Purchasing and Supply Management
Purchasing and Supply Management
Define the importance of purchasing and supply management and how this relates to selecting a qualified supplier
Purchasing and supply management equips people with the skills and knowledge they need to become efficient and effective in procurement. People learn negotiation skills, risk management, strategic sourcing supplier selection, and global sourcing among other topics. The skills and knowledge acquired help the managers to identify ways of reducing costs and waste, and in the process increase profitability. They find ways of increasing cash flows through negotiations of better terms and prices. They are able to manage the demand by using different techniques and processes. Selecting suppliers who have the necessary expertise and capabilities helps the company to become more competitive in the market. Purchasing and supply management provides an opportunity for people to work in different types of organizations such as retail and manufacturing. Retail stores that have purchasing and supply managers are able to avoid incurring loses, which can be realized when products stay on the shelf for a long time.
Purchasing and supply managers are able to determine the kind of products to store based on the customer analysis. Purchasing and supply management contributes to understanding how one can select qualified suppliers. Working with the right supplier is important in determining business success. A manager will use the negotiation skills learned to bargain for better prices. Strategic purchasing and supply requires one to have adequate knowledge on matters affecting his or her area of business. Such a person will be able to determine the ethical suppliers and those offering high quality products. Purchasing and supply management emphasizes the importance of research in an effort to understand the buying patterns of the consumers, identify new products in the market, and observe the trends.
Discuss how to select strategies for negotiating prices
A person has to determine the outcomes he expects form the negotiation. Negotiation is not just about the price, but it involves other considerations as well. Determining the objectives will be made possible by having the relevant information. A person has to analyze that information, evaluate it and then select the best alternative. Another important process involves cost analysis, which is conducted after gathering the relevant data. Determining the facts that pertain to the particular situation involves agreeing with the information presented. Identification of the issues involves awareness of the expected disagreements. This is an important factor of negotiation since all the issues have to be resolved. Failure to determine the issues and resolve them will halt the negotiation process (Johnson et al., 2011).
It is important for one to have points that will help with the negotiation process. This is possible by identifying the strengths and the positions of all the parties involved. This is mostly done through the brainstorming process although research if often required. Furthermore, having such information is essential, as it helps in identifying strategies and avoiding unrealistic expectations. By identifying which position is stronger between the buyer and the seller, one is able to verify the practicality of the established objectives and determine whether they will need to be changed. Knowing the points that give each of the position strength enables the negotiator to have a clearer perspective of the negotiating process. He will know what to expect from both sides, and this assists in the process (Johnson et al., 2011).
Assemble the steps of the creation of a project supply, service, and material budget from detailed requirements
The first step in the supply process involves recognition of need. This involves determining what is needed and at what quantity and time it is needed. The next process is description of the need. This involves having knowledge of what the customer wants. The purchaser has to know the exact nature of the need so that he can deliver what is required. This step is essential as it helps to avoid extra costs. One is able to reduce the costs when clear information concerning the need is presented. The next step involves identifying and assessing all the possible supply sources. When assessing the suppliers, one has to check whether they can deliver the required products on time and in the right quantity. The suppliers should be able to deliver products of an acceptable or high quality at low total cost of ownership. They should also offer services for before and after sales. Lead placements occur once a person has selected the supplier (Johnson et al., 2011).
The next step involves preparing and placing the purchase order. This is done using a purchase order. However, in some cases, one can use the supplier sale agreement. It is essential for one to know the correct document to use. Using the wrong contract form will not only result to improper documentations but it has serious legal implications as well. All the materials purchased should be documented properly. All purchase orders should have the serial number, date of issue, contact details of the supplier, product description and quantity, delivery date, price and payment terms, shipping directions and the conditions that govern the order. Buyers will need to follow up and expedite the order (Johnson et al., 2011).
Following up involves ensuring that the suppliers can deliver what they promised. Buyers may choose to use different methods such as calling the suppliers, emailing or faxing them, or going there in person. This step is important as it ensures that any problems with the orders are rectified. Expediting involves pressuring the supplier to deliver before the agreed date or to speed up delivery after the scheduled date. Buyers use different ways to do this. They may threaten never to perform business with the supplier or to cancel the current order. In most cases, buyers who take the time to examine the capabilities of suppliers do not have to expedite. Assessment is necessary as it ensures that only reliable suppliers are selected. Expediting reflects a problem in the buying firm and it indicates that internal change is needed (Johnson et al., 2011).
