Purchasing and Supply Management
by W. C. Benton
Chapter Two
Purchasing Decisions And
Business Strategy
McGraw-Hill/Irwin
Copyright ©2007 The McGraw-Hill Companies, All Rights Reserved
Learning Objectives
1.
To learn the role of purchasing in the corporate strategy.
2.
To learn the most important elements of the strategic
planning process for purchasing.
3.
To learn about the components of purchasing strategy.
4.
To learn how sourcing is integrated into corporate
strategy.
5.
To learn how purchasing strategy is linked to other
functional areas.
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Learning Objectives
6.
To understand the impact of purchasing decisions on supply
chain management.
7.
To learn how the sourcing audit can be used to formulate
purchasing objectives and strategy.
8.
To learn about the supply chain relationship pegging
analysis.
9.
To learn how to develop a strategic purchasing plan.
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Introduction to Purchasing Strategy
 In most industrial firms, material constitutes
__________________________________________
__________________________
 Purchased inputs offer
__________________________________________
_____________________________.
 Purchasing can give the firm
______________________________________
 In essence,
__________________________________________
________________________________.
2-4
Purchasing and Competitive Strategy Linkage
 Purchasing professionals are expected to
_________________________________________.
 Purchasing managers need to devise
_______________________________________.
 The competitive priorities are a
_________________________________________.
 The buyer performance measures
__________________________________________
________________________________________.
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Strategic Purchasing
 Purchasing decisions or actions that constitute
purchasing strategy are determined by the firm’s
competitive priorities, its resource capabilities, and
the environment.
 __________________________________________
__________________________________________
__________________________________________
__________________________________________
__________________________________________
____________________________________
2-6
COMPETITIVE STRATEGY
• A firm can compete in two broad alternate ways. It can either
seek competitive advantages on cost or choose to
differentiate itself from its competitors on some attributes of
the product or in the way it markets its product.
Cost and differentiation—
________________________________________________________
________________________________________________________
________________________________________________________
The competitive
strategy_________________________________________________
________________________________________________________
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COMPETITIVE PRIORITIES
 The competitive priorities operationalize the
firm’s competitive strategy.
 The two generic competitive advantages—
delivery speed and reliability—are
_____________________________________
_____________________________________
_____________________________________
_____________________________________
____________________________.
2-8
PURCHASING CRITERIA
The criteria in buying material must reflect firms’
competitive priorities.
 A firm competing on cost
___________________________________________.
 With short lead times, the company can be more flexible;
and develop the ability to respond to changing situations
quickly._________________________________________
_______________________________________________
 Suppliers with short lead times and who are reliable in
meeting their due dates minimize the problem of material
shortages for the manufacturer;
_______________________________________________
___________________________________.
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PURCHASING CRITERIA
 The criterion on which the buyer’s
performance is evaluated can influence the
effectiveness of purchasing actions and
effectiveness in making the firm competitive.
 _____________________________________
_____________________________________
__________________________________.
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SUPPLY CHAIN STRATEGY
 As competitive forces increase, customers demand
better products, faster delivery, increased service,
and decreased costs.
 __________________________________________
__________________________________________
______________________________________
 As inventory levels are reduced throughout the
supply chain,_________________________.
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SUPPLY CHAIN STRATEGY
 Companies participate in a variety of supplier
relationships and take on a variety of roles.
 Each company can be a supplier, customer, or
end-user of products.
 Supplier partnerships can be categorized using five
factors:
_________________________________________
_________________________.
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SUPPLY CHAIN STRATEGY
The characteristics of buyer-seller relationships exist on a
continuum beginning with the traditional approach of
open-market, with a single short-term contract that
presents minimal risk to both parties. The opposite
extreme is vertical integration, where the parties are fully
integrated as one unit.
 Partnerships are
_____________________________________________.
 A long-term relationship____________________________.
 In theory, ______________________________________.
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THE SUPPLY CHAIN RELATIONSHIP
ENVIORNMENT
 In dynamic business environments, maintaining a competitive
advantage is a major survival factor.
 _________________________________________________
__________________________________.
 Not only does the individual firm have to maintain its
competitive edge, the entire supply chain must be
competitive.
 Competitive and industrial
ranking__________________________________________
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SUPPLY CHAIN RELATIONSHIP PEGGING
 The supply chain relationship pegging system consists of
four phases.
 Phase I is an assessment of the current performance gaps
in the process. In this phase, the performance gaps should
be prioritized based on the firm’s strategic direction and the
relative cost of taking action versus not taking action.
 Phase II______________________________________.
 Phase III is____________________________________.
 The final phase (Phase IV) is _____________________.
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THE INTEGRATED BUYING MODEL
 The decision maker faces multiple goals in
making the buying decision.
 The cost per unit, quality, and lead time are
some of the issues that a decision maker
faces in making the buying decision.
__________
__________
__________
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Materials Cost
 The cost per unit of material depends on the volume
or amount purchased, the quality level desired, and
the desired lead time.
 Material procured in larger
_________________________________________.
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
QUALITY LEVEL

LEAD TIME
1.
The quality level of material
purchased must meet the
desired objective as defined
by the firm’s competitive
priorities.
– ____________________
____________________
____________________
____________________
_______.
1.
Supplier lead time affects a
firm’s flexibility and service
to its own customers. Firms
that compete in volatile
markets and face rapidly
changing product or
technology require greater
flexibility than firms
competing in stable
markets.
______________________
______________________
______________________
______________________
_________
_______________________
_______________________
_______________________

2. Six sigma suppliers focus on
______________________
______________________
______________________
______________________
______________________
2.
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CONSTRAINTS
 A buyer must not only satisfy cost, quality, and leadtime goals, but also stay within
_________________________________________.
 The buyer must
______________________________________
 The budget limitations
__________________________________________
________________________________.
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THE PURCHASING STRATEGIC PLAN
 There are a number of important challenges facing
materials managers and executives in the future.
 The opportunities,
_____________________________________.
 In order to take full advantage of the challenges,
___________________________.
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DEVELOPING A STRATEGIC SOURCING PLAN
The development of a strategic purchasing plan requires the
following:
1)
A complete
understanding_________________________________
2)
An extensive evaluation/study of current suppliers,
__________________________________________.
3)
Study of the degree of global purchasing opportunities.
4)
Identification of total costs associated with
_____________________________________________
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DEVELOPING A STRATEGIC SOURCING PLAN
 Phase 1. Sourcing Audit
____________________________________
____________________________________
_________________________________
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THE STRATEGIC SOURCING PLAN
 Phase 2. Organizational Development
– This phase involves development of sourcing strategies;
setting of clearly outlined areas to cut costs and improve
profitability;
______________________________________________
______________________________________________
______________________________________________
______________________________________________
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THE STRATEGIC SOURCING PLAN
 Phase 3. Implementation and Evaluation
– In this phase, a thorough indoctrination of the
company with sourcing strategy,
_______________________________________
_______________________________________
_______________________________________
________________________.
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THE STRATEGIC SOURCING PLAN
 Phase 4. In-House Training Sessions
Classes should be conducted in groups of no
more than 15 individuals.
• ____________________________________________
____________________________________________
____________________________________________
__________________________________________
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PURCHASING STRATEGY TRENDS
 The NAPM and Center for Advanced Purchasing
Studies produced a study entitled “The Future of
Purchasing and Supply: A Five- and Ten-Year
Forecast.”
 The 1998 study reported the results of a
comprehensive survey on the evolving
responsibilities of the purchasing function during the
periods between 1998 and 2008.
1. ___________________________.
2. ___________________________.
3. ___________________________.
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