chapter 5 supply chain

procurement

full process of getting what a company needs

• selecting suppliers

• vetting suppliers

• negotiating

• setting payment terms

• actually buying goods/services

purchasing

• act of buying, transactional function

• can be a separate department or part of the supply chain

supply management

new terms that encompasses al acquisition activities, managing all resources a company needs to reach goals

• ISM - institute of supply management

purchase requisition

• internal document that asks for goods

• not a contract

• may need authorization

purchase order PO

• external

• item, quantity, price, terms

• legal only when supplier accepts it

e procurement

• b2b purchase over internet

merchants

buy to resell, like store buys clothes to resell

industrial buyers

car company buys steel

contracting

hiring a cleaning company

RFI request for information

gather info about suppliers

RFP request for proposal

asking how supplier would do the job

RFQ

asking for price and delivery

objectives of purchasing

1. keep uninterrupted flow of materials at lowest cost

2. improve product quality

3. satisfy customers

purchasing steps

1. identify need and purchase requisition

2. obtain authorization for requisition

3. evaluate potential suppliers

   1. either a list or can get a RFI

4. select supplier

5. purchase order sent

6. supplier confirms PO

7. fulfillment

8. receipt of goods

9. invoice and reconciliation

10. payment

11. close out PO

12. analysis

advantages of e-procurement

• saves time

• saves money

• accuracy

• real time communication

• better management focus

• mobility

• trackability

• benefits suppliers

financial significance of purchasing

• profit leverage effect

• return on assets ROA

• inventory turnover

profit leverage effect

reducing costs increases profit

return on assets ROA

shows how well a company uses assets

profit before tax/assets

inventory turnover

• how fast inventory is sold

• more turnover good

TCO additional factors

• quantity discounts

• cash discounts

• value added services like special delivery

• administrative expense

• poor supplier quality costs

components of TCO

• pre transaction costs

• transaction costs

• post transaction costs

make VS buy

deciding between whether to produce an item internally or buy item, STRATEGIC decision

key factors of make vs buy

1. qualitative

2. quantitiative

3. in sourcing

4. co sourcing

5. backward vertical integration

6. forward vertical integration

qualitative reasons for making

• protect technology

• no supplier avail

• control of lead time

• use extra capacity

• better quality control

quantitative reasons for making

• protect technology

• no supplier avail

• control of lead time

• use extra capacity

• better quality control

quantitative reasons for making

• lower cost

• avoid supplier profit

• save transport/warehouse costs

cost factors for making

• labor

• inventory cost

• capital

• purchasing raw material

• factory costs

• management costs

• transportation

qualitative reasons for buying

• non strategic

• no capacity

• temporary capacity contraints

• better supplier quality

• multi sourcing

• brand strategy

quantitative reasons for buying

• suppliers economies of scale

• supplier holds inventory

cost factors of buying

• price

• transportation

• purchasing costs

• inspection

• quality issues

risks of outsourcing include

• loss of control

• increased reliance on suppliers

• increased need for supplier management

benefits of outsourcing

• focus on core work

• fewer employees

• more flexibility

centralized purchasing

• one makes decisions

decentralized purchasing

• local units decides, like different plants

advantages of centralization

• bulk buying

• specialization

• lower costs

• no competition within units

• common supply base

advantages of decentralization

• knowledge of local requirements

• local sourcing

• faster decisions

international purchasing

• low cost labor and materials

• tax breaks

• better tech

• trade

specialized knowledge in international purchasing

tariffs

non tariff barriers

counter trade

international purchasing challenges

• knowledge of trade policies

• tariffs

• communication issues

• finding suppliers

• currency issues

• longer negotiation

• cultural differences

• longer shipping

• documentation requirements

• legal issues

international purchasing service providers

• import brokers

• import merchants

• trading companies

import brokers

• agent licensed by gov, fills out paperwork through customs

import merchants

• buying and selling imported goods for profit

trading companies

• buy product in one country and sell them in another

government and non profit purchasing

• Both need to be open and visible since its the public’s money being spent but are both in the private sector

bid

supplier proposal

open competitive bidding

anyone can see

no negotiations

closed competitive bidding

only authorized personnel can see

no negotiations

bid bond

• debt secured by bidder to guarantee that the successful bidder will accept contract

performance bond

ensures work is done right

payment bond

protects against any unpaid third party