MNP 2601 Purchasing Management
Chapter 1
The purchasing and supply function works towards common goal of maximizing efficiency and providing
maximum value to the end customer over an organization.
Charles Dominik 2008: purchasing management has been elevated to a more significant consideration of top
level business executives. The top 10 include:
Change 10 – Technology proliferated
Change 9 – center led procurement arrived
Change 8 – Purchasing grabbed more spend
Change 7 – Social responsibility became a top priority
Change 6 – Measurement was mandated
Change 5 – Strategic sourcing went DIY
Change 4 – Supply roles expand
Change 3 – Global sourcing went mainstream
Change 2 – The chief procurement officer position was adopted
Change 1 – The supply chain was recognized
Purchasing for business enterprises is inherent to practically all forms of business and has been a feature of
all businesses for centuries.
Purchasing is not equally important for all types of business enterprise
Butter & Linse: over the past 25 years the vaule of industrial and commercial purchasing changed from one
of simply buying goods and services to overseeing seeing an integrated set of management functions.
Gundlach 2006: the emphasizing coordination, the focus in purchasing moved away from transaction
management to relationship management – relationships internal and the enterprise as well as externally
with the many stakeholders that are involved in the narrow goods.
Unravelling the terminology confusion
The role of purchasing management function has changed from an admin activity, involving a simple
transferal of goods, to an independent managerial function known as supply management which
acknowledges the continuous interaction between variables to efficiently we realize the firm’s mission and
objectives.
The purchasing function is managed with an integrated management approach known as supply chain
management. All supply and buying organizations involved in the process of putting a product on the market,
for raw materials to final product are perceived as a unified entity.
In this journey of recognition there are myriad of purchasing and supply terms, and different concepts that
have been used incorrectly or interchangeably.
The traditional purchasing function developed into a broader concept known as supply management. Supply
management in turn was absorbed into a management philosophy known as supply chain management.
Purchasing and strategic purchasing
Purchasing refers to the systematic process of deciding what, when and how much to purchase, the act of
purchasing it and the process of ensuring that what is required is received on time in the quantity and quality
specified.
Above definition clearly emphasizes the classical approach to the purchasing function.
Purchasing function: the objective is ensuring the continuous flow products and services at the most
advantageous conditions for the firm, including the lowest total cost of ownership.
Strategic purchasing: the process of planning, implementing, evaluating and controlling strategic and
operating decisions for directing or activities of the purchasing function toward opportunities consistent with
the firm’s capabilities to achieve its long-term goals
1
, Strategic purchasing changes the focus of purchasing from a purely functional perspective to one that takes
the long-term goals of the firm as a whole into consideration in decisions thereby, in a very real sense,
contributing to the future direction that the firm will take.
Supply management
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.
Additional characteristics of supply managements include:
Supply management has a more strategic focus than purchasing
Supply management is clearly focused on the attainment of the overall organizational goals
Supply management maintains a systems approach to the acquisition of materials and services,
thereby involving other functional areas as well.
Supply management is a progressive approach to managing the supply base whereby suppliers are
regarded as extensions of the buying firm and where they are involved in the strategic level in and
long-term relationship closely resembling a partnership.
Purchasing is the foundation of supply management. Supply management is still a function of the enterprise
since it includes the typical activities of purchasing, but at the same time it has an broader more long-term
focus.
Supply chain management
SCM encompasses the planning and management of all activities involved in sourcing and procurement,
Conversion, and all logistics management activities.
That also includes coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third party service providers and customers. Supply chain management integrates supply and
demand management within and across companies.
SCM is not a particular function of an enterprise such a supply management and marketing. It is cross
function because it involves many functions.
The supply chain is strongly focused on the customer.
Logistics management
The part of SCM that plans, implements and controls the efficient, effective forward and reverse flow in
storage of goods services and related information between the point of origin and point of consumption in
order to meet customers’ requirements.
Important activities included in logistics management are:
traffic and transportation
inventory management
Packaging and handling
Warehousing
The processing of returned goods.
Customer service
Logistics is therefore strongly focused on the physical flow material goods and services, with a strong
emphasis integrating all these activities so that the total cost in the logistics system is minimized.
Objectives of purchasing and supply management
The objectives of a business enterprise should always be focused on the profitable satisfaction of customers’
needs.
If the purchasing and supply function is performed efficiently and effectively, it Serves the fundamental
objective of the firm – To ensure the highest possible return on the capital invested by the firm.
The objectives of purchasing and supply management also evolved as the global business environment
changed and firms had to adjust to more competitive circumstances.
