THE PURCHASING HANDBOOK A Guide for the Purchasing and Supply Professional SIXTH EDITION JOSEPH L CAVINATO, Ph.D., C.P.M RALPH G KAUFFMAN, Ph.D., C.P.M EDITORS IN CHIEF Sponsored by the National Association of Purchasing Management Contact NAPM at P.O Box 22160, Tempe, Arizona 85285-2160 800/888-6276, fax: 480/752-7890, Web site: www.napm.org abc McGraw-Hill Copyright © 2000 by The McGraw-Hill Companies All rights reserved Manufactured in the United States of America Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher 0-07-139548-2 The material in this eBook also appears in the print version of this title: 0-07-134526-4 All trademarks are trademarks of their respective owners Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial 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McGraw-Hill has no responsibility for the content of any information accessed through the work Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise DOI: 10.1036/0071395482 Copyright Page The following chapters are copyrighted by the contributor, and as such no part of these chapters may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the contributor Chapter 2—‘‘Creating Supply Advantage by Leveraging the Strategic Nature of Procurement’’ Chapter 19—‘‘Supplier Price and Cost Analysis’’ Chapter 32—‘‘Purchase of Raw Materials and Commodities’’ Chapter 34—‘‘Software and Intellectual Property’’ This page intentionally left blank C O N T E N T S Contributors Preface xiii PART ONE ix THE STRATEGIC CONTRIBUTIONS OF PURCHASING AND SUPPLY Introduction Chapter The Future of Purchasing and Supply Chapter Creating Supply Advantage by Leveraging the Strategic Nature of Procurement 35 Chapter Purchasing in the New Firm of the Future 61 PART TWO THE STRATEGIC APPROACHES OF PURCHASING AND SUPPLY Introduction 79 Chapter Development of Supply Strategies 81 Chapter Knowledge of Supply Markets 99 Chapter Purchasing as Relationship Management 127 Chapter Introduction to Supply Chain Management 145 v Copyright 2000 The McGraw-Hill Companies, Inc Click Here for Terms of Use Contents vi Chapter Strategic Alliances and Partnerships 167 Chapter Global Procurement Synergies 205 Chapter 10 Challenges of Outsourcing in Supply Chain Procurement: How Best to Cope with the Changing Opportunities 221 Chapter 11 Identification and Evaluation of Sources 235 PART THREE ORGANIZATION AND COMPETENCIES OF PURCHASING AND SUPPLY Introduction 277 Chapter 12 Competencies and Skills in Today’s Purchasing 279 Chapter 13 Developing a Purchasing Organization 291 Chapter 14 Re-engineering Purchasing and Supply 311 Chapter 15 Human Resource Management 331 Chapter 16 Purchasing Performance Evaluation 357 Chapter 17 Ethics and Responsibility 375 PART FOUR COMPONENTS AND CAPABILITIES Introduction 409 Contents Chapter 18 Electronic Opportunities and Electronic Commerce— New Technologies for Purchasing 411 Chapter 19 Supplier Price and Cost Analysis 437 Chapter 20 Total Cost of Ownership 485 Chapter 21 Purchasing and Supply Negotiations 499 Chapter 22 Contract and Subcontract Administration and Management 527 Chapter 23 Quality Assurance 553 Chapter 24 Value Analysis 585 Chapter 25 A Practitioner’s Guide to Forecasting 607 Chapter 26 Inventory Management 641 Chapter 27 Legal Aspects of Purchasing 665 Chapter 28 Investment Recovery 703 Chapter 29 Managing Budgets and Operations 741 Chapter 30 Marketing Purchasing and Supply 755 vii Contents viii Chapter 31 Supplier Performance Evaluation 779 PART FIVE ITEM AND INDUSTRY PRACTICE Introduction 807 Chapter 32 Purchase of Raw Materials and Commodities 809 Chapter 33 MRO Materials 833 Chapter 34 Software and Intellectual Property 855 Chapter 35 Capital and Its Impact on the Organization 881 Chapter 36 Services and Nontraditional Goods 925 Chapter 37 Construction Services Procurement 939 Chapter 38 Transportation and Related Services 963 Chapter 39 Purchasing