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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
Chapter 12 Supplement
Purchasing and Supplier Management
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.
Purchasing
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Develop and implement purchasing plans for products and services that support operations strategies
Goal of Purchasing
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Identifying sources of supply
• Negotiating contracts
• Maintaining a database of suppliers
• Obtaining goods and services
• Managing supplies
Duties of Purchasing
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
Purchasing Interfaces
Purchasing
Legal
AccountingOperations
Dataprocessing
Design
ReceivingSuppliers
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
Purchasing Cycle
• Requisition received
• Supplier selected
• Order is placed
• Monitor orders
• Receive orders
Purchasing
Legal
AccountingOperations
Dataprocess-ing
Design
Receiving
Suppliers
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• 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
Value Analysis vs Outsourcing
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
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
12s-10
McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Lead times for each alternative
• Who has patents, expertise, etc.
• Stability of technology
• Consistency/conflict with current operations
Deciding Factors for Outsourcing
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Available capacity
• Expertise
• Quality considerations
• Nature of demand
• Cost
• Core elements
• Strategy
Factors for Make or Buy Decisions
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Predetermined or fixed prices
• Competitive bidding
• Negotiated purchasing
Determining Prices
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
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
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Negotiation is a win-lose confrontation
• Main goal is to obtain the lowest price
• Each negotiation is an isolated transaction
Myths of Negotiated Purchasing
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Centralized purchasing– Purchasing is handled by one special
department
• Decentralized purchasing– Individual departments or separate
locations handle their own purchasing requirements
Centralized vs Decentralized Purchasing
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Choosing suppliers
• Evaluating sources of supply
• Supplier audits
• Supplier certification
• Supplier relationships
Suppliers
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Quality and quality assurance
• Flexibility
• Location
• Price
Factors in Choosing a Supplier
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Product or service changes
• Reputation and financial stability
• Lead times and on-time delivery
• Other accounts
Factors in Choosing a Supplier
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
Evaluating Sources of Supply
• Vendor analysis: Evaluating the sources of supply in terms of price, quality, reputation, and service
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• Vendor analysis - evaluating the sources of supply in terms of– Price– Quality– Services– Location– Inventory policy– Flexibility
Evaluating Sources of Supply
12s-21
McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
Supplier as a Partner
Aspect Partner AdversaryNumber of suppliersLength ofrelationshipLow priceReliabilityOpennessQualityVolume of businessLocation
Flexibility
One or a fewLong-termModerately importantHighHighInsured at the sourceHighProximity may bestressed for short leadtimesRelatively high
Many; play one offothersMay be briefMajor considerationMay not be highLowBuyer inspectsMay be - many suppliersWidely dispersed
Relatively low
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McGraw-Hill RyersonOperations Management, 2nd Canadian Edition, by Stevenson & HojatiCopyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
Purchasing and Supplier Management
• 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
Supplier Partnerships
