Objectives and Organization for Effective Purchasing and Supply Management

Marketing 3860 – PurchasingJuly 13, 2004Kimball Bullington, Ph.D.Associate Professor of Operations ManagementMiddle Tennessee State University

Advantages of a Professional Purchasing Staff

It is easier to standardize. It cuts down on duplication and allows

for effective use of e-purchasing. It provides clout. It prevents interdepartmental or SBU

competition in times of mat’l shortages.

Advantages of a Professional Purchasing Staff

It is administratively more efficient for suppliers.

It provides better control. It is easier to prevent unethical

behavior. It enables specialization. It is essential for strategic supply

management.

Nine Goals of Purchasing

Provide an uninterrupted flow of materials, supplies, and services required to operate the organization. Lost production Reduced customer service Lower revenues Lower profits

Nine Goals of Purchasing

Keep inventory investment and loss at a minimum. Balance with maintenance of customer

service Reduced carrying cost Improved cash flow

Nine Goals of Purchasing

Maintain and improve quality. Garbage in – garbage out Total cost Internal failure vs. external failure

Nine Goals of Purchasing

Find or develop competent suppliers. Supplier evaluation / measurement Objective selection

Nine Goals of Purchasing

Standardize the items bought. Opportunities in capital equipment,

materials, MRO, and services Nissan - tires

Nine Goals of Purchasing

Purchase required items and services at lowest total cost. 52% of COGS Competitive bids Cost driver analysis Value anlaysis

Nine Goals of Purchasing

Achieve harmoniuos, productive working relationships with other functional areas within the organization. Manufacturing (and quality control) Engineering Accounting

Nine Goals of Purchasing

Accomplish the purchasing objectives at the lowest possible level of administrative costs. Efficient travel Reduced transaction costs Consolidation

Nine Goals of Purchasing

Improve the organization’s competitive position. Low cost supply Access to new technology Reduced time-to-market Flexible delivery Product design & engineering assistance

Purchasing’s Prime Decision Authority

Select the supplier Use whichever pricing method is

appropriate Question the specifications Monitor contacts with potential

suppliers

Purchasing Specialization

Sourcing and commodity management

Project buying Materials management Purchasing research

Advantages of Centralization

Greater buyer specialization Buying power Strategic focus Reduced cost of buying Higher level of buying talent Improved planning & research

Disadvantages of Centralization

Tendency to minimize legitimate differences in requirements

Focus on corporate req’ts, not SBU’s Common suppliers behave differently

in geographic and market segments Lack of business unit focus

Advantages of Decentralization

Better coordination / communication with operating department

Speed of response Business unit autonomy Geographical, cultural, political,

environmental, social, language, currency appropriateness

Disadvantages of Decentralization

Communication more difficult among business units

Operational vs. strategic focus Too much focus on local sources Lacks clout Suboptimization Limited expertise

Consortia

Organizations joining together to combine their buying power

Very common in not-for-profit

Consortia – Six Objectives

Reducing total costs for members through lower prices, higher quality, and better services.

Eliminating / avoiding violations of anti-trust regulations.

Protect against disclosure of confidential & proprietary info.

Consortia – Six Objectives

Share risk, costs, and benefits. Maintain trust and professionalism. Maintain similarity and compatibility

of needs, capabilities, philosophies, and corporate cultures.

Objectives and Organization for Effective Purchasing and Supply Management

Marketing 3860 – PurchasingJuly 13, 2004Kimball Bullington, Ph.D.Associate Professor of Operations ManagementMiddle Tennessee State University