LECTURE 1: INTRODUCTION TO PURCHASING MANAGEMENT
PART I: PURCHASING BASICS
Porter’s value chain is a collection of activities that are performed by a company to create value for its
customers. Purchasing & supply management is mentioned via the following areas: materials/supply
management, procurement, inbound logistics and industry forces.
- Procurement is called a support activity, but it can help to develop competitive advantage.
- Industry forces is related to the market and therefore the purchasing and supply domain.
Purchasing & supply management relates to all activities for which invoices are received.
• Core activity: managing supplier relationships
◦ Structuring purchasing processes internally
◦ Structuring supplier relationships externally
• Aimed at:
◦ Securing supply
◦ Consistent quality
◦ Cost reduction
◦ Product innovation
◦ Efficiency improvement
• Through mobilizing supplier expertise It is all about managing external resources!
Why is purchasing important?
Improving purchasing performance may contribute to increased customer value, resulting in:
• Higher potential for profitability (purchasing savings can increase profit margin)
• Outsourcing
• Improved product and service quality
However, the importance of purchasing to business differs per segments (e.g. service has less products
to buy, while retailers have to).
Different concepts:
- Operational, short-term, deal- and margin-oriented: ordering, buying, sourcing
- Strategic, long term, performance and value-oriented: purchasing, procurement, supply chain
management, value chain management
1
,PART II: PURCHASING & BUSINESS STRATEGY
Importance of internal integration/alignment with purchasing: quality assurance, engineering, legal,
marketing, accounting/finance, operations.
Purchasing’s strategic irrelevance based on RBV (Ramsay, 2001):
- Inputs that cannot be purchased, such as learning-by-doing and organizational culture, are more
likely to be more specific to the firm than purchasable inputs and hence to have the potential to
be more significant rent-generators.
- This view is consistent with the large amount of attention that intangible assets have received in
the resource-based literature.
Purchasing’s strategic relevance (Mol, 2003)
- Purchasing can even be said to have become more relevant in recent years as firms have
outsourced more activities and look towards their external suppliers to create added value.
- This indicates strategic advantage not only resides within the firm but also between the firm and
its partners.
Competitive priorities/performance outcomes
Value improvement Cost reduction Risk management
- Customer satisfaction - Purchasing savings - Single vs. multiple sourcing
- Improving value - Doing more with less - Performance-based
proposition - Aggressive sourcing contracting
- New business revenue - Payment terms - Buyer dependence
- Superior solutions - Vendor dependence
STUDY QUESTIONS
Wynstra, Suurmond & Nullmeier (2019) – Purchasing and supply management as a disciplinary
research field: Unity in diversity
1) Which main disciplines does purchasing & supply management build on/draw from?
Operations Management (OM), Marketing (MA) and Strategy & Organization (SO).
2) What are key themes in each of these disciplines?
- Operations Management: supplier relationship management, tactical/operational processes,
supplier integration, order & contract, price and cost.
- Marketing: supplier relationship management & select, strategic processes, price & cost.
- Strategy and Organization: supplier relationship management, make or buy, innovation.
3) What are important theories for studying these themes?
- Operations Management: transaction cost economics, game theory, Agency theories.
- Marketing: transaction cost economics, resource-based view, social exchange theory.
- Strategy and Organization: transaction cost economics, resource-based view, knowledge-based
view.
Purchasing is rather a multi- than a mono-discipline. The next step: from multi- to inter- to trans-
disciplinary.
- Multidisciplinary: working with several disciplines.
- Interdisciplinarity: working between several disciplines.
- Transdisciplinary: working across and beyond several disciplines.
2
, LECTURE 2: PURCHASING BASICS
PART I: PURCHASING PROCESS (MANAGEMENT)
Purchasing process models: much focus on starting things and ongoing processes, but less attention
to handle things that go wrong and to terminate supplier relationships.
• Decision-making → buying decisions
• Linear → sourcing
• Strategic → supplier management
• Cyclical → continuous
• Hybrid linear-cyclical
Linear purchasing process
This models focus on a single purchase and follows this from beginning to ending. Some people argue
the first step is to determine to make or buy.
- Model can be viewed as a stage-gate process.
- You can look at the model backwards (e.g. you can only evaluate when there was a delivery).
- Separate responsibilities in different phases.
- Cost savings potential is higher in initial phases.
Purchasing process in practice:
• Overspecification: specification that are more than fit for purpose.
• Supplier or brand specifications: most buyers are involved only to a minor extent in the
specification phase. Specifications of user are often designed ‘towards’ a particular supplier.
• Inadequate supplier selection: suppliers insufficiently screened on financial status and
strengths and capabilities.
• Insufficient contracting expertise: in many cases insufficient legal contracts in place.
• Too much emphasis on price: strong price orientation leads to suppliers delivering inferior
quality.
• Administrative organization: order to pay cycle insufficiently organized leading to invoices that
are paid without sufficient control on products delivered.
Cyclical models
- The cyclical MSU model (Monckza, 1990): set of strategic and enabling process that need to
be conducted well in order to be succesful in purchasing.
- PSM process wheel (Van Raaij, 2016): strategic and tactical aspects of purchase and supply
management.
