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Chapter 3
The Purchasing
Function
THE PURCHASING DEPARTMENT’S
FUNCTION IS TO:
3-3
PURCHASE PRICE Vs. TOTAL COST
3-4
METHODS TO EXAMINE AND COMPARE COSTS
3-5
TOTAL COST OF OWNERSHIP OF A TANGIBLE
PRODUCT
• TOTAL COST OF
OWNERSHIP = PRODUCT PRICE
+ DELIVERY
+ INSTALLATION
+ MAINTENANCE / REPAIR
+ POWER COSTS
+ SUPPLY COSTS
+ OPERATING COSTS
+ FINANCING
3-6
ECONOMIC ORDER QUANTITY
ORDERING COSTS
AND
STORING COSTS
3-7
USING VALUE ANALYSIS
THE OBJECTIVES OF VALUE ANALYSIS:
• REDUCE COSTS AND/OR
• IMPROVE DESIGN
COMPARE
What is BENEFITS RECEIVED New
Currently FUNCTIONS OF Alternatives
PRODUCT
Being Done Being
COST OF MATERIALS
Considered
WORK PROCESS
INVOLVED
3-8
Purchasing Philosophy
• Adversarial purchasing philosophy
• Single sourcing
3-9
Buy-Grid Model
1. NEW TASK
COMPLETE BUYING PROCESS REQUIRED EMPHASIZES
PRODUCT DEFINITION AND SPECIFICAIONS
2. MODIFIED REBUY
EMPHASIZES SUPPLIER SEARCH AND EVALUATION
3. STRAIGHT REBUY
EMPHASIZES NEED RECOGNITION AND PURCHASE
3-12
MODIFIED REBUY
Value analysis
3-13
VENDOR ANALYSIS RATINGS
Multiattribute Model
Is based on the idea that people compare products across
attributes, or features, weighted by importance.
A RATING FORM SHOULD LIST
The most important product attributes
The most important service support attributes
Pricing variables
Delivery variables
Quality variables
Supplier capabilities
3-14
PURCHASING PARTNERSHIPS ARE MADE
WITH VENDORS WHO PROVIDE:
3-15
IMPROVE PERFORMANCE:
STAYING AHEAD OF PURCHASING TRENDS
• CUTBACK ON EMPLOYEES
• BUILD RELATIONSHIPS
3-16
IMPROVE PERFORMANCE:
STAYING AHEAD OF PURCHASING TRENDS
(continued)
• TRAINING
• MANUFACTURING
• PROCESSING ACTIVITIES
3-17
IMPROVE PERFORMANCE:
STAYING AHEAD OF PURCHASING TRENDS
(continued)
3-18
SALES SURVIVAL QUESTIONS:
• FACE-TO-FACE COMMUNICATION
3-20
Changing company focus: MAKE-OR-BUY?
Purchasing Determines Who Provides Best Value for Lowest Cost
Best-Value Provider
Action In-House Partner
•Training
•Transaction Processing
•Paper Processing
•Product Design
•Product Manufacturing
•Component Part Manufacturing
•R&D
•Marketing
•Sales
•Advertising
•Research
•Support
•Human Resources Administration
3-21
MAKE-OR-BUY DECISION ANALYSIS
RISK ASSESSMENT
FINANCIAL RISKS MARKETING RISKS
Resource Allocation Customer Impact
Investment of Resources Supplier Impact
Accurate Cost Analysis
Legal Issues
MANUFACTURING RISKS POLITICAL RISKS
Reliability Management commitment/
Expertise willingness to partner
Equipment Turf Battles
Patent Protection Internal Strife
3-22
ETHICAL ISSUES FOR BUYERS
KEY REQUIREMENT: EVERY COMPETITOR
HAS AN EQUAL OPPORTUNITY TO SELL TO
THE BUYER AND HAS EQUAL ACCESS TO
INFORMATION