Import Management from Asia
Purchasing and Supply Chain Management | Arjan J. van Weele
Theory motioned in the in class cases are marked by ~ signs.
Table of Contents
Chapter 1: The Role of Purchasing in the Value Chain ................................................................................................................ 2
Chapter 2: Industrial Buying Behavior: Decisions in Purchasing ............................................................................................ 5
Chapter 3: Purchasing Management Process .............................................................................................................................. 11
Chapter 5: Buying Business Services ............................................................................................................................................. 12
~ Services are differentiated from goods through four basic characteristics:~ ...............................................................................................13
Classification of Services .........................................................................................................................................................................................................13
Conclusions ...................................................................................................................................................................................................................................14
6: Public Procurement ....................................................................................................................................................................... 14
The Nature of Public Procurement ......................................................................................................................................................................................14
Public Procurement Law .........................................................................................................................................................................................................15
Threshold Values ........................................................................................................................................................................................................................15
Public Procurement Procedures ..........................................................................................................................................................................................16
European Procurement Procedures ...................................................................................................................................................................................16
Procurement Process ................................................................................................................................................................................................................16
Implications for Public Procurement .................................................................................................................................................................................17
Conclusions ...................................................................................................................................................................................................................................17
8: Outsourcing and Risk Management .......................................................................................................................................... 17
Outsourcing as a Business Concept .....................................................................................................................................................................................17
Definitions and Concepts .........................................................................................................................................................................................................18
Rationales for Outsourcing .....................................................................................................................................................................................................19
Advantages and Disadvantages of Outsourcing .............................................................................................................................................................20
Success of Outsourcing .............................................................................................................................................................................................................20
The Outsourcing Process .........................................................................................................................................................................................................20
Strategic Phase ......................................................................................................................................................................................................................................... 21
The Transition Phase ............................................................................................................................................................................................................................ 21
The Operational Phase ......................................................................................................................................................................................................................... 23
Risk Assessment ..........................................................................................................................................................................................................................23
Critical Success Factors of Outsourcing .............................................................................................................................................................................23
Conclusions ...................................................................................................................................................................................................................................24
10: Category Sourcing: Getting Better Performance from Suppliers ................................................................................... 24
How to Identify the Cost Saving Potential ........................................................................................................................................................................25
Developing a Sourcing Strategy ............................................................................................................................................................................................26
Category Sourcing Planning ...................................................................................................................................................................................................26
Getting Better Results from Suppliers ...............................................................................................................................................................................26
The Myth of Partnership ..........................................................................................................................................................................................................27
Conclusions ...................................................................................................................................................................................................................................28
12: Purchasing, Logistics and Supply Chain Management ....................................................................................................... 28
Definitions and Concepts .........................................................................................................................................................................................................28
Materials and Requirement Planning (MRP) ..................................................................................................................................................................29
Basic Logistic Structure ............................................................................................................................................................................................................30
Just in Time Management (JIT) .............................................................................................................................................................................................30
Consequences for Suppliers ...................................................................................................................................................................................................32
Elements of the Purchasing Information System ..........................................................................................................................................................33
Coordination Problems between Purchasing and logistics ......................................................................................................................................33
15: Preparing for partnership with suppliers: cost approaches and techniques ............................................................. 33
How is the purchase price determined? ............................................................................................................................................................................33
How is the purchase price determined? ............................................................................................................................................................................33
Pricing methods ..........................................................................................................................................................................................................................34
The learning curve .....................................................................................................................................................................................................................35
Supplier assessment ..................................................................................................................................................................................................................36
Supplier development ..............................................................................................................................................................................................................37
Conclusions ...................................................................................................................................................................................................................................38
Chapter 16 Buying and Supply Management in Retail ............................................................................................................. 39
Role and importance of buying in trade and retail companies ...............................................................................................................................39
Structure and Organization of the Buying Process .......................................................................................................................................................39
Development in Trade and Retail Companies ................................................................................................................................................................40
Sourcing and Supply Chain Strategy Trends ...................................................................................................................................................................41
1
,Chapter 1: The Role of Purchasing in the Value Chain
Purchasing
Manage external recourses so that supply is secured under most favorable
conditions.
Transaction Cost
Exchange between 2 party’s; Level depends on 3 factors
1. Frequency
2. Level of transaction specific investments
3. External & internal uncertainty
Supply
Includes purchasing, materials management, incoming inspections and receiving.