The next step of the process involves receipt and inspection. This step is important as it ensures that he orders have arrived and that they are in good condition. The buyer is also able to confirm that the supplier has delivered the right quantity of products. Receiving ensures that the shipment is taken to its proper destination and that the proper documentation of the receipt has been registered. Receipts should be accessible to the appropriate parties. It is possible to eliminate inspection by ensuring that quality is built internally and externally. Companies which choose to use just-in-time skip this process as the shipment is taken directly to its destination. However, this is only possible when the supplier has demonstrated his consistency in delivering high quality products (Johnson et al., 2011).
The next step in the process is invoice clearing and payment. An invoice shows what the buyer owes. Payment of services differs from that of goods. Some services are paid for in advance while others immediately after delivery. Organizations differ in the way they pay for their goods and services. Some of the factors determining how payment is made depend on the services offered and on the supply company. Many small suppliers are not able to extend their payment terms. In some cases, early payments may lead to price concessions. Large contracts may necessitate the need for progress payments, which are paid over time. On the other hand, services that are on-gong require regular payments. Companies assign the task of invoicing to the supply or accounting departments. In many cases, buyers fail to meet the payment terms and payment is usually delayed. Using an information system and electronic fund transfers will help solve some of the problems that cause delays. They will shorten the cycle time by eliminating the need of paper-based systems, reducing the need for mailroom processes, which can be inefficient and reducing errors (Johnson et al., 2011).
The next step involves maintenance of records and relationships. Factors determining the records to keep and the length of time they should be maintained include legal policies, company policy, accounting standards and judgment. Some of the basic records requiring maintenance include purchase order log and file, commodity files, supplier history file, outstanding contracts, a commodity classification detailing the items purchased, and supplier database. Companies can also choose to maintain labor contracts, tool and die records, minority purchases, and histories for bid-awards. Different electronic tools are used for information management purposes. This helps in avoiding analysis paralysis, which can occur when there is information overload. The supply process leads to the development of relationships. It is important to maintain relationships with the important stakeholders (Johnson et al., 2011).
Illustrate the benefits and costs of outsourcing and the growth pattern of outsourcing
Companies choose to outsource as a way of enabling them to reduce costs (McIvor, 2005). They select providers who offer low costs for the acceptable quality. The outsourcing providers have more knowledge concerning the market since they specialize in specific areas. The company benefits when the providers share this knowledge with the company. The employees may not be aware of the trends since their activities are mostly confined within their company. However, the outsourcing providers work in a competitive environment and this means that they have adequate knowledge. Outsourcing benefits small companies as it releases the employees to work on other areas. The workers can focus on their main activities and work on meeting other organizational goals. Companies may lack the expertise to perform some functions. Outsourcing enables companies to get the right people to do the job.
Another advantage for outsourcing is that it enables the organization to have sufficient capacity thus enabling it to meet market demands. In some cases, companies may consider it impractical to spend money to invest in some resources. They may consider it more practical to hire outsourcing companies that already have such resources and this enables them to reduce costs. Companies spend a lot of money for compensation. Outsourcing services will enable them to save on salaries and benefits costs. Companies do not have to worry about employee salaries and benefits when they have outsourced particular services. They consider the costs incurred to outsource less than what they could have paid permanent employees. Outsourcing provides greater flexibility in terms of meeting work demands. Organizations can contact their suppliers to increase supply whenever demand increases. The cost associated with this is less than what a company can spend in recruitment, selection, and training of new employees (Johnson et al., 2011).
Despite the benefits realized by outsourcing, it has some disadvantages that end up costing the organization. Since companies decide to outsource services that were performed in-house, it means that some employees end up losing their jobs. However, some organizations may consider this a benefit in terms of reducing costs associated with employment. Outsourcing means that the organization losses control. It has no control over the way work is done. It exposes itself to greater risk. Such risks might include a supplier’s lack of consistency and reliability and poor quality. In a bid to get the outsourcing tender, some suppliers end up making false promises that they are not able to deliver. They promise that they can offer additional services or product features yet they do not have the capability to do so (Johnson et al., 2011).
