Description
It describes the contemporary trends in purchasing activities like JIT, Single sourcing.
Contemporary Trends in Purchasing Activities
Just In Time (JIT)
• Philosophy : Inventory is waste • Just-in-time inventory system focus is having “the right material, at the right time, at the right place, and in the exact amount”, without the safety net of inventory • Material arrives at the buyer?s factory exactly when needed by the buyer • Minimizes the inventory
• Increases the quality and productivity
• Buying and Selling Organizations work together closely to reduce costs
Advantages of JIT
• Reduced setup time and costs • The flow of goods from warehouse to shelves improves
• Employees with multiple skills are used more efficiently
• Production scheduling and work hour consistency synchronized with demand
• Increased emphasis on supplier relationships
• Supplies come in at regular intervals throughout the production day
Example-JIT
• The Toyota Production System
? Called the “Kanban system” and the “Toyota System” ? First attracted attention in 1973 when Japan was going through an oil crisis and it companies had to manage to do well with less ? Improved customer satisfaction and factory response time ? More vehicles „made to order?, hence eliminating unsold vehicles and increasing ROE ? Improved product quality
Single Sourcing
• Industrial customers place orders with only one supplier, not to two or three suppliers • Makes possible for the buying and selling organizations to work closely together • Involves the supplier from the design stage • Example: US automobile companies obtain the whole interior module of an automobile from a single supplier who deals with many other suppliers who supply parts of the module
Advantages-Single Sourcing
? Less work to qualify the source and less administrative effort in dealing with only one supplier ? Buyer has maximized his leverage based on total quantity ? Supplier feels special obligation to help the buyer in terms of availability
? Utilizes the supplier?s expertise
Value Analysis
• To reduce cost, maintaining product reliability • Involves analyzing a product item by ? Function it performs ? Value of the function (Weight assigned, Rating given) ? Alternate methods of performing same function • Used to identify sources of competitive advantage • Specifically ? Opportunities to secure cost advantages ? Opportunities to create product/service differentiation • Includes the value-creating activities of all industry participants
Example-Value Analysis(Pen)
Advantages of Value Analysis
? ? ? ? ? ? Growth in profit Cutting of costs Improvement in quality Eliminating all defects Increased Customer Satisfaction Good evaluation of cost vs. value
Purchase Committee
• Is a formalized decision-making unit • Used in many industrial organizations including institutions (such as universities and hospitals) and Government companies • Salesperson must provide information to all the members of the purchase committee, and should target the real sales efforts to those dominant members who influence the buying decisions • Identifying purchase committee individuals, their technical and commercial expertise, their individual needs, buying decision process, and the organization structure are the important tasks to be performed by the effective industrial marketer
Advantages – Purchase Committee
? Better evaluation of buying decision ? Technical Expertise of multiple members
? Checking of different criteria is easier
? Better negotiation ? Formalised systematic procurement process
Trends in Purchasing
1. 2. 3. 4. Reducing purchasing costs Outsourcing in-house activities The development of cross-functional teams Increasing professionalism through certification programs and establishes a code of ethics
Trends in Purchasing
One trend is reducing purchasing costs: Cutback on employees through early retirement and layoffs Reduce number of vendors/transactions – buying more in the same amount of time by buying more from the same vendors, reduce shopping around Build relationships – increases the importance of developing strategic relationships with customers Centralize purchasing activities – the concentration of purchasing within company headquarters for closer supervision and strategizing Internet makes centralization easier to accomplish
Trends in Purchasing
The second trend is outsource in-house activities Outsourcing: the process of buying products/services from
another firm, usually one that was previously created in-house. E.g., a company hires an ad agency to do all of its advertising, an exhibit company to handle all of its trade shows, and a marketing research firm to conduct all of its research. Then the company can focus on its core business. Many things can be outsourced including training, manufacturing, processing activities and involve suppliers to help design new products or processes. See make-or-buy decision analysis (depends on who provides best value for lowest cost)
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-
Make-or-buy Decision Analysis
RISK ASSESSMENT
FINANCIAL RISKS Resource Allocation Investment of Resources Accurate Cost Analysis Legal Issues
MANUFACTURING RISKS Reliability Expertise Equipment Patent Protection
MARKETING RISKS Customer Impact Supplier Impact
POLITICAL RISKS Management commitment/ willingness to partner Turf Battles Internal Strife
ACCEPTABLE RISK Buy the Products, Components or Services
UNACCEPTABLE RISK Retain Production and Provide Services
Trends in Purchasing
The third trend is the development of crossfunctional teams Cross-functional teams: include members of various
functional areas; include personnel from suppliers, company departments and customers Take advantage of the different types of expertise Factors lead to effective cross-functional teams: Appropriate leadership; Face-to-face communication; Continuity – in it for the long term; Top-level commitment to provide for key individuals’ full participation; Embracing diversity of experience, backgrounds, outlooks and corporate philosophy
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Ethics in Purchasing
1. 2. What is ethics? – Ethics are moral codes of conduct, rules for how
someone should operate that can be followed as situations demand
3. 4.
