Global Procurement
CHAPTER 1 – Purchasing and Supply Management
The Financial Significance of Supply Management
Profit-leverage effect – A decrease in purchasing expenditures directly increases profits before taxes (assuming no decrease in quality or purchasing total cost)
Return-on-assets Effect – A high ROA indicates managerial prowess in generating profits with lower spending (caveat – ROA ratios vary from one industry to another)
Inventory Turnover Effect – Increased inventory turnover indicates optimal utilization of space and inventory levels, increased sales, avoidance of inventory obsolescence and reduced carrying expenses
Corporate Supply Management Trends
Increased outsourcing places great reliance on suppliers to respond to end-customer needs
Greater dependence on suppliers for design and build responsibilities for complete sub-assemblies and sub-systems
Development of new product technologies
Evolving information systems
Trend to single sourcing with fewer key supplier and strategic supplier relationships
Corporate Supply Management Opportunities
Identify opportunities to reduce unit costs for products and services
Identify opportunities to increase revenue
Implement supply initiatives to improve customer satisfaction
Reduce total cost of ownership
Improve efficiency and effectiveness of the supply process
Maximize value from suppliers
Work with key supplier to provide product and service innovations
How is Value Measured?
Customer/Consumer – price, quality, availability, service
Shareholder – earnings per share, return on equity, return on investment, return on assets, profit
The Value Chain
The collection of activities within the firm to design, produce, market deliver, and support its products and services
The Supply Chain – encompasses all activities associated with the movement and transformation of goods from raw materials through to the ultimate customer
Example: Value Chain 1 – company digs up gold from ground Value Chain
The Financial Significance of Supply Management
Profit-leverage effect – A decrease in purchasing expenditures directly increases profits before taxes (assuming no decrease in quality or purchasing total cost)
Return-on-assets Effect – A high ROA indicates managerial prowess in generating profits with lower spending (caveat – ROA ratios vary from one industry to another)
Inventory Turnover Effect – Increased inventory turnover indicates optimal utilization of space and inventory levels, increased sales, avoidance of inventory obsolescence and reduced carrying expenses
Corporate Supply Management Trends
Increased outsourcing places great reliance on suppliers to respond to end-customer needs
Greater dependence on suppliers for design and build responsibilities for complete sub-assemblies and sub-systems
Development of new product technologies
Evolving information systems
Trend to single sourcing with fewer key supplier and strategic supplier relationships
Corporate Supply Management Opportunities
Identify opportunities to reduce unit costs for products and services
Identify opportunities to increase revenue
Implement supply initiatives to improve customer satisfaction
Reduce total cost of ownership
Improve efficiency and effectiveness of the supply process
Maximize value from suppliers
Work with key supplier to provide product and service innovations
How is Value Measured?
Customer/Consumer – price, quality, availability, service
Shareholder – earnings per share, return on equity, return on investment, return on assets, profit
The Value Chain
The collection of activities within the firm to design, produce, market deliver, and support its products and services
The Supply Chain – encompasses all activities associated with the movement and transformation of goods from raw materials through to the ultimate customer
Example: Value Chain 1 – company digs up gold from ground Value Chain