5.Purchasing and supply.
Purchasing is the act of buying the goods and services that a company needs to operate
and/or manufacture products.
Many people are ignorant of what purchasing is all about. ―Purchasing‖ is the term used
in industries, commerce, public corporations to denote the act of and the financial responsibility
for procuring material, supplies and services. It simply describes the process of buying. However
in a broader sense, the term involves determining the needs, selecting the supplier, arriving at a
proper price, terms and conditions, issuing the contract or order, and following up to ensure
proper delivery. It focus is to purchase or obtain materials in the right quantity, in the right
quality, at the right price, at the right time, and from the right supplier and delivering to the right
place.
SUPPLY CHAIN MANAGEMENT
Supply chain management (SCM) is a process used by company‘s to ensure that their
supply chain is efficient and cost-effective. A supply chain is the collection of steps that a
company takes to transform raw components into the final product. Typically, supply chain
management is comprised of five stages: plan, develop, make, deliver, and return.
The first stage in supply chain management is known as Plan. A plan or strategy must be
developed to address how a given good or service will meet the needs of the customers. A
significant portion of the strategy should focus on planning a profitable supply chain.
Develop is the next stage in supply chain management. It involves building a strong relationship
with suppliers of the raw materials needed in making the product the company delivers. This
phase involves not only identifying reliable suppliers but also planning methods for shipping,
delivery, and payment.
At the third stage, Make, the product is manufactured, tested, packaged, and scheduled
for delivery. Then, at the logistics phase, customer orders are received and delivery of the goods
is planned. This fourth stage of supply chain management stage is aptly named Deliver. The final
stage of supply chain management is called Return. As the name suggests, during this stage,
customers may return defective products. The company will also address customer questions in
this stage.
STRATEGIC SUPPLY CHAIN MANAGEMENT
Development and Evolution of Purchasing and Supply functions:
Purchasing and procurement is used to denote the function of and the responsibility for procuring
materials, supplies, and services. Recently, the term ―supply chain management‖ has
increasingly come to describe this process as it pertains to a professional capacity. Employees
who serve in this function are known as buyers, purchasing agents, or supply managers.
Depending on the size of the organization, buyers may further be ranked as senior buyers or
junior buyers.
Phases in the SCOR Methodology
1. Review Corporate Strategy.
This isn‘t so much a project phase, as a decision to consider whether an existing supply
chain can be improved. Once this decision is taken, a team is set up, trained in the SCOR
methodology if necessary, and set to work.
2. Define the Supply Chain Process.
SCOR provides a common vocabulary which is totally consistent with the use of
ProcessPad for defining the major processes that make up supply chains. The first phase the team
undertakes is the actual analysis of the existing process. This effort includes decisions about the
number and scope of the supply chain processes to be examined.
3. Determine the Performance of the Existing Supply Chain.
Once you have captured the existing supply chain process in ProcessPad, You can use historic
data to define how the existing supply chain is performing. In addition, you can compare the
performance of your supply chain with benchmarks to determine how your process stacks up
against similar processes in similar industries.
4. Establish Your Supply Chain Strategy, Goals and Priorities.
Once you have hard data on the performance of your existing supply chain, and
benchmark data, you are in a position to consider if your supply chain strategy is reasonable.
You are also in a position to identify how it might be improved, or consider alternative targets
for improvement and determine how they might improve the company‘s performance. Similarly,
you can identify which changes would yield the highest return and prioritize any improvement
efforts in ProcessPad.
5. Redesign Your Supply Chain As Needed.
Enable the Redesign and Implement. Once you have used ProcessPad to complete your
SCOR design, you can implement the redesign using BPM and human performance
improvement techniques. Then you may manage the new supply chain and gather data to
determine if you are, in fact, meeting your new targets.
Configuration and co-ordination of the Supply Chain in market.
A supply chain is a network of retailers, distributors, transporters, storage facilities, and suppliers
that participate in the production, delivery, and sale of a product to the consumer. The supply
chain is typically made up of multiple companies who coordinate activities to set themselves
apart from the competition.
A supply chain has three key parts:
Supply focuses on the raw materials supplied to manufacturing, including how, when, and from
what location.
Manufacturing focuses on converting these raw materials into finished products.
Distribution focuses on ensuring these products reach the consumers through an organized
network of distributors, warehouses, and retailers. While often applied to manufacturing and
consumer products, a supply chain can also be used to show how several processes supply to one
another. The supply chain definition in this sense can apply to Internet technology, finance, and
many other industries.
A supply chain strategy defines how the supply chain should operate in order to compete in the
market. The strategy evaluates the benefits and costs relating to the operation. While a business
strategy focuses on the overall direction a company wishes to pursue, supply chain strategy
focuses on the actual operations of the organization and the supply chain that will be used to
meet a specific goal.
