Mia Delić, MA Course: Procurement Management Summer Semester 2013 University of Zagreb PROCUREMENT MANAGEMENT

Mia Delić, MA Room A 301 (south, 3rd floor) Room A 301 (south, 3rd floor) Office hours: Office hours: Tuesday Tuesday Wednesday Wednesday

Gerneral informations 2 preliminary exams (midterms): 2 preliminary exams (midterms): (1) 28th March 2013 (1) 28th March 2013 (2) 23rd May 2013 (2) 23rd May 2013 Facebook group Facebook group Procurement management 2013 Procurement management 2013 Weekly forum discussions Weekly forum discussions

Introduction A well-known statement of the objectives of purchasing is: A well-known statement of the objectives of purchasing is: to acquire the right quality of material, to acquire the right quality of material, at the right time, at the right time, in the right quantity, in the right quantity, from the right source, from the right source, at the right price. at the right price.

The following broad statement of objectives is suggested: To supply the organisation with a flow of materials and services to meet its needs To supply the organisation with a flow of materials and services to meet its needs To ensure continuity of supply by keeping effective relationship with existing sources and by developing other sources of supply To ensure continuity of supply by keeping effective relationship with existing sources and by developing other sources of supply

The following broad statement of objectives is suggested: To buy efficiently, obtaining by ethical means the best value for every pound spent To buy efficiently, obtaining by ethical means the best value for every pound spent To develop staff, policies, procedures, and organisations to ensure the achievement of these objectives. To develop staff, policies, procedures, and organisations to ensure the achievement of these objectives.

Some more specific objectives of purchasing department are: To select the best suppliers in the market To select the best suppliers in the market To help generate the effective development of new products To help generate the effective development of new products To protect the company΄s cost structure To protect the company΄s cost structure To maintain the correct quality/value balance To maintain the correct quality/value balance To monitor supply market trends To monitor supply market trends To adopt environmentally responsible supply management To adopt environmentally responsible supply management

To summarize.. firms need access to competitive and productive supply markets if they are to be in business at all. The trend is from tactical to strategic procurement, establishing collaborative relationships with external resources.

The purchasing cycle The main stages in the purchasing process may be summarised as: Recognition of need Recognition of need Specification Specification Make-or-buy decision Make-or-buy decision Source identification Source identification Source selection Source selection

The purchasing cycle Contracting Contracting Contract management Contract management Receipt, possibly inspection Receipt, possibly inspection Payment Payment Fulfilment of need Fulfilment of need

The purchasing cycle The idea of the purchasing cycle is to indicate the main activities in which purchasing might be involved; The idea of the purchasing cycle is to indicate the main activities in which purchasing might be involved; The activities included in the cycle do not cover all of those that a purchasing staff might be involved with (negotiation, vendor rating..) The activities included in the cycle do not cover all of those that a purchasing staff might be involved with (negotiation, vendor rating..)

Purchasing development 30 years ago: 30 years ago: Purchasing was a service function, often subordinated to production, finance.. Purchasing was a service function, often subordinated to production, finance.. Purchase and supply was concerned with buying supplies at the lowest price (activity was essentially clerical) Purchase and supply was concerned with buying supplies at the lowest price (activity was essentially clerical) Little involvement with suppliers Little involvement with suppliers Reactive Reactive

15 years ago 15 years ago Purchasing and supply was still concerned with lowest price but aware of other factors affecting price like quality and delivery Purchasing and supply was still concerned with lowest price but aware of other factors affecting price like quality and delivery More involved with suppliers and other internal functions More involved with suppliers and other internal functions Purchasing development

Today Today Purchasing and supply are becoming strategic Purchasing and supply are becoming strategic Purchasing is seen as an activity of considerable strategic importance Purchasing is seen as an activity of considerable strategic importance Most of organisation activity concentrates on the establishment and development of appropriate relationship with suppliers. Most of organisation activity concentrates on the establishment and development of appropriate relationship with suppliers. Purchasing development

21 century perspectives for procurement An increase in the strategic importance of purchasing (key activities will include supplier evaluation, selection and management); An increase in the strategic importance of purchasing (key activities will include supplier evaluation, selection and management); Tactical purchasing activities (ordering) will increasingly be automated; Tactical purchasing activities (ordering) will increasingly be automated; The internet will be the main vehicle for electronic purchasing which will be used for purchase transactions; The internet will be the main vehicle for electronic purchasing which will be used for purchase transactions; Organisations in the supply chain will increasingly share resources including intellectual information, people; Organisations in the supply chain will increasingly share resources including intellectual information, people; Environmental factors will become increasingly important to purchasing considerations. Environmental factors will become increasingly important to purchasing considerations.

Reactive buying Reactive buying - Purchasing is a cost centre - Purchasing receives specifications - Purchasing reports to finance or production - Buyers respond to market conditions - Problems are supplier΄s responsibility - Price is key variable - Emphasis on today - Negotiations win/lose - Plenty of suppliers = security - Plenty of stock = security - Information is power Proactive buying Proactive buying - Purchasing can add value - Purchasing contribute to specification - Purchasing is a main management function - Purchasing contributes to making markets - Problems are a shared responsibility - Total cost and value are key variables - Emphasis strategic - Negotiations win-win - Plenty of suppliers = lost opportunities - Planty of stock =waste - Information is valuable if shared Reactive vs. Proactive buying

The scope of the purchase function Operational level Operational level Daily production and distribution planning; Daily production and distribution planning; Production scheduling for each manufacturing facility in the supply chain; Production scheduling for each manufacturing facility in the supply chain; Demand planning and forecasting; Demand planning and forecasting; Sourcing planning in collaboration with all suppliers; Sourcing planning in collaboration with all suppliers;

The scope of the purchase function Operational level Operational level Production operations, including the consumption of materials and flow of finished goods; Production operations, including the consumption of materials and flow of finished goods; Managing non-moving, short-dated inventory and avoiding more products to go short-dated; Managing non-moving, short-dated inventory and avoiding more products to go short-dated; Price determination, returns... Price determination, returns...

The scope of the purchase function Tactical/managerial level Tactical/managerial level Sourcing contracts and other purchasing decisions; Sourcing contracts and other purchasing decisions; Production decisions (contracting, scheduling, planning process); Production decisions (contracting, scheduling, planning process); Inventory decisions (quantity, location, and quality of inventory); Inventory decisions (quantity, location, and quality of inventory); Transportation strategy (frequency, routes, and contracting); Transportation strategy (frequency, routes, and contracting); Cost reduction techniques... Cost reduction techniques...

The scope of the purchase function Strategic level Strategic level Long-range planning Long-range planning Strategic network optimization (number, location, and size of warehousing, distribution centers); Strategic network optimization (number, location, and size of warehousing, distribution centers); Strategic partnership with suppliers, distributors and customers; Strategic partnership with suppliers, distributors and customers; Product life cycle management; Product life cycle management; Aligning overall organizational strategy with supply strategy. Aligning overall organizational strategy with supply strategy.

Case study BMW What are the key objectives of the procurement department? What are the key objectives of the procurement department? Which goal would you add to develop the procurement department? Which goal would you add to develop the procurement department? What are some of the main conclusions of the study? What are some of the main conclusions of the study?

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