in the Service Industry 993 Chapter 40 Purchasing and Supply Management in the Process and Extractive Industries 1015 Chapter 41 Public/Private Purchasing 1029 PART SIX Index PURCHASING AND SUPPLY INFORMATION RESOURCES 1071 1075 C O N T R I B U T O R S Mir F Ali, MBA, Ph.D Managing Director, AIM/AMC Corporation, Las Vegas, Nevada (CHAP 23) Richard Antus, CMIR ving, Texas (CHAP 28) Manager, Investment Recovery, GTE Supply, Ir- William Atkinson Freelance Writer, Carterville, Illinois (CHAP 3) Jack Barry 33) President, E-time, Inc., Fairfield, Connecticut (CHAPS 10 and William Boan, CMIR Clinton, Missouri (CHAP 28) Ron Brooks, CMIR Central Zone Manager, Weyerhaeuser Company, Hot Springs, Arkansas (CHAP 28) Martin J Carrara, J.D., C.P.M Attorney, Staten Island, New York (CHAP 27) Joseph R Carter, D.B.A., C.P.M NAPM Professor and Chair of the Supply Chain Management Department, Arizona State University, Tempe, Arizona (CHAP 4) Lawrence J Clark, C.P.M Purchasing Manager, Burleigh Instruments, Fishers, New York (CHAP 24) Gary Colgrove Manager of Resource Recovery, 3M Company, St Paul, Minnesota (CHAP 28) Thomas A Crimi Supply Chain Team Coordinator, Texaco, Inc., Houston, Texas (CHAP 40) Richard Cuniberti, C.P.M., CMIR Supply Manager, Resource Recovery and Ecology Services, BASF Corporation, Mount Olive, New Jersey (CHAP 28) Constance Cushman, J.D., C.P.M Attorney, New York, New York (CHAP 27) Ed Dauginas Director of Purchasing, Raw Materials, Unilever Home and Personal Care USA, Trumbull, Connecticut (CHAP 9) ix Copyright 2000 The McGraw-Hill Companies, Inc Click Here for Terms of Use PART 1068 ࡗ ࡗ ࡗ Item and Industry Practice Outreach is a business affirmative action’s external marketing function In-reach ‘‘In-reach,’’ a word coined to go with outreach, describes the process of reaching inside the institution to train, educate, and indoctrinate those on whom business affirmative action depends for its success In-reach is the program’s internal marketing function In-reach activities consist of training and motivational activities for both purchasing and using department staff Compliance monitoring Some business affirmative action programs are two-tiered, particularly in the construction sector, where most of the work is done by subcontractors rather than prime contractors Those programs require prime contractors to develop affirmative action subcontracting plans to accompany their bids The terms of the invitations to bid often specify a minimum level of business affirmative action subcontracting plans to accompany their bids before these bids can be considered In effect, this practice transfers a significant part of the business affirmative action responsibility from the buying institution to the prime contractor, who may or may not be appropriately aggressive in meeting, or making good faith efforts to meet, the goals of approved plans The goal of the compliance monitoring function is to ensure that prime contractors comply with the terms of their business affirmative action contractual obligations Reporting The objective of the reporting function is to describe in accurate numeric terms the institution’s business affirmative action performance The need for accuracy and honesty in reporting cannot be overemphasized If the numbers—both awards to targeted firms and the total base of expenditures— are not accurate or if they have been manipulated in any way to inflate the award percentage bottom line, the institution’s credibility can be seriously and irrevocably damaged Automation A majority of the purchasing functions in the public sector are at least somewhat automated and use computer and communications technology in the daily conduct of their business However, the focus and the CHAPTER 41 Public/Private Purchasing 1069 degree of automation vary greatly among organizations, with automation often meaning that an entity is able to generate a