities Must be performed together with tactical activities ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21  Supply Management – Supply Base Management A broader perspective than purchasing Differs from the traditional “arms’ length” or adversarial approach Requires buyers to collaborate with suppliers capable of providing world- class performance A strategic, supercharged version of purchasing ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22  Supply Management – Process-Driven Approach Identifying, evaluating, selecting, managing, and developing suppliers to realize improved supply chain performance Working to exceed performance of competitors Commonality of … − Purchasing − Supply management − Strategic sourcing ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23  Supply Management – Cross-Functional Groups Involving purchasing, engineering, supplier quality assurance, suppliers, and other related functions Working together as one team, early on, to further mutual goals Long-term, win-win relationships internally and externally Treating the supplier as an extension of the buyer Recognition of mutual benefit Synchronization of internal and external activities ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24  Supply Chains and Value Chains Supply chain − A set of three or more organizations linked directly by one or more of the upstream or downstream flows of products, services, finances, and information from a source to a customer Supply chain orientation − A higher-level recognition of the strategic value of managing operational activities and flows within and across a supply chain Supply chain management − Proactively managing two-way movement and coordination of goods, services, information, and funds from raw material through end user ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25  Supply Chains and Value Chains Value chain − Composed of primary and support activities that can lead to competitive advantage when configured properly − A supply chain is a subset of the value chain  Direct materials  Indirect goods and services ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26  The Extended Value Chain Firm infrastructure Support Human resource management Activities Technology development Purchasing Materials/Services Information/Funds/Knowledge Customers Suppliers Inbound Outbound Marketing & Customer Operations Logistics Logistics Sales Service Primary Activities Materials / Physical Distribution / Supply Management Channel Management Total Supply Chain / Total Logistics Management ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27 28 Cereal Value Chain Example Grain Cereal Packaged Cereal Farmer Processor Packaging Distributor Packaged Cereal Paperboard Grocer Corrugated Packaged Box Mfr Cereal Wood Consumer Labels Lumber Label Material flows Company Mfr Information flows ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28  The Supply Chain Umbrella Purchasing Order processing Inbound transportation Production planning, scheduling, and control Quality control Shipping/Warehousing/Distribution Demand and supply planning Outbound transportation Receiving, materials handling, and storage Customer service Materials or inventory control ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29  Proactive Strategies Global sourcing Joint improvement activities Risk management Outsourcing Supplier quality management Partnerships and alliances Long-term contracting Supplier-managed inventory Early supplier design involvement ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30  Business Requirements and Guiding Philosophies Shareholder value Total quality management Innovative products Supply chain integration Revenue growth Risk management Customer service Responsiveness Global market share ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31 Enablers of Purchasing and Supply Chain Management Human Organizational Information Measurement Resources Design Technology View the supply chain holistically Demand planning Use data from visible sources Centrally-led supply teams Manage critical Order commitment, scheduling, relationships Executive responsibility for and production management Quantify what creates value coordinating purchasing and supply chain activities Distribution and transportation Analyze competitive markets scheduling Use goals that change over time Collocation of supply personnel Engage in fact-based decision with internal customers Materials replenishment making Rely on benchmarking to establish performance targets Practice advanced cost Cross-functional teams to Reverse auctions management manage supply chain processes Link to business goals and objectives Understand e-business systems Requisition to pay systems Supply strategy coordination and review sessions between Feature efficiency and business units Analyze big data Intranets effectiveness measures Executive buyer-supplier council Assign ownership and Utilize mobile devices to coordinate with suppliers Webinars and podcasts accountability ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32  Capable Human Resources Key knowledge areas − Supplier relationship management − Data and analytics − Total cost analysis − Social and collaborative technologies − Supplier and competitive market analysis Need to internally develop high-potential individuals ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33  Proper Organizational Design Organizational design − Process of assessing and selecting the structure and formal system of communication, division of labor, coordination, control, authority, and responsibility required to achieve organizational goals and objectives Increased use of center-led supply management Continued use of teams ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34  Real-Time Collaborative Technology Capabilities Cloud-based storage systems Mobile devices Shared software platforms Planning software Execution software Access provided on a real-time or near real-time basis ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35  Planning Software Applications Improve forecasting accuracy Optimize production scheduling Reduce working capital costs Shorten cycle times Cut transportation costs Improve customer service ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36  Execution Software Applications Obtain materials and manage physical flows from suppliers through downstream distribution Provide customers with the right products at the right location, time, and cost Key to managing lean logistics, lean operations, and lean supply Need for highly capable data capture, storage, and real-time access for managerial analysis and decision-making ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 37  Right Measures and Measurement Systems Roadblocks between measurement and improved performance − Too many metrics − Debate over the correct metrics − Constantly changing metrics − Old, inaccurate, or incomplete data Overcoming roadblocks − Know what to measure, have a measurement process in place, and be able to access the right data ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 38  Why Is Measurement Important? Supports fact-based rather than subjective decision-making Communicates requirements throughout the supply chain Improves future supplier performance Recognizes outstanding performance Links critical measures to desired business outcomes Determines if new initiatives are producing the desired results Is the best tool to control purchasing and supply chain activities and processes ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 39  The Evolution of Purchasing and Supply Chain Management The Early Years (1850 – 1900) Growth of Purchasing Fundamentals (1900 – 1939) The War Years (1940 – 1946) The Quiet Years (1947 – mid-1960s) Materials Management Era (mid-1960s – late 1970s) The Global Era (late 1970s – 1999) Integrated Supply Chain Management and Technology (2000 – 2025) ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 40  Looking Ahead Part 2 – Purchasing operations and structure Part 3 – Strategic sourcing Part 4 – Strategic sourcing process Part 5 – Critical supply chain elements Part 6 – Future directions ©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 41