Two basic dimensions guide ethical issues in purchasing: fairness (any competitor has equal opportunity to sell to the buyer and equal access to information from the buyer) and responsibility to the buying organization. Two worrisome activities: gift giving and information access & use. Why should any “for profit” firm be concerned with ethics?
– any trade-off of short-term profits for long-term ethics is shortsighted. In the end, buyers will support those that have earned their trust and value their reputation.
E-Procurement
Driven by : •Price reduction •Process cost reduction •IT capabilities •Need for speedy communications •Control over processes •Need for speedy supply chain
Reverse auctions
• Sellers compete to obtain business, and prices typically decrease over time • Rely on four pre-conditions
? ? ? ? Commodity specifications, e.g. ISO standards Large quantities Sufficient number of suppliers in the market Correct conditions in buying organisation: skills, processes
*Source: Smeltzer and Carter, 2003
Statistical Data & Trends
doc_767701920.pptx
It describes the contemporary trends in purchasing activities like JIT, Single sourcing.
Contemporary Trends in Purchasing Activities
Just In Time (JIT)
• Philosophy : Inventory is waste • Just-in-time inventory system focus is having “the right material, at the right time, at the right place, and in the exact amount”, without the safety net of inventory • Material arrives at the buyer?s factory exactly when needed by the buyer • Minimizes the inventory
• Increases the quality and productivity
• Buying and Selling Organizations work together closely to reduce costs
Advantages of JIT
• Reduced setup time and costs • The flow of goods from warehouse to shelves improves
• Employees with multiple skills are used more efficiently
• Production scheduling and work hour consistency synchronized with demand
• Increased emphasis on supplier relationships
• Supplies come in at regular intervals throughout the production day
Example-JIT
• The Toyota Production System
? Called the “Kanban system” and the “Toyota System” ? First attracted attention in 1973 when Japan was going through an oil crisis and it companies had to manage to do well with less ? Improved customer satisfaction and factory response time ? More vehicles „made to order?, hence eliminating unsold vehicles and increasing ROE ? Improved product quality
Single Sourcing
• Industrial customers place orders with only one supplier, not to two or three suppliers • Makes possible for the buying and selling organizations to work closely together • Involves the supplier from the design stage • Example: US automobile companies obtain the whole interior module of an automobile from a single supplier who deals with many other suppliers who supply parts of the module
Advantages-Single Sourcing
? Less work to qualify the source and less administrative effort in dealing with only one supplier ? Buyer has maximized his leverage based on total quantity ? Supplier feels special obligation to help the buyer in terms of availability
? Utilizes the supplier?s expertise
Value Analysis
• To reduce cost, maintaining product reliability • Involves analyzing a product item by ? Function it performs ? Value of the function (Weight assigned, Rating given) ? Alternate methods of performing same function • Used to identify sources of competitive advantage • Specifically ? Opportunities to secure cost advantages ? Opportunities to create product/service differentiation • Includes the value-creating activities of all industry participants
Example-Value Analysis(Pen)
Advantages of Value Analysis
? ? ? ? ? ? Growth in profit Cutting of costs Improvement in quality Eliminating all defects Increased Customer Satisfaction Good evaluation of cost vs. value
Purchase Committee
• Is a formalized decision-making unit • Used in many industrial organizations including institutions (such as universities and hospitals) and Government companies • Salesperson must provide information to all the members of the purchase committee, and should target the real sales efforts to those dominant members who influence the buying decisions • Identifying purchase committee individuals, their technical and commercial expertise, their individual needs, buying decision process, and the organization structure are the important tasks to be performed by the effective industrial marketer
