Purchasing and Supply Chain Management, 3e Monczka/Trent/Handfield
Thomson Learning Copyright 2005
1
The Purchasing Process
Chapter 2
The Purchasing Process
Chapter 2
Purchasing and Supply Chain Management
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
Purchasing and Supply Chain Management, 3e Monczka/Trent/Handfield
Thomson Learning Copyright 2005
3
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.
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
Purchasing and Supply Chain Management, 3e Monczka/Trent/Handfield
Thomson Learning Copyright 2005
5
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
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
Purchasing and Supply Chain Management, 3e Monczka/Trent/Handfield
Thomson Learning Copyright 2005
7
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
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
9
1. User need for Product or Service
Approved Supplier? Purchasing Card On-line catalog Electronic Data Interchange Stock Check Automated Reorder Point NO YES Small $ Amount? YES NO 4. Purchase Approval Specification Statement of Work New product requirement
Customer order / MRP Traveling req / barcode
Purchase requisition
2. Evaluate Suppliers 3a. Bid and/or
Negotiation 3b. Supplier Selection Purchase Order Blanket PO Purchase Release 5. Release and Receive Product or Service Bill of Lading Packing Slip Discrepancy Report Kanban Acknowledgement Supplier Invoice Match PO and Invoice Payment to Supplier 6. Update Supplier
Scorecard Input used To Award Future Business E-Procurement
Documents
The Purchasing Process
Request for Quote / Information Complex Requiremen t ? YES NO
Purchasing & Supply Chain Management 3e, Monczka/Trent/Handfield
Purchasing and Supply Chain Management, 3e Monczka/Trent/Handfield
Thomson Learning Copyright 2005
11
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
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
Purchasing and Supply Chain Management, 3e Monczka/Trent/Handfield
Thomson Learning Copyright 2005
13
Purchase
Order
Blanket
Purchase
Order
Purchasing and Supply Chain Management, 3e Monczka/Trent/Handfield
Thomson Learning Copyright 2005
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
Purchasing and Supply Chain Management, 3e Monczka/Trent/Handfield
Thomson Learning Copyright 2005
17
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
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”
Sourcing Process
FedEx Strategic Sourcing Process
Profile the Sourcing Group
Select Sourcing Strategy
Generate Supplier Portfolio
19
Selected Activities
• Plan negotiation strategy • Evaluate supplier proposals
• Conduct negotiations with suppliers • Recommend sourcing decision
• 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
Sourcing Process
FedEx Strategic Sourcing Process
Negotiate and Select Suppliers
Operationalize Supplier Integration
Benchmark the Supply Market
Purchasing & Supply Chain Management 3e, Monczka/Trent/Handfield
