Supply Chain and Purchasing Management: Key Concepts and Trends

Supply Chain Management (SCM)

Managing material and information flows to maximize customer satisfaction at the lowest cost; requires partner coordination.

Five main stages in a supply chain

Raw materials → Component & intermediate manufacturers → Final product manufacturers → Wholesalers/Distributors → Retailers.

Upstream vs. Downstream partners

Upstream = suppliers providing inputs; Downstream = channels delivering outputs to customers.

Foundations of SCM

Supply, Operations, Logistics, Integration.

Current trends in SCM

Supply chain analytics, sustainability, visibility.

Make vs. Buy decision

Choosing whether to produce in-house or purchase externally; often using break-even analysis.

Goal of purchasing

Uninterrupted flow of materials at lowest total cost, improve quality, and maximize customer satisfaction.

Merchants vs. Industrial Buyers

Merchants buy and take title to goods; industrial buyers purchase for use in production.

Benefit of Early Supplier Involvement (ESI)

Cost savings and quality improvements by involving suppliers early in design.

Total Cost of Ownership (TCO)

All costs associated with acquiring, using, and disposing of a product.

Financial measurements of supply management

Profit-leverage effect, ROA, inventory turnover rate.

Mass production

High-volume, standardized manufacturing to lower unit cost.

Barriers to global sourcing

Tariff barriers (taxes), Non-tariff barriers (quotas/regulations).

Incoterms

International Commercial Terms defining shipping costs, risks, and responsibilities between buyer and seller.

Keys to successful partnerships

Mutual respect/trust, shared vision/objectives, good communication, clear internal requirements, top management support.

ISO 9000 vs. ISO 14000

ISO 9000 = quality management systems; ISO 14000 = environmental management systems.

Supplier Relationship Management (SRM)

Automation, Integration, Visibility, Collaboration, Optimization.

Goal of SRM

Develop long-term, mutually beneficial relationships with suppliers.

Strategic sourcing

Using external resources to support the firm's long-term goals.

Ethical approaches in sourcing decisions

Utilitarianism (greatest good) and Rights/Duties (inherent right/wrong).

Examples of ethical sourcing practices

Promoting diversity, avoiding suppliers with child labor, reporting supplier compliance.

Ethical Trading Initiative (ETI)

A global alliance to improve working conditions using the ETI Base Code.

Clauses from the ETI Base Code

Freely chosen employment, safe conditions, no child labor (others: living wages, reasonable hours, no discrimination, no harsh treatment).

Sustainable sourcing

Purchasing goods/services with long-term impact on people, profit, and the planet.

Green purchasing

Meeting environmental objectives (waste reduction, recycling, hazardous material elimination, reuse).

Steps of the ethical/sustainable sourcing framework

Corporate policies, train staff, prioritize items, performance measures, monitor/improve, expand focus.

Supply base rationalization

Reducing purchases from poor-performing suppliers while increasing with top-performing suppliers.

Early Supplier Involvement

Working with suppliers early in product development to design better cost and quality.

Vendor Managed Inventory (VMI)

Supplier manages buyer inventory levels, delivery schedules, and order quantities.

Co-managed inventories

High-value/strategic items or when buyer wants more input in supply activities.

Traits of strategic supplier alliances

Trust and shared costs/benefits.

Value engineering

Suppliers help design cost savings and quality into products at the start.

Distributive vs. Collaborative negotiations

Distributive = win-lose; Collaborative = win-win maximizing joint outcomes.

Skills required of purchasing professionals

Cost control and negotiating global agreements (others: supplier selection, supplier relationships, adopting new tech).