Advantages – Purchase Committee
? Better evaluation of buying decision ? Technical Expertise of multiple members
? Checking of different criteria is easier
? Better negotiation ? Formalised systematic procurement process
Trends in Purchasing
1. 2. 3. 4. Reducing purchasing costs Outsourcing in-house activities The development of cross-functional teams Increasing professionalism through certification programs and establishes a code of ethics
Trends in Purchasing
One trend is reducing purchasing costs: Cutback on employees through early retirement and layoffs Reduce number of vendors/transactions – buying more in the same amount of time by buying more from the same vendors, reduce shopping around Build relationships – increases the importance of developing strategic relationships with customers Centralize purchasing activities – the concentration of purchasing within company headquarters for closer supervision and strategizing Internet makes centralization easier to accomplish
Trends in Purchasing
The second trend is outsource in-house activities Outsourcing: the process of buying products/services from
another firm, usually one that was previously created in-house. E.g., a company hires an ad agency to do all of its advertising, an exhibit company to handle all of its trade shows, and a marketing research firm to conduct all of its research. Then the company can focus on its core business. Many things can be outsourced including training, manufacturing, processing activities and involve suppliers to help design new products or processes. See make-or-buy decision analysis (depends on who provides best value for lowest cost)
-
-
Make-or-buy Decision Analysis
RISK ASSESSMENT
FINANCIAL RISKS Resource Allocation Investment of Resources Accurate Cost Analysis Legal Issues
MANUFACTURING RISKS Reliability Expertise Equipment Patent Protection
MARKETING RISKS Customer Impact Supplier Impact
POLITICAL RISKS Management commitment/ willingness to partner Turf Battles Internal Strife
ACCEPTABLE RISK Buy the Products, Components or Services
UNACCEPTABLE RISK Retain Production and Provide Services
Trends in Purchasing
The third trend is the development of crossfunctional teams Cross-functional teams: include members of various
functional areas; include personnel from suppliers, company departments and customers Take advantage of the different types of expertise Factors lead to effective cross-functional teams: Appropriate leadership; Face-to-face communication; Continuity – in it for the long term; Top-level commitment to provide for key individuals’ full participation; Embracing diversity of experience, backgrounds, outlooks and corporate philosophy
-
Ethics in Purchasing
1. 2. What is ethics? – Ethics are moral codes of conduct, rules for how
someone should operate that can be followed as situations demand
3. 4.
Two basic dimensions guide ethical issues in purchasing: fairness (any competitor has equal opportunity to sell to the buyer and equal access to information from the buyer) and responsibility to the buying organization. Two worrisome activities: gift giving and information access & use. Why should any “for profit” firm be concerned with ethics?
– any trade-off of short-term profits for long-term ethics is shortsighted. In the end, buyers will support those that have earned their trust and value their reputation.
E-Procurement
Driven by : •Price reduction •Process cost reduction •IT capabilities •Need for speedy communications •Control over processes •Need for speedy supply chain
Reverse auctions
• Sellers compete to obtain business, and prices typically decrease over time • Rely on four pre-conditions
? ? ? ? Commodity specifications, e.g. ISO standards Large quantities Sufficient number of suppliers in the market Correct conditions in buying organisation: skills, processes
*Source: Smeltzer and Carter, 2003
Statistical Data & Trends
doc_767701920.pptx