Roles of Information Technology in Purchasing

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Chapter 3

Purchasing and e-Procurement

3.1 The Role of Purchasing 3.1.1 Introduction to purchasing The role of purchasing is to obtain raw material, components, parts, as well as information that are needed for the production of goods or providing services. The purchasing process includes many aspects, such as request for quotation (RFQ), supplier market analysis, supplier selection, contract negotiations, and purchase plan implementation. The purchase function plays a liaison role between various departments within an organization and numerous suppliers outside the company. The purchase goal is to develop and implement a purchasing plan that supports the company’s daily operation and the overall strategic plan. It is estimated that the purchased material cost accounts for 60% of the total product cost in the manufacture sector. In the retail and wholesale environments, the cost of a purchased commodity can be as high as 90%. According to the US Census Bureau 2002 manufacturing research report, the cost of purchased raw material, parts and components exceeds the amount of the value-added portion during the manufacturing process. Therefore, effectively managing purchasing and sourcing can enhance a firm’s competitive advantages. For a long time, purchasing was regarded as a supporting function in an organization. Today, in the age of supply chain management, the purchasing function plays an important role in implementing a

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SUPPLY CHAIN MANAGEMENT: CONCEPTS, TECHNIQUES AND PRACTICES - Enhancing Value Through Collaboration © World Scientific Publishing Co. Pte. Ltd. http://www.worldscibooks.com/business/6273.html

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Supply Chain Management: Concepts, Techniques, and Practices

company’s overall business strategy. Important aspects of supply chain management include outsourcing, searching for better quality products, and emphasizing lean and profitable production. The introduction of the Internet technology, e-commerce, on-line auction, and vendor-managed inventory has significantly influenced the purchasing relationship between the buyer and supplier. Before 1980s, it was common to have purchasing and logistics functions housed in the same department. As the role of purchasing becomes increasingly important in supply chain management, purchasing and logistics functions are separated. For example, in the 1970s and 1980s, purchasing and logistics were actually in the same department at Procter & Gamble. Then in the late 1980s and early 1990s, the two functions were separated. The task responsibilities were re-established by the late 1990s. In general, logistics tend to be operational; so managing the flow of the goods is its main task. The purchasing or sourcing personnel, on the other hand, are more attuned. They make certain supplier selection to reflect a company’s goal in terms of cost control, longer-term production capacity, product quality, and other pertinent objectives. Purchasing usually can be divided into two categories: commercial purchasing and industry purchasing. Wholesalers engage in commercial purchasing, which enables the retail sales process. The commercial purchase takes advantage of large quantity discount, then, breaks down the large quantity to small volumes for retail sales. This process provides material management services to retailers and end users. Industry purchasing, on the other hand, buys raw material, components, parts, etc. for the purpose of manufacturing products. Industry purchasing may also include acquiring indirect materials for the purpose of maintenance, repair and operation (MRO). This chapter focuses on purchasing and e-Procurement. Supplier market analysis, supplier selection, and outsourcing are discussed in Chapter 4, Collaborative Relations and Strategic Sourcing.

SUPPLY CHAIN MANAGEMENT: CONCEPTS, TECHNIQUES AND PRACTICES - Enhancing Value Through Collaboration © World Scientific Publishing Co. Pte. Ltd. http://www.worldscibooks.com/business/6273.html...
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