MODULE 3 Flashcards
gives a mechanism for initiating and controlling the flow of materials through a supply chain.
PURCHASING
the function responsible for acquiring all the materials needed by an organisation. Many of these transactions are not standard purchases, but include rental, leasing, contracting, exchange, gifts, borrowing, and so on.
PURCHASING
_________refers to the actual buying, while _________ has a broader meaning.
PURCHASING: PROCUREMENT
responsible for acquiring all the materials needed by an organisation.
PROCUREMENT
It consists of all the related activities needed to get goods, services and any other materials from suppliers into an organisation.
PROCUREMENT
does not usually move materials itself, but it organises the transfer. It gives the message that materials are needed, and arranges the change of ownership and location
PROCUREMENT
largely concerned with information processing. It collects data from various sources, analyses it, and passes information to the supply chain.
PROCUREMENT
overall aim of procurement
to guarantee that an organisation has a reliable supply of materials.
Aims of procurement/ IMMEDIATE GOALS
● organising a reliable and uninterrupted flow of materials into an organisation
● working closely with user departments, developing relationships and understanding their needs
● finding good suppliers, working closely with them and developing beneficial relationships
● buying the right materials and making sure that they have acceptable quality, arrive at the time and place needed, and meet any other requirements
● negotiating good prices and conditions
● keeping stocks low, considering inventory policies, investment, standard and readily available materials, and so on
● moving materials quickly through the supply chain, expediting deliveries when necessary
● keeping abreast of conditions, including pending price increases, scarcities, new products, and so on.
, a single buyer might be responsible for all purchases, policy and administration
SMALL ORGANIZATION
have a department with buyers, expeditors, storekeepers, and clerks.
MEDIUM SIZED ORGANISATION
have hundreds of people co-ordinating huge amounts of purchases.
LARGE ORGANISATION
benefits of centralised purchasing
● consolidation of all orders for the same, and similar, materials to get quantity discounts
● co-ordinating associated activities to reduce costs of transport, stockholding and administration
● eliminating duplicated effort and haphazard practices
● having a single point of contact for suppliers and giving them consistent information and service
● developing specialised skills and improving procurement operations
● allowing other people to concentrate on their own work without diverting into purchasing
● concentrating responsibility for procurement, making management control easier
plays a major role in the company’s success.
PURCHASING GROUP
Nestlé published a supplier code to establish the guidelines for suppliers (AUGUST 2010)
- Business integrity:
- Sustainability
- Labor standard:
- Safety and health
- Environment:
- Supply farmers
- Audit and termination of the supply agreement
Nestlé reserves the right to demand corrective measures and to terminate the agreement with any supplier who does not comply with the code.
Audit and termination of the supply agreement
The supplier shall ensure that supplying farmers become fully aware of the code and will provide education and training sessions as necessary.
Supply farmers
The supplier must operate with care for the environment and comply with applicable laws and regulations.
Environment
The supplier will provide employees with safe and healthy working and, where provided, housing conditions; all products and services delivered by the supplier must meet quality and safety standards required by applicable law.
Safety and health
Suppliers will not use or benefit from forced or compulsory labor, will not use child labor, will comply with labor standards pertaining to hours worked, will receive compensation covered by laws or collective bargaining agreements, will not discriminate, and will grant employees the right of collective bargaining.
Labor standard:
Nestlé expects the supplier to continuously strive toward improving the efficiency and sustainability of its operations, which will include water conservation programs.
Sustainability
Suppliers must comply with applicable laws and regulations and must not promise any personal or improper advantage in order to obtain or retain a business or other advantage from a third party.
Business integrity
The business functions of procurement planning, purchasing, inventory control, traffic, receiving, incoming inspection, and salvage operations.
PROCUREMENT
The term used in industry and management to denote the function of and the responsibility for procuring materials, supplies, and services.
