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Summary Purchasing and Supply Chain Management, Arjan

J. van Weele
Purchasing Management (Maastricht University)
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Summary
Purchasing and Supply Chain
Management – Van Weele
6th Edition
Jonas Heller

lOMoARcPSD|2019814
Summary: Purchasing and Supply Chain Management 10/19/14
TABLE OF CONTENT
Chapter 1: The Role of Purchasing in the Value Chain ............................................................................................................... 5
The role of Purchasing and in the Value Chain (P.5) .............................................................................................................. 5
Main differences between buying for primary activities and buying for support activities (P. 7): ........................................ 6
Definition of the concepts (p.7) ............................................................................................................................................. 6
Importance of Purchasing to Business (P.12): ....................................................................................................................... 7
Classification of purchasing goods (p. 15): ............................................................................................................................. 7
New developments in purchasing (P. 16) .............................................................................................................................. 7
Chapter 2: Industrial Buying Behavior: Decision making in purchasing (p.21) ........................................................................... 8
Organizational buying behavior: basic characteristics (p.22) ................................................................................................. 8
Models of industrial buying behavior (p. 23): ........................................................................................................................ 8
The purchasing process (p. 28) .............................................................................................................................................. 9
The purchasing process (P. 28): ............................................................................................................................................. 9
Aspects of the purchasing process (p.29) ............................................................................................................................ 10
The added value of the professional buyer (p.30) ............................................................................................................... 10
Types of purchasing (P.31) ................................................................................................................................................... 10
The Purchasing Process Step-by-Step (p. 32) ....................................................................................................................... 11
E-procurement (p.42) .......................................................................................................................................................... 13
Forms of E-auctions (p.44) ................................................................................................................................................... 13
Major bottlenecks and problems (p.46) .............................................................................................................................. 13
Chapter 3: The Purchasing Management Process (p.51) ......................................................................................................... 14
Primary tasks and responsibilities (P. 53) ............................................................................................................................ 14
Professionalizing purchasing: a few principles (P. 59) ......................................................................................................... 14
Purchasing management process (P. 61) ............................................................................................................................. 15
How purchasing and supplier management may develop over time (P. 66) ....................................................................... 15
Some observations from practice (p. 71) ............................................................................................................................. 16
Chapter 4: Buying Business Services (p. 75) ............................................................................................................................. 17
Introduction (p. 75): ............................................................................................................................................................. 17
The Increasing Importance of Services (p.77): ..................................................................................................................... 17
Differences between Goods and Services (p. 78): ............................................................................................................... 17
Towards a Classification of Services (p. 80): ........................................................................................................................ 17
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The Initial Purchasing Process (p. 82): ................................................................................................................................. 18
The Post-Contractual Stage (p.85) ....................................................................................................................................... 18
Involvement of Purchasing in Contracting for Services (p. 88) ............................................................................................ 18
Chapter 6: Market Structures and Supply Market Research (P.115) ........................................................................................ 19
Introduction (P. 115): ........................................................................................................................................................... 19
Market and Market Structures (p. 116) ............................................................................................................................... 19
Supply Side (P.118) .......................................................................................................................................................... 19
Demand Side (P.119) ....................................................................................................................................................... 19
Supply Chain Market Research: Definition (P. 121) ............................................................................................................. 19
Why Supply market Research (p.123) ............................................................................................................................. 20
How to Structure purchasing market research (p.125)........................................................................................................ 20
Purchasing Market Research and Information Technology (p.128) ..................................................................................... 20
Chapter 7: Purchasing and Business Strategy (p. 149) ............................................................................................................. 21
Purchasing’s role in strategic management theory (p. 152) ................................................................................................ 21
Innovation strategy and competence management (p. 155)............................................................................................... 21
Strategic management thinking: Implications for purchasing and supply management (p. 157)........................................ 21
Towards purchasing excellence (P. 158) .............................................................................................................................. 22
Strategic management processes (P. 158) ........................................................................................................................... 22
Enabling processes (p. 160) ................................................................................................................................................. 23
Purchasing Portfolio Analysis: Principles (P. 162) ................................................................................................................ 23
Four basic supplier strategies (P. 166): ................................................................................................................................ 24
Chapter 8: Outsourcing and Risk Management (P.173) ........................................................................................................... 26
Definitions and concepts (P.175): ........................................................................................................................................ 26
Characteristics of outsourcing (P.174): ................................................................................................................................ 26
The outsourcing matrix (P.179):........................................................................................................................................... 28
Advantages and Disadvantages of Outsourcing (P.180): ..................................................................................................... 28
The outsourcing process (P.180): ......................................................................................................................................... 28
Chapter 9: Catergory Sourcing: getting Better Performance from Suppliers (P.193) ............................................................... 30
reasons Underlying Cost-Savings potential in Purchasing (P.195): ...................................................................................... 30
How to identify cost-savings potential (P.197): ................................................................................................................... 30
Developing a sourcing strategy (P.200): .............................................................................................................................. 30
Category Sourcing Planning (P.201): .................................................................................................................................... 31
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Getting better results from Suppliers (P.204): ..................................................................................................................... 31
The myth of the Partnership (P.207):................................................................................................................................... 31
How Buyer-Supplier Relationships may change over time (P. 208) ..................................................................................... 31
Chapter 10 – Purchasing, Innovation and Quality Management (p.211) ................................................................................. 32
Purchasing and Innovation (P.213) ...................................................................................................................................... 32
The role of suppliers in new product development: Early supplier involvement (P. 215) ................................................... 32
Purchasing and New Product Development (P. 219) ........................................................................................................... 32
Purchasing and Quality Management (P.222): .................................................................................................................... 33
The Cost of Quality (P.225) .................................................................................................................................................. 33
Supplier Quality Assurance (SQA) (P.227) ............................................................................................................................ 34
Assessing Supplier Quality: Diagnostic Methods (P.230): .................................................................................................... 34
Implementing Supplier Quality Assurance: Consequences for Purchasing (P.232) ............................................................. 34
Chapter 11: Purchasing, Logistics and Supply Chain Management (p.237) .............................................................................. 35
Purchasing, Logistics and Supply-Chain Management: Definitions and concepts (P.237) ................................................... 35
Materials Requirements Planning (P.241): .......................................................................................................................... 35
Basic logistics structures (P.243): ......................................................................................................................................... 36
Just-in-time management (p.245): ...................................................................................................................................... 36
Quality and Zero Defects (p.249) ..................................................................................................................................... 37
JIT and the Purchasing Function (p.249) .......................................................................................................................... 37
Traditional vs. JIT approach (p.250)................................................................................................................................. 37
Advantages and disadvantages for suppliers (p.250) ...................................................................................................... 37
JIT and Supplier Selection (P. 253) ................................................................................................................................... 37
Elements of the Purchasing Information System (p.254) .................................................................................................... 38
Coordinating problems between purchasing and logistics (P.258) ...................................................................................... 38
Chapter 12: Organization and Structure of Purchasing (p.261) ............................................................................................... 39
Purchasing Organization Structure (P.263) .......................................................................................................................... 39
Factors influencing the location of purchasing in the organization (p. 264): ....................................................................... 39
Levels of task, responsibilities and authority (P.265): .......................................................................................................... 39
Organizational Structures Within Purchasing (P.267): ......................................................................................................... 39
Structure of Purchasing in Multi-Unit Companies (P.267): .............................................................................................. 39
Decentralized Purchasing Structure (P.267): ................................................................................................................... 40
Centralized Purchasing Structure (P.267): ....................................................................................................................... 40
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Line/Staff Organization (P.269): ...................................................................................................................................... 40
Hybrid Structure (P.269): ................................................................................................................................................. 40
Centralized VS. Decentralized Purchasing: some Criteria to Consider (P.273): ................................................................... 41
Purchasing Organization in Single‐Unit Companies (P.276): ................................................................................................ 41
Purchasing Job Profiles (P.279): ........................................................................................................................................... 41
Chapter 13: Performance Measurement and Governance in Purchasing (p. 285): .................................................................. 42
factors Influencing Purchasing Performance Measurement (P. 286): ................................................................................. 42
Why Measure Purchasing Performance (P. 288): ................................................................................................................ 42
How to Assess Purchasing Performance? (P. 289): .............................................................................................................. 42
Measuring Purchasing performance: Four Key Areas (P. 290): ............................................................................................ 42
Purchasing Bdugets, Purchasing Savings and other performance Measures (P. 294): ........................................................ 43
Purchasing Material Budget (p. 294) ............................................................................................................................... 43
Purchasing Budget Indirect Materials (P. 295) ................................................................................................................ 43
The investment and Tooling Budget (p. 295) .................................................................................................................. 43
Purchasing Departmental Budget (P. 295) ...................................................................................................................... 43
Purchasing Cost Savings: Definitions and Measures (P.295) ........................................................................................... 43
Ratio and Key Performance indicators (P. 297) ............................................................................................................... 43
Sarbanes-Oxley and Procurement Governance (p. 301): ..................................................................................................... 43
Purchasing Audit as a Management Tool (P. 301): .............................................................................................................. 43
Chapter 14: Purchasing, Corporate Social Responsibility and Integrity (p. 307): ..................................................................... 44
Business principles and Procurement (p. 309): .................................................................................................................... 44
Towards a sustainable environment: ‘people, Planet, Profit (P. 310): ................................................................................. 44
Example of Unilever’s Sustainable Living Plan (P. 313): .................................................................................................. 44
Trust, Business Integrity and Ethics (p. 316): ....................................................................................................................... 45
Chapter 15: Supplier Management: Cost approach and techniques (p. 339) .......................................................................... 45
How is the purchase price determined? (p.340) .................................................................................................................. 45
Pricing Methods (P.344):...................................................................................................................................................... 46
The Learning Curve (P. 346): ................................................................................................................................................ 47
Supplier Assessment Levels of Assessment (P.348): ............................................................................................................ 47
Supplier Assessment Methods (P. 349): .............................................................................................................................. 47
Financial Assessment (P.351): .............................................................................................................................................. 47
Supplier Development (P. 352): ........................................................................................................................................... 47
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CHAPTER 1: THE ROLE OF PURCHASING IN THE VALUE CHAIN
Purchasing: The management of the company’s external resources in such a way that the supply of all goods,
services, capabilities and knowledge which are necessary for running, maintaining and managing the
company’s primary and support activities is secured under the most favorable conditions.
THE ROLE OF PURCHASING AND IN THE VALUE CHAIN (P.5)
Primary activities: Those activities that are required to offer the company’s value proposition to its customers.
They consist of inbound logistics, operations, outbound logistics, marketing and sales and customer services
activities.
Support activities: Those value activities that are required to support the company’s primary activities. These
include procurement, technology, development, human resource management and facilities management.
Procurement: Procurement includes all activities required in order to get the product from the supplier to its
final destination. It encompasses the purchasing function, stores, traffic and transportation, incoming
inspection, and quality control and assurance, allowing companies to make supplier selection decisions based
on total cost of ownership (TCO), rather than price. Procurement is used when relating to buying based upon
total cost of ownership in a project environment.
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MAIN DIFFERENCES BETWEEN BUYING FOR PRIMARY ACTIVITIES AND BUYING FOR
SUPPORT ACTIVITIES (P. 7):
Aspects Buying for primary activities Buying for support activities
Product assortment Limited to large Very large
Number of suppliers Limited, transparent Very large
Purchasing turnover Very large, considerable Limited
Number of purchasing orders Considerable Very large
Average order size High Small
Control Depends on the type of Limited, forecast-related or

