procurement part one marketing logistics. procurement or purchasing purchasing: actual buying of...

Procurement Part One

Marketing Logistics

Procurement or Purchasing

• Purchasing: actual buying of materials and services.

• Procurement: process-oriented and strategic.

• Purchasing is usually the largest single expense of doing business. More so as outsourcing increases.

Procurement or Purchasing

Procurement or Purchasing

Outsourced

Purchasing Goals

• Provided uninterrupted flow of materials.• Minimize inventory costs.• Maintain, improve quality.• Find, develop suppliers.• Standardize where possible.• Optimize costs.• Improve organization’s competitive position.• Harmoniously interact with all of organization.

Cost trade-offs to Be Considered by the Purchasing Executive

Source: Douglas M. Lambert and Jay U. Sterling, “Measuring Purchasing Performance,” Production and Inventory Management Review 4, no.6 (June 1984), p. 52. Reprinted with permission from P&IM Review, June 1984. Copyright 1984 by T.D.A. Publications, Inc., Hollywood, FL.

Cost trade-offs to Be Considered by the Purchasing ExecutiveCost savings

associated with volume buying

Inventorycarrying

costs

Source: Douglas M. Lambert and Jay U. Sterling, “Measuring Purchasing Performance,” Production and Inventory Management Review 4, no.6 (June 1984), p. 52. Reprinted with permission from P&IM Review, June 1984. Copyright 1984 by T.D.A. Publications, Inc., Hollywood, FL.

Cost trade-offs to Be Considered by the Purchasing Executive

The savings associated with volume buying include: Lower per-unit purchasing pricesLower transportation costsLower warehouse handling costsLower order-processing costsLower production lot quantity costsLower stockout costs

The costs of carrying inventory include:Capital costs associated with the inventory investmentInventory service costs (insurance and taxes)Storage space costsInventory risk costs

Cost savingsassociated with volume buying

Inventorycarrying

costs

Source: Douglas M. Lambert and Jay U. Sterling, “Measuring Purchasing Performance,” Production and Inventory Management Review 4, no.6 (June 1984), p. 52. Reprinted with permission from P&IM Review, June 1984. Copyright 1984 by T.D.A. Publications, Inc., Hollywood, FL.

Go to Part Two.

Procurement Part Two

Marketing Logistics

Purchasing Decision Variables: How to Rate Suppliers

• Lead time and lead time variability.

• On-time rate.• Supplier’s inventory.• Ordering convenience.• Ability to expedite.• Downtime risks due to

vendor problems.• Product reliability, quality,

maintenance requirements.• Technical specifications.

• Technical/training services offered.

• Price competitiveness.• Sales representative(s).• Past experience with

vendor.• Reputation of vendor.• Financing.• Vendor flexibility.• Engineering/design

capabilities.

Supplying a Manufacturer

Supplying a Manufacturer

Procurement or Purchasing

Warehouse

Procurement or Purchasing

Procurement or Purchasing

Procurement or Purchasing

Lead time and lead time variability.

Procurement or Purchasing

On-time rate.

Procurement or Purchasing

Supplier’s inventory.

Procurement or Purchasing

Ordering convenience

Procurement or Purchasing

Ability to expedite.

Procurement or Purchasing

Downtime risks due tovendor problems.

Procurement or Purchasing

Product reliability, quality,maintenance requirements.

Procurement or Purchasing

Product reliability, quality,maintenance requirements.

15 pounds

12 inches

10-year service life

Technical specifications

Engineering/Design capabilities

Supplying a Manufacturer

• Technical, training services offered.

Supplying a Manufacturer

Price competitiveness.

$ Financing

Supplying a Manufacturer

Sales representatives.Past experience with vendor.Reputation of vendor.Vendor flexibility.

Purchasing Decision Variables: How to Rate Suppliers

• Lead time and lead time variability.

• On-time rate.• Supplier’s inventory.• Ordering convenience.• Ability to expedite.• Downtime risks due to

vendor problems.• Product reliability, quality,

maintenance requirements.• Technical specifications.

• Technical/training services offered.

• Price competitiveness.• Sales representative(s).• Past experience with

vendor.• Reputation of vendor.• Financing.• Vendor flexibility.• Engineering/design

capabilities.

Go to Part Three