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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

Chapter 12 Supplement

Purchasing and Supplier Management

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.

Purchasing

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Develop and implement purchasing plans for products and services that support operations strategies

Goal of Purchasing

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Identifying sources of supply

• Negotiating contracts

• Maintaining a database of suppliers

• Obtaining goods and services

• Managing supplies

Duties of Purchasing

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

Purchasing Interfaces

Purchasing

Legal

AccountingOperations

Dataprocessing

Design

ReceivingSuppliers

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

Purchasing Cycle

• Requisition received

• Supplier selected

• Order is placed

• Monitor orders

• Receive orders

Purchasing

Legal

AccountingOperations

Dataprocess-ing

Design

Receiving

Suppliers

12s-8

McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Value analysis– Examination of the function of purchased

parts and materials in an effort to reduce cost and/or improve performance

• Outsourcing– Buying goods or services from outside

sources rather than making or providing them in-house

Value Analysis vs Outsourcing

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

Deciding Factors for Outsourcing

• Cost to make vs. cost to buy

• Stability of demand

• Quality from suppliers

• Maintaining close control

• Idle capacity available

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Lead times for each alternative

• Who has patents, expertise, etc.

• Stability of technology

• Consistency/conflict with current operations

Deciding Factors for Outsourcing

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Available capacity

• Expertise

• Quality considerations

• Nature of demand

• Cost

• Core elements

• Strategy

Factors for Make or Buy Decisions

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Predetermined or fixed prices

• Competitive bidding

• Negotiated purchasing

Determining Prices

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

Determining Prices

• Published price lists– fixed or predetermined prices

• Competitive bidding– e.g. government purchases of standard goods or

services

• Negotiating– win-win transaction

12s-14

McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Negotiation is a win-lose confrontation

• Main goal is to obtain the lowest price

• Each negotiation is an isolated transaction

Myths of Negotiated Purchasing

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Centralized purchasing– Purchasing is handled by one special

department

• Decentralized purchasing– Individual departments or separate

locations handle their own purchasing requirements

Centralized vs Decentralized Purchasing

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Choosing suppliers

• Evaluating sources of supply

• Supplier audits

• Supplier certification

• Supplier relationships

Suppliers

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Quality and quality assurance

• Flexibility

• Location

• Price

Factors in Choosing a Supplier

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Product or service changes

• Reputation and financial stability

• Lead times and on-time delivery

• Other accounts

Factors in Choosing a Supplier

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Purchasing and Supplier Management

Evaluating Sources of Supply

• Vendor analysis: Evaluating the sources of supply in terms of price, quality, reputation, and service

12s-20

McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Vendor analysis - evaluating the sources of supply in terms of– Price– Quality– Services– Location– Inventory policy– Flexibility

Evaluating Sources of Supply

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

Supplier as a Partner

Aspect Partner AdversaryNumber of suppliersLength ofrelationshipLow priceReliabilityOpennessQualityVolume of businessLocation

Flexibility

One or a fewLong-termModerately importantHighHighInsured at the sourceHighProximity may bestressed for short leadtimesRelatively high

Many; play one offothersMay be briefMajor considerationMay not be highLowBuyer inspectsMay be - many suppliersWidely dispersed

Relatively low

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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Purchasing and Supplier Management

• Ideas from suppliers could lead to improved competitiveness– Reduce cost of making the purchase– Reduce transportation costs– Reduce production costs– Improve product quality– Improve product design– Reduce time to market– Improve customer satisfaction– Reduce inventory costs– Introduce new products or services

Supplier Partnerships