production planning project-related planning
Decision-making unit Engineering, manufacturing Fragmented, varies with product

specialists dominant or service
DEFINITION OF THE CO NCEPTS (P.7)
Purchasing function: Covers activities aimed at determining the purchasing specifications based upon ‘fitness
for use’, selecting the best possible supplier and developing procedures and routines to be able to do so,
preparing and conducting negotiations with the supplier in order to establish an agreement and to write up the
legal contract, placing the order with the selected supplier or to develop efficient purchase order and handling
routines, monitoring and control of the order in order to secure supply, follow up and evaluation.
Purchasing Management: Relates to all activities necessary to manage supplier relationships in such a way
that their activities are aligned with the company’s overall business strategies and interests.
Request for Information (RFI): Suppliers are invited to submit general information that may help them to
qualify for a potential tender.
Request for quotation (RFQ): Suppliers are invited to submit a detailed bud which meets the requirements as
laid down in the requests for quotation against the lowest possible price (identical to request for tender).
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DuPont analysis: Financial diagnostic tool to calculate the company’s return on investment based upon sales
margin and capital turnover ratio. Shows that purchasing contributes to a company’s success in three ways:
1. Through reduction of all direct material costs

2. Through a reduction of the net working capital employed by the company
3. Through improving the company’s revenue generating potential
IMPORTANCE OF PURCHASING TO BUSINESS (P.12):
1. Purchasing policies can significantly improve sales margins through realizing substantial cost
savings
2. Through better quality and logistics arrangements with suppliers, purchasing can contribute to a
reduction of working capital and, hence, the company’s cash position
3. Suppliers may contribute significantly, when addressed properly, to the company’s innovation
process.
CLASSIFICATION OF PURCHASING GOODS (P. 1 5):
 Raw materials, supplementary materials, semi-manufactured products, components, finished products

or trade items, investment goods or capital equipment, maintenance-repair-operating (MRO) items
and services.
NEW DEVELOPMENTS IN PURCHASING (P. 16)
 Leveraged purchasing and supply strategies: Important purchasing advantages can be realized by
combining common purchasing requirements. A trend towards leverages or co-ordinated purchasing
strategies is apparent in many large, European companies, across national borders.
 Global sourcing: Proactively integrating and co-coordinating common items and materials, processes,
designs, technologies and suppliers across worldwide purchasing, engineering and operation locations.
 Supplier integration: Integrate suppliers with the support of new technology in the strategic planning
and purchasing process.
 Early supplier involvement: Situation where the supplier is involved by the buyer in an early stage of
the new product development process.
 Corporate social responsibility: The idea is to develop business solutions in such a way that
requirements of the current world population are met without doing harm to the needs of future
generations.
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CHAPTER 2: INDUSTRIAL BUYING BEHAVIOR: DECISION MAKING IN PURCHASING