purchase order through its accounts payable system By contrast, the more sophisticated systems eliminate much of the paperwork associated with the process and capture data that can be converted into a variety of useful management reports These reports, which enable purchasing managers to make better planning and related decisions, are perhaps the principal benefit of automating the purchasing function Typical reports provide information related to the type and frequency of purchasing actions, supplier performance, and staff productivity CLOSING Although public sector organizations are diverse, purchasing in these organizations can be uniformly described as an accountable and outwardly visible process carried out by personnel who act in a stewardship capacity Public organizations are the most regulated type of public sector entities, with their authority to act and decide generally spelled out in often detailed laws and regulations Quasi-public sector organizations, although regulated somewhat less than public sector entities, are less constrained than the private sector nonprofit organization Private sector, nonprofit purchasing tends to be much like private sector for-profit purchasing, with the major exception being the strong role played by the board of directors in the typical private sector nonprofit organization This page intentionally left blank P A R T S I X Purchasing and Supply Information Resources Since 1915, the National Association of Purchasing Management (NAPM) has served purchasing and supply management professionals from around the world From the national office in Tempe, Arizona, NAPM works with approximately 182 affiliated associations around the country to continually keep its members well informed, and always on top of the latest trends and developments in the field The information available from NAPM is extensive The monthly Manufacturing and Non-Manufacturing NAPM Report On Business᭨, including the Purchasing Managers’ Index (PMI) in the manufacturing survey, continues to serve as one of the key economic indicators available today NAPM members receive this valuable report free in the pages of Purchasing Today᭨ magazine, one of the many benefits of membership Members also enjoy discounts on a wide variety of educational products and services, along with reduced enrollment fees for more than 100 educational seminars held throughout the country each year Topics cover the entire purchasing and supply management spectrum, from an introduction to purchasing to advanced purchasing strategies Programs are available for senior executives as well as beginning professionals For executives interested in professional certification, NAPM administers the Certified Purchasing Manager (C.P.M.) and Accredited Purchasing Practitioner (A.P.P.) programs, enabling thousands of purchasing and supply professionals to continually test their abilities and keep their 1071 Copyright 2000 The McGraw-Hill Companies, Inc Click Here for Terms of Use 1072 PART Purchasing and Supply Information Resources skills well honed Members receive discounts on preparation materials and exam fees NAPM also publishes The Journal of Supply Chain Management, a one-of-a-kind publication designed especially for experienced purchasing and supply management professionals Authored exclusively by accomplished practitioners and academicians, this quarterly publication targets purchasing and supply management issues, leading-edge research, long-term strategic developments, emerging trends, and more To provide a forum for educational enhancement and networking, NAPM holds the Annual International Purchasing Conference and Educational Exhibit in various locations throughout the United States each spring Many of the top leaders in the purchasing and supply management field anticipate this unique opportunity for members and nonmembers alike to learn from each other and share