MNP3701 Summary 2018
Study Unit 1 (Chapter 1)
Introduction to purchasing and supply chain management
1. Put the phrase “a new competitite entironment” in perspectite.
Today’s business climate features increasing numbers of world-class compettorss domestcally and
internatonallys that are forcing organizaatons to improve their internal processes to stay compettvev
Sophistcated customers; both industrial and consumers no longer tal about price increases—tthey
demand price reductonss nformaton that is available over the nternet will contnue to alter the balance
of power between buyers and sellersv
An abundance of compettors and choices have conditoned customers to want higher qualitys faster
deliverys and products and services tailored to their individual needs at a lower total costv The widespread
use of “social media” through Twiter and blogs spread informaton about products and services at an
accelerated ratev f a company is not meetng its requirementss consumers will quic ly “spread the word”
and they will fnd someone who is more accommodatngv
n the wor environments mobile devices permit constant contact with job actvites enabling purchasers to
be connected on a 24/7 basisv
All these changes have made twenty-frst century organizaatons realizae how important it is to actvely
manage their supply base. The supply base consists of all the suppliers that provide and organizaaton with
its materials and servicesv
Several factors are driving an emphasis on supply chain managementv
Firsts the low cost and increased availability of informaton resources among enttes in the supply chain
allow easy lin ages that eliminate tme delays in the networ v
Seconds the level of competton in both domestc and internatonal mar ets requires organizaatons to be
fasts agiles and feeiblev
Thirds customer expectatons and requirements are becoming much more demandingv
Fourths the ability of an organizatonns supply chain to identfy and mitgate risk minimizaes disruptons in
both supply and downstream product or services to mitgate the impact on lost salesv
As customer demands increases organizaatons and their suppliers must be responsive or face the prospect
of losing mar et sharev Competton today is no longer between frms; it is between the supply chains of
those frmsv The companies that confgure the best supply chains will be the mar et winners and gain
compettve advantagev
2. Outline (Why) purchasing is important.
, Increasing Value and Satings
As companies struggle to increase customer value by improving performances many companies are turning
their atenton to purchasing and supply managementv
Purchasing is clearly a major area for cost savingsv Cost savings also encompasses avoiding costs through
early involvement with design and proactvely responding to supplier requests for price increasesv
Building Relationships and Driting Innotation
A newer approach is to build relatons with suppliers to jointly pull costs out of the product or service and
eepect suppliers to contribute innovatve ideas that contnually add value to a frm’s products and servicesv
For these relatonships to wor s both the buyer and supplier must agree to acceptable paybac s from their
investments so that each realizaes a positve gainv f the suppliers’ strategic intent is to be the customer of
choices then they need to provide necessary technical infrastructure to assist the buyerv When both partes
cooperates a climate of trust emerges between the partes seeng the stage for innovatve ideasv
Improting Quality and Reputation
Purchasing and supply management also has a major impact on product and service qualityv n many casess
companies are see ing to increase the proporton of partss componentss and services they outsource in
order to concentrate on their own areas of specializaaton and competencev This further increases the
importance of the relatonships among purchasings eeternal supplierss and qualityv
Reducing Time to Market
Purchasings actng as the liaison between suppliers and engineerss can also help improve product and
process designs Development teams that include suppliers as members also report they receive more
improvement suggestons from suppliers than teams that do not involve suppliersv
Thuss involving suppliers early in the design process is a way purchasing can begin to add new value and
contribute to increasing compettvenessv
Managing Supplier Risk
Every tme purchasing places an order with a supplier a potental ris arises; this ris could be as minor as a
late delivery or as major as loss of an entre supplier due to ban ruptcy or natural disaster (fres etcv.v
Unfortunatelys poor quality is only one supply threat; others include natural disasterss fnancial instabilitys
operatonal problemss transportaton delayss and so onv Certainly there were benefts realizaed from these
strategiess howevers often the increased vigilance necessary to mitgate and manage these additonal ris s
was not establishedv
Generating Economic Impact
The power of organizaatonal purchasers as a group is signifcantv The ISM Report on Business is one of the
most closely followed indicators of economic actvityv This monthly survey of purchasing managers in both
the manufacturing and non-manufacturing sectors is closely monitored by the fnancial sectors and the
results of both reports have the power to move fnancial mar etsv The ISM Report on Business is a change
indees and generally a ratng over <0 indicates the economy is eepandingv
Contributing to Competitite Adtantage
,Many eeecutves will agree that a focus on efectve purchasing has become a critcal way to gain
compettve advantagev An indicaton of this enhanced statuss reputatons and recogniton is the higher
salaries being paid to purchasing professionalsv
Managing talent requires a constant focus on fndings developings and promotng individuals who will
contribute to ma ing the supply management department recognizaed as a strategic contributor to the
organizaatonv One major integrated oil company developed a core training program for its
purchasing/supply chain management group (PSCM. to develop talentv
The program consisted of a four-phased approach and recognizaed eeperience diferencesv The four phases
were:
1. PSCM common buying processes;
2. PSCM curriculum consistng of classes in areas such as contractngs negotatonss strategic cost
managements
3. Professional accreditaton and educaton such as the CPSM and MBA programs; and
4. Professional leadership development programv
3. What is the diference between purchasing and Supply Management?
, Purchasing is a functonal group (ivevs a formal entty on the organizaatonal chart. as well as a functonal
actvity (ivevs buying goods and services.v The purchasing group performs many actvites to ensure it
delivers maeimum value to the organizaatonv
Eeamples include supplier identfcaton and selecton; buyings negotatons and contractng; supply mar et
research; supplier measurement and improvement; and purchasing systems developmentv
Purchasing has been referred to as doing “the fve rights”: geeng the right qualitys in the right quanttys at
the right tmes for the right prices from the right sourcev
Supply management is a strategic approach to planning for and acquiring the organizatonns current and
future needs through efectvely managing the supply base, utlizing a process orientaton in conjuncton
with cross-functonal teams (CFTs) to achieve the organizatonal missionv Similar to our defnitons the
nsttute for Supply Management defnes supply management as the identicaton, acquisiton, access,
positoning, and management of resources and related capabilites an organizaton needs or potentally
needs in the atainment of its strategic objectvesv
Depicts the ey elements in our defniton of supply managementv
Strategic
Orientaton
Supply
management
Corss-
Supply Base is planning
Functonal
Management and future
Groups
needs of an
organisation
Process-
Driven
Approach
Supply management requires pursuing strategic responsibilitiess which are those actvites that have a
major impact on the long-term performance of the organizaatonv These long-term responsibilites are not
pursued in isolatons but should be aligned with the overall mission and strategies of the organizaatonv
These strategies eeclude routnes simples or day to- day decisions that may be part of traditonal purchasing
responsibilitesv
Supply management is a progressive approach to managing the supply base that difers from a traditonal
arm’s-length or adversarial approach with sellersv t requires purchasing professionals to wor directly with
those suppliers that are capable of providing world-class performance and advantages to the buyerv
Supply management often ta es a process approach to obtaining required goods and servicesv We can
describe supply management as the process of identfyings evaluatngs selectngs managings and developing
suppliers to realizae supply chain performance that is beter than that of compettorsv
Supply management is cross-functionals meaning it involves purchasings engineerings supplier quality
assurances the suppliers and other related functons wor ing together as one teams early ons to further
mutual goalsv
4. What is the diference between supply chain orientation and supply chain management?
Study Unit 1 (Chapter 1)
Introduction to purchasing and supply chain management
1. Put the phrase “a new competitite entironment” in perspectite.
Today’s business climate features increasing numbers of world-class compettorss domestcally and
internatonallys that are forcing organizaatons to improve their internal processes to stay compettvev
Sophistcated customers; both industrial and consumers no longer tal about price increases—tthey
demand price reductonss nformaton that is available over the nternet will contnue to alter the balance
of power between buyers and sellersv
An abundance of compettors and choices have conditoned customers to want higher qualitys faster
deliverys and products and services tailored to their individual needs at a lower total costv The widespread
use of “social media” through Twiter and blogs spread informaton about products and services at an
accelerated ratev f a company is not meetng its requirementss consumers will quic ly “spread the word”
and they will fnd someone who is more accommodatngv
n the wor environments mobile devices permit constant contact with job actvites enabling purchasers to
be connected on a 24/7 basisv
All these changes have made twenty-frst century organizaatons realizae how important it is to actvely
manage their supply base. The supply base consists of all the suppliers that provide and organizaaton with
its materials and servicesv
Several factors are driving an emphasis on supply chain managementv
Firsts the low cost and increased availability of informaton resources among enttes in the supply chain
allow easy lin ages that eliminate tme delays in the networ v
Seconds the level of competton in both domestc and internatonal mar ets requires organizaatons to be
fasts agiles and feeiblev
Thirds customer expectatons and requirements are becoming much more demandingv
Fourths the ability of an organizatonns supply chain to identfy and mitgate risk minimizaes disruptons in
both supply and downstream product or services to mitgate the impact on lost salesv
As customer demands increases organizaatons and their suppliers must be responsive or face the prospect
of losing mar et sharev Competton today is no longer between frms; it is between the supply chains of
those frmsv The companies that confgure the best supply chains will be the mar et winners and gain