(P.21)
ORGANIZATIONAL BUYING BEHAVIOR: BASIC CHARACTERISTICS (P.22)
Buying process: Includes determining the purchasing needs, selecting the supplier, arriving at a prober price,
specifying terms and conditions, issuing the contract or order, and following up to ensure proper delivery and
payment. Examples of industrial buying behavior are:
 Professional purchasing: professional buyers with education and experience who know their tasks and
responsibilities
 Derived demand: developments in industrial markets are often related to changes in the end-user
markets upstream in the value chain
 Inelastic, fluctuating demand: due to the derived demand, price-elasticity in industrial markets is
frequently lower than in consumer markets
 Geographical concentration: many industrial markets are geographical concentrated (e.g. Silicon
Valley)
 Large order quantities and large amounts of money involved
 Limited number of customers: industrial suppliers often supply only a few companies compared to
companies that deliver directly to consumers
MODELS OF INDUSTRIAL BUYING BEHAVIOR (P. 23):

Aspect Industrial market Consumer market
Buying objective Enable production Personal need satisfaction
Buying motive Mainly rational Also emotional
Purchasing function Professional buying Consumers
Decision making Many persons involved, much Often impulsive, without

discussion consulting others
Characteristics Negotiations, intense interaction Often without negotiation, little

interaction
Product & market knowledge Large Limited
Order size Often large Mostly small
Demand Derived, fluctuation Autonomous, relatively stable
Price elasticity Rather inelastic Rather elastic
Number of customers Mostly limited Very large
Spread of customers Sometimes large geographic Large spread

concentration
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THE PURCHASING PROCESS (P. 28)
The variables that influence the outcome of the purchasing process can be classified into (1) variables that
affect the buying process and (2) variables that affect buying behavior.
(1) Variables that affect the buying process:
 Characteristics of the product: Differences could be: Financial importance, technological complexity
and the supply risk involved when purchasing the product.
 Strategic importance: The higher the importance, the more likely the general management will get
involved in the purchase decision.
 Sums of money involved
 Characteristics of the purchasing market
 Degree of risk related to the purchase
 Role of the purchasing department in the organization
 Effect of purchase on existing routines
(2) Variables that affect the buying decision:
 Task variables: Relate to tasks, responsibilities and competences assigned to a person making the
decision
 Non-task variables: Relate to the professional’s personality
THE PURCHASING PROCESS (P. 28):
The purchasing process (usually) contains the following steps:
1. Specification
2. Supplier Selection and Assessment
3. Negotiation and contracting
4. Order process & Expediting
5. Evaluation & Follow up
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ASPECTS OF THE PURCHASING PROCESS (P.29)
 Business needs are leading: Business needs and requirements are the input for the purchasing
process model
 Process approach: the various steps in the model are closely connected and the quality of the output
of the preceding steps determines to a large extent the quality of the subsequent steps
 Defining the interfaces: the output of each phase has to be clearly defined, preferably with a
document
 Determining responsibilities: purchasing is considered to be a cross-functional responsibility.

Therefore, the tasks, responsibilities and authority of the parties involved should be clearly indicated
in each phase
 Combining different skills, different types of knowledge and expertise: key question is how to
combine the different types knowledge, skills and expertise in such way that all parties involved arrive
at an optimal solution for the company
THE ADDED VALUE OF THE PROFESSIONAL BUYER (P.30)
The added value of the professional buyer lies in the ability to act as a facilitator for the supply process:
 Identifying new, potential suppliers and business partners for the company’s changing business needs
 Being involved in new product development and investment projects
 Supporting internal customers in defining purchasing specifications
 Preparing and carrying out contract negotiations, setting up requisitioning and ordering routines (e.g.
through electronic buying catalogues, e-Procurement) in such a way that users can place orders
themselves
 Setting up requisitioning and ordering routines in such a way that the users can place orders
themselves
 Place orders at suppliers and maintain and monitor orders, contracts and supplier files
 Monitoring outstanding orders and financial obligations
 Follow up and evaluation of supplier performance and maintaining relevant supplier documentation
TYPES OF PURCHASING (P.31)
(1) New-task situation: Situation when the organization decides to buy a completely new product,
supplied by an unknown supplier.
(2) Modified rebuy: Relates to a situation when the organization wants to purchase a new product from
a known supplier or a known product from a new supplier.
(3) The straight rebuy: Relates to the acquisition of a known product from a known supplier (routine
buy). Ordering often takes place through an E-procurement solution (All web-enabled solutions aimed
at supporting the purchasing process and all electronic data exchange that is needed for efficient
transaction processing).
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THE PURCHASING PROCESS STEP-BY-STEP (P. 32)
1. The specification phase:
During the purchasing process, the purchasing requirements are determined and the company is also faced
with the ‘make-or-buy’ decision. Purchasing managers differentiate between functional specifications and
technical specifications. Those contain:
 Quality specifications
 Logistics specification
 Maintenance specification
 Legal and environmental requirements
 Target budget
The specification is part of a wider concept, which is referred to as the purchase order specification.
2. Supplier selection and supplier assessment
Supplier selection relates to all activities which are required to select the best possible suppler and includes
determining on the method of subcontracting, preliminary qualification of suppliers and drawing up the
‘bidders’-list, preparation of the request for quotation and analysis of the bids received and selection of the
supplier.
One important decision is if the company should decide to go for turnkey subcontracting or partial
subcontracting (also referred to as full / partial outsourcing):
The decision for fixed-price or a cost-reimbursable contract concerns the following factors:
 Comprehensiveness of the specification, absence of specifications makes a fair comparison impossible.