success strategies To learn more about NAPM and the many ways it can help you advance your career, or to join online, visit NAPM on the Web at www.napm.org In addition to general information, this expansive site features a vast database of purchasing and supply management information, much of which is available solely to members You will find a listing of general purchasing and supply management references as well as an extensive article database, listings of products and seminars available, links to purchasing and supply related Web sites, a periodicals listing, other purchasing and supply organizations, and contact information for NAPM affiliates around the country For more information or to apply for membership via telephone, please call NAPM customer service at 800/888-6276 or 480/752-6276, extension 401 PART Purchasing and Supply Information Resources 1073 1074 PART Purchasing and Supply Information Resources I N D E X ABC (Pareto) analysis, 82, 229, 651 Acceptance, 865, 876 revocation of, 690 Accredited Purchasing Practitioner (A.P.P.), 306, 1061 Activity Based Costing, 317 After action report, 322 Age Discrimination Act, 343 Agency law, 665 Alliance or alliances, 10, 65, 74, 121, 148, 167, 195, 196, 280, 840, 1019 Americans with Disabilities Act, 344 Antitrust laws, 696 APICS Business Outlook survey, 631 Appropriation request, 891 As-Is model, 567 ASEAN, 109 Assembly time, 363 Asset requirements plan, 201 Assignment, 876 Auditing, freight payments, 986 Audits, 252 Authority: express, 667 implied, 667 Automation, of purchasing, 1068 Autoregressing moving average models, forecasting, 625 Back door procurement, 668 Balanced scorecard, 563 Baldridge Award, 560 Bargaining, 502 Bartering, 722 Benchmarking, 30, 113, 573 Bid analysis, 1001 Bid, construction, 941 Bidder: responsibilities, 1042 selection, 528 Bids, bidding, 74, 170, 438, 999, 1039 Bill of material: analysis, 465 costed, 784 Bonding, 1064 Breach, 691 Broker agreements, 722 Budget: plan, 742 process, 743 purchasing department, 751 tracking, 550 types of, 745 Budgets, 49, 741 Business perspective skills, 281 Business process reeingineering (BPR), 565 Buy-back clause, 737 Buyer cooperative, 842 Buying channels, 835 Cahners Early Warning Indicator, 619 Cancellation clause, 737 Capabilities, 251 Capacity, 112 Capital, 881 analysis, 894 budget, 892 defined, 881 expenditure, 883 procurement process, 887 purchasing, 1021 Carrier: routing, 977 selection, 971 Carriers, types of, 972 Cash flows, 156 Categorical rating plan, 267 Cause and effect, 625 Center for Advanced Purchasing Studies (CAPS), 26, 331, 357, 368, 486, 927, 963, 1026 Centralization, 1054 Certification, suppliers, 252 1075 Copyright 2000 The McGraw-Hill Companies, Inc Click Here for Terms of Use 1076 Certified Purchasing Manager (C.P.M.), 306, 334, 350, 379, 1061 Change, 135 Channel, 151 Civil Rights Act of 1964, 343 Claims, transportation, 987 Clayton Act, 696 Collaboration: general, 169, 314 planning, 32 Collaborative Planning, Forecasting & Replenishment (CPFR), 149 Commodities, 810 Commodity requirements, pooling, 817 Common law, 665, 670 Compensation, 345 Competencies, 138, 279, 295, 308 Competition, 110, 207 Composite diffusion index, 630 Computer assisted design (CAD), 256 Concurrent design, 587 Confidentiality, 381, 734 Conflict, 134, 141, 381 Consignment sales, 722 Consolidation: industry, 8, shipments, 982 suppliers, 322 Construction: management, 941 procurement, 939 Consumer Price Index (CPI), 926 Consumer response, 964 Continuous improvement, 182, 189, 846 Contract, 913 administration, 527, 1043 changes and acknowledgments, 542 closure, 550 control, 546 document, 540 elements, construction services, 959 items, service industries, 1000 law, 665 management, 543 writing, 525 Contract, cost-plus: award fee, 533 distributor markup, 1008 fixed fee, 533 incentive fee, 533 manufacturer markup, 1007 INDEX