Purchasing and Procurement: Measuring Logistics Costs and Performance PDF

Purchasing and procurement & Measuring logistics costs and performance  Purchasing and procurement part considers the nature of purchasing and procurement from both the buyer’s perspective, i.e. industrial buying behaviour, the supplier’s perspective, i.e. supplier development and involve...

Purchasing and procurement & Measuring logistics costs and performance  Purchasing and procurement part considers the nature of purchasing and procurement from both the buyer’s perspective, i.e. industrial buying behaviour, the supplier’s perspective, i.e. supplier development and involvement, relationships between buyers and suppliers, e-procurement. Nature of purchasing and the development of procurement Purchasing may be defined as the function associated with buying the goods and services required by the firm. However, the term procurement was developed around that period, as discussed below, -to denote an extension to the purchasing function towards a more strategic and process oriented level that includes selection of supply source locations, determination of the form in which the material is to be acquired, timing of purchase, price determination on a total life product cost basis, and supplier strategies.  The purchasing process Purchasing industrial products and services is performed on a group basis called a decision-making unit (DMU) and what others call a buying centre. A DMU consists of all the individuals or groups who participate in the purchasing decision-making process and who share some common goals and risks arising from such decisions. 4 The roles of those individuals in the DMU are contained in essentially five categories, as follows: Users – these are the people who will work with the product, either on an individual basis or in a group context. It is obvious that the user has an important say when it concerns the specification and selection of the product. Influencers – they are able to affect the outcome of the purchasing process by means of solicited or unsolicited advice. In the construction business, for example, architects have an important say in the choice of materials. Software specialists can exert influence on the selection of the hardware supplier (and vice versa). Buyers – these are not necessarily the same individuals as the users. In large organisations, it is often the buyer who negotiates with the supplier about the terms and conditions of the contract and who places the order. 5  Decision makers – these are the professionals who actually determine the selection of the supplier. Sometimes the decision maker is a designer who writes their specifications ‘towards’ a specific supplier because of positive experiences with this supplier’s products in the past. In other cases, the decision maker is the person who controls the budget. Gatekeepers – these are the people who control the flow of information from the supplier towards the other members of the DMU (and vice versa). In some cases, the gatekeeper may be the technical director’s secretary, who screens contacts with (particular) suppliers. In other cases, the buyer is the gatekeeper, who has the power to decide whether or not to circulate specific supplier documentation within the organisation. 6  The above purchasing process takes place for each and every item but may be reduced in effort depending on the item being purchased. For example, commodities such as office supplies or light bulbs are considered routine or straight re-buy types of products and may be subject to a simple re- order. At the other end of the spectrum, an order for new products or a major piece of equipment such as a passenger aircraft will be considered a new task, and every aspect of the purchasing process will be followed together with many of the strategic considerations. Purchasing costs and total cost of ownership (TCO) The purchasing cost of a product is often considered the unit price that is paid by the buying firm. The Total Cost of Ownership (TCO) is a comprehensive method that necessitates the buying organization to identify the costs it deems crucial or of utmost importance throughout the process of acquiring, possessing, utilizing, and eventually disposing of a product or service. In addition to the price paid for the item, TCO may include such elements as order placement, research and qualification of suppliers, transportation, receiving, inspection, rejection, replacement, downtime caused by failure, disposal costs, etc.  Two major approaches in applying TCO are cost based and value based. A cost- based approach relies on gathering or allocating actual cost data for each of the relevant TCO elements.  A value-based TCO model combines cost data with other performance data that are often difficult to monetise. These models have a tendency to become rather complex, as qualitative data are transformed to quantitative data. Supplier appraisal, development and relationships E-procurement E-procurement is the use of the internet in purchasing and procurement. There are six forms of e-procurement applications: e-sourcing, e-tendering, e-informing, e-reverse auctions, e-MRO (Maintenance, Repair and Operations) and web-based enterprise resource planning (ERP) References Grant, D.B. (2012). Logistics Management. Pearson Education Limited,p.35-50.