12s-1

Purchasing and Supplier Management

Chapter 12 Supplement

Purchasing and
Supplier Management

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-2

Purchasing and Supplier Management

Purchasing
Purchasing is responsible for obtaining
the materials, parts, and supplies and
services needed to produce a product
or provide a service.

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-3

Purchasing and Supplier Management

Goal of Purchasing
Develop and implement purchasing
plans for products and services that
support operations strategies

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-4

Purchasing and Supplier Management

Duties of Purchasing

Identifying sources of supply

Negotiating contracts
Maintaining a database of suppliers
Obtaining goods and services
Managing supplies

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-5

Purchasing and Supplier Management

Purchasing Interfaces
Legal
Operations

Accounting

Purchasing

Data
processing

Design
Suppliers

McGraw-Hill/Irwin

Receiving

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-6

Purchasing and Supplier Management

Purchasing Cycle
Legal

Requisition received

Operations

Accounting

Supplier selected
Order is placed
Purchasing

Monitor orders

Data
processing

Receive orders
Design
Receiving
Suppliers

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-7

Purchasing and Supplier Management

Value Analysis vs Outsourcing

Value analysis
Examination of the function of purchased
parts and materials in an effort to reduce
cost and/or improve performance

Outsourcing
Buying goods or services from outside
sources rather than making or providing
them in-house

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-8

Purchasing and Supplier Management

Deciding Factors for Outsourcing

Cost to make vs. cost to buy
Stability of demand
Quality from suppliers
Maintaining close control
Idle capacity available

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-9

Purchasing and Supplier Management

Deciding Factors for Outsourcing

Lead times for each alternative

Who has patents, expertise, etc.
Stability of technology
Consistency/conflict with current
operations

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-10

Purchasing and Supplier Management

Factors for Make or Buy Decisions

Available capacity
Expertise
Quality considerations
Nature of demand
Cost
Core elements
Strategy

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-11

Purchasing and Supplier Management

Determining Prices
Predetermined or fixed prices
Competitive bidding
Negotiated purchasing

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-12

Purchasing and Supplier Management

Determining Prices
Published price lists
fixed or predetermined prices

Competitive bidding
e.g. government purchases of standard goods or
services

Negotiating
win-win transaction

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-13

Purchasing and Supplier Management

Myths of Negotiated Purchasing

Negotiation is a win-lose confrontation
Main goal is to obtain the lowest price
Each negotiation is an isolated
transaction

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-14

Purchasing and Supplier Management

Centralized vs Decentralized Purchasing

Centralized purchasing
Purchasing is handled by one special
department

Decentralized purchasing
Individual departments or separate
locations handle their own purchasing
requirements

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-15

Purchasing and Supplier Management

Suppliers

Choosing suppliers
Evaluating sources of supply
Supplier audits
Supplier certification
Supplier relationships

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-16

Purchasing and Supplier Management

Factors in Choosing a Supplier

Quality and quality assurance

Flexibility
Location
Price

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-17

Purchasing and Supplier Management

Factors in Choosing a Supplier

Product or service changes

Reputation and financial stability
Lead times and on-time delivery
Other accounts

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-18

Purchasing and Supplier Management

Evaluating Sources of Supply

Vendor analysis: Evaluating the sources
of supply in terms of price, quality,
reputation, and service

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-19

Purchasing and Supplier Management

Evaluating Sources of Supply

Vendor analysis - evaluating the sources
of supply in terms of
Price
Quality
Services
Location
Inventory policy
Flexibility

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-20

Purchasing and Supplier Management

Supplier as a Partner

Aspect

Partner

Adversary

Number of suppliers
Length of
relationship
Low price
Reliability
Openness
Quality
Volume of business
Location

One or a few
Long-term
Moderately important
High
High
Insured at the source
High
Proximity may be
stressed for short lead
times
Relatively high

Many; play one off

others
May be brief
Major consideration
May not be high
Low
Buyer inspects
May be - many suppliers
Widely dispersed

Flexibility

McGraw-Hill/Irwin

Relatively low

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

12s-21

Purchasing and Supplier Management

Supplier Partnerships
Ideas from suppliers could lead to improved
competitiveness
Reduce cost of making the purchase
Reduce transportation costs
Reduce production costs
Improve product quality
Improve product design
Reduce time to market
Improve customer satisfaction
Reduce inventory costs
Introduce new products or services

McGraw-Hill/Irwin

Operations Management, Seventh Edition, by William J. Stevenson

Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.