Contract, definition, 673 essentials of a valid, 673 firm fixed price, 532, 1006 fixed price incentive, 533 formation process, 675 lump sum, 727 performance of, 687 transportation, 980 Contracting, 817 electronic, 426 Contracts: modification of, 681 oral, 681 terms and conditions of, 682 Control, 141 Copyright, 856, 876, 942 Copyright law, 857 Corporate donations, 739 Cost: avoidance, 783, 1065 containment, 20, 63, 784 drivers, 493 influences, 1005 modeling, 102, 211, 296 modeling, construction, 951 of capital, 894 ratio plan, 268 reduction, 658 savings, 780 structures, 123 variance, 813 unnecessary, 585 Cost analysis, 452, 932 negotiations, 509, 522 Cost/costs, general, 87, 90, 148, 211, 224 Cost-of-living adjustment (COLA), 615 Cost-plus contracts, construction, 948 guaranteed price, 950 incentive profit, 949 percentage, 948 price, 948 upside maximum, 949 Costs: experience effect, 446 fixed, 444 labor, 466 variable, 444 Costs of quality, 814 Countertrade, 1025 Covenant, 184 Cradle-to-grave, 256 Criticals, 87, 132, 304 INDEX Cross function, 143, 242 Culture, 7, 109, 129, 136, 297 Currencies, 6, 108, 207 Customer: orientation, 762 perspective, 564 satisfaction, 756 service measures, 645 Customs clearance, 227 Cycle time, 322 Cycles, economic, 1020 Damages, 692, 876 Databanks, 824 Database, 361 Decentralization, 1054 Deescalation clause, 1006 Default, 870 Delays, 871 Deliverables, construction procurement, 941 Delivery, 366, 369, 785 legal aspects of, 685, 688 performance measure of, 786 Demand, 103 Depreciation, 881 Design: for execution efficiency, 585 implementation plan skills and, 281 for manufacturability, 585 Direct production materials, 226 Disadvantaged business preferences, 1067 Disciplinary issues, 354 Disclaimer, 877 Discounts, 1009 Dismantlement, facilities, 725 Disposal, 711 Dispute resolution, 690, 693 Distribution issues, 769 Distribution resource planning (DRP), 657 Distributor cooperative, 841 Distributor or producer, 825 Distributors, 835 Diversity, 344 DRP (see Distribution resource planning) Dun & Bradstreet, 117, 244 E-business, 12, 14, 21, 62 Earnings per share, 359 Economic cycles, 1020 1077 Economic Order Quantity (EOQ), 652 EDI (see Electronic Data Interchange) Electronic auctions, 815 Electronic commerce: legal aspects of, 698 MRO, 844 model, 576 transaction, 577 Electronic contracting, 426 Electronic Data Interchange (EDI), 12, 22, 62, 96, 157, 413, 578 Electronic funds transfer, 578 Electronics Buyers’ News, 240 Employee stock ownership plans (ESOP), 372 Encryption, 421 Enterprise Resource Planning (ERP), 12, 14, 655, 885 Environment, 108, 256 Environmental involvement, 731 Environmental laws, 697 Environmental Protection Agency (EPA), 733 EPA (see Environmental Protection Agency) Equal opportunity, 343 Equal Pay Act of 1963, 343 Equity, 120 ERP (see Enterprise Resource Planning) Escalation, 686, 948 clause, 1006 prices, 829 Escrow agreement, 869 Ethics, 256, 327, 375, 398, 401, 669, 1056 Euro, European Union, 108 Evaluated receipt process, 157 Evaluating offers, 1041 Excess present value index, 905 Expediting, 985 Experience effect, costs, 446 Exponential smoothing, forecasting, 618 Extractive industries purchasing, 1015 Extranet, 416 Facility liquidation, 725 Facility, dismantling, 725 Fair Labor Standards Act, 344 Family Medical Leave Act, 344 Federal Acquisition Regulations (FAR), 1049 INDEX 1078 Federal Alcohol Administration Act, 1010 Federal Aviation Administration, 1011 Financial analysis, 245, 254 Financial cost structures, 123 Fixed assets, 881 Fixed costs, 444 Fixed price sales, 722 Fixed prices, 947 FOB terms, 965 international, 967 Forecasting, 607 capital, 888 five principles of, 647 future demand for, 646 quantitative models for, 647 Forecasts, operating, 890 Fraud, information systems, 425 Freight audit, 227 Functions, primary and secondary, 587 Gap analysis, 132 budgets, 749 General contractor, 941 