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Chapter Three: Purchasing and Materials Management

The document discusses the objectives and strategies of effective purchasing and materials management. The key objectives are to provide appropriate supply levels and quality at the lowest total cost. Total cost includes factors beyond just the purchase price, like delivery, storage, and service. Companies should analyze the total cost of ownership which considers additional lifetime costs. Value analysis aims to reduce costs and improve design by comparing product functions and costs. Effective purchasing requires cross-functional teams and building partnerships with strategic vendors. Outsourcing non-core activities and using internet technologies can help reduce purchasing costs.

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Krishnabhaskar Mangalasserri
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72 views14 pages

Chapter Three: Purchasing and Materials Management

The document discusses the objectives and strategies of effective purchasing and materials management. The key objectives are to provide appropriate supply levels and quality at the lowest total cost. Total cost includes factors beyond just the purchase price, like delivery, storage, and service. Companies should analyze the total cost of ownership which considers additional lifetime costs. Value analysis aims to reduce costs and improve design by comparing product functions and costs. Effective purchasing requires cross-functional teams and building partnerships with strategic vendors. Outsourcing non-core activities and using internet technologies can help reduce purchasing costs.

Uploaded by

Krishnabhaskar Mangalasserri
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Chapter Three Purchasing and Materials Management

THE OBJECTIVES OF PURCHASING


1. PROVIDE APPROPRIATE LEVELS OF SUPPLY

+
2. THE APPROPRIATE LEVEL OF QUALITY

+
3. THE LOWEST TOTAL COST

MISSING THE POINT: PURCHASE PRICE Vs. TOTAL COST


Determining the price a company pays goes beyond the dollar cost. TOTAL COST = PURCHASE PRICE + DELIVERY + STORAGE + SERVICE

WHAT COMPANIES REALLY PAY FOR OWNERSHIP


Cost of ownership goes beyond the price paid for a product
TOTAL COST OF OWNERSHIP = PRODUCT PRICE
+ + + + + + + DELIVERY INSTALLATION MAINTENANCE / REPAIR POWER COSTS SUPPLY COSTS OPERATING COSTS FINANCING

USING VALUE ANALYSIS


THE OBJECTIVES OF VALUE ANALYSIS: REDUCE COSTS AND/OR IMPROVE DESIGN

What is Currently Being Done

COMPARE BENEFITS RECEIVED FUNCTIONS OF PRODUCT COST OF MATERIALS WORK PROCESS INVOLVED

New Alternatives Being Considered

OUTCOME: GREATER VALUE FOR LESS COST

Step 8 Evaluation of product performance Step 7 Selection of an order procedure Step 6 Evaluation of proposals and selection of a supplier Step 5 Acquisition and analysis of proposals Step 4 Search for qualified suppliers

Step 3 Development of detailed specifications


Step 2 Definition of the product-type needed Step 1 Recognition of a need

PURCHASING PARTNERSHIPS ARE MADE WITH VENDORS WHO PROVIDE:


High-purchase-volume materials, components or strategic products Information and training for effective product use Services requiring specialized knowledge for cost reductions and/or performance Materials unavailable elsewhere

IMPROVE PERFORMANCE: STAYING AHEAD OF PURCHASING TRENDS


1. REDUCE PURCHASING COSTS
CUTBACK ON EMPLOYEES

REDUCE NUMBER OF VENDORS/ TRANSACTIONS


BUILD RELATIONSHIPS CENTRALIZE PURCHASING ACTIVITIES USE THE INTERNET

IMPROVE PERFORMANCE: STAYING AHEAD OF PURCHASING TRENDS (continued)

2. OUTSOURCE IN-HOUSE ACTIVITIES


TRAINING MANUFACTURING PROCESSING ACTIVITIES

INVOLVE SUPPLIERS (ESI)

IMPROVE PERFORMANCE: STAYING AHEAD OF PURCHASING TRENDS (continued)

3. CROSS-FUNCTIONAL TEAMS MADE UP OF COMPANY DEPARTMENTS, SUPPLIERS, CUSTOMERS


4. INCREASE PROFESSIONALISM THROUGH CERTIFICATION PROGRAMS AND ESTABLISH A CODE OF ETHICS

SALES SURVIVAL QUESTIONS:


CAN YOUR SALESPEOPLE ANSWER THE FOLLOWING QUESTIONS?

1. WHAT IS A CROSS-FUNCTIONAL TEAM?


2. CAN YOU RECOGNIZE ONE AT YOUR CLIENTS ORGANIZATION?

3. DO YOU KNOW HOW TO GET YOUR COMPANY INCLUDED IN YOUR CLIENTS CROSS-FUNCTIONAL TEAM? 4. WILL YOUR COMPANY GIVE YOU THE PEOPLE RESOURCES TO SUPPORT YOUR CLIENTS NEEDS?

SUCCESSFUL CROSS-FUNCTIONAL PURCHASING TEAMS DEPEND ON:


APPROPRIATE LEADERSHIP FACE-TO-FACE COMMUNICATION

CONTINUITY IN IT FOR THE LONG TERM


TOP-LEVEL COMMITMENT to provide for key individuals full participation EMBRACING DIVERSITY of experience, backgrounds, outlooks, and corporate philosophy

Changing company focus: MAKE-OR-BUY?


Purchasing Determines Who Provides Best Value for Lowest Cost
Best-Value Provider Action In-House Partner

Training Transaction Processing Paper Processing Product Design Product Manufacturing Component Part Manufacturing R&D Marketing Sales Advertising Research Support Human Resources Administration

MAKE-OR-BUY DECISION ANALYSIS


RISK ASSESSMENT FINANCIAL RISKS Resource Allocation Investment of Resources Accurate Cost Analysis Legal Issues MANUFACTURING RISKS Reliability Expertise Equipment Patent Protection MARKETING RISKS Customer Impact Supplier Impact

POLITICAL RISKS Management commitment/ willingness to partner Turf Battles Internal Strife

ACCEPTABLE RISK Buy the Products, Components or Services

UNACCEPTABLE RISK Retain Production and Provide Services

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