Definition of purchasing and supply management
Purchasing and supply management, according to Donath (2002) involves; obtaining or procurement, storage and monitoring of goods traded in retail store, supplies, machinery or other goods. A manager in purchasing and supply is a person in charge in division of the job and in managing other employees working in this section. Purchasing and supply management in many cases entail negotiating with producers and wholesalers in the process of purchasing goods and materials and in working closely with marketing professionals and cost analysts to decide what product to buy and those that are not selling well. Inventory is another part of purchasing and supply. Inventory is taken at all warehouses; it gives managers a way of gauging stock performance. The term “purchase” in most cases is limited to just buying and this involves location and choice of suppliers, price negotiation, understanding the need of what should be bought, any conditions of agreement and lastly payment and delivery. Purchasing and supply management have been used interchangeably with procurement to refer to integration of related functions that are used to effectively and efficiently provide materials and services to the business. As such purchasing and supply management is solely concerned with the normal steps in the procurement practice i.e.; recognition of need, translation of the need to a description of commercial equivalence, look for potential supplier, finding a suitable source, contract details or agreement on order, product or service delivery and payment to suppliers.
Importance of purchasing and supply management
Purchasing and supply management is fundamental in the business world; in purchase and supply there are steps used to generate project supply, material and services budget from comprehensive requirements. The steps demonstrates how to select the most qualified suppliers and strategies used to negotiate prices (Johnson et al.,2011), it also shows the costs and benefits of outsourcing. It also includes intensification of outsourcing. In keeping Schwalbe (2006) various businesses will be evaluated on their benchmark in the management of purchases and supplies. Schwalbe (2006) indicates that there are companies that demonstrate market leadership in purchasing and management leadership.
Purchasing and supply is a highly strategic role, it covers the entire supply chain from contracts, procurement and logistics. All businesses requires inputs in order to operate effectively, they might be physical inputs like raw materials. They can also entail service based inputs like consultancies. Johnson et al. (2011) indicates that is critical that inputs being provided to be of superior quality and to have highly reliability standards and of competitive price. Some of the major importance of purchasing and supply include;
According to Schniederjans et al. (2007) purchasing and supply center on sourcing, valuing and purchasing right products at the right time and price in order to deliver products or services. Effectual purchasing can assist an organization to decrease costs, uphold quality and control the levels of risk to the business supply chain. The importance of a product is relative to the level of risk it has to the business i.e. missing coffee beans can affect a day’s profitproducing savings
Effective management of supply chain depends on material availability, product costs, purchase volume and types of materials. Material that are subject to shortages and price instability can pose lot problems to procurement professionals (Monczka, 2010). Schniederjans et al. (2007) states in the small reductions in material costs in company’s entire operating budget can help the business by boosting profit margins. Purchasing and supply manager, according to Monczka (2010) must negotiate efficiently to acquire materials of superior quality at least costs.
Managing contracts effectively professionals in project procurement management buy commodities and services for resale; they also purchase them for business use or to transform them into products and services. Schwalbe (2006) indicates that direct buying typically entails establishing a long-standing contract between the supplier and the buyer. Schwalbe (2006) further indicates that indirect buying entails transactions association with repetitive purchases that are used to run the business. By stating the necessities for materials, analyzing products value and arranging the distribution and logistics, procurement professionals makes sure the business operations has a long term success.
Maintaining Productive Supplier Relationships
It is the work of purchasing and supply management to help supporting the company’s operations. Supporting the companies operations principally means enabling a continuous flow of resources and services that are required for production. Monczka (2010) through buying competitively from many suppliers, managers obtain the exact amount of quality products and services at the best market price. Negotiating persuasively according to Monczka (2010) helps in maximizing investment and establishes lucrative working associations with purveyors. In reference to Schwalbe (2006) by analyzing usage, managers work with the suppliers to avoid waste, duplication, and errors. Evaluation and certification of suppliers ensures that all purchases meet the laid down criteria on a continuing basis.
Negotiating and administration of best deals
In purchasing and supplying management, buyers perform the most critical role of negotiating the superlative deals. Effective management must know what they are buying, the cost, delivery and factors that affect quality. In keeping with Friedman (2012) service and support necessity must be analyzed and discussed. Friedman (2012) indicates that by conducting thorough research and by communicating effectively, the managers secure contracts that are mutually advantageous to both organizations.