Generally Accepted Accounting Practice (GAAP), 792 Global sourcing, 1024 Globalization, 4, 205 Hazardous material, 813 Hazardous Materials Transportation Act, 256, 732 Hedging, 830, 1009 Hertzberg hygiene theory, 352 Human resources, 39, 54, 331 Hurdle rate, 894, 899 Indemnity, 734, 877 Indirect materials (MRO), 226 Industry standards, 830 Inflation, 107 Information systems, 255 Infringement, 877 Innovation, 12, 294 Inspection, 353, 364, 737, 786 Integrated supply, 840 Integration, 29, 201 Intellectual property, 855 Interest rates, 107 Internal business perspective, 564 Internal consulting skills, 281 Internal rate of return, 904 International FOB terms, 967 International opportunities, 827 International Sale of Goods (CISG), 672 Internet, 21, 349, 412, 610, 613 Intranets, 417 Inventory, 148, 792 classes, 643 costs, 644 costs of, 815 costs of carrying, 793 functions of, 642 obsolete, 660 obstacles to good, 642 surplus, 660 variability of, 964 Inventory function, organizing, 646 Inventory management, 641, 1024 Inventory turnover, 364 Investment recovery, 703 ISO 9000, 252, 557, 911 Journal of Supply Chain Management, 1072 Just-in-Time ( JIT), 553, 655, 964 Just-in-Time programs, 836, 841 Keiretsu, 312 Kickbacks, 387 Labor and employment laws, 697 Lapse, 677 Law/legal, general, 123, 665 Lazy L price model, 442 Lead logistics supplier, 155 Lead supplier, 155, 842 Leadership, 55, 376 Leading indicators, 619 Leadtime, 363, 799 Learning curve, 454 Lease versus buy analysis, 918 Leases, extractive industries, 1016 Least ex works analysis, 211 Legal authority to purchase, 1048 Legal implications, nontraditional goods, 935 Letter contracts, 542 Leverage, 87, 173, 304 INDEX License, 878 software, 862 Life cycle costing, 932 Life cycle value analysis, 908 Linkages, 755 Logistics, 145 costs, 835 issues, 769 Macroeconomics, 106 Maintenance, repair, and operating (MRO) supplies, 14, 72, 93, 111, 224, 322, 323, 494, 833, 925, 1021 Make or buy, 1063 Management and leadership skills, 281 Market knowledge, 93, 99, 100 Market price, 1008 Market structure, 822 Marketing concept, 762 Marketing plan, 772 Marketing purchasing, 755 Markets, 24 spot, 818 Maslow’s needs, 352 Materials management, 147, 1024 Materials requirements planning (MRP), 654, 786, 812 Materials resource plan, 811 Matrix technique (see Quadrant technique) McGregor’s Theory X and Theory Y, 352 Measurements, 779 Memo of understanding, 184, 196 Mission, purchasing organization, 764 MRO distributors, 834 MRO (see Maintenance, repair, and operating supplies) MRP (see Materials requirements planning) NAPM Principles and Standards of Purchasing Practice, 404, 670 NAPM Report on Business, 107, 430, 610, 1071 National Association of Purchasing Management (NAPM), 608, 1061, 1071 National Labor Relations Act, 343 Negotiation: construction, 941 documentation, 540 fact-finding, 538 win-win, 503 1079 Negotiation model, 504 Negotiation planning, 505 Negotiation price sales, 723 Negotiations, 74, 75, 102, 134, 170, 216, 260, 387, 499, 539, 913 Negotiations, transportation, 979 Negotiator, 916 Net present value, 906 Network, 23 Nondelivery, costs of, 797 Nonquality, costs of, 798 North American Free Trade Agreement (NAFTA), 6, 108, 207 Occupational Safety and Health Act (OSHA), 344, 731 Offer, 676 acceptance, 676, 678 termination, 677 Organization mission, 764 Organization: general, 208 procurement, 26, 39, 291 Organizing, inventory function, 646 OSHA (see Occupational Safety and Health Act) Outsourcing/Insourcing, 40, 67, 71, 221, 494, 842, 1063 Outsourcing: disposal, 719 transportation, 989 Pareto analysis (see ABC (Pareto) analysis) Partnerships (see Alliances) Patent, 856, 878, 942 Patent infringement, service contracts, 961 Patent law, 861 Pattern model projections, forecasting, 622 Payback, 902 Payment, 249, 686, 737 methods, 997 software, 866 Performance, 39, 67, 69, 353, 593 failure (legal), 689 supplier, 