Purchasing and Supply Chain Management The Purchasing Process Chapter 2 1
Chapter Overview This chapter address the following topics and ideas associated with achieving world class efficiency and effectiveness: Purchasing objectives Purchasing s responsibilities The purchasing process and role of e- procurement. Types of purchases Improving the purchasing process 2
Companies Look to Purchasing to Add Value A world-class purchasing staff must provide cost-reductions, improve supply chain quality, gain access to new sources of technology, improve cycle time, involve suppliers in product and process development, and streamline processes. 3
Purchasing Objectives What makes a department world-class? Objective 1: Support Operational Requirements Uninterrupted flow of high-quality material. Objective 2: Manage the Purchasing Process Efficiently and Effectively Limited resources necessitate best use of resources. 4
Purchasing Objectives What makes a department world-class? Objective 3: Supply Base Management Develop reliable, high-quality sources of supply. Objective 4: Develop Strong Relationships with Other Functional Groups Strong cross-functional relationships must exist internally. 5
Purchasing Objectives What makes a department world-class? Objective 5: Support Organizational Goals and Objectives. Purchasing must follow organizational directives. Objective 6: Develop Integrated Purchasing Strategies That Support Organizational Strategies. Purchasing s goals must be aligned with company s goals 6
Purchasing s Span of Control What decisions does Purchasing have legitimate authority to make? Evaluate and Select Suppliers Review Specifications Act as the Primary Contact with Suppliers Determine the Method of Awarding Purchase Contracts. 7
The Purchasing Cycle The Purchasing Process as a Cycle consists of five major stages. Identify user need Evaluate potential suppliers Bid, negotiate and select supplier Purchase approval Release and receive purchase requirements Measure supplier performance 8
The Purchasing Process 1. User need for Product or Service Purchasing Card On-line catalog Electronic Data Interchange Stock Check Automated Reorder Point Purchase Order Blanket PO Purchase Release 5. Release and Receive Product or Service E-Procurement Documents YES YES 4. Purchase Approval Bill of Lading Packing Slip Discrepancy Report Kanban Acknowledgement Small $ Amount? Approved Supplier? NO NO Supplier Invoice Match PO and Invoice NO Complex Requiremen t? 6. Update Supplier Scorecard Payment to Supplier Purchasing & Supply Chain Management 3e, Monczka/Trent/Handfield Thomson Learning, Copyright 2005 Specification Statement of Work New product requirement Customer order / MRP Traveling req / barcode Purchase requisition YES 2. Evaluate Suppliers 3a. Bid and/or Negotiation 3b. Supplier Selection Request for Quote / Information Input used To Award Future Business 9
Purchase Requisition Flow 10
When to use Competitive Bidding Conditions for Competitive Bidding: High enough volume Clear specifications Competitive marketplace Adequate time for the process If no preferred supplier exists 11
When is Negotiating Better? Conditions for Negotiating: When a criteria for competitive bidding is missing. When price is not the only deciding factor. When Early Supplier Involvement is needed. When supplier can t determine risks and costs. When development and production time are lengthy. 12
Purchase Order 13
Blanket Purchase Order 14
Receiving Process 15
Types of Purchases Classifications of Goods and Services: Raw Materials : petroleum, coal, lumber Semifinished Products and Components: subassemblies, semi finished products Finished Products: a complete, saleable product MRO: maintenance, repair and operating items 16
Types of Purchases Classifications of Goods and Services: Production Support Items: packaging materials, tapes, glues, etc. Services: payroll services, lawn care, snow removal Capital Equipment: production machinery, new manufacturing facilities Transportation and Third Party Purchasing: logistics services, management of inbound and outbound materials. 17
FedEx Strategic Sourcing Process Sourcing Process Profile the Sourcing Group Select Sourcing Strategy Generate Supplier Portfolio Select Implementation Path Selected Activities Confirm user requirements Develop category definition Define basic characteristics Understand industry and supply markets Assess bargaining position Evaluate alternative strategies Select appropriate approaches and techniques Identify qualified suppliers Determine supplier value-added capabilities Develop supplier short list Verify and adjust sourcing strategy Develop implementation plan 18
FedEx Strategic Sourcing Process Sourcing Process Negotiate and Select Suppliers Selected Activities Plan negotiation strategy Evaluate supplier proposals Conduct negotiations with suppliers Recommend sourcing decision Operationalize Supplier Integration Benchmark the Supply Market Purchasing & Supply Chain Management 3e, Monczka/Trent/Handfield Thomson Learning, Copyright 2005 Plan and implement transition to new suppliers relationships Link key processes Conduct joint process improvement activities Monitor market conditions Assess new technology and best practices impact Conduct benchmarking activities Determine appropriateness for reexamining category 19