Lecture Purchasing and supply chain management (3rd/e): Chapter 1 - W. C. Benton

Chapter 1 - Purchasing and supply chain management. This chapter’s objectives are to: Understand the purchasing function’s contribution to profitability, identify the relationship between the purchasing function and other functional areas, explore the basic historical development of the purchasing function,...

Purchasing and Supply Chain Management

3rd edition

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Chapter 1:

Purchasing and supply chain management

Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, 

W. C. Benton Jr., All rights reserved.       

New Era of Openness and Accountability

• The 3 powerful forces

• Economics

• European Union’s (EU) financial crises

• Technology

• Internet, ERP, etc.

• Technology displacing labor

• Zeitgeist

• Accountability of financial institutions

• Shifting focus from labor to supply chain

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 Changes in Purchasing Function’s 

Environment

Need to understand the relationship between the  purchasing function and other functional areas!

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PAST

• Labor­intensive manufacturers

• Large standardized batches

• Neglect materials and parts 

management

Present

• Technology driven manufacturers

• New technologies

• More profit contribution by supply  management  

• But operated just like the Old  Models

Purchasing Dollar Responsibility

• The cost of acquiring, storing, and moving materials is 

an increasingly large portion of the cost of goods sold. 

• The dollar responsibility of supply management is very  large in both relative and absolute terms.

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Materials­related costs

Integrated Purchasing and Supply Management (ISM)

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ISM

Fundamentals of  Purchasing and  Supply  Management

Purchasing  Administration

Materials  Management

Price/Cost  Analysis

Special  Purchasing Applications

Supply management As a key Strategic 

Function

• Increases efficiency and productivity

• Improves competitive position and customer 

satisfaction

• Impacts the organization’s image and social policy

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Example

• An order quantity decision…

• 3 Different objectives

• “Minimize annual ordering cost.”

• “Minimize work­in­process inventory.”

• “Minimize transportation cost.”

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Organizing the Purchasing Function

• The Two Main Decisions:

1 Where should the purchasing functions be located in the 

organization?

2 What level of authority should the purchasing function have?

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Purchasing: Centralize or Decentralize?

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Future of Centralized Purchasing 

• Majority of significant dollar­valued purchases will be  centralized

• Computer­based management information systems

• Stronger emphasis on becoming lean

• Stable price through Long­term agreements 

• Centralized procurement as a competitive weapon

• E.g., Honda of America

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• The 2 Main Decisions:

1 Where should the purchasing functions be located in the 

organization?

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Previously…

Example of SM Organizations 

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Careers in Purchasing  and Supply Management

managers to pursue a career in purchasing 

supply.

comprehensive skill set.

professional is $92,165. 

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Requirements for ISM’s Professional 

Credentials

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Questions?

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