51, 64, 265, 546, 779 transportation services, 986 Performance based evaluation systems, 269 Performance evaluation, 307, 357 supplier, 779 Performance measurement, 771 1080 Performance measures, inventories, 645 Personnel, 332 Policy/policies, 377 Pool partnership, 723 Post-transaction components, 492 Pre-transaction components, 492 Price, 90, 437 avoidance, 1065 evaluation, 1004 legal aspects of, 686 patterns, changing, 828 productivity, 456 quantity breaks, 661 trends, 780 Prices: affordable, 789 evaluating, 829 transportation, 977 Pricing: information, 828 target, 523 Pricing differentials, 215 Privacy, information systems, 424 Privatization, 1063 Process, processes, 70, 105, 209, 218, 321 Process, value analysis, 595 Procurement cards, 432 Procurement cycle, public organizations, 1026 Procurement planning perspective skills, 281 Producer or distributor, 825 Producer Price Index (PPI), 926 Product development, 30 Professional development, 1058 Project management, 932 Project priorities, 889 Proof of delivery, 156 Public purchasing, 741, 1029 Purchase order contract, construction, 947 Purchase order, carriers listed on, 976 Purchase orders, 541 Purchased services, 1023 Purchaser, 335 Purchasing: internal partnering, 755 service industries, 993 Purchasing analyst, 336 Purchasing and supply manager, 334 Purchasing authority, 209 Purchasing career, 313 INDEX Purchasing cycle, public organizations, 1035 Purchasing department budget, 751 Purchasing functional skills, 281 Purchasing functions, public organizations, 1034 Purchasing Managers’ Index (PMI), 630 Purchasing organization, centralization vs decentralization, 1054 Purchasing plan, 299 Purchasing processes, extractive industries, 1015 Purchasing renewal, 318 Purchasing skills assessment, 281 Purchasing Today᭨, 240 Quadrant technique, 86, 174, 304, 359 Qualification, 261 Quality, 206, 322, 365, 553, 593, 786, 830 Quality assurance, 553 ingredients, 578 systems, 555 tools, 575 Quality circles, 572 Quality costs, 794, 814 Quality requirements, 531 Quality, tracking, 790 Quality, verifying, 814 Quantity discount analysis, 439 Quasi-public organization purchasing, 1032 Rate of return, accountant’s, 901 Raw materials, 810 RCRA (see Resource Conservation Recovery Act) Re-engineering, 311 Reciprocal agreements (see Reciprocity) Reciprocity, 394, 696 Recruiting, 337 Recycling, 728 Regression models, forecasting, 622 Rejection, 677, 688, 865 Relationships: customers, 37 internal, 302 long term, 510 management, 155 supplier, 18, 31, 68, 121, 127, 294, 380 Remedies, 691 INDEX Remedy, 878 Reorder point, 656 Research and development, 97, 122, 322 Resource Conservation Recovery Act (RCRA), 731 Restraint of Trade, 395 Return on assets, 359 Return on investment, 763 Revocation, 677 Reward systems, 370 Rework, 353 RFP/RFQ, 430, 529, 816, 929 RFP, construction, 941 Risk, 85 Robinson-Patman Act, 696 Roller coaster price model, 443 Royalty obligations, 1016 Safety, 731 Safety rules, 738 Safety stock, 649 Scenario analysis, 625, 773 SCOR model, 162 Scrap allowances, 466 Sealed bid sales, 723 Securities Exchange Commission, 254, 431 Security, information systems, 419 Selection, carriers, 971 Service industries purchasing, transportation considerations, 1011 Service industries, supplier selection, 995 Service industry purchasing, 993 Service suppliers, measuring, 803 Services, 103 contract of, 692 purchasing, 925, 1023 Services procurement, construction, 939 Set-up costs, 322 Seven times rule, 317 Sherman Antitrust Act, 696 Should cost data, 536 Situational analysis, 773 Ski slope price model, 443 Skill based pay, 371 Skills, 28, 132, 281, 295, 327, 334, 346 team, 522 Small business preferences, 1067 Software, 855 Software acquisition, 862 Software license, 862 Soliciting offers, 1038 1081 Sope of use, software, 863 Source code, 869, 871 Source selection, 236 Source selection plan, 535 Sources of supply, 