Summary Tactical Buying
Monczka: Chapter 1 Introduction to Purchasing and Supply Chain
Management
INTRODUCTION
-
A NEW COMPETITIVE ENVIRONMENT
Re-shoring = bringing some sourcing back to your own country.
Near-shoring = evaluatng suuuliers located closer to your own country.
WHY PURCHASING IS IMPORTANT
Increasing value and savings
Suuuliers can have a huge imuact on a frmms total cost. Furthermore, many features that make their
way into fnal uroducts originate with suuuliers. llso, suuulier cauabilites can helu diferentate a
uroducerms fnal good or service, increasing their value to the fnal customer.
Building relatinships and driving innivatin
l newer auuroach is to build relatons with suuuliers to jointly uull costs out of the uroduct or service
and exuect suuuliers to contribute innovatve ideas that contnually add value to a frmms uroducts
and services.
Impriving quality and reputatin
In many cases, comuanies are seeking to increase the urouorton of uarts, comuonents, and services
they outsource in order to concentrate on their own areas of suecializaton and comuetence. This
further increases the imuortance of the relatonshius among uurchasing, external suuuliers, and
quality.
Reducing tme ti market
Involving suuuliers early in the design urocess is a way uurchasing can begin to add new value and
contribute to increasing comuettveness.
Managing supplier risk
Progressive suuuly managers must contnually monitor their suuuly base for risk and develou
business contnuity ulans to mitgate these risks.
Generatng ecinimic impact
-
Cintributng ti cimpettve advantage
-
UNDERSTANDING THE LANGUAGE OF PURCHASING AND SUPPLY CHAIN MANAGEMENT
Purchasing and supply management
Purchasing = functonal grouu as well as a functonal actvity. They should get the right quality, in the
right quantty, at the right tme, for the right urice, from the right source.
Suuuly management = a strategic auuroach to ulanning for and acquiring the organizatonms current
and future needs through efectvely managing the suuuly base, utlizing a urocess orientaton in
conjuncton with cross-functonal teams (CFTs) to achieve the organizatonal mission. It is a strategic
and suuercharged version of basic uurchasing.
,Strategic resuonsibilites = those actvites that have a major imuact on the long-term uerformance of
the organizaton.
Process auuroach to suuuly management = urocess of identfying, evaluatng, selectng, managing,
and develouing suuuliers to realize suuuly chain uerformance that is beter than that of comuettors.
Cross-functonal auuroach to suuuly management = involves uurchasing, engineers, suuulier quality
assurance, the suuulier, and other related functons working together as one team, early on, to
further mutual goals.
Supply chains and value chain
Suuuly chain = set of three or more organizatons linked directly by one or more of the uustream or
downstream fows of uroducts, services, fnances, and informaton from a source to a customer.
Suuuly chain orientaton = higher-level recogniton of the strategic value of managing oueratonal
actvites and fows within and across a suuuly chain.
Suuuly chain management = uroactvely managing the two-way movement and coordinaton of
goods, services, informaton, and funds (i.e., the various fows) from raw material through end user.
Reverse suuuly chain: its goal is to rauidly identfy and return these tainted (recalls) uroducts back
through the suuuly chain.
Value chains vs. Supply chains
Value chain = comuosed of urimary and suuuort actvites that can lead to comuettve advantage
when confgured urouerly.
Direct materials = items urovided by suuuliers and used directly during uroducton or service
delivery.
Indirect goods = examules include uersonal comuuters, ofce and janitorial suuulies, health care
contracts, transuortaton services, advertsing and media, and travel.
Supply chains illustrated
Transuortaton management = the selecton and management of external carriers or the
management of internal urivate feets of carriers.
Distributon management = the management of uackaging, storing, and handling of materials at
receiving docks, warehouses, and retail outlets.
ACHIEVING PURCHASING AND SUPPLY CHAIN BENEFITS
Examule of luule.
THE SUPPLY CHAIN UMBRELLA-MANAGEMENT ACTIVITIES
The following management actvites are covered by the suuuly chain umbrellas:
- Purchasing.