 Available time, is there enough time for a tender procedure and price negotiations?
 Technical expertise, when specialized knowledge and skills are required a cost-reimbursable contracts
is often preferred.
 Degree of knowledge of the industry, about methods and price arrangements
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3. Negotiating and contracting
In general the buyer should insist on a fixed price, arrived at through competitive bidding or negotiation, which
is acceptable to both principal and supplier. In practice, different price arrangements are used in purchase
agreements:
 Fixed-price plus incentive fee: This type of contract is designed to motivate suppliers by means of
rewards to execute the work above the agreed standard.
 Cost-plus contract: Cost-plus contracts are used in situations where the work cannot be specified
adequately, or when a fixed price constitutes too big a risk for both the supplier and the buyer.
 Cost-reimbursable: This type of contract is usually based on fixed hourly rates for labor and
equipment. Without a bonus or penalty clause these contracts provide little incentive to minimize
labor hours or costs.
 Agreement with price-adjustment: This type of contract is used mainly for agreements with a long-
term delivery, or when very specific, market-sensitive materials are processed.
The terms of payment always also need to be looked at and can play a crucial role by influencing the final price,
4. The ordering process and expediting
After the terms and conditions of the contract have been agreed and recorded, the order can be placed. A
purchase usually is initiated electronically through a purchase order requisition or a materials requisition.
The buyer usually closely monitors the performance of the buyer. There are several ways of expediting:
 Exception expediting: buyer only takes action when the organization sends out signals of material
shortages
 Routine status check: preventing materials supply and quality problems – few days before promised
delivery, the buyer contacts the supplier to confirm delivery date
 Advanced status check: for critical purchase parts – a detailed production plan will be handed over to
the buyer and during the process the buyer will carry out periodic checks
In addition, when the products or equipment are delivered for the first time they will have to be checked to
ensure that they meet the specified requirements. There are three ways of acceptance testing a product
before using on a regular basis:
 1. An Acceptance test at the supplier’s site before shipment

 2. An Acceptance test at the user’s site after delivery
 3. An Acceptance test when the equipment is put into operation for the first time
5. Follow up and evaluation of the buying process
The buyer’s role continues after the new product has been taken into production or the installation has been
put into operation.
 Compare invoice with the original order

 Solve delivery issues
 Supplier assessment:
o Keep track of supplier’s quality, delivery record, competitiveness and innovativeness
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E-PROCUREMENT (P.42)
 Electronic market places: make searching for suppliers more easy like www.chemconnect.com for
chemicals and plastics or www.aeroxchange.com for the aviation industry
 Electronic auctions: the electronic trade exchange is the most popular e-solution
 Electronic catalogue and ordering systems: offer buyers greater opportunities for more efficient order
handling.
 Efficient order processing, logistics and payment systems
 Transactions without human interference
 Substantial cost reduction because of e.g. transaction costs
FORMS OF E-AUCTIONS (P.44)
 Open Request for information (RFI) / request for proposal (RFP):

o Qualification before auction
o Supplier is invited based on the offer
 Reversed auction
o input price determined by buyer
o offers are visible, suppliers can see how far away they are from the best offer
 Forward auction:
o Vendor determines the price
o Several buyers announce their offer to the auctioneer
MAJOR BOTTLENECKS AND PROBLEMS (P.46)
 Too much emphasis on price: Especially buying capital equipment buying decisions need to be based
upon total-cost-of-ownership (TCO) rather than on price only.
 Poor administrative processes: Putting a sound administrative system in place could lead to
significant savings.
 Problems in delivery phase: over time or incomplete delivery, quality problems can put the continuity
of the business process in danger.
 Suppliers are not systematically assessed: This results in unprofessional suppliers and repeating
problems.
 Too detailed specification: The specifications of the user are sometimes written to the capabilities of
specific suppliers
 Inadequate supplier selection: Failure to check the supplier's (bank) references, can produce very
unpleasant surprises like bankruptcy
 Personal relationships: Purchase orders are placed with suppliers with whom the user has a friendly
relationship; As a result such suppliers may not be as competitive.
 Contracts are too general, incomplete, drafted up by the supplier or not present at all.
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CHAPTER 3: THE PURCHASING MANAGEMENT PROCESS (P.51)
Purchasing Management: Relates to all activities necessary to manage supplier relationships in such a way that
their activities are aligned with the company’s overall business strategies and interests.
PRIMARY TASKS AND RESPONSIBILITIES (P. 53)
Tools Aspects
 Secure timely and undisturbed availability of purchased goods and services
 Control and reduction of all purchasing-related spending
 Reduction of the company’s risk exposure in relation to its supply markets
 Contribution to product and process innovation, the development task
Managing the purchasing agenda: Balancing cost-risk-value
PROFESSIONALIZING PURCHASING: A FEW PRINCIPLES (P. 59)
Major principles of purchasing policies:
 Business alignment
o Develop a purchasing and supply strategy with regards of the company’s strategy,
competition and targeted customers.
 Integrated, cross-functional approach
o Purchasing decisions cannot be made in isolation, and should not be aimed at optimization of
purchasing performance only
o Purchasing performance: The extent to which the purchasing function is able to realize its
predetermined goals at the sacrifice of a minimum of the company’s resources, costs etc.
 Performance driven
o Purchasing engages in a healthy debate with its internal customers – The Purchasing manager
needs to be informed about all customer needs
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Supply policy Purchasing order processing
Materials and supply planning
Product and supplier quality policy Early involvement in development
Improving suppliers quality performance
Materials cost policy Control of materials costs and prices
Reduction of materials costs and prices
Supplier policy Sourcing policy
Improvement of supplier performance
Communication policy Internal contacts
External contacts
PURCHASING MANAGEMENT PROCESS (P. 61)
1. Purchasing and supply (market) research: Purchasing and supply (market) research refers to the
systematic study of all relevant factors which may affect supply and demand of goods and services, for
the purpose of securing the company’s current and future requirements.
2. Purchasing and supply objectives, strategy and planning: Based upon the company's overall
objectives, purchasing objectives will relate to cost-reduction, improving product quality, lead time
reduction etc. Through these objectives the company directs, manages and controls its purchasing
activities and supplier strategies. Management can focus on different areas for action
3. Implementation of purchasing policy: Important areas to consider when implementing purchasing