PURCHASING
An individual whose functions may include supplier selection, negotiation, order placement, supplier follow-up, measurement and control of supplier performance, value analysis, and evaluation of new materials and processes. In some companies, the supplier scheduler handles the functions of order placement and supplier follow-up.
Buyer
RFQ MEANS
request for quotation
old school supplier management techniques (Vonada 2008)
TRADITIONAL PURCHASING
concerned primarily with the buying process in which they placed the orders and followed up to assure delivery of those orders.
traditional purchasing function
concerned with obtaining products to meet the requirements
PURCHASING AGENT
Critical Success Factors for Purchasing
functionality—does it do what we want it to?
Availability—can we get it when we need it?
Cost—does it meet our target costs?
Quality—does the quality meet our requirements?
should be involved in both tactical and strategic decisions. The movement of purchasing from a tactical implementer to a strategic participant is making a big change in how members of an organization view the purchasing function.
CONTEMPORARY PURCHASING
requires the buying organization to become partners with its suppliers. In the broadest sense, the relationship is designed to work for the long-term well-being of all supply chain participants
CONTEMPORARY APPROACH
the process by which a buyer and a vendor agree upon the conditions surrounding the purchase of an item (Blackstone 2013).
NEGOTIATION
the establishment of a working relationship with a supplier organization, whereby the two organizations act as one (Blackstone 2013)
SUPPLIER PARTNERSHIP
Purchasing organizations are expected to participate, often as part of a cross-functional team, in decisions concerning strategic sourcing.
These decisions include;
- Supplier evaluation
- Supplier selection for long-term relationships
- Contract structuring and negotiation
- Supplier relationship management (SRM)
- Supply chain coordination and collaboration (Kocabasoglu and Suresh 2006; Strategic Direction 2005)
more oriented to building long-term relationships with fewer, but more dependable suppliers. While there is continued, and sometimes fierce, insistence on low prices, there is a need to include other criteria in describing the good or service being purchased. In the broadest sense, the relationship is designed to work for the long-term well-being of the entire supply chain.
CONTEMPORARY PURCHASING
Critical Success Factors for Purchasing/ last six have become more important with the increased interest in supply chains and include the following:
(1) match inflow of goods with outflow,
(2) reduce variations in deliveries,
(3) increase supplier dependability,
(4) reduce the bullwhip effect,
(5) become an intercompany facilitator, and
(6) find sustainable suppliers.
The first CSF for purchasing was to obtain goods or services that satisfied the needs of the users. While purchasing managers had some flexibility in selecting the supplier, the expectation was that the product purchased would work as expected. In specifying more technical purchases, user departments often specified the model number and what the vendor wanted, and were not willing to accept substitutes. In this case, the buyer became a routine order placer.
FUNCTIONALITY
Purchasing has always had the primary responsibility to make goods or services available when needed by the production line, by the retail store when having a sale, or for a surgeon about to perform an open-heart surgery. The presence of the expediter job in many companies still attests to the importance of availability. Late deliveries were bad; early deliveries were generally acceptable, perhaps even considered a positive indication of supplier performance. However, in recent years, neither early nor late deliveries, or over amounts or under amounts, are acceptable.
AVAILABILITY
The use of purchase price variances (difference between the actual purchased price and planned, or standard, price) has been a bedrock measure of purchasing performance from the beginning. Often, the best way to obtain reduced unit prices was to buy larger volumes. While this helps the buyer’s purchase price variance, it often resulted in excess inventory or the wrong mix of inventory, or sometimes both.
COST
Some companies used quality as a measure of purchasing performance; however, many did not. Production managers may have grumbled about inspecting many incoming parts to screen out the defective products, but if the price was right, the purchasing department usually did not receive much criticism. Functionality, availability, cost, and quality were all important and remain so today. The better the purchasing department, the better they were able to satisfy these basic requirements. However, purchasing was not often considered a key member of the top management organization. As the transition to contemporary purchasing evolved, a number of CSFs have been added.
