Procurement and Supply Chain Management PDF

For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  CHAPTER 1 INTRODUCING PROCUREMENT For use with Procurement and Supply Chain Management 8th Edi...

For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  CHAPTER 1 INTRODUCING PROCUREMENT For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan For useJ.with van Weele and Frank Procurement andRozemeijer © Cengage Supply Chain th Edition Learning 8EMEA Management 2022(9781473779112) by Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Learning Objectives The role and importance of the procurement and supply functions in the value chain. The difference between concepts such as ordering, buying, purchasing, procurement, sourcing, supply chain management and value chain management, and how these are interrelated. New developments in procurement and supply practices of organizations. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  The role of procurement in the value chain Primary activities are those activities that are required to offer the company’s value proposition to its customers. Primary activities can be divided into five generic categories: – Inbound Logistics. – Operations. – Outbound logistics. – Marketing and sales. – Services. (Porter, 1985) The procurement function should be able to meet the material requirements related to operations management, and inbound and outbound logistics. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  The role of procurement in the value chain Support activities are those value activities that are required to support the company’s primary activities. They can be divided into four generic categories: – Procurement. – Technology development. – Human resources management. – Facilities management (maintenance of firm’s infrastructure). This type of purchase is referred to as ‘non-production buying’, ‘indirect procurement’ or ‘general expenses’. Procurement activities may be also related to supplying products and services for the other support functions. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Procurement support Manufacturing processes can be characterized according to: – Make (and distribute) to stock (MTS). – Make to order (MTO). – Engineer to order (ETO). These contrasting manufacturing situations explain why procurement activities may be radically different between companies and industries. Buying for primary activities will be referred to as ‘production-related buying’ or direct procurement. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022 The role of procurement in the value chain For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Definition of concepts Purchasing: All activities for which the company receives an invoice from outside parties. Differentiation between: – Purchasing function. – Purchasing department. Procurement: All activities that are required in order to get the product from the supplier to its final destination. It is based on ‘total cost of ownership-thinking’. Definition: The management of the company’s external resources in such a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company’s primary and support activities is secured at the most favourable conditions covering the materials, information and money flows up to the point of consumption. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Procurement function covers Assessing if the company should consider make versus buy. Determining the procurement specifications (in terms of required quality and quantities) of the goods and services that need to be bought. Selecting the best possible supplier and developing procedures and routines to be able to do this. Preparing and conducting negotiations with the supplier in order to establish an agreement and to write up the legal contract. Placing the order with the selected supplier or to develop efficient purchase order and handling routines. Monitoring and control of the order to secure supply (expediting). Follow-up and evaluation (settling claims, keeping product and supplier files up-to date, supplier rating and supplier ranking). For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Definition of concepts Different definitions... Ordering… Operational, short- term, Buying… deal- and margin-oriented Purchasing… Procurement… Sourcing… Strategic, long- term, Supply chain management… performance- and value- oriented Value chain management…. Procurement: relates to every activity the company receives an invoice for… For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Definition of concepts Sourcing: Finding, selecting, contracting and managing the best possible source of supply on a worldwide basis. Supply management: All activities that are required to manage supplier relationships in such a way that their activities are aligned with the company’s overall business strategies and interests. Supply chain management: The management of all activities, information, knowledge and financial resources associated with the flow and transformation of goods and services up from the raw materials suppliers, component suppliers and other suppliers in such a way that the expectations of the end users of the company are being met or surpassed. Value chain management: All stakeholders belonging to the same value chain are challenged to improve the (buying) company’s value proposition to its final end-customers, i.e. consumers. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022 Linear procurement process model For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Importance of procurement to business For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022 Importance of procurement to business For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Importance of procurement to business The Spend Cube allows us to allocate procurement expenditure from three different angles: sourcing category, suppliers and internal budget holders or departments For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Classification of purchased goods (I) The procurement process may concern a large variety of goods and services. In general, purchased materials and services can be grouped into the following categories: Raw materials: Materials which have undergone no transformation or a minimal transformation and which serve as the base materials for a production process. Supplementary materials: Materials that are not absorbed physically in the end product. Semi-manufactured products: Products that have already been processed once or more, and will be processed further at a later stage. Components: Manufactured goods that will not undergo additional physical changes, but which will be incorporated in a system with which there is a functional relationship by joining it with other components. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Classification of purchased goods (II) Finished products: All products which are purchased to be sold, after negligible added value, either together with other finished products and/or manufactured goods. Investment goods or capital equipment: Products that are not consumed immediately, but which purchasing value is depreciated over an economic life- cycle. Maintenance, repair and operating materials (MRO items): Materials, which are necessary for keeping the organization running in general, and for the support activities in particular. Services: Labour-intensive, non-material activities that are executed by third parties on a contract basis. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Challenges and changes in procurement context Global sourcing – Components are increasingly sourced from foreign, low-cost countries, a reason why large manufacturing organizations have set up International Purchasing Offices (IPOs) in different regions of the world. Leveraged procurement and supply strategies – In companies with several manufacturing plants, important savings can be realized by combining common material requirements. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Challenges and changes in procurement context Sustainable sourcing – Challenges related to corporate social responsibility, business integrity, the environment and climate change are becoming more and more prevalent. Procurement professionals should ensure that the products and services they buy come from sources of high integrity. Resource scarcity – This poses new challenges for procurement professionals who need to develop a much more proactive outlook on how to secure the company’s future requirements for critical materials and products. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Challenges and changes in procurement context Digitalization – The capability of a supplier to link up with the buyer’s systems becomes a much greater concern for procurement professionals when selecting new suppliers. Early supplier involvement – As more and more innovations in industry come from suppliers, getting them involved early in the new product development process becomes an issue of prime concern. Cross-functional sourcing – Being able to work in cross-functional teams and having a sound technical background have also become important prerequisites. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022  Summary Procurement has developed into a key business driver. Its main purpose is to develop a competitive, world-class supply base for the company. Procurement encompasses everything for which the company receives an invoice. Traditionally, direct purchasing has received the most attention but this is changing. The most important new challenges will be global sourcing, the need to develop leveraged purchasing and supply strategies, involvement of suppliers in new product development, emerging digital technologies and socially responsible procurement. For use with Procurement and Supply Chain Management 8th Edition (9781473779112) Arjan J. van Weele and Frank Rozemeijer © Cengage Learning EMEA 2022