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Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Learning Objectives- Cont.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Chapter Two Outline
• The Role of Purchasing in an Organization
• The Purchasing Process
• Sourcing Decisions: The Make-or-Buy Decision
• Roles of Supply Base
• Supplier Selection
• How Many Suppliers to Use
• Purchasing Organization: Centralized versus
• Decentralized Purchasing
• International Purchasing/Global Sourcing
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Introduction
Purchasing-
Obtaining merchandise, capital equipment; raw materials, services,
or maintenance, repair, and operating (MRO) supplies in exchange
for money or its equivalent.
Merchant Buyers-
wholesalers and retailers who purchase for resale.
Industrial Buyers-
purchase raw materials for conversion, services, capital equipment,
& MRO supplies.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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The Role of Purchasing in an
Organization
The primary goals of purchasing are:
1. Ensure uninterrupted flows of raw materials at the lowest total cost,
2. Improve quality of the finished goods produced, and
3. Optimize customer satisfaction.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
The Purchasing Process
Manual Purchasing-Older system, prone to duplication of effort
and error
Step 3- The Purchase Order (PO)- The purchase order is the buyer’s
offer & becomes a binding contract when accepted by supplier.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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The Purchasing Process- Cont.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
The Purchasing Process- Cont.
Electronic Procurement (e-Procurement)
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
The Purchasing Process- Cont.
Advantages for the e-Procurement System
– Time savings
– Cost savings
– Accuracy
– Real time
– Mobility
– Trackability
– Management
– Benefits to the suppliers
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Small Value Purchase Orders
Processing costs can be substantial. Small value
purchases should be minimized through:
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Sourcing Decisions: The Make-or-
Buy Decision
• Outsourcing -buying materials and components from suppliers
instead of making them in-house. The trend has moved toward
outsourcing.
• Backward integration refers to acquiring sources of supply
• Forward integration refers to acquiring customer’s operations.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Sourcing Decisions: The Make-or-
Buy Decision- Cont.
Reasons for Buying or Outsourcing
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Sourcing Decisions: The Make-or-
Buy Decision- Cont.
Reasons for Making
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Sourcing Decisions: The Make-or-
Buy Decision- Cont.
The Make-or-Buy Break-Even Analysis
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Roles of Supply Base
Supply Base- suppliers that a firm uses to acquire its materials,
services, supplies, and equipment.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Supplier Selection
The process of selecting suppliers, is complex and should
be based on multiple criteria:
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
How Many Suppliers to Use
Single-sourcing- a risky proposition. Although trends favor
fewer sources, avoid single source.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Purchasing: Centralized vs.
Decentralized
Purchasing Organization dependent on
many factors, such as market conditions
& types of materials required.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing
Purchasing: Centralized vs.
Decentralized
Advantages- Centralization Advantages- Decentralization
– Concentrated volume- – Closer knowledge of
leveraging purchase volume requirements
– Avoid duplication – Local sourcing
– Specialization – Less bureaucracy
– Lower transportation costs
– No competition within units
– Common supply base
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
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© 2005 Thomson Business and Professional Publishing