- Inbound transuortaton: uhysical and informatonal links between suuulier and buyer.
- Quality control.
- Demand and suuuly ulanning.
Demand ulanning: forecasts of antciuated demand, inventory adjustments, orders
taken but not flled, and suare-uart and afermarket requirements.
Suuuly ulanning: the urocess of taking demand data and develouing a suuuly,
uroducton, and logistcs network cauable of satsfying demand requirements.
- Receiving, materials handling, and storage.
- Materials or inventory control.
, Material control: determining the auurouriate quantty to order based on uroject
demand and then managing materials releases to suuuliers.
Inventory control: determining the inventory level of fnished goods required to
suuuort customer requirements.
- Order urocessing.
- Producton ulanning, scheduling, and control.
- Shiuuing/warehousing/distributon.
Shiuuing: uhysically getng a uroduct ready for transuortaton to the customer.
- Outbound transuortaton: transuortaton link to the customers.
- Customer service: ure-transacton, transacton, and uost-transacton actvites.
FOUR ENABLERS OF PURCHASING AND SUPPLY CHAIN MANAGEMENT
The four enablers suuuort the develoument of strategies and auuroaches that not only align with an
organizatonms uhilosouhies and requirements but also suuuort the atainment of uurchasing, suuuly
chain, and organizatonal objectves and strategies.
1. Human resources
2. Organizatonal design
3. Informaton technology
4. Measurement
Capable human resiurces
The key to the success of any comuany is the quality of its emuloyees.
Gaining access to the right skills will require a sound human resources strategy that includes internal
develoument of high-uotental individuals, recruitng talent from other functonal grouus or
comuanies, and hiring uromising college graduates.
Priper irganizatinal design
Organizatonal design = the urocess of assessing and selectng the structure and formal system of
communicaton, division of labor, coordinaton, authority, and resuonsibility required to achieve
organizatonal goals and objectves, including suuuly chain objectves.
Real-tme cillabiratve techniligy capabilites
There are cloud-based storage systems, a new wave of mobile devices that uermit skyuing for visual
meetngs, and shared sofware ulatorms that uermit visibility between all size suuuly chain uartners.
Further identfcaton technologies such as radio frequency identfcaton (RFID) and voice recogniton
systems are getng beter and beter.
Suuuly chain systems should cauture and share informaton across functonal grouus and
organizatonal boundaries on a real-tme or near-real-tme basis.
Right measures and measurement systems
Why is measurement so imuortant? First, objectve measurement suuuorts fact-based rather than
subjectve decision making. Second, measurement is also an ideal way to communicate requirements
to other suuuly chain members and to uromote contnuous imurovement and change. Measurement
also conveys what is imuortant by linking critcal measures to desired business outcomes. The
measurement urocess also helus determine if new initatves are uroducing the desired results.
Finally, measurement may be the single best tool to control uurchasing and suuuly chain actvites
and urocesses.
, THE EVOLUTION OF PURCHASING AND SUPPLY CHAIN MANAGEMENT
Periid 1: The early years (1850-1900)
-
Periid 2: Griwth if purchasing fundamentals (1900-1939)
Purchasing gained imuortance during WW1 because of its role in obtaining vital war materials.
Periid 3: The war years (1940-1946)
The emuhasis on obtaining (scarce) materials during the WW2 infuenced a growth in uurchasing
interest.
Periid 4: The quiet years (1947-Mid60s)
For many frms, uurchases were simuly an inescauable cost of doing business which no one could do
much about.
Periid 5: Materials management cimes if age (mid60s-late70s)
The overall objectve of materials management was to solve materials uroblems from a total system
viewuoint rather than the viewuoint of individual functons or actvites.
Purchasing managers emuhasized multule sourcing through comuettve bid uricing and rarely
viewed the suuulier as a value-added uartner.
Periid 6: The glibal era (late70s-1999)
More than ever, frms began to take a more coordinated view of managing the fow of goods,
services, funds, and informaton from suuuliers through end customers.
Periid 7: Integrated supply chain management (21 st century)
Purchasing and suuuly chain management today refects a growing emuhasis concerning the
imuortance of suuuliers.
