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8/18/2019 Purchasing and Supply Management- Flynn
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6 J>
Purchasing and
Supply ManagementFourteenth Edition
P. Fraser John son PhDLeenders Purchasing Management
ssociation of Canada Chair ssociate Professor OperationsManagementRichard Ivey School of usinessThe University of Western Ontario
M ichie l R. Leenders DBA PMACFellowProfessor of Purchasing Managem ent
EmeritusRichard Ivey School of usinessThe University of Western Ontario
Ann a E. Flynn PhDFormerly Clinical ssociate ProfessorSupply Chain Managem entThunderbird School of GlobalManagement
Formerly ssociate ProfessorInstitute for Supply Managem ent
Boston Burr Ridge IL Dub uque IA Mad ison Wl New York San Francisco St. Louis
Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico CityMilan Montreal New Delhi S antiago Seoul Singap ore Sydney Taipei Toronto
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Table of Contents xi
Supply Activities and R esponsib i l i ties 61What Is Acquired 61Supply Chain Activities 61Type of Involvement 63Involvement in Corporate Activities 63Influence of the Industry Sector on SupplyActivities 63
Supply Teams 64Leading and Managing Teams 64Cross-Functional Supply Teams 64Other Types of Supply Teams 66
Consortia 67Conclusion 69Questions for Rev iew and Discuss ion 69References 69
Cases 703-1 Iowa Elevators 703-2 Roger Haskett 73
Chapter 4Supply Processes and Technology 76
The Supply Management Process 78Strategy and Goal Alignment 78Ensuring Process Compliance 79
Information Flows 80Steps in the Sup ply Process 80
1. Recognit ion of N eed 802. Description of Ne ed 81
Purposes and Flow of a Requisition 81Types of Requisitions 82Early Supply and Supplier Involvement 83
3. Identification of Potentia l S ources 84Issue an RFx 84
4. Supplier Selection and D e te rmina tion
of Terms 855. P reparation and P lacem ent o f the
Purchase Order 856. Follow -up and Expedi t ing 88
Assess Costs and Benefits 897. Receip t and Inspection 90
Eliminate or Reduce Inspection 908. Invoice C learing and P a y m e n t 90
Aligning Supply and Accounts Payable 91Cash Discounts a nd Late Invoices 92
9. Maintenance of Records andRela t ionships 92Linking Data to Decisions 93Manage Supplier Relationships 93
Impro ving Pro cess Eff ic iency andEffectiveness 93
A Supply Process Flowchart 94Strategic Spend 95Nonstrategic Spend 95
Informat ion Systems and the Supply Process 98Benefits o f Information Systems Technology 99Technology Options 99Types of Information Systems 100Intranets and Extranets 102
Technology-Driven Eff ic iency and
Effectiveness 102Electronic Procurement Systems 103Electronic or Online Catalogs 105Electronic Da ta Interchange (EDI) 105E-Marketplaces 106Online Reverse Auctions 107Radio Frequency Identification (RFID) 109
Implications for Supply 109Policy and Procedure Manual 111Conclusion 111
Questions for Review and Discussion 112References 112Cases 113
4-1 Bright Technology International 1134-2 Hemingway College 1154-3 Portland Bus Company 116
Chapter 5Make or Buy Insourcing andOutsourcing 120
Make or Buy 121Reasons for Make instead of Buy 123Reasons for Buying Outside 123The Gray Zone in Make or Buy 124
Subcontracting 125Insourcing and O utsourcing 126Insourcing 126
;Outsourcing 127Outsourcing Supply and Logistics 129
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xii Table of Contents
Supply s Role in Insourcing and Outsourcing 129Conclusion 130
Questions for Review and Discussion 130References 130Cases 131
5-1 B&L Inc. 1315-2 Rondot Automotive 1325-3 Alicia Wong 133
Chapter 6Need Identification andSpecification 135
Need Criteria in the Value Proposition 136/ . Strategic Criteria 136
2. Traditional Criteria 1373. Additional Current Criteria 138
Categories of Needs 140
/ . Resale 1412. Raw and Sem iprocessed Materials 1413. Parts, Components, and Packaging 1414. Maintenance, Repair, and Operating
Supplies 1425. Capital 1426. Services 145
7. Other 147Repetitive or NonrepetitiveRequirements? 147Commercial Equivalents 148Early Supply and SupplierInvolvement 149Methods of Description 149
Brand 150 Or Equal 150Specification 150Miscellaneous Methods of Description 152Combination of Descriptive Methods 153Sources of Specification Data 153
Standardization and Simplification 154Conclusion 155
Questions for Review and Discussion 155References 156Cases 156
6-1 Moren Corporation (A) 1566-2 M oren Corporation (B) 1586-3 Carson Manor 160
Chapter 7Quality 65
Role of Quality in SupplyManagement 166
