Supply Chain Management

Chapter 6 : Purchasing and Supply Chain Management

Activities of the Purchasing Department

Evolution of the Purchasing Function

Transactional Stage
Price Negotiation Stage
Coordination Stage
Cross-Functional Purchasing Stage
External Integration Stage

Selecting and Managing Suppliers

Discovering Potential Suppliers
Evaluating Potential Suppliers
Selecting Suppliers

Bidding vs. Negotiation Two-step bidding or negotiation
Solicitation and Responsibility for Selection
Personnel Involved in Source Selection

Managing Suppliers

JIT Purchasing

Buyer Benefits
Supplier Benefits.

Chapter Summary

Changes in the business environment have made it necessary for all the departments of an organization to work cooperatively to achieve the goals of the organization. The purchasing department's role has also undergone major changes, and it has established itself as an important element in supply chain management.

The shift in the role of the purchasing function can be seen by looking at the evolution of the purchasing function over the last few decades. The five stages are transactional stage, price negotiation stage, coordination stage, cross-functional purchasing stage and external integration stage. Before an organization decides on its suppliers, it should decide whether it should make or buy the required input.

After this decision is taken, it has to consider how it will select and mange its suppliers. Supplier selection is very important because today, most companies aim to build long-term relationships with their suppliers. While discovering potential suppliers is not a difficult task given current technological advancements, evaluating them needs careful attention.

Careful analysis of a number of indicators such as financial capability analysis and quality analysis is conducted to evaluate the performance of the suppliers. After evaluating suppliers, the selection can be done either through bidding or through negotiation. Many companies today prefer negotiation to bidding.

One concept that has gained great popularity over the last few decades is the JIT purchasing. It is a Japanese concept that has been adopted by a number of US companies. Both buyers and suppliers can reap a number of benefits by adopting JIT purchasing.

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