Chapter 1 LGMT 536

Topics: Supply chain management, Supply chain, Management Pages: 39 (1142 words) Published: November 6, 2014
LGMT 536
Purchasing for Logistics and Supply Chain Management

Chapter 1

Introduction to Purchasing and Supply
Chain Management

Chapter Overview
 A new competitive environment
 Why purchasing is important
 Understanding the language of purchasing and
supply chain management
 Achieving purchasing and supply chain benefits

2

Chapter Overview
 The supply chain umbrella
 Four enablers of purchasing and supply chain
management
 The evolution of purchasing and supply chain
management
 Looking ahead

3

A New Competitive Environment
 Increasing numbers of world class global
competitors
 Sophisticated customer base
● More performance at lower cost
 Widely available information sources
 Balance of power between buyers and suppliers
 Greater levels of outsourcing

4

Factors Driving SCM
 Low cost and wide availability of information more
closely links members of a supply chain
 Competition in domestic and international markets
requires greater quickness, agility, and flexibility

5

Factors Driving SCM
 Customer expectations and requirements are
constantly changing and more demanding
 Major supply disruptions require the ability of a
supply chain to react rapidly
 Competition is now between supply chains, not
just between companies

6

Why Purchasing Is Important
 Increasing value and savings
 Building relationships and driving innovation
 Improving quality and reputation
 Reducing time-to-market
 Generating economic impact
 Contributing to competitive advantage

7

Increasing Value and Savings

 Suppliers have substantial impact on a firm’s total
cost
 Many product features originate from suppliers
 In manufacturing, purchased content is more than
55% of revenues
 Avoiding costs through early involvement in
product design stage

8

Building Relationships and Driving Innovation

 Traditional approach is to bargain hard for price
reductions
 New approach is to conduct joint cost reduction
with suppliers
 Both buyer and supplier must benefit
 Suppliers can contribute innovative ideas

9

Improving Quality and Reputation

 Buyer focuses on core competencies and
outsources non-core activities and materials
 Need for ability to track materials back up through
supplier’s supply chain
 Supplier quality  product quality

10

Reducing Time-to-Market

 Include suppliers early in product design process
to take advantage of their expertise
 Early supplier involvement can lead to an
average of 20% improvement on material costs,
material quality, and product development times

11

Generating Economic Impact
 The monthly ISM Report on Business is a closely
followed national economic indicator
● A change index
● Manufacturing and non-manufacturing
components
 > 50 means economy is expanding
 < 50 means economy is contracting

12

Contributing to Competitive Advantage

 Growing recognition of supply management’s
contribution to firm’s profitability
 More supply managers have earned college
degrees
 Increased number of supply managers with
certifications such as CPSM

13

Language of Purchasing and SCM
 Is purchasing different from supply management?
 Are supply chains and value chains the same?
 What is supply chain management?
 What is an extended enterprise?

14

Purchasing
 A functional group (i.e., a formal entity on the
organization chart) as well as a functional activity
(i.e., buying goods and services)
 a.k.a. as procurement

15

Purchasing
 Activities
● Supplier identification and selection
● Buying
● Negotiation and contracting
● Supply market research
● Supplier measurement and improvement
● Purchasing systems development

16

Supply Management
 A strategic approach to planning for and acquiring
the organization’s current and future needs
through effectively managing the supply base,
utilizing a process...
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