The Challenge of Purchasing and Supply Management

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The Challenge of Purchasing and Supply Management

• Marketing 3860 Purchasing
• July 12, 2004
• Kimball Bullington, Ph.D.
• Associate Professor of Operations Management
• Middle Tennessee State University

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How do the 4Ps relate to purchasing?

• Product
• Price
• Promotion
• Place

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From Purchasing to Supply Management
Supply Management -High costs -Scarcity national
or international
Materials Management -High transportation
cost -High inventory costs
Purchasing Management -Commodity items -Standard
products
Source Management -Unique items -Custom-made
items -High technology items
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The Evolution of the Supply Function

• Clerical technical
• Focus on policies procedures
• Key challenge availability of supply cost mgt.

• Strategic orientation
• Global supply chains
• Executive level leadership
• Key challenge Technology the Internet

Early 1900s
Early 2000s
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From Purchasing to Supply Management
Organizational Changes
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Corporate Supply Challenges

• Need to control unit costs
• Need to reduce the total cost of acquisition
• Increasing influence of suppliers on the
  purchasers ability to respond to end-customers
  needs

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Corporate Supply Challenges

• Increased reliance on fewer suppliers
• Trend towards reliance on suppliers for design
  build responsibilities for complete subassemblies
  and subsystems

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Effect of Supply Base Size Variation on Supply
Chain Reliability
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Effect of Supply Base Size Variation on Supply
Chain Reliability
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Terminology - Purchasing

• Identify need
• Locate / select supplier
• Negotiate price terms
• Expedite deliveries

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Terminology - Procurement

• Purchase
• Store / warehouse inventory
• Manage traffic
• Receive incoming materials
• Inspect incoming materials
• Salvage obsolete materials

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Terminology - Materiel

• Manage materials for military or govt operations

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Terminology Materials Mgt.

• Integrate related materials functions including
• Procurement
• materials planning
• materials control (inventory)

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Terminology Integrated Logistics

• Strategic supply issues
• Sourcing
• Transportation
• Information technology and information flow
  associated with managing supply

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Significance of Material Dollars

• U.S. manufacturing firms
• purchased materials totaling 1,975,362,000 in
  1998.
• Leenders, Fearon, Flynn, Johnson 2002

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Differences Between Commercial Consumer
Acquisition
Consumer Commercial
of Suppliers Many Few
Needs Generic Specialized
Volume Miniscule Significant
Power None Significant
Time Horizon Short Long
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Profit-Leverage Effect

• Profit improvement is often easier to achieve
  through purchasing cost reductions than
  equivalent sales increases. (This is especially
  true of low margin operations.)

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Purchasing as a Profession

• Increasing in importance
• Increasing in pay
• Strategic assignments
• Long-range perspective
• College degrees more common
• www.ism.ws

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Challenges

• Business-to-business e-commerce
• Supply Chain Management
• Measurement
• Purchase of nontraditional goods services
• Contribution to corporate strategy
• Recognition by senior management

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Opportunities for Contribution of the Purchasing
/ Supply Function

• Profit-leverage effect
• Return-on-assets effect
• Information source
• Effect on efficiency

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Opportunities for Contribution of the Purchasing
/ Supply Function

• Effect on competitive position customer
  satisfaction
• Effect on image
• Training ground
• Management strategy social policy

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Purchasings Operational Strategic Contributions
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Purchasings Operational Strategic Contributions
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Purchasings Operational Strategic Contributions
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Reverse Marketing

• Purchasing is sometimes referred to as reverse
  marketing. What does this mean?