1、Unit Three Purchasing Managementv1.What is the relation between purchasing and production?v2.What items does a company usually purchase?v3.Do you know how an enterprise purchases the goods and materials for the products?Pre-reading Discussion 1Purchasing is the management of acquisition process.Its
2、responsibility is to ensure quality and economic supply of goods for the companys operation.Every organization,whether it is a manufacturer,a wholesaler,or a retailer,buys materials,services,and supplies from the outside suppliers to support its operation.Purchasing is one of the key links in the su
3、pply chain,so it has aIntroduction significant influence on the overall success of the organization.Ensuring that there are sufficient supplies of raw materials at the right price,of the required quality,in the right place and at the right time is obviously crucial for any manufacturing plant.Import
4、ance of Purchasing2Purchasing contributes to the firms efficiency and effectiveness in many ways.First,it helps to determine a firms cost structure.Purchasing goods and services are among the largest elements of cost for many firms.In the average manufacturing firm in North America,purchased goods a
5、nd services account for approximately 55 cents of every sale dollar.By way of contrast,the average expense of direct labor in the manufacturing process accounts for only about 10 cents of every sale dollar.While the percentage spent on purchased input does vary considerably among organizations,it is
6、 clear that the potential savings from strategic management of purchasing are considerable.Therefore,managers with good negotiating skills and strong relationships with suppliers can save their organizations large sum of money relative to their competitors.And identifying the right production equipm
7、ent and buying it at a good price can create competitive cost advantages that last for many years.So important is this process that over the years many organizations have developed large departments to deal with supplier transactions.3Second,good purchasing practices avoid operational problems.Stock
8、out of raw materials or component parts can shut down a production plant.The quality of finished goods and services obviously depends upon the quality of the materials and parts used in producing those items.If poor-quality components and materials are used,the final product will not meet customers
9、quality standards.Although avoiding these problems may not lead to operational effectiveness,operational effectiveness is impossible if these problems arise.v 4Without effective purchasing practices,operations in a firm may be disrupted,customer service levels may fall,and longterm customer relation
10、ship may be damaged.Before any product can be manufactured,supplies meeting certain conditions must be available.Fortunately,progressive managers have recognized these potential contributions of purchasing and have taken necessary steps to ensure the results.The most important step in successful org
11、anizations has been the elevation to top executive status of the purchasing manager.v This,coupled with high-caliber staff and the appropriate authority and responsibility,has resulted in an exciting and fruitful realization of the potential of the purchasing contribution.v 5Purchasing can determine
12、 a firms cost structure.It is the most important factor to save the cost in production.It is said that an efficient purchasing can lead to a good result of operation.On the contrary,the operation in a firm may be badly damaged by the inefficient purchasing.It is assumed that bad quality of raw mater
13、ials orv component parts can shut down a production plant.The progressive managers often take actions to have the purchasing arranged well and prospectively.Efficient Purchasing 6If you were a manager or a director of a company,the first thing you considered about would be the cost and productivity.
14、So the way to save the cost is to perform an efficient purchasing.We can say,purchasing manager plays a strategic role in every organization.What is purchasing?Usually,supply management is considered to be purchasing.In many firms,purchasing is seen as a clerical activity and some kind of business r
15、outine.However,when the emergent need of the supply happens,it will become very important.Under the new concept of the supply chain,many managers become aware of the strategic role that it plays in the management and leading.7Purchasing and service go hand in hand,and they often take up a large amou
16、nt of the cost of production.Reasonable goods purchasing practices avoid operational problems.Procurement Strategies 8Based on the consumption purposes of the acquired goods and services,procurement activities are often split into two distinct categories.The first category is direct,production-relat
17、ed procurement and the second is indirect,non-production-related procurement.9Direct procurement occurs in manufacturing settings only.It encompasses all items that are parts of finished products,such as raw materials,components and parts.Direct procurement,which is the focus in supply chain managem
18、ent,directly affects the production process of manufacturing firms.In contrast,indirect procurement activities concern“operating resources”that a company purchases to enable its operations.It comprises a wide variety of goods and services,from standardized low value items like office supplies and ma
19、chine lubricants to complex,costly products and services like heavy equipments and consulting services.Procurement Stepsv 10Procurement life cycle in modern businesses usually consists of seven steps:v Information Gathering:If the potential customer does not have an established relationship with sal
20、es/marketing functions of suppliers of needed products and services(P/S),it is necessary to search for suppliers who can satisfy the requirements.v Supplier Contact:When one or more suitable suppliers have been identified,Requests for Quotation(RFQ),Requests for Proposals(RFP),Requests for Informati
21、on(RFI)or Requests for Tender(RFT)may be advertised,or direct contact may be made with the suppliers.v Background Review:References for product/service quality are consulted,and any requirement for followup services including installation,maintenance and warranty are investigated.Samples of the P/S
22、being considered may be examined,or trials may be undertaken.v Negotiations:Negotiations are undertaken,and price,availability and customization possibilities are established.Delivery schedules are negotiated,and a contract to acquire the P/S is completed.vFulfillment:Supplier preparation,shipment,d
23、elivery and payment for the P/S are completed,based on contract terms.Installation and training may also be included.v v Consumption,Maintenance and Disposal:During this phase the company evaluates the performance of the P/S and any accompanying service support,as they are consumed.v Renewal:When th
24、e P/S has been consumed and/or disposed of,the contract expires,or the product or service is to be reordered,company experience with the P/S is reviewed.If the P/S is to be reordered,the company determines whether to consider other suppliers or to continue with the same supplier.v 11Effective procur
25、ement strategies to support supply chain management concepts require a much closer working relationship between buyers and sellers than was traditionally practiced.Three strategies have emerged:volume consolidation,supplier operational integration and value management.Each of these strategies requir
26、es an increasing degree of interaction between supply chain partners;thus,they may not be considered to be distinct and separate but rather evolutionary.12The first step in developing an effective procurement strategy is volume consolidation through reduction in the number of suppliers.Numerous adva
27、ntages are seen in this approach.First,potential suppliers are continually bidding for the buyers business,ensuring that prices would be quoted as low as possible.Second,maintaining multiple sources reduces the buyers dependence on any one supplier.This in turn serves to reduce the buyers risk shoul
28、d a specific supplier encounter such as strike,fire,internal quality problems,or other disruptions inability to supply.13The next level of development in procurement strategy emerges as buyers and sellers begin to integrate their processes and activities in an attempt to achieve substantial operatio
29、nal performance improvement in the supply chain.The integration begins to take the form of alliances or partnerships with selected participants in the supply base to reduce the total costs and improve the operating flows between the buyer and the seller.14Achieving operational integration with suppliers leads quite naturally to the next level of development in procurement strategy,value management.Value management is an even more intense aspect of supplier integration,going beyond a focus on buyerseller operations to a more comprehensive relationship.