Defining Quality 168Quality 168Function 168Suitability 168Reliability 168Quality Dimensions 169 Best Buy 169
Determining the Best Buy 170The Cost of Quality 170
Prevention Costs 172
Appraisal Costs 172Internal Failure Costs 172External Failure Costs 172Morale Costs 173An Overall Quality-Cost Perspective 173
Quality Management Tools andTechniques 173
Total Quality Managem ent (TQM) 173Continuous Improvement 175Quality Function Deployment (QFD) 175
Six Sigma 176Statistical Process Control (SPC) 177Sampling, Inspection, and Testing 180The Quality Assurance and Quality C ontrolGroup 184Assuring the Quality of PurchasedServices 185Supplier Certification 189
Quality Standards and AwardsPrograms 190
ISO 9000 Quality Standards 190ISO 14000 Environmental Standards 191The Malcolm Baldrige National (U.S.) QualityAward 192The Deming Prize 192
Conclusion 192
Questions for Review and Discussion 193References 193Cases 194
7—1 The Power Line Poles 1947-2 Air Quality Systems, Inc. 196
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xiv Table of Contents
hapter 10Price 253Relation of Cost to Price 254
Meaning of Cost 255
How Suppliers Establish Price 256The Cost Approach 257The Market Approach 257
Government Influence on Pricing 257
Legislation Affecting Price Determination 258Types of Purchases 259
Raw Materials/Sensitive C ommo dities 260Special Items 260Standard Production Items 260Small-Value Items 261
Capital Goods 262Services 262Resale 262
The Use of Quotations and CompetitiveBidding 262
Steps in the Bidding Process 263Firm Bidding 264Determination of Most Advantageous Bid 264Collusive Bidding 265Public-Sector Bidding 265
The Problem of Identical Prices 267Discounts 268Cash Discounts 268Trade Discounts 269Multiple Discounts 270Quantity Discounts 270The Price-Discount Problem 2 70Quantity Discounts and Source Selection 272Cumulative or Volume Discounts 272 '
Contract Options for Pricing 273
Firm-Fixed-Price (FFP) Contract 273Cost-Plus-Fixed-Fee (CPFF) Contract 273Cost-No-Fee (CNF) Contract 273Cost-Plus-Incentive-Fee (CP IF) Contract 273Provision for Price Chang es 273Contract Cancellation 275
Forward Buying and Commodities 276Forward Buying versus Speculation 2 76Organizing or Forward Buying 277Control of Forward Buying 277The Comm odity Exchanges 278
Limitations of the Exchanges 279Hedging 279Sources of Information Regarding Price Trends 280
Conclusion 281Questions for Review and Discussion 282
References 282Cases 282
10-1 Cottrill Inc. 28210-2 Coral Drugs 28410-3 Price Forecasting Exercise 286
hapter 11Cost Management 288Strategic Cost Management 290
Sources of Com petitive Advantage 290Frameworks for Cost Managem ent 290
Cost Management Tools and Techniques 293
Total Cost of Ownership 293Target P ricing 299The Learning Curve or Manufacturing ProgressFunction 300Value Engineering and Value Analysis 301Activity-Based Costing 301
Negotiation 302
Negotiation Strategy and P ractice 303Framework or Planning and Preparing forNegotiation 304
Conclusion 306
Questions for Review and Discussion 307References 307Cases 308
11-1 Deere Cost Management 30811-2 McMichael Inc. 30911-3 City ofGranston 310
hapter 12Supplier Selection 313
The Supplier Selection Decision 314Decision Trees 315
Identifying Potential Sources 316Information Sources 317Standard Information Requests 321
Additional Supplier Selection Decisions 322Single versus Multiple Sourcing 322
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Table of Contents xv
Manufacturer versus Distributor 324Geographical Location of Sources 325Supplier Size 326
Supplier Development/Reverse Marketing 326Evaluating Potential Sources 328
Level 1—Strategic 328Level 2—Traditional 333Level 3 — Current Additional 335
Ranking Potential Suppliers 340Conclusion 340
Questions for Review and Discussion 341References 341Cases 342
12-1 Loren Inc. 34212-2 Russel Wisselink 346
12-3 Kettering Industries Inc. 348
Chapter 3Supplier Evaluation and Supp lierRelations 352Measuring Supplier Performance 353
Key Supplier Performance Indicators 353Evaluation Methods 354
Informal and Semiformal Evaluation andRating 354Executive Roundtable D iscussions 354Formal Supplier Evaluation and Rating 355Weighted Point Evaluation Systems 356
Supplier Ranking 357
Unacceptable Suppliers 357Acceptable Suppliers 358Preferred Suppliers 358Exceptional Suppliers 358
Supplier Relations 359Supplier Relations Context 360Supplier Goodwill 360The Purchaser-Supplier Satisfaction Matrix 361Supplier Relationship Man agement 364
Partnerships 365