Porters Value Chain
Primary activities
Support activities
Primary Activities
Inbound logistics, operations, outbound logistics, marketing sales and service
These provide the company’s value position
Support Activities
Procurement, technology development, human recourses management and firm
infrastructure
Support company’s primary activities
Raw Materials
Materials that have undergone no transformation
Value of Company = whole of its sales value
Procurement should provide support to:
Primary activities
In- outbound logistics and operations
Support activities
Non production buying or indirect materials are materials for the other
support activities (general expense)
Indirect Materials
Do not become part of the company’s value position:
MRO – Supplies
Investment goods
Services
2
,Value Chain Management
All stakeholders in the value chain improve to increase value position to end
customer
Difference buying primary / support activities
Aspects Buying for primary Buying for support
activities activities
Product assortment Limited Very large
Number of suppliers Limited, transparent Very large
Purchasing turnover Very large, considerable Limited
Number of purchase orders Considerable Very large
Average order size High Small
Control Depends on type of Limited, forecast-related of
production planning project-related planning
Decision-making unit Engineering, manufacturing Fragmented, varies with
specialist dominant product or service
Purchasing Function
Purchasing specifications features of use
Select best suppliers
Developing procedures and routines
Negotiate with supplier + contract
Placing order
Developing purchase orders
Control of order + follow-up + evaluate
Control = Expediting
Routine status check
Advanced status check
Field expediting
Internal Determining Selecting Contract Expediting Follow-up
specifications supplier
Ordering and and Supplier
customers ing evaluation evaluation
----------------------------------------- -----------------------------------
Sourcing Supply
Purchasing function does NOT include
Materials requirement planning
Inventory management
Incoming inspection
Quality control
Purchasing VS Ordering
Ordering = placing purchase order against previously agreed upon conditions
Purchasing = make a deal with supplier (not meet suppliers terms/negotiate)
Total Cost of Ownership (TCO)
Total cost over the lifetime of the product that is purchased
3
, Purchasing Management
Manage supplier relations so activities are aligned
DuPoint Analysis
Financial tool to calculate return on net assets (RONA) based upon sales margin
and capital turnover ratio. Tis assesses the effect of (2%) purchasing saving over
the RONA.
Can improve company’s RONA in 3 ways:
1. Reduction of all direct material cost
2. Reduction of net working capital employed
3. Improving company’s revenue generating protocol
Payment Terms
What, how and when buyer will pay
Categories of materials and services
Raw Materials
o Physical
o Natural
Supplementary materials
Semi manufactured products
Components
Finished products are trade items
Investment goods or capital equipment
Maintenance, repair and operating (MRO)
Service
Two developments in the purchasing market:
1. Sellers market changed to buyers market
2. Higher pressure on sales prices and higher pressure on direct material
cost
Changes:
Leveraged purchasing and supply strategies
Global sourcing
Suppler integration
Early suppliers involvement in new product development
Reciprocity agreements
Corporate social responsibility and business integrity
4
Purchasing and Supply Chain Management | Arjan J. van Weele
Theory motioned in the in class cases are marked by ~ signs.
Table of Contents
Chapter 1: The Role of Purchasing in the Value Chain ................................................................................................................ 2
Chapter 2: Industrial Buying Behavior: Decisions in Purchasing ............................................................................................ 5
Chapter 3: Purchasing Management Process .............................................................................................................................. 11
Chapter 5: Buying Business Services ............................................................................................................................................. 12
~ Services are differentiated from goods through four basic characteristics:~ ...............................................................................................13
Classification of Services .........................................................................................................................................................................................................13
Conclusions ...................................................................................................................................................................................................................................14
6: Public Procurement ....................................................................................................................................................................... 14
The Nature of Public Procurement ......................................................................................................................................................................................14
Public Procurement Law .........................................................................................................................................................................................................15
Threshold Values ........................................................................................................................................................................................................................15
Public Procurement Procedures ..........................................................................................................................................................................................16
European Procurement Procedures ...................................................................................................................................................................................16
Procurement Process ................................................................................................................................................................................................................16
Implications for Public Procurement .................................................................................................................................................................................17
Conclusions ...................................................................................................................................................................................................................................17
8: Outsourcing and Risk Management .......................................................................................................................................... 17
Outsourcing as a Business Concept .....................................................................................................................................................................................17
Definitions and Concepts .........................................................................................................................................................................................................18
Rationales for Outsourcing .....................................................................................................................................................................................................19
Advantages and Disadvantages of Outsourcing .............................................................................................................................................................20
Success of Outsourcing .............................................................................................................................................................................................................20
The Outsourcing Process .........................................................................................................................................................................................................20
Strategic Phase ......................................................................................................................................................................................................................................... 21
The Transition Phase ............................................................................................................................................................................................................................ 21
The Operational Phase ......................................................................................................................................................................................................................... 23
Risk Assessment ..........................................................................................................................................................................................................................23
Critical Success Factors of Outsourcing .............................................................................................................................................................................23
Conclusions ...................................................................................................................................................................................................................................24
