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,#,Contemporary Logistics,Twelfth,Edition,Chapter,6,Procurement,Contemporary LogisticsTwelfth,1,Learning Objectives,(1 of 2),6.1,To compare,procurement,purchasing, and,supply,management,6.2,To review procurement objectives,6.3,To review supplier selection and,evaluation,approaches,6.4,To review Kraljics Portfolio Matrix,Learning Objectives (1 of 2)6.,2,Learning Objectives,(2 of 2),6.5,To establish issues associated with global,procurement,6.6,To identify social and environmental aspects,of,sustainable,procurement,6.7,To describe the concept of supply chain,finance,and how it,can be used in procurement,relationships,Learning Objectives (2 of 2)6.,3,Procurement,(1 of 7),Refers to the raw materials, component parts, and supplies bought from outside organizations to support a companys operations,Procurement costs often range between 60 and 80 percent of an organizations,revenues,Procurement (1 of 7)Refers to,4,Procurement,(2 of 7),Currently has a more strategic orientation in many organizations,Procurement manager may have responsibility for,:,Reducing cycle times,Playing an integral role in product development,Generating additional revenues through collaboration with the marketing,department,1,1,John Hyatt, “The Rise and Rise of Procurement,”,CFO,28, no. 4 (2012): 5759,.,Procurement (2 of 7)Currently,5,Procurement,(3 of 7),“Procurement” and “purchasing” are sometimes viewed as synonymous terms,Supply management is viewed as a relational exchange approach involving a limited number of,suppliers,Procurement (3 of 7)“Procureme,6,Procurement,(4 of 7),Electronic commerce continues to bring many changes to the procurement discipline including,Electronic procurement,Procurement cards (p-cards),Reverse,auctions,Procurement (4 of 7)Electronic,7,Procurement,(5 of 7),Procurement cards (p-cards),Similar to Visa and MasterCard, but used for an organizations buying needs,Number of authorized employees is limited,Detailed statement is provided each month,Can implement control processes that:,Measure usage,Identify procurement trends,Limit spending during a procurement cycle,Block unauthorized expenditures,Procurement (5 of 7)Procuremen,8,Procurement,(6 of 7),Benefits of procurement cards (p-cards),Reduction in the number of invoices,Firm will make one payment each month regardless of the number of p-card holders,Allows employees to make purchases in minutes versus days,Generally allow suppliers to be paid in a more timely,fashion,Procurement (6 of 7)Benefits o,9,Procurement,(7 of 7),Challenges of procurement cards (expansion overseas),Currency differences,Availability of technology,Difference in card acceptance,Cultural issues with the,program,Procurement (7 of 7)Challenges,10,Procurement Objectives,Supporting organizational goals and objectives,Managing the purchasing process effectively and efficiently,Managing the supply base,Developing strong relationships with other functional groups,Supporting operational,requirements,Procurement Objectives Support,11,Supplier Selection and Evaluation,(1 of 3),One of procurements most important responsibilities,Involves stating an organizations needs and determining how well various potential suppliers can fulfill these needs,Supplier Selection and Evaluat,12,Figure 6.1: Supplier Selection Framework,Figure 6.1: Supplier Selection,13,Supplier Selection and Evaluation,(2 of 3),Steps to supplier selection and evaluation,Identify need for supply,Perform situation analysis,Identify and evaluate possible suppliers,Select suppliers,Single-source approach,Multiple-source approach,Evaluate decision,Process-based approach,Performance-based,approach,Supplier Selection and Evaluat,14,Supplier Selection and Evaluation,(3 of 3),Evaluate decision,Process-based approach,Is an assessment of the suppliers service and/or production process (supplier audit),Performance-based approach,Is focused on the suppliers actual performance on a variety of criteria including cost and quality,Many companies use supplier scorecards to report performance,information,Supplier Selection and Evaluat,15,Procurement Portfolio Approach,(1 of 4),Within the “situation analysis” step for supplier selection and evaluation, procurement managers must be continually aware of the supply and demand characteristics of the:,Raw materials,Component parts,Purchased,supplies,Procurement Portfolio Approach,16,Procurement Portfolio Approach,(2 of 4),Kraljics Portfolio Matrix,2,Used to classify corporate purchases in terms of their importance and supply complexity,Goal is to minimize supply vulnerability and getting the most out of the firms purchasing,power,2,Peter Kraljic, “Purchasing Must Become Supply Management,”,Harvard Business Review,61, no. 5 (1983): 109117,.,Procurement Portfolio Approach,17,Figure 6.2: Kralijic Portfolio Matrix,Source: Peter Kraljic, “Purchasing Must Become Supply Management.”,Harvard Business Review,61, no. 5 (1983): 109117.,Figure 6.2: Kralijic Portfolio,18,Procurement Portfolio Approach,(3 of 4),Supplier development (reverse marketing),Refers