chapter 6 ppt

Learning Outcomes• To compare procurement, purchasing, and supply management • To review procurement objectives • To review supplier selection and evaluation approaches • To review Kral

Chapter 6

Procurement

Learning Outcomes

•  To compare procurement, purchasing, and supply management

• To review procurement objectives • To review supplier selection and evaluation approaches • To review Kraljic’s Portfolio Matrix

• To establish issues associated with global procurement • To identify social and environmental aspects of sustainable procurement • To describe the concept of supply chain finance and how it can be used in

procurement relationships

• Procurement cards (p-cards) are similar to Visa and MasterCard.• Benefits of p-cards:

• Reduce the number of invoices• Make one payment for the total amount purchases during one month• Allow purchases to be made in a matter of minutes

PROCUREMENT OBJECTIVES

1 Supporting organizational goals and objectives2 Managing the purchasing process effectively and efficiently3 Managing supply base

4 Developing strong relationships with other functional groups5 Supporting operational requirements

SUPPLIER SELECTION AND EVALUATION

1 Identify Need for Supply• End of an existing supply agreement or the development of a new product2 Situation Analysis

• Internal factor – identification of the relevant stakeholders, where the supply is needed, and the appropriate quantity and quality of the supply, applicable supply policies.

• External factor – economic considerations, the legal and regulatory frameworks controlling the purchase, and the marketplace within which potential suppliers operate.

3 Identify and Evaluate Possible Suppliers• Identify possible suppliers through salespeople, trade shows, trade publications, and the

Internet• Evaluating suppliers can be done by 1) delineates relevant selection criteria and 2) assigns

weights to these criteria

SUPPLIER SELECTION AND

4 Select Supplier(s)• Multiple sourcing – have more than one supplier increase competition, greater supply risk

mitigation, and improved market intelligence can arise.• Single sourcing – consolidates purchase volume with a single supplier with the hopes of enjoying

lower costs per unit and increased cooperation and communication in the supply relationship.5 Evaluate Decision

• Involves comparison of expected supplier outcomes and actual supplier outcomes via either process-based or performance-based evaluation.

• Process-based evaluation is an assessment of the supplier’s service and/or production process (supplier audit)

• Performance-based evaluation focused on the supplier’s actual performance on a variety of criteria such as cost and quality

Procurement portfolio approach

• Kraljic’s Portfolio Matrix is used by many managers to classify corporate purchases in terms of their importance and supply complexity.

• The goal is to minimize supply vulnerability and getting the most out of the firm’s purchasing power.• Noncritical (low importance, low complexity)

• Low value items

• Leverage (high importance, low complexity)

• Standard commodities; many suppliers

• Strategic (high importance, high complexity)

• Key products/service

• Bottleneck (low importance, high complexity)

• Items with limited supplies

Supplier development (Reverse Marketing)

• Refers to aggressive procurement involvement not typically part of supplier selection and can include a purchaser initiating contact with a supplier or a purchaser establishing prices, terms, and conditions • Increasingly common for potential suppliers to not be available and

willing to serve prospective purchasers.• Either source for new suppliers or develop existing suppliers so as to

achieve competitive advantage

GLOBAL PROCUREMENT (SOURCING)

• Refers to buying components and inputs anywhere in the world, and is driven by 2 primary reasons:

• Factor-input strategy – an org is seeking low-cost or high-quality sources of supply

• Market-access strategy – sourcing in markets where an org plans to do significant business

• A global sourcing development includes:

• Planning, specification, evaluation, relationship management, transportation and holding costs, implementation, & monitoring and improving

GLOBAL PROCUREMENT (SOURCING)

• Planning – honest assessment of global sourcing opportunities and challenges Should be

consistent with an org.’s objectives.

• Specification – quantifying and qualifying current sources across a variety of dimensions such as

quality, costs, reliability, and standardization.

• Evaluation – similar to supplier selection and evaluation.• Relationship  management  – cross cultural communication such as language and time

considerations.

• Transportation and holding costs – faster transportation creates higher transportation costs and

lower inventory holding costs, vice versa.

• Implementation – plans must be flexible and provide guidance for decision making.• Monitoring and improving – establish performance measures and these measures must be review

regularly.

SUSTAINABLE PROCUREMENT• Refers to the integration of social and environmental considerations into

all stages of the purchasing process with the goal of minimizing the impact of procurement activities on human health and the environment • Social responsibility

• Ethical considerations – bribe and kickbacks, misuse of info, misinterpretation of the truth, product quality (lack thereof), etc.

Discussion Questions

1 What issues could arise with global procurement? Use examples to

illustrate your answer.2 Should investment recovery be the responsibility of the

procurement manager? If yes, why? If not, which party (parties) should be responsible for investment recovery?