WEEK 3 - Purchasing Organization in the Enterprise PDF

SUPPLY CHAIN AND MANAGEMENT Purchasing Organization in the Enterprise Asst. Prof. Sarah Castillo Vanguardia Intended Learning Outcomes At the end of the discussion, the students should be able to: Analyze the differences between centralized and decentralized purchasing...

SUPPLY CHAIN AND MANAGEMENT Purchasing Organization in the Enterprise Asst. Prof. Sarah Castillo Vanguardia Intended Learning Outcomes At the end of the discussion, the students should be able to: Analyze the differences between centralized and decentralized purchasing structures. Identify and explain the key components of purchasing costs Know the criteria and methods used for suppliers' appraisal Discussion Outline Purchasing Defined Centralized and Decentralized Purchasing Purchasing Costs Suppliers’ Appraisal PURCHASING DEFINED Purchasing responsible for obtaining the materials, parts, and supplies and services needed to produce a product or Source: https://www.google.com/search?sa=X&sca_esv=f2f12fe6c03236ec&sca_upv=1&rlz=1C1CHBF_enPH1081PH1082&udm=2&sxsrf=ADLYWIIfr8x9tCZp3pfxJzVNs8EqY9JuNQ:1724671364 349&q=purchasing+logo&stick=H4sIAAAAAAAAAFvEyl9QWpSckVicmZeukJOfng8AmD- ZHhIAAAA&source=univ&ved=2ahUKEwiyz5rAxZKIAxVJr1YBHTZII4wQrNwCegQIZxAA&biw=1293&bih=681&dpr=1.49#vhid=8xm6gCzOtsnSnM&vssid=mosaic provide a service Purchasing Cycle series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition PURCHASING DEFINED Goal of Purchasing develop and implement purchasing plans for products and services that support operations Source: https://www.google.com/search?sa=X&sca_esv=f2f12fe6c03236ec&sca_upv=1&rlz=1C1CHBF_enPH1081PH1082&udm=2&sxsrf=ADLYWIIfr8x9tCZp3pfxJzVNs8EqY9JuNQ:1724671364 349&q=purchasing+logo&stick=H4sIAAAAAAAAAFvEyl9QWpSckVicmZeukJOfng8AmD- ZHhIAAAA&source=univ&ved=2ahUKEwiyz5rAxZKIAxVJr1YBHTZII4wQrNwCegQIZxAA&biw=1293&bih=681&dpr=1.49#vhid=8xm6gCzOtsnSnM&vssid=mosaic strategies Duties of Purchasing Identifying sources Maintaining a database Managing supplies of supply of suppliers Negotiating Obtaining goods and contracts services PURCHASING DEFINED Purchasing Interfaces Legal Operations Accounting Purchasing Data processing Design Receiving Suppliers PURCHASING DEFINED Purchasing Cycle Legal 1. Requisition received Operations Accounting 2. Supplier selected 3. Order is placed Data process- 4. Monitor orders Purchasing ing 5. Receive orders Suppliers Design Receiving CENTRALIZED PURCHASING Structure Source: https://www.google.com/search?sa=X&sca_esv=f2f12fe6c03236ec&sca_upv=1&rlz=1C1CHBF_enPH1081PH1082&udm=2&sxsr f=ADLYWIIfr8x9tCZp3pfxJzVNs8EqY9JuNQ:1724671364349&q=purchasing+logo&stick=H4sIAAAAAAAAAFvEyl9QWpSckVicmZeu kJOfng8AmD- ZHhIAAAA&source=univ&ved=2ahUKEwiyz5rAxZKIAxVJr1YBHTZII4wQrNwCegQIZxAA&biw=1293&bih=681&dpr=1.49#vhid=8xm 6gCzOtsnSnM&vssid=mosaic A single purchasing department handles all procurement activities for the entire organization. Advantages Centralized purchasing allows bulk buying, leading to Economies of Scale cost savings due to discounts and lower prices. Ensures uniformity in purchasing decisions and contracts Consistency across the organization. Enhanced Consolidation of purchasing power improves the Negotiation Power organization's ability to negotiate better terms with suppliers. Promotes standardization of materials and services, Standardization