and supply policy are supply, product and supply quality, materials costs and prices, suppler policy and
communication policy
4. Control and evaluation: Purchasing management must see to it that both results and activities that
have been planner are realized within the available financial resources.
HOW PURCHASING AND SUPPLIER MANAGEMENT MAY DEVELOP OVER TIME (P. 66)
Stage 1: Transaction orientation
 The primary task of purchasing is to find appropriate suppliers for raw materials and supplied
components. There is no explicit purchasing strategy in place.
Stage 2: Commercial orientation
 Purchasing strategy at this stage is characterized by a sharp focus on low prices. The culture is that of
playing hard negotiations with many suppliers.
Stage 3: Co-ordinated purchasing
 Led by a strong central purchasing department to implement uniform buying policies and systems, the
emphasis here lies on cross unit co-ordination and compliance with nationally negotiated contracts.
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Stage 4: Internal integration
 The emphasis is on cross-functional problem solving with the objective of reducing total life cycle cost
and not just the unit cost of components.
Stage 5: External integration
 An explicit outsourcing strategy is combined with extra attention to collaborate with supply chain
partners on product development and preproduction planning.
 Residential engineering: Situation where engineers from the supplier on a more or less permanent
basis are co-located at the buyer’s organization, in order to work on design or manufacturing
problems which appear during the successive stages of development
Stage 6: Value chain orientation
 Delivering value to the end customer in order to satisfy the needs in end-customer markets.
Subcontractors seek for support among their suppliers.
SOME OBSERVATIONS FROM PRACTICE (P. 71)
 Most companies have a large potential for improvement in the area of purchasing management.
 The systematic approach of the purchasing management process can help make this potential visible
and accessible.
 However, it takes time to put all the elements of the purchasing management process in place.
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CHAPTER 4: BUYING BUSINESS SERVICES (P. 75)
INTRODUCTION (P. 75):
Also service levels have strived for purchasing excellence. Purchasing for services increased in the last decades
dramatically. Purchasing Excellence: Explains how to professionalize purchasing, making use of two types of
processes, i.e. strategic management process and enabling process.
THE INCREASING IMPORTANCE OF SERVICES (P.77):
Some of the most important points from this section are:
• The biggest cost driver of service companies is personnel
• Services do not only include supporting functions (such as cleaning) but also services which deliver customer
value
DIFFERENCES BETWEEN GOODS AND SERVICES (P. 78):
The biggest difference is the steps in the buying process of a service:
Service: “a process consisting of a series of more or less tangible activities that normally take place in the
interaction between customer and supplier employees, or physical resources and systems, that are offered as an
integrated solution to customer problems.”
Service Level Agreements: (SLA) describes the performance, which needs to be delivered by the supplier. Both
parties agree key performance indicators. Payment to suppliers is based upon specific rates plus a bonus or
minus based upon actual performance versus targeted performance.
TOWARDS A CLASSIFICATION OF SERVICES (P. 80):
There are many different ways to classify services. Kraljic’s purchasing portfolio can be used for example.
Another possibility is the following classification scheme:
• Facility services
• Financial services
• Information and Communication technology services
• Operational services
• R&D services
• Transportation and logistics services
• HR services
• Marketing services
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THE INITIAL PURCHASING PROCESS (P. 82):
There are three important stages when purchasing a service. Specifying, selecting and contracting services.
1. Step - Specifying: Defining the Scope of work for Service Providers. Three different ways:
a. Specification of the inputs that will be used by the service provider. In this situation the contract is
aimed at describing the resources and capacities that will be used by the service provider to
produce the required services.
b. Specification of the throughputs, or the processes that need to be in place in order to produce the
requested service. Based upon a general description of the work that needs to be accomplished
both parties agree on the activities that will be performed by the service provider.
c. Specification of the outputs (or outcome) that need to be generated by the supplier. Here, the
buyer is explicit in terms of the results that need to be accomplished and delivered by the service
provider.
2. Step – Selecting Service Providers (p.84)
a. The more intangible the service is the more time is takes to find a supplier
3. Step ‐ Contracting for Services
a. This is a difficult process because it needs to be clarified what expectations the customer has and
what the suppliers needs to do in order to meet them. For example a service could also include a
warranty if it is expected – but this needs to be in the contract.
THE POST-CONTRACTUAL STAGE (P.85)
In this stage, the actual terms have to be agreed upon. Close collaboration between buyer and supplier is
crucial in order to clarify the following:
1. What service to provide
2. How to organize it
3. How to measure it
4. How to pay for it
In most service cases, employees of the service provider reside within the organization and relationships will
build on multiple levels.
INVOLVEMENT OF PURCHASING IN CONTRACTING FOR SERVICES (P. 88)
Purchasing has difficulty getting involved in purchasing for services since it is the internal customer who needs
to be happy with the service. Professional buyers usually are requested for support, if any, only when the
contract is about to be put together and signed.
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CHAPTER 6: MARKET STRUCTURES AND SUPPLY MARKET RESEARCH (P.115)
INTRODUCTION (P. 115):
Supply market research: Defined as the systematic gathering, classification and analysis of data considering all
relevant factors that influence the procurement of goods and services for the purpose of meeting present and
future company requirements.
External structure: An external structure consists of a number of links (companies, institutions etc.) that are
connected via markets.
MARKET AND MARKET STRUCTURES (P. 116)
Industrial branch: Defined as the horizontal relationship of organizations that experience each other as
effective competitors (for example, the leather and footwear industry and the electronics industry).
Industrial column: Defines as a series of companies in which the consecutive stages of production of an
economic product take place – from primary producer to consumer (identical to the supply chain). Depending
on the stages, one can speak of a short or a long industry column. Depending on the location of the link in the
industry column, the materials-flow between successive links can take the following forms:
 Diverging materials flow: The finished product of one link is the main or sole input for the next
production stages of various other industry columns. Applies to raw material industries.
 Linear material flow: The finished product of one link is the main or sole input for the subsequent link.
 Convergent material flow: Various finished products of links of various industry columns are the input
for the next link. This situation is found in companies with assembly-oriented production.
SUPPLY SIDE (P.118)
Four types of market structures:
 Pure competition
 Monopolistic competition
 Oligopoly
 Monopoly
DEMAND SIDE (P.119)
Three types of market structures:
 Oligopsony, Semi-manufactured products, Monopsony
SUPPLY CHAIN MARKET RESEARCH: DEFINITION (P. 121)
Supply market research can be defined as the systematic gathering, classification and analysis of data
considering all relevant factors that influence the procurement of goods and services for the purpose of
meeting present and future company requirements.
Three areas of investigation:
 Materials, goods and services

 Suppliers
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 Systems and procedures
Three types of research (P.122)

 Macroeconomic research: Focuses on general economic and business environment
 Mesoeconomic research: Focuses on specific sectors or industries
 Microeconomic research: Focuses on assessing strengths and weaknesses of individual suppliers or
products
WHY SUPPLY MARKET RESEARCH (P.123)
 Continuing technological developments

 Supply market dynamics
 Monetary developments
 Offset obligations and changes in tax regimes
HOW TO STRUCTURE PURCHASING MARKET RESEARCH (P.125)
1. Determine objectives
2. Cost-benefit analysis
3. Feasibility study
4. Design of a research plan
5. Execution of research activities
6. Preparing research report and evaluation
PURCHASING MARKET RESEARCH AND INFORMATION TECHNOLOGY (P.128)
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CHAPTER 7: PURCHASING AND BUSINESS STRATEGY (P. 149)
Purchasing and supply management gained importance in the 1970s due to the popularity of transaction cost
economics in business operations. The theory holds that a firm could benefit from economies of scale, learning
effects and lower cost by purchasing suppliers externally.
Potential sources for a competitive advantage derived from purchasing:

1. Superior skills, capabilities and experience of individuals
2. Historically superior codified knowledge of markets and supply-chains
3. Superior power resources over suppliers
4. Lack of transparency in how superior procurement competence is achieved
5. High cost of replication of superior procurement competence
PURCHASING’S ROLE IN STRATEGIC MANAGEMENT THEORY (P. 152)
After World War II, companies tried to ensure supply by sourcing internally. Philips even produced its own
toilet seats (thank you for that information, Arjan!) In 1980, Ansoff introduced the SWOT matrix which was one
of the first signs of change. The BCG matrix followed soon and indicated that companies need to increase
market shares for their products. In 1980, Porter introduced the value-chain concept in order to explore the
competitive position of a company. With the introduction of Porter’s five forces, he was one of the first giving
explicit attentions to purchasing and supply management and the role of suppliers.
INNOVATION STRATEGY AND COMPETENCE MANAGEMENT (P. 155)
When studying the innovative behavior and performance of companies, a major research question was: How is
it possible that within one sector some players consistently perform better than their competitors?
The answer was called resource-based view of the firm (Rumelt 1991, Wernerfelt 1984): A theory that
business success is primarily achieved through deploying a company’s unique resources. Companies should
differentiate between core versus non-core competencies. In parallel to the resource-based view, the resource
dependency theory was discussed. The theory suggests that the business success is primarily achieved through
deploying a company’s external and internal resources.
STRATEGIC MANAGEMENT THINKING: IMPLICATIONS FOR PURCHASING AND SUPPLY