compettve advantagev
2. Outline (Why) purchasing is important.
, Increasing Value and Satings
As companies struggle to increase customer value by improving performances many companies are turning
their atenton to purchasing and supply managementv
Purchasing is clearly a major area for cost savingsv Cost savings also encompasses avoiding costs through
early involvement with design and proactvely responding to supplier requests for price increasesv
Building Relationships and Driting Innotation
A newer approach is to build relatons with suppliers to jointly pull costs out of the product or service and
eepect suppliers to contribute innovatve ideas that contnually add value to a frm’s products and servicesv
For these relatonships to wor s both the buyer and supplier must agree to acceptable paybac s from their
investments so that each realizaes a positve gainv f the suppliers’ strategic intent is to be the customer of
choices then they need to provide necessary technical infrastructure to assist the buyerv When both partes
cooperates a climate of trust emerges between the partes seeng the stage for innovatve ideasv
Improting Quality and Reputation
Purchasing and supply management also has a major impact on product and service qualityv n many casess
companies are see ing to increase the proporton of partss componentss and services they outsource in
order to concentrate on their own areas of specializaaton and competencev This further increases the
importance of the relatonships among purchasings eeternal supplierss and qualityv
Reducing Time to Market
Purchasings actng as the liaison between suppliers and engineerss can also help improve product and
process designs Development teams that include suppliers as members also report they receive more
improvement suggestons from suppliers than teams that do not involve suppliersv
Thuss involving suppliers early in the design process is a way purchasing can begin to add new value and
contribute to increasing compettvenessv
Managing Supplier Risk
Every tme purchasing places an order with a supplier a potental ris arises; this ris could be as minor as a
late delivery or as major as loss of an entre supplier due to ban ruptcy or natural disaster (fres etcv.v
Unfortunatelys poor quality is only one supply threat; others include natural disasterss fnancial instabilitys
operatonal problemss transportaton delayss and so onv Certainly there were benefts realizaed from these
strategiess howevers often the increased vigilance necessary to mitgate and manage these additonal ris s
was not establishedv
Generating Economic Impact
The power of organizaatonal purchasers as a group is signifcantv The ISM Report on Business is one of the
most closely followed indicators of economic actvityv This monthly survey of purchasing managers in both
the manufacturing and non-manufacturing sectors is closely monitored by the fnancial sectors and the
results of both reports have the power to move fnancial mar etsv The ISM Report on Business is a change
indees and generally a ratng over <0 indicates the economy is eepandingv
Contributing to Competitite Adtantage
,Many eeecutves will agree that a focus on efectve purchasing has become a critcal way to gain
compettve advantagev An indicaton of this enhanced statuss reputatons and recogniton is the higher
salaries being paid to purchasing professionalsv
Managing talent requires a constant focus on fndings developings and promotng individuals who will
contribute to ma ing the supply management department recognizaed as a strategic contributor to the
organizaatonv One major integrated oil company developed a core training program for its
purchasing/supply chain management group (PSCM. to develop talentv
The program consisted of a four-phased approach and recognizaed eeperience diferencesv The four phases
were:
1. PSCM common buying processes;
2. PSCM curriculum consistng of classes in areas such as contractngs negotatonss strategic cost
managements
3. Professional accreditaton and educaton such as the CPSM and MBA programs; and
4. Professional leadership development programv
3. What is the diference between purchasing and Supply Management?
, Purchasing is a functonal group (ivevs a formal entty on the organizaatonal chart. as well as a functonal
actvity (ivevs buying goods and services.v The purchasing group performs many actvites to ensure it
delivers maeimum value to the organizaatonv
Eeamples include supplier identfcaton and selecton; buyings negotatons and contractng; supply mar et
research; supplier measurement and improvement; and purchasing systems developmentv
Purchasing has been referred to as doing “the fve rights”: geeng the right qualitys in the right quanttys at
the right tmes for the right prices from the right sourcev
Supply management is a strategic approach to planning for and acquiring the organizatonns current and
future needs through efectvely managing the supply base, utlizing a process orientaton in conjuncton
with cross-functonal teams (CFTs) to achieve the organizatonal missionv Similar to our defnitons the
nsttute for Supply Management defnes supply management as the identicaton, acquisiton, access,
positoning, and management of resources and related capabilites an organizaton needs or potentally
needs in the atainment of its strategic objectvesv
Depicts the ey elements in our defniton of supply managementv
Strategic
Orientaton
Supply
management
Corss-
Supply Base is planning
Functonal
Management and future
Groups
needs of an
organisation
Process-
Driven
Approach
Supply management requires pursuing strategic responsibilitiess which are those actvites that have a
major impact on the long-term performance of the organizaatonv These long-term responsibilites are not
pursued in isolatons but should be aligned with the overall mission and strategies of the organizaatonv
These strategies eeclude routnes simples or day to- day decisions that may be part of traditonal purchasing
responsibilitesv
Supply management is a progressive approach to managing the supply base that difers from a traditonal
arm’s-length or adversarial approach with sellersv t requires purchasing professionals to wor directly with
those suppliers that are capable of providing world-class performance and advantages to the buyerv
Supply management often ta es a process approach to obtaining required goods and servicesv We can
describe supply management as the process of identfyings evaluatngs selectngs managings and developing
suppliers to realizae supply chain performance that is beter than that of compettorsv
Supply management is cross-functionals meaning it involves purchasings engineerings supplier quality
assurances the suppliers and other related functons wor ing together as one teams early ons to further
mutual goalsv
4. What is the diference between supply chain orientation and supply chain management?
