Slide 1Slide 2ExampleOther contributionsSlide 5Slide 6Slide 7Purchasing and designSlide 9Slide 10Slide 11Slide 12Slide 13The next step in design – reverse logisticsAcquiring inputsTotal costsSlide 17Slide 18Slide 19Slide 20Slide 21Slide 22What have we been doing so far ?Intangible costs - the obviousIntangible costs - the less obviousCost summaryManaging suppliersCommunicationSlide 29Slide 30Slide 31Slide 32MeasurementSlide 34Article in course pacBeing a good customerPurchasing conclusionsPurchasing’s role 1Purchasing’s role in the supply chain•Purpose - manager of external operations (processes)•Design•Acquiring inputs•Information systemsPurchasing’s role 2Why focus on purchasing ?•Traditional view•Materials as a percentage of sales:–Average (1995) 54%–Today probably closer to 60% and increasing–Chrysler outsources 70% of a car–Virtual corporations•Contribution to the bottom line–Cost example–Other places to contributePurchasing’s role 3ExamplePurchasing’s role 4Other contributions•Suppliers / partners can lower the amount we spend on inputs.•They can also:–improve technology – mountain bike article–improve quality–decrease lead time to customer–make a supply chain more flexible–speed up designs•Therefore companies who manage this process strategically have an advantage over companies who view the purchasing function as a cost center – Stallkamp and Chrysler articlesPurchasing’s role 5What does purchasing do to help gain a competitive advantage1) Provide an uninterrupted flow of goods, services and information to keep the production system operating.2) Ensure that processes performed today and in the future provide the maximum value to customers.–minimize total costs to maximize value “China price for Toyota and looking ahead” •cost of quality• cost of late orders•cost of inventory (having or not having)•cost of unreliable suppliers•cost of bad relationships with suppliers•environmental costs and risksPurchasing’s role 6Specifics to maximize value•Uninterrupted flow of goods, services, and info: without this nothing else matters.•Buy wisely - total cost–is wise the same for every company ?•Minimize inventory investment–what are inventory costs ?•Develop and maintain the supply base–why build trust ?•Integration across firmPurchasing’s role 7Purchasing as a boundary spanning function•External–upstream members of supply chain: purchasing is the means to communicate with the world of suppliers.–customers: purchasing helps translate the voice of customers (internal or external) to suppliers.•Internal–works with operations, engineering, finance, logistics and marketing•Often referred to as managing external manufacturing - or if you will managing external processes –how about logisticsPurchasing’s role 8Purchasing and design•Note: companies who are practicing supply chain management (well) do the following:–design products and processes concurrently–involve all pertinent supply team members in the design of products and processes–leverage suppliers in the design process•Note 2: because purchasing’s role is to span internal and external boundaries they are best suited to ensure that we actually include and leverage suppliers and internal capabilities to the fullest (much more so than operations)Purchasing’s role 9General design questions•When a company pursues a new concept they need to ask the following questions:1) can we sell the product / service?2) can we design the product / service?3) can we make the product / service ?•at a reasonable cost !•If the answer to any of these questions is no, we generally should not pursue the concept (there are always exceptions)Purchasing’s role 10Specific purchasing questions•Remember purchasing manages external processes. So purchasing should be asking: can our suppliers provide the process (make it) ?•Not only make it, but:–can they lower total costs and or increase value if:•we change specifications•we change materials•we change suppliers•we let suppliers develop the product or processPurchasing’s role 11Traditional design processConceptProduct designProcess designSupply baseProductionPurchasing’s role 12Problems with the traditional approach•General problems–When do we find out if we can make the product ? Sell it ?–How long does this process take ?•what happens if you can not buy a needed input ?•Purchasing specific problems–Not involved until it is “to late”•cost of changes•time to change–Strategic ?Purchasing’s role 13Early Supplier Involvement (ESI)•ESI is a process whereby we make suppliers part of the design process from the beginning. This is done to increase the value of our products while lowering total costs. However, do we do ESI with all suppliers ?–For key inputs (strategic, large costs, etc.) we involve suppliers in the entire process including generation of specifications.–Standard products (commodities) may develop specs (hence design) independent of suppliers.Purchasing’s role 14The next step in design – reverse logistics•An issue many firms are just starting to grapple with is end of life product management–Driven by customers and regulation (especially in EU)•Some firms are treating this as a cost to be minimized •Others are trying to gain competitive advantage through closed loop chain. •So what – why mention this when talking about design?Purchasing’s role 15Acquiring inputs•Regardless of their participation in the design of a product or process, one of the key functions performed in a supply chain is the actual purchase of an input.•This should be a total cost decision–supply chain managers who make decisions based purely on price tend to lose (as do most managers)Purchasing’s role 16Total costs•Once more total costs are the sum of all direct and indirect costs associated with a given process or product. Another way of looking at this is that total costs are more than just price.–Go back to Lopez–Pick on my Father and car insurance•Determining the total costs of a product or process is a key and difficult taskPurchasing’s role 17A first step•Trying to determine if a price is reasonable / fair ?–Number of qualified bidders•did you get numbers from 1 or 50 organizations–Exclusions -•are the bids for the requested work ?–Independence / fraud ?•evidence of collusion /