Procurement Part One
Marketing Logistics
Procurement or Purchasing
• Purchasing: actual buying of materials and
services.
• Procurement: process-oriented and
strategic.
• Purchasing is usually the largest single
expense of doing business. More so as
outsourcing increases.
Procurement or Purchasing
Procurement or Purchasing
Outsourced
Purchasing Goals
•
•
•
•
•
•
•
•
Provided uninterrupted flow of materials.
Minimize inventory costs.
Maintain, improve quality.
Find, develop suppliers.
Standardize where possible.
Optimize costs.
Improve organization’s competitive position.
Harmoniously interact with all of organization.
Cost trade-offs to Be Considered
by the Purchasing Executive
Source: Douglas M. Lambert and Jay U. Sterling, “Measuring Purchasing Performance,” Production and Inventory
Management Review 4, no.6 (June 1984), p. 52. Reprinted with permission from P&IM Review, June 1984. Copyright 1984
by T.D.A. Publications, Inc., Hollywood, FL.
Cost trade-offs to Be Considered
by the Purchasing Executive
Cost savings
associated with
volume buying
Inventory
carrying
costs
Source: Douglas M. Lambert and Jay U. Sterling, “Measuring Purchasing Performance,” Production and Inventory
Management Review 4, no.6 (June 1984), p. 52. Reprinted with permission from P&IM Review, June 1984. Copyright 1984
by T.D.A. Publications, Inc., Hollywood, FL.
Cost trade-offs to Be Considered
by the Purchasing Executive
Inventory
carrying
costs 
Cost savings
associated with
volume buying
The savings associated with volume buying include:
Lower per-unit purchasing prices
Lower transportation costs
Lower warehouse handling costs
Lower order-processing costs
Lower production lot quantity costs
Lower stockout costs
The costs of carrying inventory include:
Capital costs associated with the inventory investment
Inventory service costs (insurance and taxes)
Storage space costs
Inventory risk costs
Source: Douglas M. Lambert and Jay U. Sterling, “Measuring Purchasing Performance,” Production and Inventory
Management Review 4, no.6 (June 1984), p. 52. Reprinted with permission from P&IM Review, June 1984. Copyright 1984
by T.D.A. Publications, Inc., Hollywood, FL.
Go to Part Two.
Procurement Part Two
Marketing Logistics
Purchasing Decision Variables:
How to Rate Suppliers
• Lead time and lead time
variability.
• On-time rate.
• Supplier’s inventory.
• Ordering convenience.
• Ability to expedite.
• Downtime risks due to
vendor problems.
• Product reliability, quality,
maintenance requirements.
• Technical specifications.
• Technical/training services
offered.
• Price competitiveness.
• Sales representative(s).
• Past experience with
vendor.
• Reputation of vendor.
• Financing.
• Vendor flexibility.
• Engineering/design
capabilities.
Supplying a Manufacturer
Supplying a Manufacturer
Procurement or Purchasing
Warehouse
Procurement or Purchasing
Procurement or Purchasing
Procurement or Purchasing
Lead time and lead time variability.
Procurement or Purchasing
On-time rate.
Procurement or Purchasing
Supplier’s inventory.
Procurement or Purchasing
Ordering convenience
Procurement or Purchasing
Ability to expedite.
Procurement or Purchasing
Downtime risks due to
vendor problems.
Procurement or Purchasing
Product reliability, quality,
maintenance requirements.
Procurement or Purchasing
Engineering/
Design capabilities
Product reliability, quality,
maintenance requirements.
Technical
specifications
15 pounds
10-year service life
12 inches
Supplying a Manufacturer
• Technical, training services offered.
Supplying a Manufacturer
Price competitiveness.
$
Financing
Supplying a Manufacturer
Sales representatives.
Past experience with vendor.
Reputation of vendor.
Vendor flexibility.
Purchasing Decision Variables:
How to Rate Suppliers
• Lead time and lead time
variability.
• On-time rate.
• Supplier’s inventory.
• Ordering convenience.
• Ability to expedite.
• Downtime risks due to
vendor problems.
• Product reliability, quality,
maintenance requirements.
• Technical specifications.
• Technical/training services
offered.
• Price competitiveness.
• Sales representative(s).
• Past experience with
vendor.
• Reputation of vendor.
• Financing.
• Vendor flexibility.
• Engineering/design
capabilities.
Go to Part Three