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Program
Inbound Logistics
Operations
Outbound logistics
Marketing and sales
Services
The procurement function should be able to meet
the material requirements related to inbound
and outbound logistics, and to operations.
Support
activities
technology development
ar
gi
procurement
operations outbound marketing
logistics
& sales
service
M
a
r
gi
inbound
logistics
Primary activities
Drawn from Porter, 1985
Procurement
Technology development
Human resources management
Firm infrastructure
Product assortment
Number of suppliers
Purchasing turnover
Number of Purchase
orders
Average order size
Control
Decision-making unit
Limited to large
Limited, transparent
Very large, considerable
Considerable
High
Depends on type of
production planning
Engineering, manufacturing
specialists dominant
Very large
Very large
Limited
Very Large
Small
Limited, forecast-related or
project-related planning
Fragmented, varies with
product or service
Definition of concepts
Purchasing:
All activities for which the company receives an invoice from outside parties.
Differentiation between:
Purchasing function
Purchasing department
Definition:
Managing the companys external resources in such a way that the supply of
all goods, services, capabilities and knowledge which are necessary for
running, maintaining and managing the companys primary and support
activities is secured at the most favorable conditions.
Procurement:
All activities that are required in order to get the product from the supplier to its final
destination.
Definition of concepts
Sourcing:
Finding sources of supply, guaranteeing continuity in supply, ensuring alternative sources of
supply and gathering knowledge of procurable resources.
Purchasing Management:
All activities that are required to manage supplier relationships.
Definition of concepts
Different definitions...
Ordering
Buying
Purchasing
Procurement
Sourcing
Supply Chain Management
Value chain management.
Operational,
Operational,short
short
term,
deal
and
term, deal and
margin
margin
oriented
oriented
Strategic,
Strategic,long
long
term,
performance
term, performanceand
and
value
value
oriented
oriented
Definition of concepts
purchasing function
ordering/ operational
tactical / initial
Internal
customer
Specification
Expediting Follow
Selecting Contracting Ordering
and
up/
evaluation evaluation
Sourcing
Supply
Buying
Procurement
Supplier
60-85
60-80
50-70
60-80
25-50
Retailers
Computers
Consumer Automotive
electronics
Pharma
10-40
Service
industry
5
12
Admin.
18
Capex
3
12
Spares
50
Services
Tradeitems
Produ
ction
parts
Typical
structure
adapted from Kluge, 1996
Sales:
100%
Profit 1,5 %
Value added: 20 %
Definition of concepts
Challenge: how to manage our EXTENDED ENTERPRISE ?
Sales:
100%
Profit 1,5 %
Value added: 20 %
DuPont analysis:
Capital turnover ratio
2.1 x
RONA
9.9 %
Sales
105 mio
Margin
4.7 %
145 mio
Interest free
liabilities
95 mio
Sales
105 mio
Income
before tax
5 mio
/
Sales
105 mio
Net assets
50 mio
Total assets
Total costs
100 mio
Other costs
40 mio
+
Purchased
mat. & serv.
60 mio
DuPont analysis:
Capital turnover ratio
2.1 x
Sales
105 mio
Net assets
Total assets
50 mio
RONA
12.4 ---9.9 %
105 mio
Income
before tax
6.2 --5 mio
/
Sales
105 mio
Interest free
liabilities
95 mio
Sales
+ 25 % !!
Margin
4.7 %
5.9 ---
145 mio
Total costs
98.8 ---100 mio
Other costs
40 mio
+
Purchased
mat.& serv.
58.8 --60 mio
-2%
negligible added value, either together with other finished products and/or
manufactured goods
Services; labor intensive, non material activities that are executed by third
parties on a contract basis
Buyers market
Conclusions