Exam 1 - Intro and Purchasing Flashcards
Goods flow …
downstream
Money flows …
upstream
Focal firm
Primary business, company responsible for final product
First-Tier Suppliers
Suppliers that directly supply goods or services to focal firm
Second-Tier Suppliers
Suppliers that provide goods or services to first-tier suppliers
First-Tier Customers
Customers that directly purchase products from focal firm
Second-Tier Customers
Customers of first-tier customers
Ex. Shoe manufacturer - Focal Firm
Shoe manufacturer
Ex. Shoe manufacturer - First-Tier Suppliers
Leather, rubber, packaging
Ex. Shoe manufacturer -Second-Tier Suppliers
Cattle farms. chemical companies
Ex. Shoe manufacturer - First-Tier Customers
Retailers (stores)
Ex. Shoe manufacturer - Second-Tier Customers
End consumers (buying shoes from stores)
Supply Chain Management
The synchronization of a firm’s processes with those of its suppliers and customers to match the flow of materials, services, and info with customer demand
Purchasing
Buy it
Logistics
Move it or store it
Operations
Make it
Purchasing
The act of obtaining or buy goods and services. Includes preparation and processing of a demand as well as the receipt and approval of payment
Goods
Low degree of customer service, high degree of tangibility
Services
High degree of customer service, low degree of tangibility
Cannot be shipped, inventoried, hard to control
Why should purchasing be considered a strategic role?
- Without inputs, you won’t have any outputs
- Supplier selection is a strategic decision
- Purchased materials are often the biggest source of company spendings
Direct benefits of good purchasing practices
- Largest potential source of cost savings
- Leverage effect
- ROA (Return on asset)
- Effecting the bottom line
Indirect benefits of good purchasing practices
- Good forecasting/strategic order sizes ease burden of inventory mgt
- Higher quality can lead to less returns, scrapped products
- Minimize potential operational/reputational risk
7 Rights of Purchasing
- Obtaining the right material
- In the right quantity
- With the right service
- For delivery to the right place
- At the right time
- From the right suppliers
- At the right place
Golden Triangle of Purchasing
Delivery
Cost
Quality
Bottleneck
- Small volume, but critical item and few suppliers
- Purchasing consortium
- Collaborative partnerships
Routine
- Simple and inexpensive
- KISS - Keep it Simple and Straightforward
Leverage
- Large volume from stable markets
- Spend analysis
- Supply-base reduction
- Global sourcing
Critical
- Complex, high-volume/value items
- Customer of choice
- Long-term contracts
- Build trust
Factors Defining Complexity
- Supply Market Landscape (are there many supplier or only a few?)
- Risk (how important are you as a customer to potential suppliers?)
- Technological Uniqueness (pace of technological change affects your decision-making certainty)
Purchasing Structure Options for Large Organizations - Centralized
Authority and responsibility for most supply-related functions assigned to a central body
Purchasing Structure Options for Large Organizations - Decentralized
Authority and responsibility for supply-related functions dispersed throughout the org
Purchasing Structure Options for Large Organizations - Hybrid
Authority and responsibility shared between a central supply org and business units, divisions, and operating plants (takes advantage of both)
