• 1. CHAPTER 12 Procurement
  • 2. Four Buying SituationsRoutine order Procedural problem Performance problem Political problem
  • 3. Cost trade-offs to Be Considered by the Purchasing Executive* The savings associated with volume buying include: Lower per-unit purchasing prices Lower transportation costs Lower warehouse handling costs Lower order-processing costs Lower production lot quantity costs Lower stockout costs ± The costs of carrying inventory include: Capital costs associated with the inventory investment Inventory service costs (insurance and taxes) Storage space costs Inventory risk costsCost savings associated with volume buying*Inventory carrying costsSource: Douglas M. Lambert and Jay U. Sterling, “Measuring Purchasing Performance,” Production and Inventory Management Review 4, no.6 (June 1984), p. 52. Reprinted with permission from P&IM Review, June 1984. Copyright 1984 by T.D.A. Publications, Inc., Hollywood, FL.
  • 4. Reducing Ordering Costs Results in a Smaller Economic Order QuantityLowest total costs (EOQ)Ordering costTotal costSize of orderInventory carrying costsAnnual cost (dollars)
  • 5. Supplier Development DefinedA systematic organizational effort to create and maintain a network of competent suppliers and to improve various supplier capabilities that are necessary for the buying organization to meet its increasing competitive challenges.
  • 6. Objectives of Systems Contracts and Stockless PurchasingLower inventory levels. Reduce the number of suppliers. Reduce administrative cost and paperwork. Reduce the number of purchases of small dollar value and requisitions that purchasers have to handle. Provide the opportunity for larger dollar volumes of business to suppliers. Provide for timely delivery of material directly to user. Standardize purchase items when possible.
  • 7. Key Performance MeasuresPrice effectiveness Cost savings Workload Administration and control Efficiency Vendor quality and delivery Material flow control Regulatory, societal, and environmental measures Procurement planning and research Competition Inventory Transportation
  • 8. Sourcing Value ChainSource:Matthew G. Anderson and Paul B. Katz, “Strategic Sourcing,” The International Journal of Logistics Management 9, no. 12 (1998), p. 7.Evaluate and select suppliersProcure materialsCreate annual planManage supplier relationshipsDevelop requirements Item requirements by category across the user base Goals and points of focus during the next year by category and in total Systems, procedures, and skills to support strategy and execute efficiently Strategy to leverage buying power and minimize total costs by category Targeted suppliers and negotiation and contracting Performance metrics, benchmarks, and controls to ensure improvementDevelop sourcing strategy
  • 9. Types of RelationshipsSource: Douglas M. Lambert, Margaret A. Emmelhainz, and John T. Gardner, “Developing and Implementing Supply Chain Partnerships,” The International Journal of Logistics Management, Volume 7, No. 2. (1996), p.2.Partnerships Arm’s length Type I Type II Type III Joint venture Vertical integration
  • 10. The Partnering ProcessSource: Douglas M. Lambert, Margaret A. Emmelhainz, and John T. Gardner, “Developing and Implementing Supply Chain Partnerships,” The International Journal of Logistics Management, Volume 7, No. 2. (1996). p.4DriversCompelling reasons to partnerFacilitatorsSupportive environmental factors that enhance partnership growthComponentsJoint activities and processes that build and sustain the partnershipDrivers set expectation of outcomesDecision to create or adjust partnership Feedback to:Components Drivers FacilitatorsOutcomesThe extent to which performance meets expectations