Purchasing - SCM Master
Purchasing HC 1 [01.02]
A simple definition for purchasing: purchasing relates to all activities for which invoices are received.
Abbreviation PSM stands for Purchasing and Supply Management.
Purchasing basics:
Image of purchasing; administrative job, lab, negotiations, predicting the future.
Purchasing is still in development. Refers to article 1.
The value chain of the firm
Purchasing as a discipline
Materials/ Supply Management relates to purchasing. Get the right resources, in the right quantity,
right quality, etc. to production. Purchasing is also strong related to inbound logistics.
Procurement equal to purchasing in this picture (called as a support activity). There is a difference
between procurement and purchasing.
Industry forces is an area that related to purchasing, especially the bargaining power of suppliers and
buyers. How are you relating to the rest of the market.
Porter’s five forces model (relates to left bottom corner of value chain)
Especially suppliers and substitutes is something that purchasing relates to.
1
,Supply chain relationships
The larger the tier and the more tiers you have the more complex it gets.
Purchasing (and supply) management:
Relates to all activities for which invoices are received.
Core activity: managing supplier relationships (two aspects)
1. structuring purchasing processes internally (clear for everybody)
2. structuring supplier relationships externally (proper supply base and deal with them)
Aimed at:
- securing supply
- consistent quality
- cost reduction
- product innovation
- efficiency improvement
Through mobilizing supplier expertise.
It is about managing external sources!!!
Why is purchasing important?
Improving purchasing performance may contribute to increased customer value
Results of Good Purchasing/Supply Management:
- Higher Potential for profitability
- Outsourcing
- Improved product and service quality
Approximate estimation of goods sold;
Pharma and service industry is lower because there are limited physical products, lots in R&D and
fixed assets retail locations (not invoice).
2
,Purchasing and profitability
Overhead stable; purchasing and labour costs increase proportionally with turnover.
5% purchasing savings equals to 30% sales increase
Du Pont-analysis.
To make clear why purchasing is important.
Definition of concepts - Different terms related to purchasing;
Operational, short term, deal, and margin oriented;
Ordering (buying something that has been contracted)
Buying (not a contract but not challenging the specifications)
Strategic, long term, performance, and value oriented;
Sourcing (more in the specification area)
Purchasing
Procurement
Supply Chain Management (including upstream)
Value chain management (including up- and downstream)
Purchasing and supply development model (s-curve)
Maturity model (to the left less mature, and to the right more mature).
Importance of internal integration/alignment
Internal integration very important because purchasing deals with lots of people and departments in
the organisation; quality assurance, engineering, legal, marketing, accounting/finance, operations.
3
, Purchasing; a multi- rather than a mono-discipline (see Wynstra et a. 2019 – article 1)
Competitive priorities/ performance outcomes
Purchasing/supply management as vital business function. But the world is VUCA; Volatility,
Uncertainty, Complexity, Ambiguity.
Questions article 1;
Which main disciplines does purchasing & supply management build on/ draw from?
What are key themes in each of these disciplines?
What are important theories for studying these themes?
4
Purchasing HC 1 [01.02]
A simple definition for purchasing: purchasing relates to all activities for which invoices are received.
Abbreviation PSM stands for Purchasing and Supply Management.
Purchasing basics:
Image of purchasing; administrative job, lab, negotiations, predicting the future.
Purchasing is still in development. Refers to article 1.
The value chain of the firm
Purchasing as a discipline
Materials/ Supply Management relates to purchasing. Get the right resources, in the right quantity,
right quality, etc. to production. Purchasing is also strong related to inbound logistics.
Procurement equal to purchasing in this picture (called as a support activity). There is a difference
between procurement and purchasing.
Industry forces is an area that related to purchasing, especially the bargaining power of suppliers and
buyers. How are you relating to the rest of the market.
Porter’s five forces model (relates to left bottom corner of value chain)
Especially suppliers and substitutes is something that purchasing relates to.
1
,Supply chain relationships
The larger the tier and the more tiers you have the more complex it gets.
Purchasing (and supply) management:
Relates to all activities for which invoices are received.
Core activity: managing supplier relationships (two aspects)
1. structuring purchasing processes internally (clear for everybody)
2. structuring supplier relationships externally (proper supply base and deal with them)
Aimed at:
- securing supply
- consistent quality
- cost reduction
- product innovation
- efficiency improvement
Through mobilizing supplier expertise.
It is about managing external sources!!!
Why is purchasing important?
Improving purchasing performance may contribute to increased customer value
Results of Good Purchasing/Supply Management:
- Higher Potential for profitability
- Outsourcing
- Improved product and service quality
Approximate estimation of goods sold;
Pharma and service industry is lower because there are limited physical products, lots in R&D and
fixed assets retail locations (not invoice).
2
,Purchasing and profitability
Overhead stable; purchasing and labour costs increase proportionally with turnover.
5% purchasing savings equals to 30% sales increase
Du Pont-analysis.
To make clear why purchasing is important.
Definition of concepts - Different terms related to purchasing;
Operational, short term, deal, and margin oriented;
Ordering (buying something that has been contracted)
Buying (not a contract but not challenging the specifications)
Strategic, long term, performance, and value oriented;
Sourcing (more in the specification area)
Purchasing
Procurement
Supply Chain Management (including upstream)
Value chain management (including up- and downstream)
Purchasing and supply development model (s-curve)
Maturity model (to the left less mature, and to the right more mature).
Importance of internal integration/alignment
Internal integration very important because purchasing deals with lots of people and departments in
the organisation; quality assurance, engineering, legal, marketing, accounting/finance, operations.
3
, Purchasing; a multi- rather than a mono-discipline (see Wynstra et a. 2019 – article 1)
Competitive priorities/ performance outcomes
Purchasing/supply management as vital business function. But the world is VUCA; Volatility,
Uncertainty, Complexity, Ambiguity.
Questions article 1;
Which main disciplines does purchasing & supply management build on/ draw from?
What are key themes in each of these disciplines?
What are important theories for studying these themes?
4