to aggressive procurement involvement not typically part of supplier selection,Can include:,Purchaser initiating contact with supplier,Purchaser establishing prices, terms and conditions, and other,behaviors,Procurement Portfolio Approach,19,Procurement Portfolio Approach,(4 of 4),Supplier development (reverse marketing),Motivation to adopt supplier development includes:,Numerous inefficiencies associated with suppliers initiating marketing efforts toward purchasers,Purchaser may be aware of important benefits which are unknown to the supplier,Compel suppliers to meet necessary requirements to achieve competitive advantage in the supply,chain,Procurement Portfolio Approach,20,Global Procurement (Sourcing),(1 of 3),Refers to buying components and inputs anywhere in the world,Driven by:,Factor-input strategy (organization is seeking low-cost or high-quality sources of supply),Market access strategy (organization is sourcing in markets where it plans to do significant business,),Global Procurement (Sourcing),21,Global Procurement (Sourcing),(2 of 3),Components of global sourcing development model:,Planning,Specification,Evaluation,Relationship management,Transportation and holding costs,Implementation,Monitoring and,improving,Global Procurement (Sourcing),22,Global Procurement (Sourcing),(3 of 3),Challenges in establishing a successful,global sourcing,strategy include understanding hidden,costs as,supply bases are,expanded,Examples of hidden costs,:,Increased costs of dealing with suppliers,outside the,domestic,market,Duty and tariff changes that occur over,supply agreement life,Increased inventory-related costs associated,with global,supply,chains,Rising levels of logistics cost volatility (e.g.,ocean freight,rates),Global Procurement (Sourcing),23,Sustainable Procurement,(1 of 7),Refers to the integration of social and environmental considerations into all stages of the purchasing process,Goal is to minimize the impact of procurement activities on human health and the environment,Sustainable Procurement (1 of,24,Sustainable Procurement,(2 of 7),Social responsibility,Socially responsible procurement consists of five dimensions:,Diversity,The environment,Human rights,Philanthropy,Safety,Sustainable Procurement (2 of,25,Sustainable Procurement,(3 of 7),Social responsibility,Ethical considerations,“Win-at-all-costs” philosophy can exacerbate unethical,behavior,Sustainable Procurement (3 of,26,Sustainable Procurement,(4 of 7),Social responsibility,Areas of ethical concern in procurement:,Gift giving and receiving,Bribes and kickbacks,Misuse of information,Improper methods of knowledge acquisition,Lying or misrepresentation of the truth,Product quality (lack of),Misuse of company assets,Conflicts of,interest,Sustainable Procurement (4 of,27,Sustainable Procurement,(5 of 7),Investment recovery,Identifies opportunities to recover revenues or reduce costs associated with:,Scrap materials,Surplus materials,Obsolete materials,Waste materials,Often the responsibility of the procurement,manager,Sustainable Procurement (5 of,28,Sustainable Procurement,(6 of 7),Investment recovery,Can provide an organization the opportunity to simultaneously do well and do good in the sense that investment recovery:,Increases a sellers revenues (reduces a sellers cost),While addressing selected environmental considerations,Sustainable Procurement (6 of,29,Sustainable Procurement,(7 of 7),Investment recovery,Even the best-managed organizations generate:,Excess (surplus),Stock materials that exceed reasonable requirements,Obsolete,Materials not likely to ever be used again,Scrap,Materials that are no longer serviceable, have been discarded, or are a by-product of the production process,Waste,Materials that have been spoiled, broken, or otherwise rendered unfit for further use or reclamation (have no economic value),Sustainable Procurement (7 of,30,Supply Chain Finance,(1 of 2),Refers to a set of technology and financed-based processes that strives to optimize cash flow by:,Allowing businesses to extend their payment terms to their suppliers,While simultaneously allowing suppliers to get paid,early,Supply Chain Finance (1 of 2)R,31,Supply Chain Finance,(2 of 2),Transactions between buyers and sellers are facilitated by financial technology firms (FinTech),FinTech companies use cloud-based software to optimize the connection between procurement and accounts,payable,Supply Chain Finance (2 of 2)T,32,Key Terms,(1,of 2),Bribes,Excess (surplus) materials,FinTech,Global procurement (sourcing),Investment recovery,Kickbacks,Kraljics Portfolio Matrix,Multiple sourcing,Near-sourcing,Obsolete materials,Procurement,Procurement cards (p-cards),Purchasing,Key Terms (1 of 2)BribesObsole,33,Key Terms,(2,of 2),Scrap materials,Single sourcing,Strategic sourcing,Sustainable procurement,Supplier audit,Supplier development (reverse marketing,),Supplier scorecards,Supply chain finance,Supply chain management,Total cost of ownership (TCO),Waste,materials,Key Terms (2 of 2)Scrap materi,34,
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