Introduction to Purchasing
Week One Lecture
The Origins of Purchasing and Supply Management
Purchasing has long been considered one of the basic functions common to all organizations. Curiously, only during the past two centuries has purchasing been addressed in trade books and textbooks. One of the early books that focused on purchasing, its author wrote:
A (purchasing) staff which is entirely unsympathetic with the particular needs of the users of the material will fail to grasp what is one of the most essential things for their department. They will be dealing with papers and accounts instead of with men and things.
Question? Is purchasing a profession?
1 Emphatically yes! Professional purchasing / procurement / supply management 2personnel contribute at least as much to the success of their organizations as other professionals in areas such as marketing, finance and accounting, engineering, and operations. Specialized knowledge in scientific principles of commercial, technical, and relationship management is essential. In no other profession are the opportunities to contribute greater.Changing Nature of Purchasing
There are two basic types of purchasing in the business world: (1) purchasing for resale and (2) purchasing for consumption or conversion. And both are very different from the types of purchasing activities all of us are involved in as individual consumers.
The global marketplace, technological changes, and other factors are forcing companies to be more competitive. This means satisfying diverse customers with competitively priced, aesthetically pleasing, defect-free products that are delivered in a courteous and timely manner. In essence, companies are trying to satisfy customers with quality products and services. What does this mean for organizations? Large and small, profit and not-for-profit, manufacturing and service organizations must be customer focused, flexible to adapt to changing market needs, committed to company-wide, continuous improvement, and dedicated to the use of a multidisciplinary approach to provide quality products and services. Product suppliers and service providers to these organizations also should be guided by these principles.
Many of the changes that are affecting organizations, their suppliers and all employees are shown below:
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Old Approach |
New Approach |
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Purchasing is tactical issue. |
Purchasing is strategic issue. |
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Price is major factor in buying decision. |
Quality is equal to price in buying decision. |
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Front-end price is important. |
Lifecycle costs are critical. |
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Quality is conformance to specifications. |
Quality is broadly defined, mainly in terms of the customer. |
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Quality is satisfying customer requirements. |
Quality is anticipating and exceeding customer expectations. |
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Purchasing is cost area. |
Purchasing is profit/loss area. |
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Manager supervises function. |
Corporate officer leads function. |
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Products are simple. |
Products are complex. |
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Buyer or agent purchases products. |
Team purchases products. |
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Multiple suppliers provide products. |
Preferably single supplier-partner provides products. |
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Defects are accepted. |
Zero defects are expected. |
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Material quality measured in terms of defect level. |
Material and service quality measured in many ways. |
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Inspection used to control product quality. |
Prevention used to eliminate defects. |
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Quality is static. |
Quality throughout organization and supplier base continuously improves. |
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Supplier is selected. |
Supplier is continuously monitored and evaluated. |
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Design, manufacturing and purchasing are static. |
Design, manufacturing and purchasing are flexible. |
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Communication is paper based. |
Communication is electronically driven. |
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Product life cycle is long. |
Product life cycle is short |
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Delivery can be at any time. |
Delivery is just-in-time to specific loading dock. |
Strategic Focus
Purchasing's historical focus has been on purchase price and continuity of supply. Supply management adds the following strategic activities:
Integration. The firm’s supply strategy must be integrated with the organization’s marketing, conversion, and finance strategies and that of the corporation or strategic business unit.
Business environment. Supply management must address the identification of threats and opportunities in the firm’s supply environment.
Technology. Supply chain management must address issues of technology access and control. The firm wants to gain access to technology in its supply base while being careful not to create competitors through outsourcing activities.
Component and commodity strategies. Supply management must develop formalized market-driven supply plans for critical purchased materials and services.
MIS. Supply management must ensure that a timely, cost-effective, and comprehensive information system is in place to provide data required to make optimal supply decisions.
Supply base strategy. Suppliers and the resulting supply base must be carefully developed and managed to ensure that the value chain to which the firm belongs is successful in an increasingly competitive marketplace.
Reporting responsibility. The vice president of purchasing and supply management reports (or will report) to the chief of the strategic business unit, or in some cases to the CEO.
Centralization of development and management. The development and management of the organization’s supply strategy will be centralized, while low value-adding supply activities will be de-centralized.
Use of senior procurement personnel. The typical manufacturer will assign senior procurement professionals the responsibility of managing five to ten key supply relationships or alliances.
Use of professional personnel. There will be fewer, but far more professional, personnel assigned to purchasing/procurement/supply management.
Introduction to Purchasing
Lesson One
Class Discussion Question
In the text, strategy was discussed in length. From what you read and from what you can locate from outside sources, that do you think the most influential force is affecting strategy today and what do you think could be FUTURE influences.
Introduction to Purchasing
WARE 59
Week One Quiz
Copy and paste the questions into a word processor, answer the questions and then email the answers to your instructor.
1. The text describes the "Objectives of Purchasing" which is considered by some as superficial and simplistic. These objectives are:
2. A (purchasing) staff which is entirely unsympathetic with the particular needs of the users of the material will fail to grasp what as one of the most essential things for their department. Explain this statement.
3. The purchasing process contains several main stages? How many?
4. The role of Purchasing and Supply is changing; there are a number of reasons for the shift in importance and recognition. Under one of the two main factors (External or Internal) one of the reasons identify "Customer Focus" as one of its approaches. Which reason am I referring to?
5. As described in the text, "The pace of change has quickened over the years. Organizations must be able to develop new practices and products quickly and effectively." What is this statement referring to?
6. The Chartered Institute of Purchasing and Supply published a Code of Conduct and Guide to Good Practice. The text identifies a major reason for the development and enforcement of such codes. Name the reason
7. The text describes the Types of Supply Chains. How many do the describe?
8. When the text describes the Purchasing and Supply function within different types of Organizations, what type of organization would include low pay and status?
9. Describe what the initials SWOT stand for or spell out. According to your text.
10. Porter’s five forces model helps to identify an organization’s competitive advantage. Name the five forces.
Submit your assignment via an email attachment to dreeves@bcconline.com. Remember to save a copy of all of your work on your computer.
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