Purchasing and Supply Chain Management

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QUESTION
In no more than 2,500 words, using a structured essay format, explain how the need for firms to recognize supply chain management as a philosophy and a source of competitive advantage has led to significant changes in the purchasing role amongst public and private sector organisations.

INTRODUCTION

One of the fundamental questions facing modern organisations is how to achieve and sustain competitive advantage (Rumelt et al 1994) within an increasingly fast moving environment. Supply Chain Management (SCM) is critical element of model business strategy and globalisation trends where Organisations can create significant competitive advantage. SCM has many definitions but is essence is ‘the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole’ (Christopher, 2005). Therefore the knowledge and understanding of the various processes involved in SCM are critical in the efficient controlling the supply chain (Davis, 2010). The purchasing process within SCM has thus become a central part with a role “to purchase the RIGHT QUALITY of material, at the RIGHT TIME, in the RIGHT QUANTITY, from the RIGHT SOURCE, at the RIGHT PRICE” (Baily, Farmer, Jessop and Jones, 2005) This paper discusses the evolution of SCM, why it had become central to competitive advantage and the developments it has forced on the role of purchasing.

Quinn et al (1990 p79) state that organisations, “need to ask, activity by activity, are we really competitive with the world’s best here?” Quinn (1992) and Quinn and Hilmer (1994) continue the theory by arguing that activities in the organisations supply chain can be described as services. Each service can be examined from a customer’s perspective to ensure that the organisation knows how to perform better than anyone in the world. If it cannot perform to this high standard then it should be outsourced. Porter (1985) reinforces this view by stating that concentration by each organisation in the supply chain on its distinctive capabilities allows the development of better value added services and products.

Key Principles within Supply Chain Management (SCM) Philosophies Supply Chain Management is defined by Lambert et al (1998, p.1) as “the integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders.”. Although SCM is a widely accepted term, there is no definitively recognised description of SCM or its activities. Theoretically SCM can be seen as all the value adding activities through the supply chain, from the production of raw materials to the delivery of the product to the end consumer (Wisner and Tan, 2000). SCM philosophy can be further explained the internally focused concept, by incorporating multiple organisations among the SC in order to achieve efficiency and end customer satisfaction (Harwick, 1997). Figure 1 shows vertical integrated flow of a generic supply chain demonstrating the cross functional movement of a product towards the end consumer but also the upstream capabilities. [pic]

(Lynch, 2012)
Organizations in the 1950’s were very self orientated with the view of developing everything themselves in a mass production philosophy, of producing lots of products in order to ascertain low costs and then distributing to dealers and retailers. This meant that large inventories were needed in order to acquire their desired profit margins and maintain mass production (Origin of SCM). The 1970’s brought the ideal of reducing and managing inventories more effectively using systems such as material requirement planning and manufacturing resource planning, in order to deal with the financial crash and the increase in competition at the time (Origin of SCM). The 1980’s marked an exponential growth in SCM (Georgia Tech, 2012), giving way for new supply...
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