12s-1 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management

12s-2 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Chapter 12 Supplement Purchasing and Supplier Management

12s-3 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service. Purchasing

12s-4 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Develop and implement purchasing plans for products and services that support operations strategies Goal of Purchasing

12s-5 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Identifying sources of supply Negotiating contracts Maintaining a database of suppliers Obtaining goods and services Managing supplies Duties of Purchasing

12s-6 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Purchasing Interfaces Purchasing Legal Accounting Operations Data processing Design Receiving Suppliers

12s-7 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Purchasing Cycle Requisition received Supplier selected Order is placed Monitor orders Receive orders Purchasing Legal Accounting Operations Data process- ing Design Receiving Suppliers

12s-8 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Value analysis –Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance Outsourcing –Buying goods or services from outside sources rather than making or providing them in-house Value Analysis vs Outsourcing

12s-9 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Deciding Factors for Outsourcing Cost to make vs. cost to buy Stability of demand Quality from suppliers Maintaining close control Idle capacity available

12s-10 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Lead times for each alternative Who has patents, expertise, etc. Stability of technology Consistency/conflict with current operations Deciding Factors for Outsourcing

12s-11 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Available capacity Expertise Quality considerations Nature of demand Cost Core elements Strategy Factors for Make or Buy Decisions

12s-12 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Predetermined or fixed prices Competitive bidding Negotiated purchasing Determining Prices

12s-13 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Determining Prices Published price lists –fixed or predetermined prices Competitive bidding –e.g. government purchases of standard goods or services Negotiating –win-win transaction

12s-14 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Negotiation is a win-lose confrontation Main goal is to obtain the lowest price Each negotiation is an isolated transaction Myths of Negotiated Purchasing

12s-15 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Centralized purchasing – Purchasing is handled by one special department Decentralized purchasing –Individual departments or separate locations handle their own purchasing requirements Centralized vs Decentralized Purchasing

12s-16 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Choosing suppliers Evaluating sources of supply Supplier audits Supplier certification Supplier relationships Suppliers

12s-17 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Quality and quality assurance Flexibility Location Price Factors in Choosing a Supplier

12s-18 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Product or service changes Reputation and financial stability Lead times and on-time delivery Other accounts Factors in Choosing a Supplier

12s-19 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Evaluating Sources of Supply Vendor analysis: Evaluating the sources of supply in terms of price, quality, reputation, and service

12s-20 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Vendor analysis - evaluating the sources of supply in terms of –Price –Quality –Services –Location –Inventory policy –Flexibility Evaluating Sources of Supply

12s-21 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Supplier as a Partner

12s-22 McGraw-Hill Ryerson Operations Management, 2 nd Canadian Edition, by Stevenson & Hojati Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Purchasing and Supplier Management Ideas from suppliers could lead to improved competitiveness –Reduce cost of making the purchase –Reduce transportation costs –Reduce production costs –Improve product quality –Improve product design –Reduce time to market –Improve customer satisfaction –Reduce inventory costs –Introduce new products or services Supplier Partnerships