Summary Purchasing and Supply Chain Management

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ISBN-10 1473749441 ISBN-13 9781473749443
236 Flashcards & Notes
2 Students
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This is the summary of the book "Purchasing and Supply Chain Management". The author(s) of the book is/are ARJAN VAN WEELE. The ISBN of the book is 9781473749443 or 1473749441. This summary is written by students who study efficient with the Study Tool of Study Smart With Chris.

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Summary - Purchasing and Supply Chain Management

  • 1.1 Introduction

  • Why are purchasing and supply chain management so important for companies?
    As business is becoming more and more competitive, purchasing and supply chain management are increasingly recognized by top managers as key business drivers. Since most companies today spend more than half of their sales turnover on purchased parts and services, efficient and constructive relationships with suppliers are key to the company's short - term financial results and long - term competitive position.
  • What are the roles of purchasing and supply chain management within a company?
    • To secure the supply for all projects and shipyards. Component deliveries should be made by suppliers and subcontractors on time and their quality should be flawless.
    • Prices of purchase materials should be within the project budget, in order not to jeopardize project and company profitability.

    Purchasing:
    The management of the company's external resources in such a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company's primary and support activities is securred under the most favourable conditions.

    Supply:
    Supply includes at least purchasing, materials management, incoming inspection and receiving. Supply is used in relation to buying based upon total cost of ownership in a manufacturing environment.
  • 1.2 The role of purchasing in the value chain

  • What is value chain management (mostly used in business strategies)?
    All stakeholders belonging to the same value chain are challenged to improve the (buying) company's value proposition to its final end - customers, i.e. consumers. A value chain consists of primary activities and support activities.
  • What are primary activities?
    Primary activities are those activities that are required to offer the company's value proposition to its customers. They consist of inbound logistics, operations, outbound logistics, marketing and sales, and customer activities.
  • What are support activities?
    Those value activities that are required to support the company's primary activities. These include purchasing, technology development, human resources management and facilities management (those activities aimed at maintaining the firm's infrastructure)
  • What is facilities management?
    Relates to the management (planning, execution and control), and the realization of housing and accomodation, the services related to these, and other means in order to enable the organization to realize its mission.
  • What's the difference between direct and indirect procurement?
    Direct procurement: procurement of all materials and products that are used for manufacturing a company's end products. (buying for primary activities)

    Indirect procurement: Procurement of all materials, components and services that are used to support the company's infrastructure and back- office activities. (buying for support activities)
  • 1.3 Definitions of concepts

  • Define the procurement function
    Covers activities aimed at determining the procurement specifications based upon 'fitness for use':
    - selecting the best possible supplier and developing procedures and routines to be able to do so;
    - preparing and conducting negotiations with the supplier in order to establish and agreement and to write up the legal contract;
    - placing the order with the selected supplier or developing efficient purchase orders and handling routines;
    - monitoring and control of the order to secure supply (expediting);
    - Following up and evaluating (settling claims, keeping product and suppliers files up-to-date, supplier ratings and supplier ranking).
  • What's the difference between purchasing and procurement?
    Procurement is a somewhat broader term. It includes all activities required to get the product from the supplier to its final destination. It encompasses the purchasing function, stores, traffic and transportation, incoming inspection, and quality control and assurance. Many firms also consider recycling to be part of this. Procurement is based on total cost of ownership- thinking.
  • Define total cost of ownership
    Relates to the total costs that the company will incur over the lifetime of the product that is purchased.
  • Define sourcing.
    Finding, selecting, contracting and managing the best possible source of supply on a worldwide basis.
  • Define sourcing strategy
    Identifies for a certain category from how many suppliers to buy, what type of relationship to pursue, contract duration, type of contract to negotiate for, and whether to source locally, regionally or globally.
  • Define procurement management
    Relates to all activities necessary to manage supplier relationships in such a way that their activities are aligned with the company's overall business strategies and interests.
  • 1.4 Importance of purchasing to business

  • Why is procurement so important for business?
    • 2% increase in procurement spend may lead to a reduction in profitability of 20%