SEM ATECH 's Partnering Perspective 365Early Supplier/Supply Involvement (ESI) 366Partner Selection 367The Longer Time Perspective 367Co-location/In-plants 368Concerns about Partnerships 368
Strategic Alliances 369Conclusion 370
Questions for Review and Discussion 370References 370Cases 371
13-1 APCEurope 37113-2 Plastic Cable Clips 3 7513-3 Delphi Corporation 378
Chapter 4Global Supply Management 383The Importance of Global Supply 384
Reasons for Global Purchasing 385Potential Problem A reas 390
Selecting and Managing OffshoreSuppliers 398
Global Sourcing O rganizations 398Intermediaries 399Information Sources for Locating and EvaluatingOffshore Suppliers 400
Incoterms 401/Group E—Departure 402
Group F—Main Carriage Unpaid 402Group C — Main Carriage Paid by Seller 402Group D—Arrival 403
Tools for Global Supply 404
Countertrade 404Foreign Trade Zones 407Bonded Warehouses 409Temporary Importation Bond (TIB) and D utyDrawbacks 409
Regional Trading Agreements 409
North American Free Trade Agreement (NAFTA) 410The European Union (EU) 410ASEAN 410Mercosur 410Andean Community 411The W orld Trade Organization (WTO ) 411
Emerging Markets 411Conclusion 412
Questions for Review and Discussion 412References 413Cases 413
14-1 Trojan Technologies 41314-2 Marc Biron 415
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xvi Table of Contents
hapter 15Legal and Ethics 417Legal Authority of Buyer and Seller 418;,
Legal Authority of the Buyer 419
Personal Liability 420Authority of Suppliers' Representatives 421
The Uniform Commercial Code 422
Purpose of a Uniform Com mercial Code 422The Purchase Order Con tract 423Acceptance of Offers 424Purchases Made Orally—Statute of Frauds 425Inspection 426Acceptance and Rejection of G oods 426'Warranties 428
Title to Purchased G oods 429Protection against Price Fluctuations 429Cancellation of Orders and Breach ofContract 430
Common Law and the Purchase of Services 431Principles of the Law of Software Contracts 437E-Commerce and the Law 437
Electronic Signatures 438U.S. Uniform Electronic T ransactions Act 439Antitrust and E-Marketplaces 439
Intellectual Property Laws 440
Copyright Law 441Patents 441Trademarks 442Industrial Design 442Geographical Indication 443
Product Liability 443Alternative Dispute Resolution 444
Comm ercial Arbitration 444Mediation 445Internal Escalation 445
Regulatory>Requirements 445
The Sarbanes-Oxley Act 446Environmental R egulations 446
Eth ics 447
Perceptions 451Conflict of Interest 451Gifts and Gratuities 451Promotion of Positive Relationships withSuppliers 454Reciprocity 454
Corporate Social Responsibility (CSR) 455Conclusion 455
Questions for Review and Discussion 456References 456
Cases 457
75-7 R ocky Plains Brewing Ltd. 45715-2 Sinclair & Winston 459
Chapter 6O the r Supply Responsibilities 463Receiving 464Logistics and Warehousing 465Inbound and Outbound Transportation 466Production Planning 466
Accounts Payable 466Investment Recovery 466Categories of M aterial for Disposal 468Responsibility for M aterial Disposal 4 71Keys to Profitable D isposal 472Disposal Channels 472Disposal Procedures 4 74Selection of Disposal Partners 475
Conclusion 476
Questions for Review and Discussion 477References 477Cases 478
16-1 Ross Wood 47816-2 Raleigh Plastics 4 79
Chapter 7Supply Function E valuation andTrends 481Organizing for Supply Research 483
Full-Time or Part-Time Research Positions 483
Cross-Functional Teams 484Supply Research Opportunities 486
Purchased Materials, Products, or Services 486Commodities 489Suppliers 490Assessing Research R esults 493
Supply Planning Process 493Supply Budgets 493Performance Measurement Systems 494
The Value of Supply Metrics 494
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Table of Contents xvii
The Challenges 495Measuring Supplier Performance 496Supply Management Performance Metrics 496
Establishing Metrics 498
Efficiency Metrics 498
Effectiveness Metrics 498Operating Reports 499Validating Results 500Appraising Team Performance 500Supply Performance Benchm arking 501
What Is Happening in Supply Management 502
Emph asis on Total Quality Mana gement andCustomer Satisfaction 502Corporate Social Responsibility andSustainability 503
Globalization versus Local Sourcing 504Risk Management 505Safety and Security 505
Supply Processes and Technology 505Supply Organizations 506External and Internal C ollaboration 506Metrics and Performance Measurement 507Innovation 507
Public Procurement 507Conclusion 507
Questions for Review and Discussion 508References 508Cases 509
7-1 Randall Corporation 50917-2 Fairview School Board 51017-3 Tanton Foods 511
Indexes
Case Index 513Subject Index 514