MANAGEMENT (P. 157)
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TOWARDS PURCHASING EXCELLENCE (P. 158)
When pursuing purchasing excellence, companies need to pay attention to two kinds of processes: strategic
management processes and enabling processes.
STRATEGIC MANAGEMENT PROCESSES (P. 158)
 Insourcing/outsourcing
o Clear policy regarding make-or-buy
 Develop commodity strategies
o Spend analysis (spend cube)
o Structure and classify purchasing expenses (category tree)
o Determine strategy
 Number of suppliers geographical dispersal, relation, contract form
o Involvement of specialists and internal customers in execution
 Establish world class supply base management
o Intensify relations with suppliers
o Database with supplier information
o Detailed audits with important suppliers
 Develop and manage supplier relationships
o Continuous improvements
o Classification of suppliers:
 Commercial suppliers: Only deliver goods on the agreed terms
 Preferred suppliers: Mutual objectives / Improvement programs
 Supplier partners: Work closely / Develop new technologies
 Integration of suppliers in product development
o Suppliers with proved competences
o Using specific knowledge
 Supplier integration into order fulfillment process
o Outsource logistic and administrative tasks
o Connect suppliers with information systems and production planning
o Develop plans to increase value for customer through purchasing
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 Supplier development and quality management

o Suppliers are invited to participate in suggestions for improvement
o Suppliers are a source of new ideas
 Strategic cost management
o Detailed cost models
o Supply chain analysis and measures to decrease supply chain costs together with suppliers
o Sharing of advantages is necessary
ENABLING PROCESSES (P. 160)
Develop II
Organization and
Teaming strategies III
Deploy
Globalization
Establish globally I
integrated and aligned
purchasing and supply INTEGRATED,
chain Strategies + Plans ALIGNED AND
GLOBAL IV
Develop purchasing
and supply chain
Measurements
Establish HumanVI
Resource develop-
ment and training Develop and V
implement enabling
Source: Robert.M. Monczka, Ph.D. IS / IT systems
 Establish globally integrated and aligned purchasing and supply-chain strategies and plans
 Develop organization and teaming strategies
 Deploying globalization
 Develop purchasing and supply-chain measurements
 Develop and implement enabling IS/IT systems
 Establish Human resource development and training
PURCHASING PORTFOLIO ANALYSIS: PRINCIPLES (P. 162)
Kraljic’s purchasing portfolio: A matrix indicating for quadrants, represented for basic supply strategies, based
upon financial impact and supply risk represented by a specific product category. The purchasing turnover and
the supplier base are analyzed on the basis of two variables:
1. Purchasing’s impact on the bottom line

the profit impact of a given supply item measured against criteria such as cost of materials, total cost,
volume purchased
2. Supply risk
measured against criteria such as short-term and long term availability, number of potential suppliers,
and structure of supply markets.
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FOUR BASIC SUPPLIER STRATEGIES (P. 166):
Remarks:
 The use of a purchase portfolio alone is often not sufficient to develop buying and supplier strategies.
 For a strategic relation acknowledgement from both sides is necessary
o The Dutch windmill, analyzing buyer-seller interdependence combining both the buyers portfolio
approach and the suppliers customers portfolio approach, leads to more realistic expectations
and plans with regard to future buyer seller collaboration
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CHAPTER 8: OUTSOURCING AND RISK MANAGEMENT (P.173)
DEFINITIONS AND CONCEPTS (P.175):
Offshoring: Relates to the commissioning of work, which was previously done in-house, to a provider in a low-
cost country. In many cases, offshoring is concerned with outsourcing of services.
Partial outsourcing: Partial outsourcing refers to the case in which only a part of an integrated function is
outsourced. The coordination of the function and activities sill lies with the client (the buyer).
Turnkey outsourcing: Turnkey outsourcing appliers when the responsibility for the execution of the entire
outsourced function lies with the external provider. This includes not only the execution of the activities, but
also the co-ordination of these activities.
CHARACTERISTICS OF OUTSOURCING (P.174):

 in-house performed activities are transferred to a third party
 Assets, knowledge and sometimes employees are send to the external party
 Extended and long term relationship
 Buyers from both parties experience new costs and risk profiles
Labor outsourcing Mixed outsourcing Complete outsourcing

Contractor Some employees Some or all of the Employees
provides following: Materials
Employees Process and
Materials Systems
Process and Systems Technology and
Technology and Equipment Equipment
Facilities Facilities
Management/Supervision
Host firm Some employees Some or all of the Program

provides Materials following: management
Process and Systems Employees
Technology and Equipment Materials
Facilities Process and Systems
Management/Supervision Technology and Equipment
Facilities
Management/Supervision
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Rationales for outsourcing
Advantages Disadvantages
Turnkey Buyer has minimal responsibility for The buyer has limited influence on the
outsourcing outsourced processes determination of the price and little insight in
cost structure of provider
Buyer doesn’t need to have experience
with similar projects Buyer has limited influence on the staff,
technology and materials used and their quality
The project generally goes smooth for
the buyer Large dependence of buyer on provider
resulting in high commercial, technical and
performance risks
Partial The buyer has more influence on prices, Buyer is required to have knowledge of the
outsourcing rates and costs separate parts of the outsourced function/
activities
The buyer has more influence on the
staff, technology and materials used The buyer is required to have the
and their quality organizational capabilities to coordinate and
integrate the outsourced function / activities
Specific advantages can result in cost
reductions Communication and coordination problems
between parties involved can be a cause of
delay and disappointment
 Reasons for outsourcing:

Strategic reasons for outsourcing 1. Improve company focus
2. Gain access to world class capabilities
3. Get access to resources that are not available internally
4. Accelerate reengineering benefits
5. Improve customer satisfaction
6. Increase flexibility
7. Sharing risks
Tactical reasons for outsourcing 1. Reduce control costs and operating costs
2. Free up internal resources
3. Receive an important cash infusion
4. Improve performance
5. Ability to manage functions that are out of control
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THE OUTSOURCING MATRIX (P.179):
ADVANTAGES AND DISADVANTAGES OF OUTSOURCING (P.180):
Advantages Disadvantages
Freeing up of cash: investments can be concentrated Increased dependence on suppliers
on core activities
Optimal usage of knowledge, equipment and Continuous follow-up and monitoring of the supplier
experience of third party relationship necessary
Increased flexibility: fluctuations in the workload can Risks of communication and organizational problems
more easily be absorbed during the transfer of activities to a third party
Outsourcing leads to easier and more focused primary Risks of leakage of confidential information
processes in the organization
Input through an independent party’s point of view Performance incentives and penalties
which reduces the risks of introvert short-sightedness
in the organization
Risk of losing essential strategic knowledge
THE OUTSOURCING PROCESS (P.180):
Three phases:
 Strategic phase (why, what, who?)
 Transition phase (how?)
 Operational phase (how to control?)
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Two approaches are used to answer the question about what part of the company should be outsourced:
1. Transaction cost approach: Based on the idea of finding a governance structure to arrive at the lowest
cost possible for each transaction and comparing whether to perform an activity internally or
outsource the activity in the market.
2. Core competence approach: Based on the assumption that, in order to create a sustainable
competitive advantage, a company should concentrate its resources on a set of competencies where it
can achieve definable pre-eminence and provide a unique value for the customer. Therefore, it should
outsource all other activities.
The three phases
Strategic phase:
1. Motives for outsourcing
a. Focus on core competences
b. Focus on cost efficiency/ effectiveness
c. Focus on service
2. Which activities or functions are outsourced
a. Transaction cost approach
b. Core competence approach
3. Qualifications of the supplier
a. Technical and managerial qualities to achieve demanded level of performance
Transition phase:
1. Contract negotiation
a. Contract forms a legal basis for relationship
b. Contracts depends on characteristics of outsourced activity
c. The contract type has a great impact on the success of the joint operation
2. Project execution and transfer
a. Outsourcing transition can be very complex
b. The transfer should be conducted using project management principles
c. Test phase before going ‘life’
Operational phase:
1. Managing the relationship
a. One of the most critical stage in the outsourcing relationship
b. Performance should be measured
2. Contract termination
a. Contracts are needed to ensure quality from the supplier
b. Contracts need to be reviewed continuously
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CHAPTER 9: CATERGORY SOURCING: GETTING BETTER PERFORMANCE FROM

SUPPLIERS (P.193)
REASONS UNDERLYING COST-SAVINGS POTENTIAL IN PURCHASING (P.195):
Traditional purchasing: In many companies, purchasing is managed in a traditional way. This means that
buyers are only involved late, if at all, in the purchasing decision making process and the company actually
deals with a fixed group of familiar suppliers.
Continuous and relentless competitive bidding among a fixed group of suppliers: In many cases, purchasers
regularly sound out competition among their often know suppliers by playing them off against each other
Overspecification: A situation in which technical requirements are imposed on suppliers which are not
necessary for the functionality of the products.
Price increases in general are automatically passed on the next in line: “French fries principle”. Price
increases of raw materials are passed on to the consumer, price decreases, however, are not.
Supplier cartels in (international) supply markets: Supplier in concentrated supply markets team up in cartels
and are able to keep prices which are not related to the underlying cost structure of their products.
Suppliers’ customer relationship programs: The idea of influencing the customer with relationship programs,
as golf tournaments etc.
HOW TO IDENTIFY COST-SAVINGS POTENTIAL (P.197):

 Customized versus standard (of the shelf) specification
 Modular versus component buying
 Buyer-supplier dependence
 Number of suppliers involved in last tender
 Scope of last tender
 Type and age of contract
 Market price versus cost price differential
 Level of purchasing involvement
Category prioritization matrix (p.199): Matrix used to classify category cost-savings projects based upon two
criteria: cost-savings potential and ease of implementation
DEVELOPING A SOURCING STRATEGY (P.200):
Issued that should be addressed by a category sourcing strategy are the following:
 Single vs. multiple sourcing

 Global vs. local sourcing
 Partnership or competitive relationship
Depending on the sourcing strategy, a contract strategy needs to be developed:
 Buying on contract or buying on spot basis

 Price agreement vs. performance agreement
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CATEGORY SOURCING PLANNING (P.201):
See Table on page 202.
GETTING BETTER RESUL TS FROM SUPPLIERS (P.204):
Three step-approach:
1. Check the contracts that currently are in place with suppliers. Make sure that these are updated in
close co-operation with the internal user.
2. Find the best possible supplier for its need.
3. Developing the best possible solution for the company’s needs in close collaboration with the
selected, best-in-class supplier.
THE MYTH OF THE PARTNERSHIP (P.207):
Advantages: Achieve significant improvements in:
 Logistics: By giving the suppliers insights into the supply needs and materials
 Quality: Enables zero defects delivery
 Product and Supply Chain costs: Targets are set to jointly reduce the supplier’s underlying materials,
labor and process costs.
 Product development: Time-to-market and start-up costs can be reduced by early supplier
involvement
HOW BUYER-SUPPLIER RELATIONSHIPS MAY CHANGE OVER T IME (P. 208)
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CHAPTER 10 – PURCHASING, INNOVATION AND QUALITY MANAGEMENT (P.211)
PURCHASING AND INNOVATION (P.213)
There are two types of innovation:
 Open Innovation: by creating close collaborations on R&D with parties that would share the
company’s business interests in such collaboration
 Closed Innovation: companies try to develop new products and processes based on the idea that the
company itself has the best possible knowledge and resources for innovation
THE ROLE OF SUPPLIERS IN NEW PRODUCT DEVELOPMENT: EARLY SUPPLIER

INVOLVEMENT (P. 215)
Close collaboration, trust and a cross-functional willingness between organizations need to be present in order
to make supplier innovation successful. Three different types of activities need to be conducted in parallel:
1. Strategic Management Process:

a. Answering the make-or-buy question at the strategic level
b. Selecting future potential partners
c. Standardization and modularization of product designs
d. Evaluating supplier performance
2. Operational Management Process

a. Answering make or buy questions at the project level
b. Deciding about best technological solutions
c. Screening and selecting partners (from preferred supplier list)
d. Making project specific arrangements
e. Evaluating supplier proposals and ways of working
3. Collaboration Processes
a. How to work with suppliers in R&D
b. How to communicate
c. How to assess intersystem compatibility and operability
d. How to evaluate product design
e. Laying out contractual fundaments
f. How to measure and evaluate suppliers
PURCHASING AND NEW PRODUCT

