Objectives and Organization for Effective Purchasing and Supply Management Marketing 3860 – Purchasing July 13, 2004 Kimball Bullington, Ph.D. Associate Professor of Operations Management Middle Tennessee State University

Advantages of a Professional Purchasing Staff  It is easier to standardize.  It cuts down on duplication and allows for effective use of e- purchasing.  It provides clout.  It prevents interdepartmental or SBU competition in times of mat’l shortages.

Advantages of a Professional Purchasing Staff  It is administratively more efficient for suppliers.  It provides better control.  It is easier to prevent unethical behavior.  It enables specialization.  It is essential for strategic supply management.

Nine Goals of Purchasing  Provide an uninterrupted flow of materials, supplies, and services required to operate the organization. Lost production Reduced customer service Lower revenues Lower profits

Nine Goals of Purchasing  Keep inventory investment and loss at a minimum. Balance with maintenance of customer service Reduced carrying cost Improved cash flow

Nine Goals of Purchasing  Maintain and improve quality. Garbage in – garbage out Total cost Internal failure vs. external failure

Nine Goals of Purchasing  Find or develop competent suppliers. Supplier evaluation / measurement Objective selection

Nine Goals of Purchasing  Standardize the items bought. Opportunities in capital equipment, materials, MRO, and services Nissan - tires

Nine Goals of Purchasing  Purchase required items and services at lowest total cost. 52% of COGS Competitive bids Cost driver analysis Value anlaysis

Nine Goals of Purchasing  Achieve harmoniuos, productive working relationships with other functional areas within the organization. Manufacturing (and quality control) Engineering Accounting

Nine Goals of Purchasing  Accomplish the purchasing objectives at the lowest possible level of administrative costs. Efficient travel Reduced transaction costs Consolidation

Nine Goals of Purchasing  Improve the organization’s competitive position. Low cost supply Access to new technology Reduced time-to-market Flexible delivery Product design & engineering assistance

Purchasing’s Prime Decision Authority  Select the supplier  Use whichever pricing method is appropriate  Question the specifications  Monitor contacts with potential suppliers

Purchasing Specialization  Sourcing and commodity management  Project buying  Materials management  Purchasing research

Advantages of Centralization  Greater buyer specialization  Buying power  Strategic focus  Reduced cost of buying  Higher level of buying talent  Improved planning & research

Disadvantages of Centralization  Tendency to minimize legitimate differences in requirements  Focus on corporate req’ts, not SBU’s  Common suppliers behave differently in geographic and market segments  Lack of business unit focus

Advantages of Decentralization  Better coordination / communication with operating department  Speed of response  Business unit autonomy  Geographical, cultural, political, environmental, social, language, currency appropriateness

Disadvantages of Decentralization  Communication more difficult among business units  Operational vs. strategic focus  Too much focus on local sources  Lacks clout  Suboptimization  Limited expertise

Consortia  Organizations joining together to combine their buying power  Very common in not-for-profit

Consortia – Six Objectives  Reducing total costs for members through lower prices, higher quality, and better services.  Eliminating / avoiding violations of anti-trust regulations.  Protect against disclosure of confidential & proprietary info.

Consortia – Six Objectives  Share risk, costs, and benefits.  Maintain trust and professionalism.  Maintain similarity and compatibility of needs, capabilities, philosophies, and corporate cultures.

Objectives and Organization for Effective Purchasing and Supply Management Marketing 3860 – Purchasing July 13, 2004 Kimball Bullington, Ph.D. Associate Professor of Operations Management Middle Tennessee State University