The following objectives are the core of most purchasing and supply functions:
Supply the organization with the flow of materials and services that meet its current and Future needs
2
Chapter 1
The purchasing and supply function works towards common goal of maximizing efficiency and providing
maximum value to the end customer over an organization.
Charles Dominik 2008: purchasing management has been elevated to a more significant consideration of top
level business executives. The top 10 include:
Change 10 – Technology proliferated
Change 9 – center led procurement arrived
Change 8 – Purchasing grabbed more spend
Change 7 – Social responsibility became a top priority
Change 6 – Measurement was mandated
Change 5 – Strategic sourcing went DIY
Change 4 – Supply roles expand
Change 3 – Global sourcing went mainstream
Change 2 – The chief procurement officer position was adopted
Change 1 – The supply chain was recognized
Purchasing for business enterprises is inherent to practically all forms of business and has been a feature of
all businesses for centuries.
Purchasing is not equally important for all types of business enterprise
Butter & Linse: over the past 25 years the vaule of industrial and commercial purchasing changed from one
of simply buying goods and services to overseeing seeing an integrated set of management functions.
Gundlach 2006: the emphasizing coordination, the focus in purchasing moved away from transaction
management to relationship management – relationships internal and the enterprise as well as externally
with the many stakeholders that are involved in the narrow goods.
Unravelling the terminology confusion
The role of purchasing management function has changed from an admin activity, involving a simple
transferal of goods, to an independent managerial function known as supply management which
acknowledges the continuous interaction between variables to efficiently we realize the firm’s mission and
objectives.
The purchasing function is managed with an integrated management approach known as supply chain
management. All supply and buying organizations involved in the process of putting a product on the market,
for raw materials to final product are perceived as a unified entity.
In this journey of recognition there are myriad of purchasing and supply terms, and different concepts that
have been used incorrectly or interchangeably.
The traditional purchasing function developed into a broader concept known as supply management. Supply
management in turn was absorbed into a management philosophy known as supply chain management.
Purchasing and strategic purchasing
Purchasing refers to the systematic process of deciding what, when and how much to purchase, the act of
purchasing it and the process of ensuring that what is required is received on time in the quantity and quality
specified.
Above definition clearly emphasizes the classical approach to the purchasing function.
Purchasing function: the objective is ensuring the continuous flow products and services at the most
advantageous conditions for the firm, including the lowest total cost of ownership.
Strategic purchasing: the process of planning, implementing, evaluating and controlling strategic and
operating decisions for directing or activities of the purchasing function toward opportunities consistent with
the firm’s capabilities to achieve its long-term goals
1
, Strategic purchasing changes the focus of purchasing from a purely functional perspective to one that takes
the long-term goals of the firm as a whole into consideration in decisions thereby, in a very real sense,
contributing to the future direction that the firm will take.
Supply management
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.
Additional characteristics of supply managements include:
Supply management has a more strategic focus than purchasing
Supply management is clearly focused on the attainment of the overall organizational goals
Supply management maintains a systems approach to the acquisition of materials and services,
thereby involving other functional areas as well.
Supply management is a progressive approach to managing the supply base whereby suppliers are
regarded as extensions of the buying firm and where they are involved in the strategic level in and
long-term relationship closely resembling a partnership.
Purchasing is the foundation of supply management. Supply management is still a function of the enterprise
since it includes the typical activities of purchasing, but at the same time it has an broader more long-term
focus.
Supply chain management
SCM encompasses the planning and management of all activities involved in sourcing and procurement,
Conversion, and all logistics management activities.
That also includes coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third party service providers and customers. Supply chain management integrates supply and
demand management within and across companies.
SCM is not a particular function of an enterprise such a supply management and marketing. It is cross
function because it involves many functions.
The supply chain is strongly focused on the customer.
Logistics management
The part of SCM that plans, implements and controls the efficient, effective forward and reverse flow in
storage of goods services and related information between the point of origin and point of consumption in
order to meet customers’ requirements.
Important activities included in logistics management are:
traffic and transportation
inventory management
Packaging and handling
Warehousing
The processing of returned goods.
Customer service
Logistics is therefore strongly focused on the physical flow material goods and services, with a strong
emphasis integrating all these activities so that the total cost in the logistics system is minimized.
Objectives of purchasing and supply management
The objectives of a business enterprise should always be focused on the profitable satisfaction of customers’
needs.
If the purchasing and supply function is performed efficiently and effectively, it Serves the fundamental
objective of the firm – To ensure the highest possible return on the capital invested by the firm.
The objectives of purchasing and supply management also evolved as the global business environment
changed and firms had to adjust to more competitive circumstances.
The following objectives are the core of most purchasing and supply functions:
Supply the organization with the flow of materials and services that meet its current and Future needs
2