10: Category Sourcing: Getting Better Performance from Suppliers ................................................................................... 24
How to Identify the Cost Saving Potential ........................................................................................................................................................................25
Developing a Sourcing Strategy ............................................................................................................................................................................................26
Category Sourcing Planning ...................................................................................................................................................................................................26
Getting Better Results from Suppliers ...............................................................................................................................................................................26
The Myth of Partnership ..........................................................................................................................................................................................................27
Conclusions ...................................................................................................................................................................................................................................28
12: Purchasing, Logistics and Supply Chain Management ....................................................................................................... 28
Definitions and Concepts .........................................................................................................................................................................................................28
Materials and Requirement Planning (MRP) ..................................................................................................................................................................29
Basic Logistic Structure ............................................................................................................................................................................................................30
Just in Time Management (JIT) .............................................................................................................................................................................................30
Consequences for Suppliers ...................................................................................................................................................................................................32
Elements of the Purchasing Information System ..........................................................................................................................................................33
Coordination Problems between Purchasing and logistics ......................................................................................................................................33
15: Preparing for partnership with suppliers: cost approaches and techniques ............................................................. 33
How is the purchase price determined? ............................................................................................................................................................................33
How is the purchase price determined? ............................................................................................................................................................................33
Pricing methods ..........................................................................................................................................................................................................................34
The learning curve .....................................................................................................................................................................................................................35
Supplier assessment ..................................................................................................................................................................................................................36
Supplier development ..............................................................................................................................................................................................................37
Conclusions ...................................................................................................................................................................................................................................38
Chapter 16 Buying and Supply Management in Retail ............................................................................................................. 39
Role and importance of buying in trade and retail companies ...............................................................................................................................39
Structure and Organization of the Buying Process .......................................................................................................................................................39
Development in Trade and Retail Companies ................................................................................................................................................................40
Sourcing and Supply Chain Strategy Trends ...................................................................................................................................................................41
1
,Chapter 1: The Role of Purchasing in the Value Chain
Purchasing
Manage external recourses so that supply is secured under most favorable
conditions.
Transaction Cost
Exchange between 2 party’s; Level depends on 3 factors
1. Frequency
2. Level of transaction specific investments
3. External & internal uncertainty
Supply
Includes purchasing, materials management, incoming inspections and receiving.
Porters Value Chain
Primary activities
Support activities
Primary Activities
Inbound logistics, operations, outbound logistics, marketing sales and service
These provide the company’s value position
Support Activities
Procurement, technology development, human recourses management and firm
infrastructure
Support company’s primary activities
Raw Materials
Materials that have undergone no transformation
Value of Company = whole of its sales value
Procurement should provide support to:
Primary activities
In- outbound logistics and operations
Support activities
Non production buying or indirect materials are materials for the other
support activities (general expense)
Indirect Materials
Do not become part of the company’s value position:
MRO – Supplies
Investment goods
Services
2
,Value Chain Management
All stakeholders in the value chain improve to increase value position to end
customer
Difference buying primary / support activities
Aspects Buying for primary Buying for support
activities activities
Product assortment Limited Very large
Number of suppliers Limited, transparent Very large
Purchasing turnover Very large, considerable Limited
Number of purchase orders Considerable Very large
Average order size High Small
Control Depends on type of Limited, forecast-related of
production planning project-related planning
Decision-making unit Engineering, manufacturing Fragmented, varies with
specialist dominant product or service
Purchasing Function
Purchasing specifications features of use
Select best suppliers
Developing procedures and routines
Negotiate with supplier + contract
Placing order
Developing purchase orders
Control of order + follow-up + evaluate
Control = Expediting
Routine status check
Advanced status check
Field expediting
Internal Determining Selecting Contract Expediting Follow-up
specifications supplier
Ordering and and Supplier
customers ing evaluation evaluation
----------------------------------------- -----------------------------------
Sourcing Supply
Purchasing function does NOT include
Materials requirement planning
Inventory management
Incoming inspection
Quality control
Purchasing VS Ordering
Ordering = placing purchase order against previously agreed upon conditions
Purchasing = make a deal with supplier (not meet suppliers terms/negotiate)
Total Cost of Ownership (TCO)
Total cost over the lifetime of the product that is purchased
3
, Purchasing Management
Manage supplier relations so activities are aligned
DuPoint Analysis
Financial tool to calculate return on net assets (RONA) based upon sales margin
and capital turnover ratio. Tis assesses the effect of (2%) purchasing saving over
the RONA.
Can improve company’s RONA in 3 ways:
1. Reduction of all direct material cost
2. Reduction of net working capital employed
3. Improving company’s revenue generating protocol
Payment Terms
What, how and when buyer will pay
Categories of materials and services
Raw Materials
o Physical
o Natural
Supplementary materials
Semi manufactured products
Components
Finished products are trade items
Investment goods or capital equipment
Maintenance, repair and operating (MRO)
Service
Two developments in the purchasing market:
1. Sellers market changed to buyers market
2. Higher pressure on sales prices and higher pressure on direct material
cost
Changes:
Leveraged purchasing and supply strategies
Global sourcing
Suppler integration
Early suppliers involvement in new product development
Reciprocity agreements
Corporate social responsibility and business integrity
4