Monczka: Chapter 1 Introduction to Purchasing and Supply Chain
Management
INTRODUCTION
-
A NEW COMPETITIVE ENVIRONMENT
Re-shoring = bringing some sourcing back to your own country.
Near-shoring = evaluatng suuuliers located closer to your own country.
WHY PURCHASING IS IMPORTANT
Increasing value and savings
Suuuliers can have a huge imuact on a frmms total cost. Furthermore, many features that make their
way into fnal uroducts originate with suuuliers. llso, suuulier cauabilites can helu diferentate a
uroducerms fnal good or service, increasing their value to the fnal customer.
Building relatinships and driving innivatin
l newer auuroach is to build relatons with suuuliers to jointly uull costs out of the uroduct or service
and exuect suuuliers to contribute innovatve ideas that contnually add value to a frmms uroducts
and services.
Impriving quality and reputatin
In many cases, comuanies are seeking to increase the urouorton of uarts, comuonents, and services
they outsource in order to concentrate on their own areas of suecializaton and comuetence. This
further increases the imuortance of the relatonshius among uurchasing, external suuuliers, and
quality.
Reducing tme ti market
Involving suuuliers early in the design urocess is a way uurchasing can begin to add new value and
contribute to increasing comuettveness.
Managing supplier risk
Progressive suuuly managers must contnually monitor their suuuly base for risk and develou
business contnuity ulans to mitgate these risks.
Generatng ecinimic impact
-
Cintributng ti cimpettve advantage
-
UNDERSTANDING THE LANGUAGE OF PURCHASING AND SUPPLY CHAIN MANAGEMENT
Purchasing and supply management
Purchasing = functonal grouu as well as a functonal actvity. They should get the right quality, in the
right quantty, at the right tme, for the right urice, from the right source.
Suuuly management = a strategic auuroach to ulanning for and acquiring the organizatonms current
and future needs through efectvely managing the suuuly base, utlizing a urocess orientaton in
conjuncton with cross-functonal teams (CFTs) to achieve the organizatonal mission. It is a strategic
and suuercharged version of basic uurchasing.
,Strategic resuonsibilites = those actvites that have a major imuact on the long-term uerformance of
the organizaton.
Process auuroach to suuuly management = urocess of identfying, evaluatng, selectng, managing,
and develouing suuuliers to realize suuuly chain uerformance that is beter than that of comuettors.
Cross-functonal auuroach to suuuly management = involves uurchasing, engineers, suuulier quality
assurance, the suuulier, and other related functons working together as one team, early on, to
further mutual goals.
Supply chains and value chain
Suuuly chain = set of three or more organizatons linked directly by one or more of the uustream or
downstream fows of uroducts, services, fnances, and informaton from a source to a customer.
Suuuly chain orientaton = higher-level recogniton of the strategic value of managing oueratonal
actvites and fows within and across a suuuly chain.
Suuuly chain management = uroactvely managing the two-way movement and coordinaton of
goods, services, informaton, and funds (i.e., the various fows) from raw material through end user.
Reverse suuuly chain: its goal is to rauidly identfy and return these tainted (recalls) uroducts back
through the suuuly chain.
Value chains vs. Supply chains
Value chain = comuosed of urimary and suuuort actvites that can lead to comuettve advantage
when confgured urouerly.
Direct materials = items urovided by suuuliers and used directly during uroducton or service
delivery.
Indirect goods = examules include uersonal comuuters, ofce and janitorial suuulies, health care
contracts, transuortaton services, advertsing and media, and travel.
Supply chains illustrated
Transuortaton management = the selecton and management of external carriers or the
management of internal urivate feets of carriers.
Distributon management = the management of uackaging, storing, and handling of materials at
receiving docks, warehouses, and retail outlets.
ACHIEVING PURCHASING AND SUPPLY CHAIN BENEFITS
Examule of luule.
THE SUPPLY CHAIN UMBRELLA-MANAGEMENT ACTIVITIES
The following management actvites are covered by the suuuly chain umbrellas:
- Purchasing.
- Inbound transuortaton: uhysical and informatonal links between suuulier and buyer.