1037 Sourcing, 39, 170, 257 global, 93, 1024 strategies, 44, 64 SPC (see Statistical Process Control) Specifications, 316, 529 Statement of Work, 929 Speed to market, 594 Spend analysis, 85 Spot markets, 818 Staff, 49 Standard cost-based systems, 317 Standardizing, 659 Statement of Work, 929 (See also Specifications) Statistical Process Control (SPC), 574 Statute of limitations, 691 Stockholder equity, 359 Strategic management persepective skills, 281 Strategic plan, construction procurement, 940 Strategies: communication, 768 product/service, 767 Strategy: development of, 39, 66, 189 functional, 19 general, 17, 87, 324 links, 17 marketing, 775 planning, 18, 104, 359 procurement/purchasing, 35, 91, 175, 324 Subcontract, 527 Supplier city, 841 Supplier development and management, 47, 70, 73 Supplier evaluation, 235, 263, 325 Supplier innovation, 105 Supplier involvement, 31 Supplier lists, 257 Supplier management, 366 Supplier performance, 546 nontraditional goods, 936 Supplier quality chart, 792 Supplier relations, 914 1082 Supplier selection, 826, 1035 public organizations, 1034 service industries, 995 Supplier services: postsale, 1003 presale, 1003 Supplier visits, 250, 258, 349 Suppliers, 37, 50, 100, 182, 218 full service, 11, 825 Supply base rationalization, 843 Supply chains, 15, 18, 72, 145, 154 Supply management, 332, 501 MRO, 838 Supply manager, 334, 757 Supply market management, 294 Supply marketplace, 821 Surplus inventory, 660, 709 Tariffs, import, 108 Team, negotiation, 917 Teams, 131, 148, 183, 242, 272, 303, 319, 587, 595 Technology, 12, 20, 109, 190, 194, 231 Termination, 864, 878 service contracts, 961 Terms and conditions, construction contracts, 957 Theory X, 352 Theory Y, 352 Third party (see Outsourcing) Third party logistics, 222 Time, 756 Time and materials, 950 To-Be model, 568 Total cost of ownership, 323, 485 Total cost, measuring the impact of, 795 Total Quality Management, 251, 331, 352, 553, 570, 600, 911 TQM (see Total Quality Management) Tracing, 985 Trade diversion laws, 397 Trade secret, 878 Trade secret law, 856 Trademark, 878 Trademark law, 860 Trading Post Network (TPN), 13 Training and development, 327, 346, 501 INDEX Training, commodity, 524 Transaction components, 492 Transactions, 48, 53, 93, 154, 328, 421, 432 Transportation, 207, 835, 963 Transportation claims, 987 Transportation considerations, service industries, 1011 Transportation contract, 980 Transportation costs, 964 Transportation prices, 977 Trend analysis, 368 Trust, 511 Turnkey, 943 U.S Department of Commerce, 462 U.S Government Business Anti Kickback Act, 390 Uniform Commercial Code (UCC), 427, 671, 707, 879 Uniform Trade Secrets Act, 856 Unit total cost, 801 Value, 23, 39, 85, 128, 142, 170, 173 Value added network (VAN), 414 Value analysis, 465, 585, 932 service industries, 998 Value creation, 764 Value engineering, 465 Value, defined, 586 Variable costs, 444 Vendor managed inventories, 160 Viruses, information systems, 423 VMI (see Vendor managed inventories) Vulnerability, 103, 141, 170 Warehousing, 227 Warranties, 682, 736, 879 software, 867 Web sites, 434 Weighted point plan, 267 Wholesalers, 835 Wide area networks (WAN), 417 Win-win, 184 Women-owned business preferences, 1067 Work made for hire, 879 Working capital, 322 ... Paul A Matthews Managing Partner Global Supply Chain Management Practice Andersen Consulting Associate Editors Richard J Toole Associate Partner Global Supply Chain Management Practice Andersen... Hewlett Packard, Warner Lambert, Sara Lee, and a score of others Their aim is to help supply chain partners better collaborate and coordinate activities CHAPTER The Future of Purchasing and Supply. .. College, Pennsylvania (CHAP 5) P R E F A C E T he Purchasing Handbook? ? ?A Guide for the Purchasing and Supply Professional reflects the field at a milestone in its evolution and sets the tone for its contributions