QUALITY
One of the best ways to obtain low purchase prices was to buy in large quantities or to make early buys—buy out of season to help suppliers balance their production. Buying in large quantities resulted in excess inventories that were subject to holding costs, damage, obsolescence, and a premature commitment of funds. One of the authors remembers an overzealous restaurant manager who purchased ice tea bags at a discount, quite a few cases, to say the least. There were cases of ice tea bags in almost every storage area of the facility. The problem though was that ice tea bags cannot last for a long period of time. Several years of tea bags were eventually discarded due to old age!
Match Inflow with Outflow
In their attempt to more closely match the arrival of goods with the production department’s needs, purchasing departments found, in addition to having to moderate their large volume buys, they had to assess the effectiveness of the delivery practices of their suppliers. Some suppliers consistently made on-time deliveries; however, many were inconsistent—sometimes early, but more often late. Some suppliers shipped complete orders; some shipped multiple partial orders. It became necessary for purchasing departments to monitor the performance of their suppliers and encourage them to be more consistent in their performance. If they did not improve, suppliers faced the prospect of reduced business, or even elimination as a supplier.
REDUCE VARIANCES IN DELIVERY
The attention to supplier delivery performance opened the opportunity and need to evaluate suppliers on other tangible criteria as well, such as lead times and quality of merchandise, and even to explore such intangible services such as the supplier’s help in suggesting ways to improve the buyer–seller relationship. Some suppliers could provide input about new product developments or market conditions that were of value to the buying organization. As buyers learned more about their suppliers, it was a natural development to group the suppliers into categories representing their value to the buying organization. This closer look also made it easier for purchasing departments to reduce the number of suppliers they needed and enabled them to place increased business with their more dependable suppliers.
INCREASE SUPPLIER DEPENDABILITY
an extreme change in the supply position upstream in a supply chain, generated by a small change in demand downstream in the supply chain. The impact is that inventory can quickly move from being backordered to being excess. This problem is caused by the ripple effect nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain. The bullwhip effect can be markedly improved by synchronizing the supply chain. If purchasing departments could reduce the variances with suppliers, then each stage of the supply chain could work together to reduce variances and thereby reduce the bullwhip effect.
BULLWHIP EFFECT
As customers demanded more from fewer suppliers, it became necessary for other functions in an organization to have access to their counterparts in supplier organizations— engineers with engineers, marketers with marketers, accountants with accountants, and the like. Someone had to initiate and help sustain these relationships; this facilitating function was a natural function for most purchasing groups. They generally had the most information about suppliers and could expand their information base to include information desired by other functions in the buying organization.
BECOME AN INTERCOMPANY FACILITATOR
The reputation of a firm is closely linked to the social, environmental, and ethical profiles of an organization’s spending (Reeve and Steinhausen 2007). Purchasing departments must add finding responsible suppliers to their list of operating objectives.
FIND SUSTAINABLE SUPPLIERS
__________ should be involved in a number of strategic and tactical areas from which they had previously been excluded
purchasing personnel
CPO stands for:
Chief purchasing officer
expects that purchasing can contribute best by having the senior purchasing officer
financial function
sit on the highest decision-making body in the company
CPO
)The functions that are which contemporary purchasing is involved as a participant in the decision-making process.
- PRODUCT DESIGN
- PRODUCT SPECIFICATION
- NEW PRODUCT INTRODUCTION
engineering and marketing are the key players, and they are essential to successful new product launches. However, purchasing plays an equally important role. Managerial Comment 8.1 describes an approach that worked successfully in a major manufacturing company (Walker 1992)
NEW PRODUCT INTRODUCTION
Once the product has been designed, there is a need to further define it by developing the
PRODUCT SPECIFICATIONS
“a clear, complete, and accurate statement of the technical requirements of a material, an item, or a service, and of the procedure to determine if the requirements are met”
SPECIFICATION
largely the responsibility of marketing and engineering.
