1. Purchasing and Supply Chain
Management
Session 1
Introduction to Purchasing and Supply
Chain Management
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2. Chapter Overview
The changing world of purchasing and
supply management.
Purchasing’s increased role in this new
world.
Purchasing/supply management terms
defined.
Supply chain management activities.
The pillars supporting supply
management.
The historic evolution of
purchasing/supply management. 2

3. A New Competitive Environment
Increased Competition changes
buyer/seller
balance of power
Evolution of competitive environment:
60’s/70’s
– Marketing strategies capturing loyalty.
– Strong engineering, design, and manufacturing
functions to support market requirements.
– Customers needs translated into products.
– Need for high level quality at a reasonable cost.
– Need for flexibility and responsiveness. 3

4. A New Competitive Environment
Concept of Supply Chain Management
Emerges
Evolution of competitive environment:
80’s
– Need for flexibility and responsiveness
90’s
– Organizations realized materials and service inputs from
suppliers impacted ability to meet customer needs.
– Resulted in increased focus on supply base and 4
purchasing.

5. Why Purchasing is Important
As companies struggle to increase
customer value by improving
performance, many companies are
turning their attention to purchasing
and to supply management.
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6. Why Purchasing is Important
Results of Good Supply
Management:
Potential for Profitability
Outsourcing
Improved product and service quality
EPI/ESI
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7. Understanding the
Value Chain
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8. What are Purchasing and
Supply Management?
• Purchasing is a functional
group/activity that supplies the
organization with materials. It is
often referred to as procurement.
• Supply Management is a
progressive approach to managing
supply base and the supply chain.
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9. What is a Supply Chain?
• A Supply Chain is three or more
organizations linked directly by one
or more upstream or downstream
flows of products, services, finances,
and information from a source to a
customer.
• The Supply Chain is a subset of the
Value Chain.
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10. Supply Chains
• Simple supply chains pull materials
directly from their origin, process them,
package them, and ship them to
consumers.
Extraction Conversion OEM Distributors Consumer
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11. What is a Value Chain?
• A value chain is a sequence of
business functions in which utility
(usefulness) is added to products or
services as they move from supplier
to end customer
• Value chains are often viewed like a
river--upstream and downstream
• NOTE: Value Chain discussion draws heavily from
Michael Porter, Competitive Advantage--Creating
and Sustaining Superior Performance
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12. 12

13. Primary and Support Activities
• Primary Activities
Inbound logistics
• Includes activities associated with
receiving, storing, and disseminating
inputs to support the product or service,
including transportation, material handling,
warehousing, inventory control, vehicle
scheduling, and returns to suppliers
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14. Primary and Support Activities
• Primary Activities
Operations
• Activities associated with transforming
inputs into final form, such as machining,
packaging, assembly, equipment
maintenance, testing, printing, and facility
operations
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15. Primary and Support Activities
• Primary Activities
Outbound logistics
• Includes activities associated with
physically collecting, storing, and
distributing a product or service to
customers, such as finished goods
warehousing, material handling, delivery,
order processing, and scheduling 15

16. Primary and Support Activities
• Primary Activities
Marketing and Sales
• Includes activities associated with
providing a means to which buyers can
purchase the product and inducing them
to do so, such as advertising,
promotion, sales force efforts, job
quoting, channel selection, channel
relations, and pricing
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17. Primary and Support Activities
• Primary Activities
Service
• Includes activities associated with
providing service to enhance or
maintain the value of the product, such
as installation, repair, training, parts
supply, and product adjustment
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18. Primary and Support Activities
• Primary Activities
• In any firm, all the categories of primary
activities are present to some degree
and play some role
• Key primary activities often differ from
industry to industry
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19. Primary and Support Activities
• Support Activities
Firm infrastructure
• Consists of a number of activities,
including general management, planning,
government affairs, finance, accounting,
legal, and quality management
• While firm infrastructure is sometimes
viewed as overhead, it can be a powerful
source of competitive advantage
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20. Primary and Support Activities
• Support Activities
Human resource management
• Consists of activities involved in
recruiting, hiring, training, developing,
and compensating all types of
personnel
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21. Primary and Support Activities
• Support Activities
Technology Development
• Includes activities typically associated
with MIS, engineering, and R&D and
involve activities that seek to improve
product and processes.
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22. Primary and Support Activities
• Support Activities
Technology Development
• New product and process development are
primary concerns of technology
development support activities
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23. Primary and Support Activities
• Support Activities
– Procurement
• Involves activities associated with
identifying, evaluating, selecting,
managing, and developing sources of
supply
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24. Primary and Support Activities
• Support Activities
– Procurement
– Though purchased inputs are commonly
associated with primary activities,
purchased inputs are present in every
value activity, including support
activities.
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25. Primary and Support Activities
• Support Activities
-Procurement
– Examples:
» Supplies
» Travel services
» Media
25

26. What is Value Chain
Integration?
• Value chain integration involves
bringing together different groups,
functions, or organizations, either
formally or informally, physically or
by information technology, to work
jointly and often concurrently on a
common business-related
assignment purpose
26

27. Horizontal Integration Across
the Value Chain
• Examples of how firms integrate
across the value chain--
– Committees/groups/teams
– Shared and linked information systems
– Integrated performance
goals/objectives/measures
– Strategy development process
27

28. Horizontal Integration Across
the Value Chain
• Examples of how firms integrate
across the value chain—
– Co-location of personnel within and
between the organization
– Through a process orientation
– Informal or ad hoc exchange of
information
– Shared risk and reward projects
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29. Supply Chains Illustrated
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30. Supply
Chains
Illustrated
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31. Relationships within the
Supply Chain
• Organizations are forming partnership
and alliances with others in the supply
chain. These require a shared resource
base so the entire chain can benefit as
a whole.
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32. The Supply Chain Umbrella
• Encompasses activities that are part of
a network supporting efficient and
effective flow of goods and information
across the supply chain.
• Organizations recognize value of
aligning, coordinating, integrating and
synchronizing these activities.
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33. The Supply Chain Umbrella
• Supply Chain activities include:
– Purchasing
– Inbound Transportation
– Quality control
– Demand and Supply Planning
– Receiving, Materials Handling, and Storage
– Material or Inventory Control
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34. The Supply Chain Umbrella
• Supply Chain activities include:
– Order Processing
– Production Planning, Scheduling, and
Control
– Warehousing/Distribution
– Shipping
– Outbound Transportation
– Customer Service
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35. Four Pillars of Purchasing and Supply Chain Management
Strategies
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36. Evolution and Development
of Purchasing
• Period One- The early years
• Period Two- Growth of Purchasing
Fundamentals
• Period Three-The War Years
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37. Evolution and Development
of Purchasing
• Period Four – The Quiet Years
• Period Five- Materials Management
• Period Six – The Global Era
• Period Seven – Supply Chain
Management
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