Chapter 1 Introduction To Purchasing And Supply Chain Management 20a63295d0a278bfdac2171e960f464e PDF

POMG3720 Procurement Management Session: 1 Dr Rezaul Shumon Department of Operations Management and Business Statistics 1  Housekeeping Class Day Time Venue...

POMG3720 Procurement Management Session: 1 Dr Rezaul Shumon Department of Operations Management and Business Statistics 1  Housekeeping Class Day Time Venue 8-10AM/12-2:00 Lecture/ seminar MON/WED PM E22 Each topic every week there will be - Lecture Problem solving/ Case study/ Group work Q&A Text Books  Course Learning Outcomes Analyze the strategic role of procurement Develop and Implement Procurement Policies and Procedures Evaluate Supplier Management and Global Sourcing Strategies Apply Sustainability Principles in Procurement Practices Enhance Negotiation and Management Science Skills in Procurement 4  COURSE SYLLABUS WEE LECTURES # TOPICS/ SUBJECTS REMARKS (e.g., ASSESSMENTS) K 1 2 1 Introduction to purchasing and supply chain 3 2 The purchasing process 4 3 Procurement policies, procedures and support tools 5 4 Category strategy development 6 5 Revision/ Quiz In class test (Lecture 1, 2, 3 and 4) 20% 7 6 Supplier evaluation and selection 8 7 Supplier Quality Management 9 8 Supplier management and development 10 9 Global Sourcing 11 10 Strategic cost management 12 11 Negotiation and conflict management Project (30%) 13 12 Purchasing and supply chain analysis tool and techniques 14 13 Purchasing and supply chain analysis tool and techniques 15 14 Review 5 16 Final exam (50%)  Assessment Tasks Assessment Task Type Weight 30% ( In class test Short Questions/ MCQ (Individual) Quiz/Scenario/short case/questions) Group project Work in teams and submit a 30% ( report) procurement project report 40% (Quiz+short Exam Individual questions/ analysis) 6  Chapter Overview A new competitive business environment Why purchasing is important Understanding the language of purchasing and supply chain management Achieving purchasing and supply chain benefits 7  Chapter Overview The supply chain umbrella – management activities Four enablers of purchasing and supply chain management The evolution of purchasing and supply chain management Looking ahead 8 Purchasing & Supply Chain Management, 6e  A New Competitive Environment ▪ Increasing numbers of world class global competitors ▪ Sophisticated customer base ▪ More performance at lower cost ▪ Widely available information sources ▪ Balance of power between buyers and suppliers ▪ Greater levels of outsourcing 9  Factors Driving SCM ▪ Customer expectations and requirements ▪ Constantly changing and more demanding ▪ Ability of an organization’s supply chain to identify and mitigate risk ▪ Minimize disruptions ▪ Competition is now between supply chains, not just between companies 10  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 11 Language of Purchasing and SCM ▪ Is purchasing different from supply management? ▪ Are supply chains and value chains the same? ▪ What is supply chain management? ▪ What is an extended enterprise? 12  Purchasing ▪ A functional group (i.e., a formal entity on the organization chart) as well as a functional activity (i.e., buying goods and services) ▪ a.k.a. as procurement 13 Purchasing & Supply Chain Management, 6e  Purchasing ▪ Activities ▪ Supplier identification and selection ▪ Buying ▪ Negotiation ▪ Contracting ▪ Supply market research ▪ Supplier measurement and improvement ▪ Purchasing systems development 14 Purchasing & Supply Chain Management, 6e  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 15 Purchasing & Supply Chain Management, 6e  Supply Management ▪ 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 to achieve the organizational mission 16 Purchasing & Supply Chain Management, 6e  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 17 Purchasing & Supply Chain Management, 6e  Defining Supply Management Strategic Orientation Cross Supply Base Functional Management Groups Process- Driven Approach 18 Purchasing & Supply Chain Management, 6e  Supply Management ▪ Strategic responsibilities ▪ Activities which have a major long-term impact on firm performance ▪ Aligned with the overall mission and strategies of the firm ▪ Managing the supply base ▪ Work directly with suppliers to provide world-class performance ▪ A supercharged version of purchasing 19 Purchasing & Supply Chain Management, 6e  Supply Management ▪ Process approach ▪ Identifying, evaluating, selecting, managing, and developing suppliers to improve performance ▪ Move across functional area boundaries ▪ Cross-functional ▪ Sharing information ▪ Suppliers as an extension of the buying company 20 Purchasing & Supply Chain Management, 6e Supply Chains and Value Chains ▪ Supply chain orientation ▪ Higher level recognition of the strategic value of managing operational activities and flows within and across a supply chain ▪ Value chain ▪ Primary and secondary support activities that can lead to competitive advantage 21 Value Chain Source: Michael Porter, 1985 Some Key Broad Level SC Concepts Supply Chains and Value Chains ▪ Supply chain ▪ Set of 3 or more organizations linked directly by 1 or more of upstream or downstream flows of products, services, finances, and information from a source to a customer ▪ Subset of the value chain 24 Purchasing & Supply Chain Management, 6e  Supply Chains vs. Value Chains ▪ Supply chain management ▪ Endorses a supply chain orientation and involves proactive management of two- way movement and coordination of goods, services, information, and funds from raw material through end user 25 Purchasing & Supply Chain Management, 6e  The Extended Value Chain Firm infrastructure Support Human resource management Activities Technology development Purchasing Customers Materials/Services Information/Funds/Knowledge Suppliers Inbound Outbound Marketing Customer Operations Logistics Logistics & Sales Service Primary Activities Exhibit 1.2 Materials / Physical Distribution / Supply Management Channel Management Total Supply Chain / Total