Creation of a project supply, service, and material budget
When creating a project one should consider project cost, budget, amount to spend on material resources, and labor resources. As such purchasing and supply management involve with the under mentioned steps:
- The recognition of necessitates.
- The conversion of that necessity into a commercially comparable description.
- The search for prospective suppliers.
- The assortment of an appropriate source.
- The agreement on contract details or order details.
- Goods or services delivery.
- Suppliers payments
Selecting qualified suppliers
Evaluation and selection of a supplier is a process that can consume substantial time and energy depending on goods and services. In keeping with Friedman (2012) the initial step in selecting suppliers is research, predominantly if it is the first time the product is being purchased. As such there are several tools available for the initial stage:
- Research on procurement related websites from the internet.
- Use the listings in the yellow pages.
- Consult trade publications, suppliers’ categories and consult from professional journals.
One the management draws a list of potential suppliers; the evaluation of each supplier’s capabilities is the next step. Obtaining their financial report is a good point to begin. Some of guidelines for supplier selection comprise;
- Finding out the duration a supplier has been operating.
- Knowing the supplier’s primary customers and request for check references
- Investigate the financial ability of the supplier
- Check the bank references
- Visit the suppliers premises if possible
- Know what technology the supplier uses and
- Enquire in the supplier gives discount on bulk purchases.
Such steps help in narrowing the list of suppliers and filtering to few manageable options.
Benefits and costs of outsourcing, and the growth pattern of outsourcing
There are several benefit and cost that are associated with outsourcing. Some advantage of outsources include;
Focus on main activities: in periods of rapid growth even the back office in a business develops. Such expansions consume both human and financial resources of the business at the expense on focal activities that have argument the business success. Outsourcing in such cases allow refocusing on it main activities without sacrificing quality or service.Cost and efficiency savings: Outsourcings assist in cutting the cost when the functions of the back-office in the business are complicated in nature, it also helps to save money and time since a business outsource to experts.
Reducing overhead: Overhead costs are usually extremely high, Outsourcing such functions make them move easily i.e. growth that result from increasing need of expansion of office space; when it is very expensive to acquire another office space outsourcing is the best option.
Operational Control: when the cost of operating a business becomes hard to manage it is convincing to consider outsourcing. Outsourcing Company can introduce better management skills in to you business that were initially lacking.
Staff flexibility: outsourcing allows seasonal operations to bring about increased resources when required and release them when not needed.
Continuity and Risk Management: phases of high employee turnover argument uncertainty and irregularity to the operations. In such scenarios outsourcing provides a level of continuity to the business and at the same time reduces the risk that an inferior level of operation would take in to the company.
Develop internal staff: when a large project is to be undertaken that requires skills that are not available among the business human capital, on-site outsourcing will bring professionals one need to the business. From that point the employees will acquire fresh skill set.
Evaluation of the various organizations that are benchmarks in purchasing and supply management, and their best practices
In keeping with Johnson et al. (2011) business process benchmarking includes managers visiting different companies to extend site visits and garner in-depth information on how they carry on their activities. This way, companies learn about the best business processes in place in other companies with intent to replicate them in one way or another.
Some of the companies that show market leadership in purchasing include Toshiba and Dell. Toshiba as a company has developed a supply chain for most of its products that provide its customers with improved efficiency, greater flexibility and reduced delivery cycle times. The company has also explored on possibilities of applying the chain process to it entire product lines.
Donath, B. (2002). The IOMA handbook of logistics and inventory management. New York: J. Wiley and Sons.
Friedman, T. (2012). Made in the World. New York Times. Retrieved from http://www.nytimes.com/2012/01/29/opinion/sunday/friedman-made-in-the- world.html?_r=1&hp
Johnson, P.F., Leenders, M.R., & Flynn, A.E. (2011). Purchasing and Supply Management. (14th Ed.) New York, NY: McGraw-Hill.
Monczka, R. (2010). Purchasing & supply chain management. Andover, Hants: South- Western/Cengage Learning.
Schwalbe, K. (2006). Introduction to project management. Boston, Mass: Thomson Course Technology.
Schniederjans, M., Schniederjans, A. & Schniederjans, D. (2007). Outsourcing management information systems. Hershey, PA: Idea Group Pub.