PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e

Introduction to
Purchasing and Supply
Chain Management
Chapter 1

CENGAGE LEARNING
Monczka – Handfield – Giunipero – Patterson
 Chapter Overview

 A new competitive environment

 Why purchasing is important
 Understanding the language of
purchasing and supply chain
management
 The supply chain umbrella

Purchasing & Supply Chain Management, 4e

2
 Chapter Overview

 Four enablers of purchasing and

supply chain management
 The evolution of purchasing and supply
chain management
 Looking ahead

Purchasing & Supply Chain Management, 4e

3
 A New Competitive Environment

 Increasing numbers of world-class

competitors
 Sophisticated customer base
 More performance at a lower cost
 Widely available information sources
 Balance of power between buyers and
suppliers
 Greater outsourcing
Purchasing & Supply Chain Management, 4e
4
 Factors Driving SCM

 Low cost and wide availability of

information more closely links the
members of a supply chain
 Competition in domestic and
international markets requires
quickness, agility, and flexibility

Purchasing & Supply Chain Management, 4e

5
 Factors Driving SCM

 Customer expectations and

requirements are more demanding
 Major disruptions require the ability of
a supply chain to react rapidly
 Competition between supply chains,
not just companies

Purchasing & Supply Chain Management, 4e

6
 Why Purchasing Is Important

 Purchased content is a significant part

of the cost of goods sold (≥ 55%)
 Move from traditional, adversarial
buyer-supplier relations to improve
supply chain performance
 Purchased content’s impact on product
and service quality

Purchasing & Supply Chain Management, 4e

7
 Why Purchasing Is Important

 Participation in product and process

design
 Use of cross-functional teams
 Early supplier involvement
 The supply chain’s impact on
competitive advantage

Purchasing & Supply Chain Management, 4e

8
Language of Purchasing and SCM

 Are supply chains and value chains the

same?
 What is supply chain management?
 What is an extended enterprise?

Purchasing & Supply Chain Management, 4e

9
 Purchasing

 A functional group (i.e., a formal entity

on the organization chart) as well as a
functional activity (i.e., buying goods
and services)
 Aka as procurement

Purchasing & Supply Chain Management, 4e

10
 Supply Management

 A strategic approach to planning for

and acquiring the organization’s
current and future needs through
effectively managing the supply base,
utilizing a process orientation in
conjunction with cross-functional
teams to achieve the organizational
mission

Purchasing & Supply Chain Management, 4e

11
 ISM’s Definition

 The identification, acquisition, access,

positioning, and management of
resources and related capabilities an
organization needs or potentially needs
in the attainment of its strategic
objectives

Purchasing & Supply Chain Management, 4e

12
 Defining Supply Management
Strategic
Orientation

Cross
Supply Base
Functional
Management
Groups

Process-
Driven
Approach

13
 Supply Chains and Value Chains

 Supply chain orientation – a higher

level recognition of the strategic value
of managing operational activities and
flows within and across a supply chain

Purchasing & Supply Chain Management, 4e

14
 Supply Chains and Value Chains

 Value chain – primary and secondary

support activities that can lead to
competitive advantage
 Supply chain – a set of 3 or more
organizations linked directly by 1 or
more of the upstream or downstream
flows of products, services, finances,
and information from a source to a
customer (subset of a value chain)
Purchasing & Supply Chain Management, 4e
15
 The Extended Value Chain
• Firm infrastructure
• Human resource management
Support Activities
• Technology development
• Purchasing
Materials/Services Information/Funds/Knowledge

Customers
Suppliers

Inbound Outbound Marketing Customer

Operations
Logistics Logistics & Sales Service

Primary Activities

Materials / Supply
Physical Distribution / Channel Management
Management

Total Supply Chain / Total Logistics Management

 Supply Chain vs. Value Chain

 Supply chain management – endorses

a supply chain orientation and involves
proactive management of the 2-way
movement and coordination of goods ,
services, information, and funds from
raw material through end user

Purchasing & Supply Chain Management, 4e

17
 Cereal Value Chain Example
Grain Cereal
Farmer Processor Packaging Distributor

Packaged
Cereal
Paperboard
Grocer

Corrugated
Box Mfr

Wood Consumer
Labels

Lumber Label Material

Company Mfr
Information

Purchasing & Supply Chain Management, 4e

18
 Critical SCM Processes

 New product development

 Customer-order fulfillment
 Supplier evaluation and selection
 Demand and supply planning

Purchasing & Supply Chain Management, 4e

19
 The Supply Chain Umbrella

 Purchasing
 Inbound transportation
 Quality control
 Demand and supply planning
 Receiving, materials handling, and
storage
 Material or inventory control

Purchasing & Supply Chain Management, 4e

20
 The Supply Chain Umbrella

 Order processing
 Production planning, scheduling, and
control
 Warehousing/distribution
 Shipping
 Outbound transportation
 Customer service

Purchasing & Supply Chain Management, 4e

21
Enablers of Purchasing and SCM
 Capable Human Resources

 Supplier relationship management

 Total cost analysis
 Purchasing strategies
 Supplier analysis
 Competitive market analysis

Purchasing & Supply Chain Management, 4e

23
 Proper Organizational Design

 Assessing and selecting the structure

and formal system of communication
 Division of labor
 Coordination
 Control
 Authority
 Responsibility

Purchasing & Supply Chain Management, 4e

24
Real-Time and Shared IT Capabilities

 Supply chain planning

 Forecast accuracy
 Optimized production scheduling
 Reduced working capital costs
 Shortened life cycles
 Reduced transportation costs
 Improved customer service

Purchasing & Supply Chain Management, 4e

25
Real-Time and Shared IT Capabilities

 Supply chain execution

 Obtaining materials
 Managing physical flows

Purchasing & Supply Chain Management, 4e

26
 Emerging SCM Technologies

 Global positioning systems

 Internet-based systems
 Bar codes
 Radio frequency identification devices
 Wireless devices

Purchasing & Supply Chain Management, 4e

27
Roadblocks to Measurement Systems

 Too many metrics

 Debate over the correct metrics
 Constantly changing metrics
 Old data

Purchasing & Supply Chain Management, 4e

28
Why Is Measurement Important?

 Supports fact-based decision making

 Communicates requirements through
the supply chain
 Improves future supplier performance
 Recognizes outstanding performance
 Links critical measures to desired
outcomes
 Determines if initiatives are working
Purchasing & Supply Chain Management, 4e
29
Evolution of Purchasing and SCM

 The early years: 1850 – 1900

 Growth of purchasing fundamentals:
1900 – 1939
 The war years: 1940 – 1946
 The quiet years: 1947 – mid-1960s

Purchasing & Supply Chain Management, 4e

30
Evolution of Purchasing and SCM

 Materials management comes of age:

mid-1960s – Late 1970s
 The global era: Late 1970s – 1999
 Integrated supply chain management:
beyond 2000

Purchasing & Supply Chain Management, 4e

31
 Remainder of the Book

 Section 2 – Purchasing Operations and

Structure
 Section 3 – Strategic Sourcing
 Section 4 – Strategic Sourcing
Processes
 Section 5 – Critical Supply Chain
Elements
 Section 6 – Future Directions
Purchasing & Supply Chain Management, 4e
32