Another risk involves slow implementation. Although some suppliers may have the resources needed to undertake specific tasks, they are slow at delivering and this affects the company’s performance and efficiency. Another cost of outsourcing is increased unexpected fees and other charges. Although a company will have agreed with a supplier on the costs of delivering the services and products, some suppliers end up changing their minds at the last minute and they increase their prices. A disadvantage of outsourcing concerns the ability of the supplier to meet changing market demands and business requirements (Johnson et al., 2011).
In some cases, businesses deal with fast changing technologies and this requires them to adapt quickly. This is especially the case with information and communication systems. When the suppliers are not able to meet such demands it inconveniences the company as it means that it has to lag behind or begin the process of looking for other suppliers who can deliver. Many employees have a negative perception to outsourcing as they consider it a threat to their employment. They do not support it because it means that some of them will have to be fired, as the company will no longer need them. In some cases, companies choose to transfer their staff to the outsourcing provider. Other employees see outsourcing as an indication of their inability to perform. Such attitudes can lower their morale and decrease their performance and productivity. Employees feel that they cannot maintain their loyalty towards the organization (McIvor, 2005).
Evaluate various organizations that are benchmarks in purchasing and supply management and their best practices. Provide specific examples of companies who show market leadership in purchasing and supply management
Wal-Mart has become the world’s biggest retailer. It has been able to identify what its customers need and has looked for ways of meeting such demands in an affordable way. The company focuses on inventory to help achieve its strategy. It sources for suppliers who are able to deliver the right quantity at the right price. It has developed strategic partnerships with its suppliers and it offers them good negotiation terms, which include purchasing in the long term and at high volumes. It uses a technique called cross docking to determine how to replenish its inventory. This involves suppliers shipping products to the company’s warehouses before being shipped to the company’s stores. The company has invested in technology. Information technology forms the basis of the company’s supply chain. This has enabled it to forecast demands, reduce errors in the supply chain, track inventory, reduce costs, manage logistics, and maintain good customer relationships (University Alliance, n. d.). The company has been able to eliminate supplier delays by dealing directly with the manufacturers and by requiring them to manage their shipment at the company’s warehouses. It has maintained relationships with its suppliers and this has helped to improve how the shipment flows and to reduce the cost of the products. In addition, the company uses RFID (radio frequency identification) to track goods through the supply chain.
Toyota is one of the largest car manufacturers in the world. The company strives at maintaining good relationships with its suppliers and encourages them to share knowledge. It seeks at forming partnerships with them. It also aims at finding ways of motivating its suppliers. It does this by allowing the suppliers to keep the savings done from any innovations and improvements. The company endeavors to ensure that it continually improves and that it controls its quality by adopting lean supply chain strategy. This has enabled it to reduce waste and in the process reduce costs. The company has adopted an open negotiation process, which seeks to find solutions that will benefit the parties involved. The company presents the facts and it does not hide or camouflage details during the negotiation process. The company visits its suppliers to ensure that they are able to deliver the products requested and they maintain high quality in their production. It sends engineers to the factories to ensure that improvements are made to the products. The company uses just-in-time delivery, which requires suppliers to be consistent and punctual (Johnsen et al., 2014; Geriant, 2007).
Geriant, J. (2007). The Toyota way. Retrieved from http://www.supplybusiness.com/previous-articles/spring-2007-issue/features/the-toyota-wayspring/
Johnsen, E. T., Howard, M., & Miemczyk, J. (2014). Purchasing and supply chain management: A sustainability perspective. New York, NY: Routledge
Johnson, F. P., Leenders, R. M., & Flynn, E. A. (2011). Purchasing and supply management. New York, NY: McGraw Hill
McIvor, R. (2005). The outsourcing process: Strategies for evaluation and management. Cambridge, MA: Cambridge University Press
University Alliance (n. d.). Walmart: Keys to successful supply chain management. Retrieved from http://www.usanfranonline.com/resources/supply-chain-management/walmart-keys-to-successful-supply-chain-management/#.U5k8VVyeaNA