Another term associated with a supply chain is supply chain management (SCM), which is the
oversight of materials, information, and finances as they are distributed from supplier to
consumer. The supply chain also includes all the necessary stops between the supplier and the
consumer. Supply chain management involves coordinating this flow of materials within a
company and to the end consumer.
Supply chain management can be divided into three main flows:
The Product flow includes moving goods from supplier to consumer, as well as dealing with
customer service needs.
The Information flow includes order information and delivery status.
The Financial flow includes payment schedules, credit terms, and additional arrangements.
The Storage flow includes a warehouse where goods are stored, and where they may be
catalogued, shipped, or received, depending upon the type of products. The principal operation
of the place is receiving, getting in new products, and shipping out products already stored.
Another important part of maintaining a good warehouse is keeping inventory of what products
are presently in the warehouse, what has been shipped and what has been received. This process
is again largely automated.
The control and creation of added value
Value analysis is a systematic effort to improve upon cost and/or performance of products
(services), either purchased or produced. It examines the materials, processes, information
systems, and the flow of materials involved. Value Analysis efforts began in earnest during WW
II by General Electric, concerned with the difficulties in obtaining critical materials needed to
produce war material, GE assigned an engineer, Lawrence D Miles to the Purchasing
department. His mission was to find adequate material and component substitutes for critical
materials to manufacture needed war equipment. In his search, Miles found that each material
has unique properties that could enhance the product if the design was modified to take
advantage of those properties.
Miles discovered that he could meet or improve product performance and reduce its production
cost by understanding and addressing the intended function of the product. His method was –
Blast (dissecting products to discern key competitive advantages), Create (detailed analysis of
the disassembled products, identifying those functions of concern and soliciting ideas for
improving), Refine (selecting the most value adding, cost-effective ideas and preparing a
business case for the implementation of the proposals).
Implemented diligently, value analysis can result in –
reduced material use and cost
reduced distribution costs
reduced waste
improved profit margins
increased customer satisfaction
increased employee morale
The importance of purchasing in any firm is largely determined by four factors: availability of
materials, absolute Naira volume of purchases, percent of product cost represented by materials,
and the types of materials purchased. Purchasing must concern itself with whether or not the
materials used by the firm are readily available in a competitive market or whether some are
bought in volatile markets that are subject to shortages and price instability. If the latter
condition prevails, creative analysis by top-level purchasing professionals is required.
If a firm spends a large percentage of its available capital on materials, the sheer magnitude of
expense means that efficient purchasing can produce a significant savings. Even small unit
savings add up quickly when purchased in large volumes.
When a firm‘s materials costs are 40 percent or more of its product cost (or its total operating
budget), small reductions in material costs can increase profit margins significantly. In this
situation, efficient purchasing and purchasing management again can make or break a business.
Perhaps the most important of the four factors is the amount of control purchasing and supply
personnel actually have over materials availability, quality, costs, and services.
Large companies tend to use a wide range of materials, yielding a greater chance that price and
service arrangements can be influenced significantly by creative purchasing performance.
The role of Strategic Supply Chain in the design of products and services
Market globalization and the rapid advancement of technologies require that companies
differentiate themselves with innovative products and services to create competitive advantage.
Increasingly, manufacturers face shortened product life cycles and increased pressure to shorten
their time to market. These factors, in conjunction with the reality that companies are increasing
their reliance on outsourcing necessitate that organizations involve suppliers in the new product.
Effective integration of suppliers into the product value / supply chain will be a key factor for
manufacturers in achieving the improvements necessary to remain competitive. Moreover,
because purchasing specialists are usually a key liaison between the supplier and the buyer, an
investigation of their role in the new product development process is worthwhile.
In progressive firms, purchasing has a hand in new product development. As a part of a product
development team, purchasing representatives have the opportunity to help determine the
optimal materials to be used in a new product, propose alternative or substitute materials, and
assist in making the final decision based on cost and material availability. Purchasing
representatives may also participate in a make-or-buy analysis at this point. The design stage is
the point at which the vast majority of the cost of making an item can be reduced or controlled.
Whether or not purchasing had an impact on a product‘s design, the purchasing agent‘s input
may certainly be needed when defining the materials-purchase specifications.
Product Design and Process Models
This refers to all efforts focused on creating a new product, process or service. The five generic
phases of product development process are as follows:
• Idea generation: voice of the customer
• Business / technical assessment (preliminary)
• Product / process service concept development
• Product / process service engineering and design
• Prototype build, test and pilot / ramp-up for operations
Concept and design ―lock in‖ as much as 80 percent of the total cost of a new product. For this
reason, it is crucial for firms to bring in as much product, process and technical expertise as
possible early in the product development process. The supplier often possesses much of this
critical expertise. Purchasing specialists are frequently tasked with facilitating the transfer of
supplier expertise.
So how can organizations get purchasing more involved? Researchers have identified two factors
that appear to aid the involvement of purchasing in the product development process: personnel
and organization.
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