Analysis

1. Analysis 1. The role of Purchasing in the Supply Chain

2. Programme • Changes in the business context and its impact on strategies and structures • The role of purchasing in the Supply Chain • Definition of concepts • Importance of the purchasing function • Classification of purchasing goods • The changing landscape in purchasing and supply • Conclusions

3. Changes in the business context 1. Globalisation of trade Resulting from: • Deregulation in many industries • Intercultural homogenisation and the resulting homogenisation of consumer preferences • The forming of trade blocks (NAFTA, GATT, EEC) • Improved transportation facilities • More sophisticated information and communications technology

4. Changes in the business context 2. The information society • Growing economic value from generating, using and selling information • Advanced retail and manufacturing information systems; improved capabilities for tracking and tracing • Xerox: ‘pay for production’ 3. Changing consumer patterns • Customers increasingly demand convenience of purchase, after-sales service, relaibility, uniqueness, quality etc. • Customers take charge; they tell the manufacturers what they want, when, how and what they are willing to pay • This leads to constant innovation and service offerings

5. Impact on strategies & structures 1. Value Chain Management • Every firm can be considered basically as a collection of primary and supporting value activities that are performed to design, produce, market, deliver and support products that are valuable for customers (Porter). • Competitive advantage depends primarily on the art of positioning a company in the right place of the value chain vis-à-vis its: • Customers • Competitiors • Suppliers • Companies should focus on their core competencies

6. Impact on strategies & structures 2. Process orientation • Shift from functional organisation to process organisation • Process means in this case the set of activities that produce a value to a customer 3. Outsourcing and managing best-in-class supplier networks • Often specialist suppliers can perform the outsourced activities at lower cost and with higher value-added than the buyer • Best-in-class suppliers are then needed

7. firm infrastructure human resource management Support activities Margin technology development p r o c u r e m e n t inbound logistics outbound logistics marketing & sales operations service Margin Primary activities The role of Purchasing

8. The role of Purchasing

9. purchasing function ordering/ operational tactical / initial Internal customer Speci- fication Selecting Contracting Ordering Expediting and evaluation Follow up/ evaluation Supplier Sourcing Supply Buying Procurement Definition of concepts

10. Definition of concepts Purchasing: All activities for which the company receives an invoice from outside parties. Differentiation between: • Purchasing function • Purchasing department Procurement: All activities that are required in order to get the product from the supplier to its final destination. Sourcing: Finding sources of supply, guaranteeing continuity in supply, ensuring alternative sources of supply and gathering knowledge of procurable resources.

11. Definition of concepts Purchasing Management All activities that are required to manage supplier relationships. Supply Chain Management The management of all activities, information, knowledge and financial resources associated with the flow and transformation of goods and services up from the raw materials suppliers, component suppliers and other suppliers in such a way that the expectations of the end users of the company are being met or surpassed

12. Importance of the purchasing function Admin. 5 12 Services 18 Capex 3 Spares 60-85 60-80 50-70 60-80 12 Trade- items Production parts 50 25-50 10-40 Retailers • Computers Consumer • electronics Automotive Pharma Service Typical structure industry

13. DuPont analysis: Sales 105 mio 105 mio Total assets Capital turn-over ratio / 145 mio Net assets - 2.1 x 50 mio Interest free liabilities 95 mio RONA × Sales 9.9 % 105 mio Income before tax - Other costs 5 mio 40 mio Margin Total costs / + 4.7 % 100 mio Purchased mat. & serv. Sales 60 mio 105 mio Amounts in mln Euro

14. DuPont analysis: Sales 105 mio 105 mio Total assets Capital turn-over ratio / 145 mio Net assets - 2.1 x 50 mio Interest free liabilities 95 mio RONA × Sales 9.9 % 105 mio Income before tax - Other costs 5 mio 40 mio Margin Total costs / + 4.7 % 100 mio Purchased mat.& serv. Sales 60 mio 105 mio EC million 12.4 ---- + 25 % !! 6.2 -- 5.9 --- 98.8 --- 58.8 -- - 2 %

15. Classification of Purchasing goods • Raw materials; materials which have undergone no transformation or a minimal transformation and which serve as the basis materials for a production process • Supplementary materials; materials that are not absorbed physically in the end product • Semi-manufactured products; products that have already been processed once or more times and that will be processed further at a later stage • Components; manufactured goods that will not undergo additional physical changes, but which will be incorporated in a system with which there is a functional relationship by joining it with other components

16. Classification of Purchasing goods • Finished products; all products which are purchased to be sold, after negligible added value, either together with other finished products and/or manufactured goods • Investment goods or capital equipment; products that are not consumed immediately, but which purchasing value is depreciated over a period of time • Maintenance, repair and operating materials (MRO items); materials, which are necessary for keeping the organisation running in general and for the support activities in particular • Services; labour intensive, non material activities that are executed by third parties on a contract basis

17. The changing landscape in purchasing and supply 1. Seller’s market Buyer’s market 2. Increasing pressure on sales prices and margins leads to: • Co-ordination of purchasing requirements • Integration of purchasing and logistics • Integration of purchasing in engineering and production planning • Make or buy • Reciprocity agreements and compensation agreements • Total quality control and just-in-time production • Environmental issues

18. Conclusions • The scope of the purchasing function extends from the purchasing market to inside the company gate • The purchasing function is a very important link in the production chain of organisations • The purchasing function is concerned with obtaining all goods necessary for running, maintaining and managing the company • A distinction should be made between the purchasing function and the purchasing department • Purchasing management is the activity aimed at systematising the purchasing process and achieving specific improvements through the management of supplier relationships • The purchasing function is subject to many changes