3
PART I: PURCHASING BASICS
Porter’s value chain is a collection of activities that are performed by a company to create value for its
customers. Purchasing & supply management is mentioned via the following areas: materials/supply
management, procurement, inbound logistics and industry forces.
- Procurement is called a support activity, but it can help to develop competitive advantage.
- Industry forces is related to the market and therefore the purchasing and supply domain.
Purchasing & supply management relates to all activities for which invoices are received.
• Core activity: managing supplier relationships
◦ Structuring purchasing processes internally
◦ Structuring supplier relationships externally
• Aimed at:
◦ Securing supply
◦ Consistent quality
◦ Cost reduction
◦ Product innovation
◦ Efficiency improvement
• Through mobilizing supplier expertise It is all about managing external resources!
Why is purchasing important?
Improving purchasing performance may contribute to increased customer value, resulting in:
• Higher potential for profitability (purchasing savings can increase profit margin)
• Outsourcing
• Improved product and service quality
However, the importance of purchasing to business differs per segments (e.g. service has less products
to buy, while retailers have to).
Different concepts:
- Operational, short-term, deal- and margin-oriented: ordering, buying, sourcing
- Strategic, long term, performance and value-oriented: purchasing, procurement, supply chain
management, value chain management
1
,PART II: PURCHASING & BUSINESS STRATEGY
Importance of internal integration/alignment with purchasing: quality assurance, engineering, legal,
marketing, accounting/finance, operations.
Purchasing’s strategic irrelevance based on RBV (Ramsay, 2001):
- Inputs that cannot be purchased, such as learning-by-doing and organizational culture, are more
likely to be more specific to the firm than purchasable inputs and hence to have the potential to
be more significant rent-generators.
- This view is consistent with the large amount of attention that intangible assets have received in
the resource-based literature.
Purchasing’s strategic relevance (Mol, 2003)
- Purchasing can even be said to have become more relevant in recent years as firms have
outsourced more activities and look towards their external suppliers to create added value.
- This indicates strategic advantage not only resides within the firm but also between the firm and
its partners.
Competitive priorities/performance outcomes
Value improvement Cost reduction Risk management
- Customer satisfaction - Purchasing savings - Single vs. multiple sourcing
- Improving value - Doing more with less - Performance-based
proposition - Aggressive sourcing contracting
- New business revenue - Payment terms - Buyer dependence
- Superior solutions - Vendor dependence
STUDY QUESTIONS
Wynstra, Suurmond & Nullmeier (2019) – Purchasing and supply management as a disciplinary
research field: Unity in diversity
1) Which main disciplines does purchasing & supply management build on/draw from?
Operations Management (OM), Marketing (MA) and Strategy & Organization (SO).
2) What are key themes in each of these disciplines?
- Operations Management: supplier relationship management, tactical/operational processes,
supplier integration, order & contract, price and cost.
- Marketing: supplier relationship management & select, strategic processes, price & cost.
- Strategy and Organization: supplier relationship management, make or buy, innovation.
3) What are important theories for studying these themes?
- Operations Management: transaction cost economics, game theory, Agency theories.
- Marketing: transaction cost economics, resource-based view, social exchange theory.
- Strategy and Organization: transaction cost economics, resource-based view, knowledge-based
view.
Purchasing is rather a multi- than a mono-discipline. The next step: from multi- to inter- to trans-
disciplinary.
- Multidisciplinary: working with several disciplines.
- Interdisciplinarity: working between several disciplines.
- Transdisciplinary: working across and beyond several disciplines.
2
, LECTURE 2: PURCHASING BASICS
PART I: PURCHASING PROCESS (MANAGEMENT)
Purchasing process models: much focus on starting things and ongoing processes, but less attention
to handle things that go wrong and to terminate supplier relationships.
• Decision-making → buying decisions
• Linear → sourcing
• Strategic → supplier management
• Cyclical → continuous
• Hybrid linear-cyclical
Linear purchasing process
This models focus on a single purchase and follows this from beginning to ending. Some people argue
the first step is to determine to make or buy.
- Model can be viewed as a stage-gate process.
- You can look at the model backwards (e.g. you can only evaluate when there was a delivery).
- Separate responsibilities in different phases.
- Cost savings potential is higher in initial phases.
Purchasing process in practice:
• Overspecification: specification that are more than fit for purpose.
• Supplier or brand specifications: most buyers are involved only to a minor extent in the
specification phase. Specifications of user are often designed ‘towards’ a particular supplier.
• Inadequate supplier selection: suppliers insufficiently screened on financial status and
strengths and capabilities.
• Insufficient contracting expertise: in many cases insufficient legal contracts in place.
• Too much emphasis on price: strong price orientation leads to suppliers delivering inferior
quality.
• Administrative organization: order to pay cycle insufficiently organized leading to invoices that
are paid without sufficient control on products delivered.
Cyclical models
- The cyclical MSU model (Monckza, 1990): set of strategic and enabling process that need to
be conducted well in order to be succesful in purchasing.
- PSM process wheel (Van Raaij, 2016): strategic and tactical aspects of purchase and supply
management.
3
