2 Program Primary tasks and responsibilities Professionalizing purchasing: a few principlesPurchasing management processHow purchasing may develop over timeSome observations from practice
3 Primary tasks and responsibilities Secure timely and undisturbed availability of purchased goods and servicesControl and reduction of all purchasing-related spendReduction of the company’s risk exposure in relation to its supply marketsContribution to product and process innovation, the development task
6 Standard purchasing procedure (1) Send an offer of collaboration to the best companies, the offer contains the specifications and final reply date (confidential)Reject offers delivered after the deadlineProceed with an opening session of the lettersCountersign the offersDraw up a comparative table of costsProceed with a consistency check on technical levelCheck debit-equity ratio of the companiesPreselect the two best proposals (quality and costs)
7 Standard purchasing procedure (2) Check the referencesDraw up assessment grid of recent realizationsCompare costs and renegotiate item by itemRecommend a final choiceMaintain contact with the other supplier (avoid monopoly)Draft the contract with legal departmentWrite to the companies not chosen to notify them of refusalRegularly sound out the competitionPreserve our partners’ long-term motivations
8 Professionalizing purchasing Major principles of purchasing policies:Business alignmentDevelop a purchasing and supply strategyIntegrated, cross-functional approachPurchasing decisions cannot be made in isolation, and should not be aimed at optimization of purchasing performance onlyPerformance drivenPurchasing engages in a healthy debate with its internal customers
9 Purchasing management process Purchasing and supply (market) researchPurchasing and supply (market) research refers to the systematic study of all relevant factors which may affect supply and demand of goods and services, for the purpose of securing the company’s current and future requirements.Purchasing and supply objectives, strategy and planningBased upon the company's overall objectives, purchasing objectives will relate to cost-reduction, improving product quality, lead time reduction etc. Through these objectives the company directs, manages and controls its purchasing activities and supplier strategies. Management can focus on different areas for action:
10 Examples of areas for action in purchasing Sourcing policy - determining dependency on suppliers and designingplans to reduce this dependency.Direct versus indirect buying - determining the (possible) cost benefits of buying from importers and distributors, or buying directly from the manufacturer.Make-or-buy analysis - analysis of savings opportunities by eliminating particularproduction activities and buying the required products from third parties; buy or leasemay be considered as an alternative.Integration between purchasing and other functional areas - plans aimed at removing interface problems between purchasing and materials management, pure engineering, and between purchasing and financial administration or treasurySetting up a purchasing information and control system - analysis of purchasing information needs and design of an automation plan; possibilities of linking this system with existing information systems in other functional areas.Centralized or decentralized purchasing - balancing cost benefits and strategicconsiderations related to a centralized or decentralized organization of purchasingStandardization - determining possibilities to achieve standardization in order toreduce product and supplier variety; balancing savings and risks.
11 Purchasing management process Implementation of purchasing policy:ToolsAspectsSupply PolicyPurchasing order processing. Materials and supply planningProduct and supplier qualityEarly involvement in developmentImproving suppliers’ quality performanceMaterials cost policyControl of materials cost and pricesReduction of materials cost and pricesSupplier policySourcing policyImprovement of supplier performanceCommunication policyInternal contactsExternal contacts
12 Development of purchasing over time Step-wise development of purchasing on the following characteristics:Integrated final stageManagement is actively involved in purchasing strategies and tactics, organized around team-based structuresOrganizational status of purchasingCentralization often leads to some form of coordinated purchasingSupplier managementFrom reactive purchasing, via proactive purchasing, to relationship managementSupplier relationshipsReduced number of (preferred) suppliers and closer relationships
13 Drivers of development Business contextMore competition, more mature technology used more pressure towards purchasingCompany strategyMore explicit about goals and objectives, more formalized planning process greater chance purchasing is integrated in company strategySystem developmentInformation and communication technologies are important enablers for modern purchasing conceptsTop management commitmentFunctional leadership
14 Purchasing and supply development model CENTRE-LEDEffectiveness/CumulativesavingsRetailersDECENTREALIZEDCROSS-FUNCTIONAL FOCUSFUNCTIONAL FOCUSConsumerelectronicsComputer/PC’sautomotivetelecommu-nicationFood andbeveragesFinancialServicesPharmaPublicutilitiesConstructionTransactionalorientationCommercialorientationPurchasingco-ordinationInternalintegrationExternalIntegrationValue chainintegrationtimefocus‘serve thefactory’‘Reduce cost’‘Savings throughsynergy’‘Total Cost ofownership’‘Supply chainoptimization’‘Total CustomerSatisfaction’
15 Purchasing and supply development model Stage 1:Transaction orientationThe primary task of purchasing is to find appropriate suppliers for raw materials and supplied components. There is no explicit purchasing strategy in place.Stage 2: Commercial orientationPurchasing strategy at this stage is characterized by a sharp focus on low prices. The culture is that of playing hard negotiations with many suppliers.Stage 3:Co-ordinated purchasingLed by a strong central purchasing department to implement uniform buying policies and systems, the emphasis here lies on cross unit co-ordination and compliance with nationally negotiated contracts.
16 Purchasing and supply development model Stage 4: Internal integrationThe emphasis is on cross-functional problem solving with the objective of reducing total life cycle cost and not just the unit cost of components.Stage 5: External integrationAn explicit outsourcing strategy is combined with extra attention to collaborate with supply chain partners on product development and preproduction planning.Stage 6: Value chain orientationDelivering value to the end customer in order to satisfy the needs in end-customer markets. Subcontractors seek for support among their suppliers.This model should be used carefully, for all stages may not be relevant forall types of commodities, companies and industries.
17 Conclusions…Most companies have a large potential for improvement in the area of purchasing management.The systematic approach of the purchasing management process can help make this potential visible and accessible.However, it takes time to put all the elements of the purchasing management process in place.