reducing variability and simplifying inventory management. CENTRALIZED PURCHASING Structure Source: https://www.google.com/search?sa=X&sca_esv=f2f12fe6c03236ec&sca_upv=1&rlz=1C1CHBF_enPH1081PH1082&udm=2&sxsr f=ADLYWIIfr8x9tCZp3pfxJzVNs8EqY9JuNQ:1724671364349&q=purchasing+logo&stick=H4sIAAAAAAAAAFvEyl9QWpSckVicmZeu kJOfng8AmD- ZHhIAAAA&source=univ&ved=2ahUKEwiyz5rAxZKIAxVJr1YBHTZII4wQrNwCegQIZxAA&biw=1293&bih=681&dpr=1.49#vhid=8xm 6gCzOtsnSnM&vssid=mosaic A single purchasing department handles all procurement activities for the entire organization. Disadvantages Reduced Slower decision-making process as all purchasing Responsiveness activities are channeled through a central unit. Lack of Local Centralized purchasing may overlook local needs and Adaptation conditions, leading to inefficiencies. DECENTRALIZED PURCHASING Source: https://www.google.com/search?sa=X&sca_esv=f2f12fe6c03236ec&sca_upv=1&rlz=1C1CHBF_enPH1081PH1082&udm=2&sxsr Structure f=ADLYWIIfr8x9tCZp3pfxJzVNs8EqY9JuNQ:1724671364349&q=purchasing+logo&stick=H4sIAAAAAAAAAFvEyl9QWpSckVicmZeu kJOfng8AmD- ZHhIAAAA&source=univ&ved=2ahUKEwiyz5rAxZKIAxVJr1YBHTZII4wQrNwCegQIZxAA&biw=1293&bih=681&dpr=1.49#vhid=8xm 6gCzOtsnSnM&vssid=mosaic Each department or business unit within the organization has its own purchasing function. ADVANTAGES DISADVANTAGES Departments can respond quickly to local Decentralized purchasing can lead to needs, leading to improved operational fragmented buying and missed opportunities efficiency. for bulk discounts. Departments have a better understanding of Different departments may follow different local suppliers and market conditions, procurement processes, leading to enabling better purchasing decisions. inefficiencies and potential conflicts. Each department is responsible for its own Multiple purchasing units may lead to purchasing decisions, leading to greater redundant activities and increased ownership and control. administrative costs. GROUP PURCHASING ORGANIZATION (GPO) PURCHASING COSTS: COMPONENTS PURCHASING COSTS  PURCHASING COSTS: REDUCTION Source: https://simfoni.com/cost-reduction/ PURCHASING COSTS: REDUCTION TOTAL COST OWNERSHIP (TCO) TOTAL COST OWNERSHIP (TCO) SUPPLIERS’ APPRAISAL  SUPPLIERS’ APPRAISAL: METHODS Surveys and Performance Questionnaires Metrics Third-Party Site Visits Audits SUPPLIERS’ APPRAISAL: METHODS Link to sample Supplier Audit Checklist REFERENCES https://educationleaves.com/what-is-group-purchasing- organization-gpo/ Benton, Jr. W.C. (2010). Purchasing and Supply Chain Management. 2nd ed. McGraw Hill Jacobs F. et al. (2011). Manufacturing planning & control: for supply chain management. 6th ed. McGraw Hill Jacobs F. et al. (2011). Operations and Supply Chain Management. 1st ed. McGraw Hill DISCLAIMER Every reasonable effort is made to ensure the accuracy of the information used in the creation of this reference material, without prejudice to the existing copyrights of the authors. As an off-shoot of the innumerable difficulties encountered during these trying times, the authors endeavored to ensure proper attribution of the esteemed original works, by way of footnotes or bibliography, to their best abilities and based on available resources, despite the limited access and mobility due to quarantine restrictions imposed by the duly constituted authorities. 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