MNP3701
STRATEGIC SOURCING
2022 Summarized notes as per prescribed textbook (with
page references)
WHY PURCHASING IS IMPORTANT
(PAGE 8)
Purchasing and Supply Chain Management are aimed at creating value.
Value consists of the following components:
Value = (Quality + Technology + Service + Cycle time) ÷ Price
▪ Increasing Value and Savings
Supplier capabilities can help differentiate a producer’s final goods or services,
increasing their value to the final customer. Cost savings also encompasses
avoiding costs through early involvement with design and proactively
responding to supplier requests for price increases.
▪ Building Relationships and Driving Innovation
, The traditional approach of bargaining hard for price reductions are being
replaced by a newer approach of building relations with suppliers to jointly pull
costs out of the product or service and expecting suppliers to contribute
innovative ideas that continually add value to a firm’s products and services.
▪ Improving Quality and Reputation
Supplier quality is important during the supplier selection process as there is an
important link between supplier quality and product quality. Poor quality input
affects the entire supply chain, including finished product and brand name
reputation.
▪ Reducing Time to Market
Companies that involve suppliers early achieve an average 20 percent
improvement on materials costs, material quality and product development
times.
▪ Managing Supplier Risk
Every time purchasing places an order with a supplier a potential risk arises,
this risk could be as minor as a late delivery or as major as loss of an entire
supplier due to bankruptcy or a natural disaster.
▪ Generating Economic Impact
The ISM Report on Business is one of the most closely followed indicators of
economic activity. This monthly survey of purchasing managers is closely
monitored by the financial sector, and the results have the power to move
financial markets.
▪ Contributing to Competitive Advantage
Many executives will agree that a focus on effective purchasing has become a
critical way to gain a competitive advantage. An indication of this enhanced
status, reputation and recognition is the higher salaries being paid to
purchasing professionals.
,PURCHASING AND SUPPLY MANAGEMENT
(PAGE 11)
Purchasing is a functional group as well as a functional activity. It 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 is a critical process and makes as important a contribution as
manufacturing, marketing or engineering to the pursuit of a firm’s strategic
objectives. Progressive firms have little doubt about purchasing’s impact on total
quality, cost, delivery, technology and responsiveness to the needs of external
customers. For firms to achieve a competitive advantage from their procurement and
sourcing processes requires shifting their view of purchasing from a tactical or
clerically oriented activity to one focusing on strategic supply management. This type
of management involves developing the strategies, approaches and methods for
realizing a competitive advantage and improvement from the procurement and
sourcing process, particularly through direct involvement and interaction with
suppliers.
Purchasing has been referred to as doing “the five rights”:
1. Getting the right quality,
2. In the right quantity,
3. At the right time,
4. For the right price, 5. From the right source.
SUPPLY CHAINS ILLUSTRATED
(PAGE 14)
, Supply chains involve multiple organizations as they move from raw material
suppliers downstream towards the ultimate customer. Simple supply chains pull
materials directly from their origin, process, package and ship them.
SUPPLY CHAIN MANAGEMENT ACTIVITIES
(PAGE 18)
Supply Chain Management is a philosophy aimed at proactively integrating and
coordinating a network (or web) of upstream linkages (sources of supply), internal
linkages (inside the organization, according to the value chain approach) and
downstream linkages (distribution and ultimate customers) in performing specific key
business processes and activities that will ultimately create and optimize value for the
customer in the form of products and services specifically aimed at satisfying
customer demands and expectations.
− Purchasing
− Inbound Transportation
− Quality Control
− Demand and Supply Planning
− Receiving, Materials Handling and
Storage
− Materials or Inventory Control
− Order Processing
STRATEGIC SOURCING
2022 Summarized notes as per prescribed textbook (with
page references)
WHY PURCHASING IS IMPORTANT
(PAGE 8)
Purchasing and Supply Chain Management are aimed at creating value.
Value consists of the following components:
Value = (Quality + Technology + Service + Cycle time) ÷ Price
▪ Increasing Value and Savings
Supplier capabilities can help differentiate a producer’s final goods or services,
increasing their value to the final customer. Cost savings also encompasses
avoiding costs through early involvement with design and proactively
responding to supplier requests for price increases.
▪ Building Relationships and Driving Innovation
, The traditional approach of bargaining hard for price reductions are being
replaced by a newer approach of building relations with suppliers to jointly pull
costs out of the product or service and expecting suppliers to contribute
innovative ideas that continually add value to a firm’s products and services.
▪ Improving Quality and Reputation
Supplier quality is important during the supplier selection process as there is an
important link between supplier quality and product quality. Poor quality input
affects the entire supply chain, including finished product and brand name
reputation.
▪ Reducing Time to Market
Companies that involve suppliers early achieve an average 20 percent
improvement on materials costs, material quality and product development
times.
▪ Managing Supplier Risk
Every time purchasing places an order with a supplier a potential risk arises,
this risk could be as minor as a late delivery or as major as loss of an entire
supplier due to bankruptcy or a natural disaster.
▪ Generating Economic Impact
The ISM Report on Business is one of the most closely followed indicators of
economic activity. This monthly survey of purchasing managers is closely
monitored by the financial sector, and the results have the power to move
financial markets.
▪ Contributing to Competitive Advantage
Many executives will agree that a focus on effective purchasing has become a
critical way to gain a competitive advantage. An indication of this enhanced
status, reputation and recognition is the higher salaries being paid to
purchasing professionals.
,PURCHASING AND SUPPLY MANAGEMENT
(PAGE 11)
Purchasing is a functional group as well as a functional activity. It 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 is a critical process and makes as important a contribution as
manufacturing, marketing or engineering to the pursuit of a firm’s strategic
objectives. Progressive firms have little doubt about purchasing’s impact on total
quality, cost, delivery, technology and responsiveness to the needs of external
customers. For firms to achieve a competitive advantage from their procurement and
sourcing processes requires shifting their view of purchasing from a tactical or
clerically oriented activity to one focusing on strategic supply management. This type
of management involves developing the strategies, approaches and methods for
realizing a competitive advantage and improvement from the procurement and
sourcing process, particularly through direct involvement and interaction with
suppliers.
Purchasing has been referred to as doing “the five rights”:
1. Getting the right quality,
2. In the right quantity,
3. At the right time,
4. For the right price, 5. From the right source.
SUPPLY CHAINS ILLUSTRATED
(PAGE 14)
, Supply chains involve multiple organizations as they move from raw material
suppliers downstream towards the ultimate customer. Simple supply chains pull
materials directly from their origin, process, package and ship them.
SUPPLY CHAIN MANAGEMENT ACTIVITIES
(PAGE 18)
Supply Chain Management is a philosophy aimed at proactively integrating and
coordinating a network (or web) of upstream linkages (sources of supply), internal
linkages (inside the organization, according to the value chain approach) and
downstream linkages (distribution and ultimate customers) in performing specific key
business processes and activities that will ultimately create and optimize value for the
customer in the form of products and services specifically aimed at satisfying
customer demands and expectations.
− Purchasing
− Inbound Transportation
− Quality Control
− Demand and Supply Planning
− Receiving, Materials Handling and
Storage
− Materials or Inventory Control
− Order Processing
