Introduction to Purchasing
and
Supply Chain Management
Session Roundup
The changing world of purchasing and supply
management
Purchasing’s increased role in this new world
Purchasing/supply management terms defined
Supply chain management activities
The pillars supporting supply management
The historic evolution of purchasing/supply management
A New Competitive Environment
Increased Competition changes buyer/seller
balance of power
Evolution of competitive environment:
60’s / 70’s
– Marketing strategies capturing loyalty.
– Strong engineering, design, and manufacturing functions to support
market requirements.
– Customers needs translated into products.
– Need for high level quality at a reasonable cost.
– Need for flexibility and responsiveness.
A New Competitive Environment
Concept of Supply Chain Management Emerges
Evolution of competitive environment:
80’s
– Need for flexibility and responsiveness
90’s
– Organizations realized materials and service inputs from suppliers
impacted ability to meet customer needs.
– Resulted in increased focus on supply base and purchasing.
Why Purchasing is Important
As companies struggle to increase customer
value by improving performance, many
companies are turning their attention to
purchasing and to supply management.
Why Purchasing is Important
Results of Good Supply Management:
Potential for Profitability
Outsourcing
Improved product and service quality
EPI/ESI
Understanding the Value
Chain
What are Purchasing and Supply
Management?
• Purchasing is a functional group/activity that
supplies the organization with materials. It is often
referred to as procurement.
• Supply Management is a progressive approach to
managing supply base and the supply chain.
What is a Supply Chain?
• A Supply Chain is three or more organizations
linked directly by one or more upstream or
downstream flows of products, services, finances,
and information from a source to a customer.
• The Supply Chain is a subset of the Value Chain.
Supply Chains
• Simple supply chains pull materials directly
from their origin, process them, package them,
and ship them to consumers.
Extraction Conversion
OEM
Distributors Consumer
What is a Value Chain?
• A value chain is a sequence of business functions
in which utility (usefulness) is added to products
or services as they move from supplier to end
customer
• Value chains are often viewed like a river-upstream and downstream
• NOTE: Value Chain discussion draws heavily from Michael Porter,
Competitive Advantage--Creating and Sustaining Superior
Performance
Primary and Support Activities
• Primary Activities
Inbound logistics
• Includes activities associated with receiving, storing,
and disseminating inputs to support the product or
service, including transportation, material handling,
warehousing, inventory control, vehicle scheduling,
and returns to suppliers
Primary and Support Activities
• Primary Activities
Operations
• Activities associated with transforming inputs into
final form, such as machining, packaging, assembly,
equipment maintenance, testing, printing, and
facility operations
Primary and Support Activities
• Primary Activities
Outbound logistics
• Includes activities associated with physically
collecting, storing, and distributing a product or
service to customers, such as finished goods
warehousing, material handling, delivery, order
processing, and scheduling
Primary and Support Activities
• Primary Activities
Marketing and Sales
• Includes activities associated with providing a means
to which buyers can purchase the product and
inducing them to do so, such as advertising,
promotion, sales force efforts, job quoting, channel
selection, channel relations, and pricing
Primary and Support Activities
• Primary Activities
Service
• Includes activities associated with providing service
to enhance or maintain the value of the product, such
as installation, repair, training, parts supply, and
product adjustment
Primary and Support Activities
• Primary Activities
• In any firm, all the categories of primary activities are
present to some degree and play some role
• Key primary activities often differ from industry to
industry
Primary and Support Activities
• Support Activities
Firm infrastructure
• Consists of a number of activities, including general
management, planning, government affairs, finance,
accounting, legal, and quality management
• While firm infrastructure is sometimes viewed as
overhead, it can be a powerful source of competitive
advantage
Primary and Support Activities
• Support Activities
Human resource management
• Consists of activities involved in recruiting, hiring,
training, developing, and compensating all types of
personnel
Primary and Support Activities
• Support Activities
Technology Development
• Includes activities typically associated with MIS,
engineering, and R&D and involve activities that
seek to improve product and processes.
Primary and Support Activities
• Support Activities
Technology Development
• New product and process development are primary
concerns of technology development support
activities
Primary and Support Activities
• Support Activities
– Procurement
• Involves activities associated with identifying,
evaluating, selecting, managing, and developing
sources of supply
Primary and Support Activities
• Support Activities
– Procurement
– Though purchased inputs are commonly associated
with primary activities, purchased inputs are
present in every value activity, including support
activities.
Primary and Support Activities
• Support Activities
-Procurement
– Examples:
» Supplies
» Travel services
» Media
What is Value Chain Integration?
• Value chain integration involves bringing together
different groups, functions, or organizations, either
formally or informally, physically or by information
technology, to work jointly and often concurrently
on a common business-related assignment purpose
Horizontal Integration
Across the Value Chain
• Ex. of how firms integrate across the value chain –
–
–
–
Committees/groups/teams
Shared and linked information systems
Integrated performance goals/objectives/measures
Strategy development process
Horizontal Integration
Across the Value Chain
• Ex. of how firms integrate across the value chain – Co-location of personnel within and between the organization
– Through a process orientation
– Informal or ad hoc exchange of information
– Shared risk and reward projects
Supply Chains Illustrated
Supply
Chains
Illustrated
Relationships within the
Supply Chain
• Organizations are forming partnership and
alliances with others in the supply chain. These
require a shared resource base so the entire
chain can benefit as a whole.
The Supply Chain Umbrella
• Encompasses activities that are part of a network
supporting efficient and effective flow of goods
and information across the supply chain.
• Organizations recognize value of aligning,
coordinating, integrating and synchronizing these
activities.
The Supply Chain Umbrella
• Supply Chain activities include:
–
–
–
–
–
–
Purchasing
Inbound Transportation
Quality control
Demand and Supply Planning
Receiving, Materials Handling, and Storage
Material or Inventory Control
The Supply Chain Umbrella
• Supply Chain activities include:
–
–
–
–
–
–
Order Processing
Production Planning, Scheduling, and Control
Warehousing/Distribution
Shipping
Outbound Transportation
Customer Service
Four Pillars of Purchasing and Supply Chain
Management Strategies