PRODUCT DESIGN
a concept that refers to the simultaneous participation of all the functional areas of the firm in the product design activity.
concurrent engineering or participative design/engineering
tactical and operational functions that purchasing manages directly.
purchasing process, supplier evaluation, and building supplier relationships.
Product design and specification, target costing, supplier selection and location, and inventory management are all strategic decision areas. Once these phases have been completed, it is time to begin the tactical phase of the purchasing process. These activities include determining the order quantity, timing the order placement, monitoring the orders for on-time delivery, assessing the accuracy of the order, checking the quality of the product, approving the supplier invoice for payment, and reconciling problems that occur during the process.
PURCHASING PROCESS
Purchase order process flow.
1, Prepare order and send to supplier;
2, supplier checks credit of customer before shipping;
3, supplier prepares order for shipment;
4, supplier prepares invoice;
5, supplier ships to customer, directly or through third party;
6, purchasing sends purchase order to accounting;
7, operations sends receiving report to accounting;
8, supplier sends invoice to customer (accounts payable);
9, accounts payable reconciles purchase order, receiving report and invoice; approves payment;
10, customer bank sends electronic funds transfer to supplier bank.
include tangible measures, such as product quality and on-time delivery, but it should also include less tangible measures such as supplier cooperativeness and trust. We describe these performance measures more fully in the Performance Measurement section. As part of the evaluation process, suppliers should be encouraged to present an evaluation of their own performance. Doing this should help to obtain supplier buy-in to the evaluation process and often results in constructive suggestions about how to improve their value to the buying organization
SUPPLIER EVALUATION
a relatively new concept and serves as a mirror image of the customer relationship management (CRM) program designed to establish the relationship with customers. _____ is defined as “a comprehensive approach to managing an enterprise’s interactions with the organizations that supply the goods and services the enterprise uses. The goal of _____ is to streamline and make more effective the processes between an enterprise and its suppliers. _____ is often associated with automating procure-to-pay business processes, evaluating supplier performance, and exchanging information with suppliers. An e-procurement system often comes under the umbrella of a ___ family of applications”
SUPPLIER RELATIONSHIP MANAGEMENT
All of the aforementioned activities should lead to an effective level of ___________________ and eventually to collaboration among supply chain participants. The purchasing functions in each organization will not only be participants in the process, they should be drivers of the change.
SUPPLY CHAIN COORDINATION/ COLLABORATION
trigger the purchasing activity along the supply chain, even though they are located at the last stage of the process.
INDIVIDUAL CONSUMERS
PURCHASING ALONG THE SUPPLY CHAIN
- CONSUMER
- RETAIL
- WHOLESALE
- MANUFACTURE
- MINING AND AGRICULTURE
- SERVICES
Their primary objective is to have products ready to sell to the consumer.
RETAIL
POS MEANING:
POINT-OF-SALE
Some of the current concerns for retailers include
reducing inventory levels,
managing exclusive brands,
managing commitment and production cycles, and
overseeing direct sourcing from manufacturers versus indirect sourcing third parties
concerned only with handling finished goods.
WHOLESALE
“is a product design strategy that shifts product differentiation closer to the consumer by postponing identity changes, such as assembly or packaging, to the last possible supply chain location” (Blackstone 2013).
POSTPONEMENT
concerned with producing and distributing finished goods downstream to wholesalers and retailers; they are involved with obtaining raw materials and complementary services to be able to produce the finished products.
MANUFACTURER
Consumer Decision Process (Buyer Decision Process)
PIEPP
Major situations leading to problem recognition are;
- Insufficient Stock of Goods
- Dissatisfaction or Discontentment with the Stock
- Changes in the Environmental Characteristics
- Changes in the Financial Status
- Promotional Activities
- Consumer’s Previous Decisions
- Individual Development
- Efforts of Consumer Groups and Governmental Agencies
- Availability of Products
The most common situation leading to problem recognition by a consumer. If, for example, an individual runs out of necessities that he uses, he will identify a problem to exist.
