TBKLeo
1. The role of purchasing in the value chain (pg. 3-20)
Purchasing the management of the company’s external resources in such a way that
the supply of all goods, services, capabilities and knowledge which are
necessary for running, maintaining and managing the company’s primary
and support activities is secured under the most favourable conditions
Supply includes at least purchasing, materials management, incoming inspection
and receiving, used when relating to buying based upon total cost of
ownership in a manufacturing environment
In many business strategies the concept of value chain management plays a central role.
Value chain management all stakeholders belonging to the same value chain are challenged to
improve the (buying) company’s value proposition to its consumers
Value chains are differentiated by Porter between:
primary activities
o inbound logistics
o operations
o outbound logistics
o marketing and sales
o services
support activities
o procurement
o technology development
o human resources management
o firm infrastructure
Primary activities activities that are required to offer the company’s value proposition to its
customers
Support activities activities that are required to support the company’s primary activities
All activities need to be performed in such a way that the total value generated by the company, as perceived by its
customers, is more than the sum of its costs.
Direct purchasing purchasing of all materials and products that are used for manufacturing
companies’ end products
Procurement should provide support to the following business activities:
primary activities
o make (and distribute) to stock (MTS)
o make to order (MTO)
o engineer to order (ETO)
support activities
o laboratory equipment for research and development
o computer hardware and software for the central computer department
o lease-cars for the sales force and senior management
o office equipment for accounting
o food and beverages for the catering department
o cleaning materials for housekeeping
o machinery and infrastructure, etc.
Investment goods products which are not consumed immediately, but whose purchasing
value is depreciated during its economic life-cycle
Indirect purchasing purchasing of all materials, components and services that are used to
support the company’s infrastructure and back-office activities
The purchasing process model:
1. internal customer
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, TBKLeo
2. determining specification
3. selecting supplier
4. contracting
5. ordering
6. expediting and evaluation
7. follow-up and evaluation
8. supplier
Expediting following up on a purchase order to make sure that the supplier is going
to perform as it has confirmed through the purchase order confirmation
Procurement is based on total cost of ownership-thinking.
Total cost of ownership (TCO) relates to the total costs that the company will incur over the lifetime of
the product that is purchased
Sourcing finding, selecting, contracting and managing the best possible source of
supply on a worldwide basis
Sourcing strategy identifies for a certain category from how many suppliers to buy, what
type of relationship to pursue, contract duration, type of contract to
negotiate for, and whether to source locally regionally or globally
Purchasing management relates to all activities necessary to manage supplier relationships in such
a way that their activities are aligned with the company’s overall business
strategies and interests
The DuPont analysis shows that purchasing contributes to improving the company’s RONA (return on capital employed)
in three ways:
through reduction of all direct material costs
through a reduction of the net working capital employed by the company
through improving the company’s revenue generating potential
DuPont analysis financial diagnostic tool to calculate the company’s return on investment
based upon sales margin and capital turnover ratio
Purchased materials and services can be grouped into the following categories:
raw materials
supplementary materials
semi-manufactured products
components
finished products or trade items
investment goods or capital equipment
maintenance, repair and operating materials (MRO items)
services
Several examples of changes of the purchasing and supply strategies of industrial companies:
global sourcing
leveraged purchasing and supply strategies
corporate social responsibility and business integrity
resource scarcity
supplier integration
early supplier involvement in new product development
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1. The role of purchasing in the value chain (pg. 3-20)
Purchasing the management of the company’s external resources in such a way that
the supply of all goods, services, capabilities and knowledge which are
necessary for running, maintaining and managing the company’s primary
and support activities is secured under the most favourable conditions
Supply includes at least purchasing, materials management, incoming inspection
and receiving, used when relating to buying based upon total cost of
ownership in a manufacturing environment
In many business strategies the concept of value chain management plays a central role.
Value chain management all stakeholders belonging to the same value chain are challenged to
improve the (buying) company’s value proposition to its consumers
Value chains are differentiated by Porter between:
primary activities
o inbound logistics
o operations
o outbound logistics
o marketing and sales
o services
support activities
o procurement
o technology development
o human resources management
o firm infrastructure
Primary activities activities that are required to offer the company’s value proposition to its
customers
Support activities activities that are required to support the company’s primary activities
All activities need to be performed in such a way that the total value generated by the company, as perceived by its
customers, is more than the sum of its costs.
Direct purchasing purchasing of all materials and products that are used for manufacturing
companies’ end products
Procurement should provide support to the following business activities:
primary activities
o make (and distribute) to stock (MTS)
o make to order (MTO)
o engineer to order (ETO)
support activities
o laboratory equipment for research and development
o computer hardware and software for the central computer department
o lease-cars for the sales force and senior management
o office equipment for accounting
o food and beverages for the catering department
o cleaning materials for housekeeping
o machinery and infrastructure, etc.
Investment goods products which are not consumed immediately, but whose purchasing
value is depreciated during its economic life-cycle
Indirect purchasing purchasing of all materials, components and services that are used to
support the company’s infrastructure and back-office activities
The purchasing process model:
1. internal customer
Page 1 of 16
, TBKLeo
2. determining specification
3. selecting supplier
4. contracting
5. ordering
6. expediting and evaluation
7. follow-up and evaluation
8. supplier
Expediting following up on a purchase order to make sure that the supplier is going
to perform as it has confirmed through the purchase order confirmation
Procurement is based on total cost of ownership-thinking.
Total cost of ownership (TCO) relates to the total costs that the company will incur over the lifetime of
the product that is purchased
Sourcing finding, selecting, contracting and managing the best possible source of
supply on a worldwide basis
Sourcing strategy identifies for a certain category from how many suppliers to buy, what
type of relationship to pursue, contract duration, type of contract to
negotiate for, and whether to source locally regionally or globally
Purchasing management relates to all activities necessary to manage supplier relationships in such
a way that their activities are aligned with the company’s overall business
strategies and interests
The DuPont analysis shows that purchasing contributes to improving the company’s RONA (return on capital employed)
in three ways:
through reduction of all direct material costs
through a reduction of the net working capital employed by the company
through improving the company’s revenue generating potential
DuPont analysis financial diagnostic tool to calculate the company’s return on investment
based upon sales margin and capital turnover ratio
Purchased materials and services can be grouped into the following categories:
raw materials
supplementary materials
semi-manufactured products
components
finished products or trade items
investment goods or capital equipment
maintenance, repair and operating materials (MRO items)
services
Several examples of changes of the purchasing and supply strategies of industrial companies:
global sourcing
leveraged purchasing and supply strategies
corporate social responsibility and business integrity
resource scarcity
supplier integration
early supplier involvement in new product development
Page 2 of 16
