Principle of supply chain

• The principle of the supply chain is to ensure that products are delivered on time, at the right place, with the correct quantity, quality, and price.
• Effective supply chain management can lead to increased customer satisfaction, reduced costs, improved efficiency, and enhanced competitiveness.
• Purchasing function plays an integral part in ensuring goods/services are provided to the company
• Role and contribution of purchasing has increased steadily over the second half of the 20th century
• Reasons behind the increased importance and recognition of purchasing:

  • New management systems/concepts/philosophies
  • Advanced technology: IT, internet, EDI
  • Government policies, including environmental issues
  • Fewer but larger suppliers
  • Competition for quality
  • Globalization, the integration of world economies
• Management involves the establishment and attainment of objectives, utilizing material resources and human talent
• Purchasing is the process of acquiring goods, services, and works in return for a price
• Major types of activities associated with purchasing:

  • Coordination with user departments to identify purchase needs
  • Discussion with sales representatives
  • Identification of potential suppliers
  • Conducting market studies for important materials
  • Negotiation with potential suppliers
  • Analysis of proposals
  • Selection of suppliers
  • Issuing of purchase orders
  • Administration of contracts and resolution of related problems
  • Maintenance of purchasing records
• Procurement process encompasses a wider range of supply activities than purchasing, involving more buyer participation in related materials activities
• Specific activities in procurement process:

  • Participation in the development of material and service requirements and their specifications
  • Conducting materials studies and management of value analysis activities
  • Conducting more extensive material market studies
  • Managing supplier quality
  • Purchase of inbound transportation
  • Management of investment recovery activities
• Value adding benefits of procurement function include:

  • Maintaining defect-free quality of purchased materials
  • Reducing total cost throughout the supply chain
  • Reducing time required to bring a new product to market
  • Ensuring appropriate technology from the firm's supply base is carefully controlled
  • Ensuring continuity of supply to reduce the risk of disruptions
• Supply management focuses heavily on the strategic aspects of a firm's total supply system, both internal and external components
• Specific activities of supply management:

  • Early purchasing involvement in product design
  • Conducting all purchasing functions and procurement process activities
  • Heavy use of cross-functional teams in supplier qualification and selection
  • Use of purchasing partnering arrangements and strategic alliances with suppliers
  • Continuous identification of threats and opportunities in the supply environment
  • Development of strategic, long-term acquisition plans
  • Monitoring continuous improvement in the supply chain
  • Active participation in corporate strategic planning
• Materials management supports the complete cycle of material flow, from purchase to distribution of finished products
• Specific activities of materials management:

  • Purchasing and supply management activities
  • Inventory management
  • Receiving activities
  • Stores and warehousing
  • Production planning, scheduling, and control
  • Transport and transportation
• Logistics management involves strategically managing the acquisition, movement, and storage of material to fulfill orders cost-effectively
• Supply chain management is an integrative philosophy to manage the flow of distribution from supplier to user
• Objectives of purchasing:

  • General objectives: acquiring materials of the right quality, from the right supplier, in the right quantity, at the right time, at the right place
  • Functional objectives: supporting company operations, buying competitively, buying wisely, minimizing stock investment and losses, developing effective sources of supply, integrating with other departments, handling purchasing function proactively and cost-effectively
• Organizational purchasing involves defining needs, listing goods, identifying suppliers, negotiating terms, making contracts, placing orders, receiving goods, and paying for them
• Scope and objectives of organizational purchasing:

  • Designing and specifying products
  • Merchandizing decisions
  • Physical supply cycle
  • Administrative cycle
  • Stock control policies
  • Production planning and control
  • Quantity control policies
  • Finance function
• Requisitions are made by anyone on behalf of an organization, with a limited number of senior personnel authorizing the expenditure
• Impact of purchasing and supplies management on organizational efficiency and profitability:

  • Negotiation for direct savings
  • Supplier appraisal for dealing with pre-qualified suppliers
  • Ensuring supply continuity
  • Establishing supplier development
  • Acting as a link between buying company and suppliers
  • Preparing proper documentation and procedures
  • Coordinating with accounts department for timely payments and deliveries
  • Conducting research for market opportunities
  • Initiating training activities for staff competence
  • Implementing proper purchasing policies and strategic decisions