1、Chapter 1 The role of Purchasing in the Value Chain,Program,The role of purchasing in the value chain Definition of concepts Importance of purchasing to business Classification of purchasing goods New developments in purchasing Conclusions,The role of purchasing in the value chain,Primary activities
2、 can be divided in five generic categories: Inbound Logistics Operations Outbound logistics Marketing and sales Services,The procurement function should be able to meet the material requirements related to inbound and outbound logistics, and to operations.,The role of purchasing in the value chain,D
3、rawn from Porter, 1985,The role of purchasing in the value chain,Support activities can be divided in four generic categories: Procurement Technology development Human resources management Firm infrastructure,Procurement activities may be also related to supplying products and services for the other
4、 support functions.,The role of purchasing in the value chain,Definition of concepts,Purchasing: All activities for which the company receives an invoice from outside parties. Differentiation between: Purchasing function Purchasing departmentDefinition: “Managing the companys external resources in s
5、uch a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the companys primary and support activities is secured at the most favorable conditions”. Procurement: All activities that are required in order to get the product f
6、rom the supplier to its final destination.,Definition of concepts,Sourcing: Finding sources of supply, guaranteeing continuity in supply, ensuring alternative sources of supply and gathering knowledge of procurable resources.Purchasing Management: All activities that are required to manage supplier
7、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 o
8、f the end users of the company are being met or surpassedValue Chain Management: Challenging suppliers to improve the value proposition to the end-customers of the value chain. Usually the supplier works closely together with the customers technical and marketing staff to reduce the products overall
9、 costs and add new designs or features to the product which increase the value for the end-customer.,Definition of concepts,Different definitions. Ordering Buying Purchasing Procurement Sourcing Supply Chain Management Value chain management.,Operational, shortterm, deal and marginoriented,Strategic
10、, longterm, performance and valueoriented,Purchasing: relates to every activity the company receives an invoice for,Definition of concepts,Importance of purchasing to business,60-85,60-80,50-70,60-80,25-50,5,12,18,3,12,50,Admin.,Services,Capex,Spares,Trade- items,Retailers,Computers Consumerelectron
11、ics,Automotive Pharma Service,industry,Typical structure,10-40,Production parts,adapted from Kluge, 1996,Profit 1,5 %,Value added: 20 %,Purchased materials And services: 78,5 %,Question: what should managers do?,Sales: 100%,Challenge for managers: how to manage our EXTENDED ENTERPRISE ?,Purchased ma
12、terials and services have a large impacton company profitability,Importance of purchasing to business,Profit 1,5 %,Value added: 20 %,Purchased materials And services: 78,5 %,Question: what should managers do?,Sales: 100%,Challenge: how to manage our EXTENDED ENTERPRISE ?,Definition of concepts,Suppl
13、iers determine 78,5%of total cost, innovation,carbon footprint andcustomer value,DuPont analysis:,RONA,Capital turn-over ratio,Margin,Amounts in Euro mio,Other costs,Purchased mat. & serv.,+,Total costs,Sales,-,Total assets,Interest free liabilities,-,Sales,Net assets,/,Income before tax,Sales,/,105
14、 mio,105 mio,105 mio,145 mio,95 mio,50 mio,2.1 x,105 mio,40 mio,60 mio,100 mio,5 mio,4.7 %,9.9 %,RONA,Capital turn-over ratio,Margin,Amounts in Euro mio,Other costs,Purchased mat.& serv.,+,Total costs,Sales,-,Total assets,Interest free liabilities,-,Sales,Net assets,/,Income before tax,Sales,/,105 m
15、io,105 mio,105 mio,145 mio,95 mio,50 mio,2.1 x,105 mio,40 mio,60 mio,100 mio,5 mio,4.7 %,9.9 %,- 2 %,58.8 -,98.8 -,6.2 -,5.9 -,12.4 -,+ 25 % !,DuPont analysis:,Classification of purchasing goods (1),The purchasing process may concern a large variety of goods and services. In general, purchased mater
16、ials and services can be grouped into the following categories:Raw materials; materials which have undergone no transformation or a minimal transformation and which serve as the basis materials for a production processSupplementary materials; materials that are not absorbed physically in the end pro
17、ductSemi-manufactured products; products that have already been processed once or more times and that will be processed further at a later stageComponents; manufactured goods that will not undergo additional physical changes, but which will be incorporated in a system with which there is a functiona
18、l relationship by joining it with other components,Classification of purchasing goods (2),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; produc
19、ts that are not consumed immediately, but which purchasing value is depreciated over a period of timeMaintenance, repair and operating materials (MRO items); materials, which are necessary for keeping the organization running in general and for the support activities in particularServices; labor int
20、ensive, non material activities that are executed by third parties on a contract basis,New developments in purchasing,Leveraged purchasing and supply strategies Global sourcing Supplier integration Early supplier involvement in new product development Reciprocity agreements and compensation agreemen
21、ts Corporate Social Responsibility and business integrity,1. Sellers market Buyers market2. Increasing pressure on sales prices and margins leads to:,Conclusions,In short, purchasing represents a business area which is being confronted with many changes and challenges. Without doubt these challenges will put purchasing and supply chain management more in the spot light in business.,