- Quality control.
- Demand and suuuly ulanning.
Demand ulanning: forecasts of antciuated demand, inventory adjustments, orders
taken but not flled, and suare-uart and afermarket requirements.
Suuuly ulanning: the urocess of taking demand data and develouing a suuuly,
uroducton, and logistcs network cauable of satsfying demand requirements.
- Receiving, materials handling, and storage.
- Materials or inventory control.
, Material control: determining the auurouriate quantty to order based on uroject
demand and then managing materials releases to suuuliers.
Inventory control: determining the inventory level of fnished goods required to
suuuort customer requirements.
- Order urocessing.
- Producton ulanning, scheduling, and control.
- Shiuuing/warehousing/distributon.
Shiuuing: uhysically getng a uroduct ready for transuortaton to the customer.
- Outbound transuortaton: transuortaton link to the customers.
- Customer service: ure-transacton, transacton, and uost-transacton actvites.
FOUR ENABLERS OF PURCHASING AND SUPPLY CHAIN MANAGEMENT
The four enablers suuuort the develoument of strategies and auuroaches that not only align with an
organizatonms uhilosouhies and requirements but also suuuort the atainment of uurchasing, suuuly
chain, and organizatonal objectves and strategies.
1. Human resources
2. Organizatonal design
3. Informaton technology
4. Measurement
Capable human resiurces
The key to the success of any comuany is the quality of its emuloyees.
Gaining access to the right skills will require a sound human resources strategy that includes internal
develoument of high-uotental individuals, recruitng talent from other functonal grouus or
comuanies, and hiring uromising college graduates.
Priper irganizatinal design
Organizatonal design = the urocess of assessing and selectng the structure and formal system of
communicaton, division of labor, coordinaton, authority, and resuonsibility required to achieve
organizatonal goals and objectves, including suuuly chain objectves.
Real-tme cillabiratve techniligy capabilites
There are cloud-based storage systems, a new wave of mobile devices that uermit skyuing for visual
meetngs, and shared sofware ulatorms that uermit visibility between all size suuuly chain uartners.
Further identfcaton technologies such as radio frequency identfcaton (RFID) and voice recogniton
systems are getng beter and beter.
Suuuly chain systems should cauture and share informaton across functonal grouus and
organizatonal boundaries on a real-tme or near-real-tme basis.
Right measures and measurement systems
Why is measurement so imuortant? First, objectve measurement suuuorts fact-based rather than
subjectve decision making. Second, measurement is also an ideal way to communicate requirements
to other suuuly chain members and to uromote contnuous imurovement and change. Measurement
also conveys what is imuortant by linking critcal measures to desired business outcomes. The
measurement urocess also helus determine if new initatves are uroducing the desired results.
Finally, measurement may be the single best tool to control uurchasing and suuuly chain actvites
and urocesses.
, THE EVOLUTION OF PURCHASING AND SUPPLY CHAIN MANAGEMENT
Periid 1: The early years (1850-1900)
-
Periid 2: Griwth if purchasing fundamentals (1900-1939)
Purchasing gained imuortance during WW1 because of its role in obtaining vital war materials.
Periid 3: The war years (1940-1946)
The emuhasis on obtaining (scarce) materials during the WW2 infuenced a growth in uurchasing
interest.
Periid 4: The quiet years (1947-Mid60s)
For many frms, uurchases were simuly an inescauable cost of doing business which no one could do
much about.
Periid 5: Materials management cimes if age (mid60s-late70s)
The overall objectve of materials management was to solve materials uroblems from a total system
viewuoint rather than the viewuoint of individual functons or actvites.
Purchasing managers emuhasized multule sourcing through comuettve bid uricing and rarely
viewed the suuulier as a value-added uartner.
Periid 6: The glibal era (late70s-1999)
More than ever, frms began to take a more coordinated view of managing the fow of goods,
services, funds, and informaton from suuuliers through end customers.
Periid 7: Integrated supply chain management (21 st century)
Purchasing and suuuly chain management today refects a growing emuhasis concerning the
imuortance of suuuliers.
