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CHAPTER 1 INTRODUCTION TO PURCHASING AND SUPPLY CHAIN MANAGEMENT  Understand the differences between purchasing and supply management  Understand the differences between supply chains and value chains  Identify the activities that are part of supply chain management  Appreciate the importance of supply chain enablers  Identify the historical stages of purchasing’s evolution Re-shoring involves bringing some sourcing back to the United States, while near-shoring involves evaluating suppliers located closer to United States. Such suppliers may be located in Mexico and Central and South America. The supply base consists of all the suppliers that provide and organization with its materials and services. In some organization’s this supply base extends to the network of downstream firms responsible for delivery and aftermarket service of the product to the end customer. The realization that competitive advantage could be achieved by managing both upstream (suppliers) and downstream (customers) flows led to a focus on supply chains and supply chain management. Several factors are driving an emphasis on supply chain management. 1. First, the low cost and increased availability of information resources among entities in the supply chain allow easy linkages that eliminate time delays in the network. 2. Second, the level of competition in both domestic and international markets requires organizations to be fast, agile, and flexible. 3. Third, customer expectations and requirements are becoming much more demanding. 4. Fourth, the ability of an organization’s supply chain to identify and mitigate risk minimizes disruptions in both supply and downstream product or services to mitigate the impact on lost sales. The supply base is an important part of the supply chain. Supplier capabilities can help differentiate a producer’s final good or service, increasing their value to the final customer. Savings come in different forms; the traditional approach is to bargain hard for price reductions. A newer approach is to build relations with suppliers to jointly pull costs out of the product or service and expect suppliers to contribute innovative ideas that continually add value to a firm’s products and services. Poor quality is only one supply threat; others include natural disasters, financial instability, operational problems, transportation delays, and so on. These risks are magnified by sourcing strategies that emphasized global sourcing, single sourcing, and JIT inventory. Certainly there were benefits realized from these strategies, however, often the increased vigilance necessary to mitigate and manage these additional risks was not established. Managing talent requires a constant focus on finding, developing, and promoting individuals who will contribute to making the supply management department recognized as a strategic contributor to the organization. Downloaded by ISAAC KOTANE () lOMoARcPSD| 2 PURCHASING AND SUPPLY MANAGEMENT Purchasing is a functional group (i.e., a formal entity on the organizational chart) as well as a functional activity (i.e., buying goods and services). The purchasing group performs many activities to ensure it delivers maximum value to the organization. Examples include supplier identification and selection; buying, negotiation, and contracting; supply market research; supplier measurement and improvement; and purchasing systems development. Purchasing has been referred to as doing “the five rights”: getting the right quality, in the right quantity, at the right time, for the right price, from the right source. In this text we will interchange the terms “purchasing” and “procurement.” Supply management is a strategic approach to planning for and acquiring the organization’s current and future needs through effectively managing the supply base, utilizing a process orientation in conjunction with cross-functional teams (CFTs) to achieve the organizational mission. Similar to our definition, the Institute for Supply Management defines supply management as the identification, acquisition, access, positioning, and management of resources and related capabilities an organization needs or potentially needs in the attainment of its strategic objectives. Supply management requires pursuing strategic responsibilities, which are those activities that have a major impact on the long-term performance of the organization. These long-term responsibilities are not pursued in isolation, but should be aligned with the overall mission and strategies of the organization. These strategies exclude routine, simple, or day-to-day decisions that may be part of traditional purchasing responsibilities. The routine ordering and follow-up of basic operational supplies is not a strategic responsibility. The development of the systems that enable internal users to order routine supplies, however, is considerably more important.