chapter 24 Flashcards
“Sourcing”, “Purchasing”, “Procurement”:
- Sourcing: Identifying, managing suppliers
- Purchasing: Buying goods, services from suppliers
- Procurement: Includes sourcing, purchasing, covers all activities in sourcing of materials, services, production facilities, human resources, information, capital and delivery
Functions and Objectives of Purchasing:
- Prepare specifications: Quality, quantity, dates required
- Placing order: Includes system entry for handling, costing, visibility
- Order management: Monitor, track, modify orders
- Receive purchases: Ensure quality, quantity, cost compliance
- Supplier management: Selection, classification, development, policy determination
- Buying market research: Collect, analyze, prepare, transfer market info
- Make-or-Buy decisions: In-house production or external purchasing
Objectives
* Strategic: Assurance of supply, flexibility, risk spreading, vertical integration, independence, long-term growth, input sided diversification
* Tactical/Operative: Optimizing purchasing costs, assurance of material’s quality, liquidity, readiness for delivery, buyer market positions, company’s image, price stability
Impacts of Core Competences and Outsourcing:
- Concentration on core competences leads to increased external sourcing
- Impact on company’s supplier structure, interaction with supplier
- Increased supplier numbers and responsibilities
Procurement Strategy:
Steps: Past and projected spend analysis, risk analysis, procurement profile development, strategy development per procurement profile category
Process Simplification and Product Standardization:
- Simplifying processes: Integration of purchasing into business processes, simplifying interfaces, IT-usage
- Standardizing products: Decreasing commodities and suppliers, increasing buyer market power, decreasing average unit buying price
Aspects of Supplier Selection:
- Number of suppliers (Single, Double, Multiple, System Sourcing)
- Supplier’s location (Local or Global sourcing)
- Duration of supply relationship (Long term relationships)
- Procurement channel (Direct or Indirect purchase)
Buyer-Supplier Relationships:
- Stable supply with materials/services for key products and strategic products
- Integration of key suppliers into development, rationalization and quality processes
- Requirements: Mutual trust, open corporate culture
Traditional Purchasing Process:
triggered when demands (goods/services) are recognized during the process of processing an order
- Order preparation
- offer comparison
- order placement
- contract performance monitoring and control
Value Chain Optimization:
- Supply Chain Management (SCM): Oversee each touch point of a company’s product or service
- Just-In-Time (JIT): Minimum units in smallest quantities at the latest possible time, eliminating need for inventory
- Advantages JIT: Short production lead time, flexibility, reduced costs, no goods inspection, less raw materials costs
- Disadvantages JIT: Dependency on supplier, unexpected order delay, higher transportation costs, strong dependence from suppliers.
Procurement marketing (sketch)
Define Supply market analysis?
- Systematic collecting, classification, analysis of data
- Relevant market characteristics for goods/services
- Provides critical information for procurement strategies
What are the strategic understandings provided by Supply market analysis?
- Market functioning
- Market direction
- Market competitiveness
- Market capability and capacity
- Key suppliers
- Supplier/market development
- Market sustainability performance and capability
- Pricing over time
What are the objects of Supply market analysis?
- Purchased goods/services and their characteristics, usage possibilities
- Price, including total cost of ownership and considering delivery/payment conditions
- Current and potential suppliers’ technical and economic power
- Market structure including supplier quantity, quality, scales, market dynamics
What are the objectives of Supply market analysis?
- Information provision for procurement decision-making
- Increasing market transparency
- Early detection of supply risks
- Opening new sources of supply and substitution products
- Part of procurement marketing and supplier management
What does an active policy in influencing supplier’s input factors involve?
Influencing the inputs purchased by the company’s supplier
What decisions does Purchasing method policy determine?
- Procurement channel (direct or indirect purchase)
- Procurement facilitator (internal purchasing department or external sales facilitators)
- Supplier structure (number of suppliers and spatial distribution of delivery locations)
What are the key areas of Purchasing conditions policy?
- Price, delivery, payment conditions
- Delivery time
- Conditions of transportation
- Guaranteeing of goods/services purchased
: What increases price political margins?
- Increasing purchasing quantity and value
- Increasing market transparency
- Increasing buyer’s market power
- Higher standardization level of the good
- Novelty of the goods
What is the primary objective of purchasing communication policy?
- Presenting the company as a good buyer on supply markets
- Strengthening current supplier relations
- Acquiring new suppliers
What are the objectives of strategic supply management?
- Identifying opportunities and threats in supply areas
- Designing strategies to improve organization’s position
What methods are used in strategic supply management?
- Strategic supply gap-analysis
- Buyer-Supplier-Market power-Portfolio
How can you increase buyer’s market power?
- Easy to substitute materials/parts
- Knowledge about alternative suppliers, price structure, quality
- Low changing costs in case of supplier change
- Free capacities for in house production
What factors influence supplier’s market power?
- Supplier is a monopolist
- Buyer is a C-customer with low purchase volume
- Material/units are key components of buyer’s product
- High changing costs in case of supplier change
- Buyer’s production capacities are fully used
What are some key questions to position suppliers in the Power Matrix?
- Objective power resources of buyer and suppliers
- Current and future potential power position management
- Full range of sourcing options
- Sourcing option(s) to achieve improved value for money
What are some methods of operative procurement-controlling?
- Structural analysis of the material demand
- Make-or Buy decision
- Supplier analysis
- Calculation of economic optimal order quantity
- Ordering policy
- Readiness to deliver (Service level)
What are the key components of an ABC-Analysis?
- Material classification based on value and quantity
- Identifying crucial types of supplier or articles
- Distinguishing between essential and non-essential
- High economic value areas are of interest to improve efficiency
- Categorizing goods into A-goods, B-goods, and C-goods
What is the purpose of XYZ-Analysis?
- Dynamic extension of ABC analysis
- Enables stock classification based on prediction accuracy or regularity of demand for materials
What considerations are involved in a Make-or-Buy Decision?
- Concentration on core competencies
- Cost optimization
- Product life cycle, complexity and variation
- Supplier specialization
- Rapid technical progress
- Capital intensity of production
What are the context dimensions of Make-or-Buy-decisions?
- Occasions: First time or Subsequent
- Objects: Goods or Services
- Considerations: Core competency, Production capacity, Costs, Demand fluctuations, Knowledge leakage, Hold up problem, Capital requirement
What are some decision support tools for Make or Buy decision?
- Break-Even-Analysis
- Make or Buy Portfolio
- Investment appraisal
What are the key steps in supplier selection process?
- Identifying suppliers
- Collecting information from suppliers
- Setting contract terms
- Negotiating with suppliers
- Evaluating suppliers
What is the importance of supplier qualification screening process?
- Reduces risk of non-performance
- Ensures responsible and responsive business relationship
What are some methods for supplier evaluation?
- Supplier database
- ABC-Analysis
- Quality audit
- Scoring systems
