Chapter 6 ProcurementLearning ObjectivesProcurementSlide 4Slide 5Procurement ObjectivesSupply ManagementPurchase for Use in ManufacturingSlide 9Purchasing for ResaleProcuring ServicesSupplier Selection and EvaluationSupplier SelectionSupplier Selection Framework (Figure 6-1)Supplier Development (Reverse Marketing)Slide 16Quality Issues in ProcurementSlide 18Global Procurement (Sourcing)Slide 20Slide 21E-ProcurementInvestment RecoverySocially Responsible ProcurementSlide 25Slide 26Purchasing EthicsSlide 28Slide 29Slide 30Slide 31Chapter 6ProcurementLearning Objectives•To understand the relationship between procurement, purchasing, and supply management•To examine procurement objectives•To learn about supplier selection and evaluation•To understand quality issues in procurement•To examine global procurement •To learn about investment recovery•To examine socially responsible procurement© 2008 Prentice Hall 11-2Procurement•Key Terms–Bribes–Excess (surplus) materials–Global procurement (sourcing)–Investment recovery–ISO 9000–Kickbacks•Key Terms–Lean six sigma–Malcolm Baldridge National Quality Award–Multiple sourcing–Obsolete materials–Procurement (Purchasing)–Procurement card© 2008 Prentice Hall 11-3Procurement•Key Terms–Quality–Scrap materials–Single sourcing–Six sigma–Socially responsible procurement–Supplier development (reverse marketing)•Key Terms–Supply management–Waste materials© 2008 Prentice Hall 11-4Procurement•Refers to the raw materials, component parts, and supplies bought from outside organizations to support a company’s operations•Procurement costs often range between 60%-80% of an organization’s revenues© Pearson Education, Inc. publishing as Prentice Hall6-5Procurement Objectives•Supporting organizational goals and objectives•Managing the purchasing process effectively and efficiently•Managing the supply base•Developing strong relationships with other functional groups•Supporting operational requirements© Pearson Education, Inc. publishing as Prentice Hall6-6Supply Management•Supply management is “ the identification, acquisition, access, positioning, and management of resources the organization needs or potentially needs in the attainment of its strategic objectives.” Institute of Supply Management•Similar in meaning to procurement, purchasing© 2008 Prentice Hall 11-7Purchase for Use in Manufacturing•Make or buy–Availability of trained labor–Physical capacity•Purchase orders are a commitment to buy–Indicate quantities and qualities desired–Indicate dates by which the materials must be delivered© 2008 Prentice Hall 11-8Purchase for Use in Manufacturing•MRP Systems manage production inventory•Just-in-Time (JIT) and Kanban were initially developed to improve quality•JIT II ties together information systems and employees of suppliers and firms•Supplier Product Integration refers to the acquisition of components, rather than individual parts© 2008 Prentice Hall 11-9Purchasing for Resale•Objective is to buy merchandise that can be marked up and resold to others at a profit•Quality of product and timing of arrival are important© 2008 Prentice Hall 11-10Procuring Services•Request for Proposal (RFP)•Request for Quotation (RFQ)•Examples of procured services–Legal, accounting, computer and software consultants–Building maintenance–Printing–Landscape work–Janitorial services© 2008 Prentice Hall 11-11Supplier Selection and Evaluation•One of procurement’s most important responsibilities•Involves stating an organization’s needs and determining how well various potential suppliers can fulfill these needs© Pearson Education, Inc. publishing as Prentice Hall6-12Supplier Selection•Selecting vendors depends on:–Delivery–Facilities and capacity, geographic location–Performance history–Price and quality–Technical capability–Warranties and claim policies© 2008 Prentice Hall 11-13Supplier Selection Framework(Figure 6-1)•Identify Need for Supply•Situation Analysis–Internal factors (e.g. supply policies)–External factors (e.g. legal issues)•Identify and Evaluate Potential Suppliers–Sources of potential information–Establish selection criteria–Assign weights to selection criteria•Select Suppliers–Consideration of company policies (e.g. minority suppliers)•Evaluate Decision–Compare actual and expected performance11-14Supplier Development(Reverse Marketing)•Refers to “a degree of aggressive procurement involvement not normally encountered in supplier selection”•Can include:–Purchaser initiating contact with supplier–Purchaser establishing prices, terms and conditions© Pearson Education, Inc. publishing as Prentice Hall6-15Supplier Development(Reverse Marketing)•Motivation to adopt supplier development include:–Numerous inefficiencies associated with suppliers initiating marketing efforts toward purchasers–Purchaser may be aware of important benefits which are unknown to the supplier–Compel suppliers to meet necessary requirements to achieve competitive advantage in the supply chain© Pearson Education, Inc. publishing as Prentice Hall6-16Quality Issues in Procurement•Quality – conformance to mutually agreed-upon requirements•Important to match quality levels of buyers and sellers in the supply chain•Vendors are expected to have quality programs/practices –ISO 9000–Six Sigma–Lean Six Sigma© Pearson Education, Inc. publishing as Prentice Hall6-17Quality Issues in Procurement•Malcolm Baldrige National Quality Award–Quality related initiative to recognize U.S. organizations for achievement in quality and performance–Eligibility now includes manufacturers, services, small businesses, health care and educational institutions–Restricted to U.S. headquartered organizations–Interested parties submit a formal application that is evaluated by a committee © Pearson Education, Inc. publishing as Prentice Hall6-18Global Procurement (Sourcing)•Refers to buying components and inputs anywhere in the world•Driven by:–Factor-input strategy (organization is seeking low-cost or high-quality)–Market access strategy (organization is sourcing in markets where it plans to do significant business)© Pearson Education, Inc. publishing as Prentice Hall6-19Global Procurement (Sourcing)•Components of Global Sourcing Development model:–Planning
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