Logistics Management 26 Purchasing & Supply Chain Management, 6e  Cereal Value Chain Example Grain Cereal Packaged Cereal Farmer Processor Packaging Distributor Packaged Cereal Paperboard Grocer Exhibit 1.3 Corrugated Packaged Box Mfr Cereal Wood Consumer Labels Lumber Label Material flows Company Mfr Information flows 27 Purchasing & Supply Chain Management, 6e Procurement ▪ Procurement as a Process It can be seen as a sequential chain of events leading to the acquisition of supplies. Link in the procurement process chain is information. ▪ Procurement as a Function or Department Sourcing refers to the practice and skill Procurement is a formal entity on the of being able to track down sources of organization chart. supply. People under this department or unit use Procurement refers to taking those specialized knowledge, skills and resources sources of supply that have been to perform only procurement related identified as being purposefully (specialized) tasks advantageous in theory, and converting them into realizable sources of supply in real term. Procurement: Evolution “HST to deliver 50 jars of fragrant smooth oil each 15 days after and during the reign of AS. In return he will be paid 600 small weight in grain. This order will continue indefinitely until the purchaser or his son removes his consent.” – reads a clay tablet excavated at El-Rash Shamra, Syria, dated about 2800 BC. [Source: Lysons and Farrington, 2006] Concentrated on the purchasing of the tangible products and outcome Product-centred dimensions by means of which the product can be described and mentioned. Process-centred Began to focus on the process through which the outcomes are delivered. Expanded to include buyer-supplier relationships and how these might be Relational used to manage the outcomes. Employs an integrated methodology to manage relationships, processes and Performance-centred outcomes. Source: Stannack and Jones, 1996 Evolution of Purchasing and SCM ▪ The early years ▪ 1850 – 1900 ▪ Growth of purchasing fundamentals ▪ 1900 – 1939 ▪ The war years ▪ 1940 – 1946 ▪ The quiet years ▪ 1947 – Mid-1960s 30 Purchasing & Supply Chain Management, 6e Evolution of Purchasing and SCM ▪ Materials management comes of age ▪ Mid-1960s – Late 1970s ▪ The global era ▪ Late 1970s – 1999 ▪ Integrated supply chain management ▪ The 21st century 31 Purchasing & Supply Chain Management, 6e The Last Decade in Procurement Source: GRA and Zycus (2020) Managing the People and Technology Change Requirements for Procurement 4.0 Procurement Activities Making sourcing decisions Supplier identification and selection Negotiation with suppliers Contracting Buying (ordering, expediting, paying etc.) Supply market research Rationalizing the supply base Developing supplier potentials Supplier relationship management Supplier measurement and improvement Purchasing systems development Strategic Procurement Management 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 to achieve the organizational mission. (Monczka et al, 2016) To put simply, It is a progressive approach to managing the supply base. The focus is on relationships requiring managers to work closely and directly with suppliers. It has to be embedded in the company strategy. It involves a cross-functional team. 5 Rights Getting the “right” quality In the “right” quantity At the “right” time For the “right” price From the “right” source Expectations on Procurement Source: GRA (2019) Integrating Procurement & Supply Chain Strategy - The next frontier of competitive advantage Current Challenges INTERNAL EXTERNAL ▪ Lack of understanding for the value ▪ More complex and global supply chains proposition for Procurement. ▪ New technologies to grasp: analytics, ▪ A history of cost reduction focus artificial intelligence, process ▪ Limitations with skills and talents automation ▪ Teams with low maturity levels in ▪ Digital transformation challenges managing data ▪ Faster cycle time from the businesses ▪ Manual and complex processes ▪ Increasing speed of change Source: GRA and Zycus (2020) Managing the People and Technology Change Requirements for Procurement 4.0 A new decade ahead Source: Hackett Group (2019) Key Issues Study  Enablers of Purchasing and SCM Human Organizational Information Measurement Resources Design Technology View the supply chain Use data from visible holistically Demand planning Centrally-led supply teams sources Manage critical Order commitment, scheduling, and production relationships Executive responsibility for management Quantify what creates value coordinating purchasing and supply chain activities Distribution and Analyze competitive markets transportation scheduling Use goals that change over Collocation of supply time Engage in fact-based personnel with internal decision making customers Material replenishment Rely on benchmarking to establish performance targets Practice advanced cost Cross-functional teams to management Reverse auctions manage supply chain processes Link to business goals and Understand e-business objectives systems Requisition to pay systems Supply strategy coordination and review sessions between business units Feature efficiency and Analyze big data Intranets effectiveness measures Executive buyer-supplier council to coordinate with Assign ownership and Utilize mobile devices suppliers Webinars and podcasts accountability Purchasing vs. Procurement vs. Strategic Sourcing Purchasing is an activity that follows conduct of a formal sourcing process, while procurement and strategic sourcing are best described as processes.  Managing procurement priorities such that Strategic they are well-aligned with goals and Sourcing objectives of the supply chain and of the overall organization.  Managing a broad range of activities within the procurement process (e.g. supplier Procurement selection, price negotiation, contract management, supplier performance management).  Managing a firm’s acquisition procedures and Purchasing standards, involving largely transactional activity of the buying of products & services.