    The DuPont analysis shows that procurement contributes to improving the company's RONA (return on assets) in three ways:
    1. Through reduction of all direct material costs --> lead to improvement in the company's sales margin, which in turn will affect RONA in a positive manner. 
    2. Through a reduction of the networking capital employed by the company. This will work out positively on the company's capital turnover ratio
    3. Through improving the company's revenue - generating potential challenging suppliers for new product ideas and process improvements may lead to new customer value propositions that in turn lead to higher margin new products
  • What's a DuPont analysis?
    Financial diagnostic tool to calculate the company's return on investment based upon sales margin and capital turnover ratio. Used to assess the effect of a 2% procurement saving on the company's return on investment (ROI).
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Discuss at least three measures that can be taken to support ethical behaviour of purchasing managers. (formal exam question 2018)
Some examples of such measures are:


- development of codes of conducts (internally and/or for suppliers)
- ethical training programmes (e.g . via role plays)
- top management commitment (”example behaviour” of top executives)
- reporting of cases of unethical behaviour (and a ssociated sanctions)
- preventive measures (e.g. by rotating purchasing staff)
Discuss the link between ethical purchasing responsibilities and Corporate Social Responsibility (CSR). (formal exam question 2018)

The book describes the well- known pyramid model of Carroll, also discussed in class. In this model, ethical responsibilities build on a basis of economic and legal responsibilities. The top of this pyramid is
formed by responsibilities to be a good corporate citizen, often operationalized in the form of the three P’s (people, planet, profit). In this sense, the Carroll implies that ethical responsibilities form a sort of
prerequisite for a company’s CSR efforts. 
Discuss the potential importance of relationship quality (RQ) in stimulating ethical purchasing behaviour.Your answer should contain a brief description of the main RQ elements. (formal exam question 2018)

The main RQ elements are trust, commitment and (economic and non-economic) satisfaction.


Since ethical behaviour doesn’t “stop” at the company borders, from a purchasing perspective it is important that suppliers also conform to codes of conduct set by the buying company. This conformance
is arguably facilitated by higher degrees of the RQ elements trust & commitment.
One example of an ethical dilemma is the following situation, ‘you’ being the purchasing manager:‘You are about to assign a huge order to one of your company’s suppliers with a stock exchange quotation. A couple of days before doing so you buy a package of shares from that supplier.’  What types of less ethical purchasing behaviour exist? Your answer should explicitly state to what type the above-mentioned example belongs.  

The following types of unethical behaviour exist:
- reciprocity
- personal buying
- accepting supplier favours
- sharp practices
- financial conflicts of interests


The example appears to belong to the type ‘financial conflicts of interests’ since the purchasing manager uses inside information (a huge order) to obtain financial benefits him/herself.
Why is less ethical purchasing behaviour in general risky? Motivate your answer. (formal exam question 2018)

Basically, there are three types of risks associated with unethical beha viour:
- there may be legal penalties (e.g. if it is seen as corruption)
- the purchaser’s personal, professional reputation may be at stake, thus limiting career opportunities
- the company’s reputation could be at risk (e .g. resulting in customer “strikes”)
Explain when subcontracting can be useful, also paying attention to the potential dangers associated with subcontracting (formal exam question 2018)

Appropriate for the work that is difficult to define, has long lead time, and will be extremely costly -> Cannot be done by one company.

Less visibility on the subcontracted work. -> Vulnerable to disruptive events in upstream supply chains.
What are the two main characteristics of performance-based contracting (PBC)? Explainthese two characteristics by giving an example of a PBC. (formal exam question 2018)

Low term specificity and pay-for-performance.


In power-by-the-hour contracts, aircraft engine maintenance service providers are paid based on the hours that the aircrafts are operating without mechanical problems. The activities that the service provider has to do is not specified in detail.
Which four eras of embedding purchasing supply management in strategic management theory consists?
Embedding PSM in strategic management theory, four eras:
1.Strategic planning & marketing (e.g. BCG)
2.Competitive strategy (e.g. Porter)
3.Innovation strategy & competence management (e.g. RBV of firm, ITO class)
4.From internal to external resource management (e.g. stakeholder theory)
How do you perform a preliminary cross- case analysis?
See picture.
What is needed to pilot implement sustainable improvements within the supply chain?
See picture.