INSUFFICIENT STOCKS OF GOODS
Buyers or customers can get information about goods from different sources.
- Personal sources:
- Commercial source:
- Public sources:
- Experimental sources:
Consumer evaluation processes can be explained with the help of some basic concepts.
- First, it is assumed that each consumer sees a product as a bundle of product attributes.
- Second, the importance of depending upon their needs and wants.
- Third, the consumer will develop a set of brand beliefs about where each brand stands on each attribute
- Fourth, the consumer’s expected total product satisfaction will vary with the changes at the levels of different attributes.
- Fifth, the consumer develops attitudes toward the different brands through some evaluation procedure.
two factors might influence the purchase intention and the purchase decision.
The first factor is the attitudes of other people related to the consumer.
The second factor is unexpected situational factors.
The most common situation leading to problem recognition by a consumer
Insufficient Stock of Goods
for example, an individual runs out of necessities that he uses, he will identify a problem to exist.
Insufficient Stock of Goods
A family having a ten year’s old car may be willing to buy a late model car. Such a feeling will lead to discontent, and as a result, the family will recognize a car-related problem.
Dissatisfaction or Discontentment with the Stock
For example, when a family moves from one stage of its life cycle to another stage, it requires different types of products and services, and as a result, problems occur.
More so, friends and reference groups’ influence may demand new and different products to be bought by an individual or a family. Such a situation also leads to the recognition of a problem.
Changes in the Environmental Characteristics
For example, if an individual’s financial position improves or worsens or anticipates an improvement or deterioration, he may recognize a problem associated with his actual or anticipated changing financial position.
Changes in the Financial Status
By ________, marketers try to trigger drives in consumers.
promotional activities
Through different _________ marketers try to create a discrepancy between actual and desired states of consumers. Such a situation will trigger problem recognition in consumers
promotional activities
For example, if an individual buys a television, it may trigger buying an antenna or a voltage stabilizer. The purchase of a computer may lead to the recognition of the problem of not having a printer.
Consumer’s Previous Decisions
With an _________ and change in outlook, he may recognize not having certain products.
individual’s mental development
For example, if consumer groups advocate environmentally friendly products, they may feel the need for such products creating problems.
If the government puts an embargo on using private vehicles on the city’s main roads, consumers can buy bicycles, thus causing a problem.
Efforts of Consumer Groups and Governmental Agencies
The _________ makes customers aware of it, making them feel to have one of those. Such a feeling may also lead to problem recognition.
availability of a product
ToF: The consumer may have heightened attention or may undertake an active search for information. The amount of searching a consumer will depend on the strength of his drive, the amount of information he starts with, the ease of obtaining more information, the value he places on additional information, and the satisfaction he gets from searching.
T
This includes family, friends, neighbors, acquaintance, etc.
- Personal sources
This includes handling, examining, using, etc. Such information becomes decisive and confidential
- Experimental sources
This includes mass media, consumer rating organizations, etc. they also become confidential to provide information.
- Public sources
This includes advertising, salespeople, dealers, packaging, display, etc.
- Commercial source
Generally, the consumer receives the most information about a product from commercial sources-those controlled by the manufacturer
False; controlled by the marketer
The most effective sources; appear to be even more important in influencing the purchase of services
PERSONAL SOURCES
_______ normally inform the buyer, but ______ legitimize or evaluate products for the buyer.
COMMERCIAL SOURCES; PERSONAL SOURCES
The consumer may form a purchase intention based on factors such as _______ and ______
EXPECTED PRICE AND EXPECTED PRODUCT BENEFITS
In this stage, the consumer determines if they are satisfied or dissatisfied with the purchasing outcome. Here is where cognitive dissonance occurs, “Did I make the right decision.”
Post-Purchase Evaluation
Post-Purchase Evaluation
Purchasing Process