DEVELOPMENT (P. 219)
When developing a new product the following stages

are usually gone through:
1. Idea Generation
2. Concept Study Stage: Translating ideas into
conceptual designs including functionality of the
product.
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3. Definition Stage: Specifying the necessary technical designs necessary to achieve the concept.
4. Product Development: Making prototypes or laboratory models
5. Preproduction Planning: Checking and planning how the prototype could be mass-produced and what
machines/suppliers would be needed for that
6. Pilot Production: Running a first batch production and eliminating all technical and process related
problems before starting the regular production
7. Start of Regular Production: Starting the production. First all products are inspected, later on when the
process runs smoothly, samples are taken only.
Large manufacturers usually communicate with their suppliers in the following ways:
• Purchasing engineering: A purchasing engineer, who is a specialist function in the liaison between the
engineering departments and the purchasing department, will bring in specific supply market
knowledge
• Early Supplier Involvement (ESI): Bringing in the “best-in-class” suppliers early to give feedback in the
design process stage
• Residential Engineering: Bringing in the supplier into the organizations facilities in order to work on
design or manufacturing problems
PURCHASING AND QUALITY MANAGEMENT (P.222):
• Quality: “is the degree in which customer requirements are met. We speak of a quality product or
quality service when both supplier and customer agree on requirements and these requirements are
met”
• Quality Assurance: “concerns keeping up the methods and procedures of quality management, i.e.
systematically checking that they are efficient, that the lead to the desired objective, and that they are
applied correctly”
THE COST OF QUALITY (P.225)
There are three types of costs when it comes to

quality:
1. Prevention costs: All actions in order to

prevent errors to happen
2. Assessment costs: All actions incurred
to minimize the consequences of errors
3. Correction costs: There are two types:
a. Internally: Before the product
is delivered to the customer
b. Externally: the costs incurred
after the customer complained
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SUPPLIER QUALITY ASSURANCE (SQA) (P.227)
SQA is all activities conducted by a company to arrive at zero defects quality performance in its relationship
with suppliers. The following measures are taken into account:
• Preparing the purchase order specifications: The purchase order specifications involve a document,
which clearly explains technical specifications, material requirements, logistic requirements, and
actions in case of future engineering changes.
• Preliminary qualification of potential suppliers: Scanning new and existing suppliers
• Sample Inspection Procedure: The supplier manufactures a first product that is then inspected, if
needed, corrective measures are taken.
• Delivery of First and Subsequent Preproduction Series: In the manufacturing process of a
preproduction series the customer’s engineers supervise the process and discuss weak points.
• Manufacture of the First Production Series: All products are inspected and checked for conformity.
• Quality Agreement and Certification: Quality agreement is closed when the objective of zero-defects
has been reached.
• Periodic Verification: Periodically checking samples of the suppliers’ products in order to ensure
continuous quality conformity.
ASSESSING SUPPLIER QUALITY: DIAGNOSTIC METHODS (P.230):
The following methods are available at the buyer’s disposal:
• Product Audit: Provides an image of the degree to which a company succeeds in making everything
run perfectly.
• Process Audit: Checking if the suppliers have at their disposal all facilities to ensure sound and
controlled production.
• Systems Audit: Compares the quality system to external standards, such as ISO 9001 (or other ISO
standards)
IMPLEMENTING SUPPLIER QUALITY ASSURANCE: CONSEQUENCES FOR PURCHASING

(P.232)
In order to have purchasing act according to the overall companies’ strategy, clear rules need to be set. Those
are:
1. Clear Task Descriptions: Internal documents providing the demanded standards.

2. Clarity Concerning Supplier Selection: Clarifying organization wide expectations and acceptance
levels.
3. Quality First: holding the purchasing department accountable for errors.
4. To Measure is to Know: Giving feedback to suppliers on their performance.
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CHAPTER 11: PURCHASING, LOGISTICS AND SUPPLY CHAIN MANAGEMENT (P.237)
PURCHASING, LOGISTICS AND SUPPLY-CHAIN MANAGEMENT: DEFINITIONS AND

CONCEPTS (P.237)
Logistics management: Logistics management includes the management of materials planning, the supply of
raw materials and other purchased goods, internal transportation, storage and physical distribution. It may also
include, in some companies, reverse logistics, i.e. recycling packaging materials and surplus materials.
The following features are relevant to an understanding of the importance of coordinating the company’s
internal and external supply-chain processes.
 Design, engineering and product development: These activities can strongly affect logistics
processes, for these activities determine the structure of the (future) manufactured products.
 Production department: The production department determines the effectiveness and efficiency of
the logistics function to a large extend.
 Logistics management starts with the customer: If the sales organization, for the sake of landing an
order, promises a delivery time within the internal production lead-times, planning problems are likely
to occur.
MATERIALS REQUIREMENTS PLANNING (P.241):
After marketing developed a sales plan with expected volumes, the manufacturing plan can be created.
The manufacturing plan consists of:
 Master Planning: Developing the linkage between customer orders, the sales plan, the planned stocks
and the production and purchasing plans at the product category level.
 Manufacturing Resources Planning (MRP--‐II): Calculating the resources needed to realize the master
plan.
 Master Production Scheduling (MPS): The MPS translates the master plan into specific material
requirements. Provides input for calculating the net materials requirements (MRP).
 General Capacity Testing: The General Capacity Testing involves checking internal capacities and
identifying possible bottlenecks.
 Materials Requirement Planning (MRP): “Explodes” the requirements of the master production
schedule (MPS) in accordance with the bill-of-materials (BOM). It helps to see if different processes
need the same materials, which could then be purchased together.
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 Capacity Requirements Planning: Detailed production line planning that involves checking the
machine capacity with the required capacity
 Order Release: A released order will be identified with the necessary order so that materials are not
used elsewhere.
 Priority Management: Orders with the highest priority should be given preference.
 Capacity Management: Managing lead times, work-in-progress and capacity is complex. If capacities
are overused then lead time increases and delivery reliability decreases.
BASIC LOGISTICS STRUCTURES (P.243):
In the previous section the system was forecast based. The more accurate the sales forecasts, the more
accurately production planning and materials requirements can be determined. There are two types of
productions:
 Order based production

 Forecast-based production
Customer order decoupling point (CODP): The point in the supply-chain where a production order becomes
customer specific. Downstream of this point activities are planned based upon forecast
Logistics structure, making and sending to stock (MSS): Products are manufactured and distributed to various
distribution points which are dispersed and located close t the customer. Manufacturing is based upon
forecasts and on the expected stock turnover at the points of distribution.
Logistics structure, making to stock (MTS): Finished products are kept in stock at the end of the production
process and from there shipped directly to many geographically dispersed customers, as in the manufacture of
many consumer electronics products.
Assembly to order (ATO): Only systems elements or subassemblies are in stock at the manufacturing center
and final assembly takes place based on a specific customer order.
Engineer to order (ETO): No stock kept at all. Purchase of material takes place on the basis of a specific
customer order. Examples are luxury yachts or oil platforms.
JUST-IN-TIME MANAGEMENT (P.245):
Definition: All materials and products become available at the very moment when they are needed in the
production process, not sooner and not later, but exactly on time and in exactly the right quantity.
Manufactures need to decide when and how much to order from suppliers. There are several models that can
be used for optimizing the incoming materials flow. One of them is the Camp’s formula which is used to
determine the economic-order-quantity (EOQ).
The following conditions need to be held:
 consumption is fairly stable

 consumption is evenly spread over the
course of time
 Delivery time of the product is fixed
 Ordering costs per order are fixed
 Inventory carrying costs do not depend
on the ordered quantity etc.
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QUALITY AND ZERO DEFECTS (P.249)
In order to achieve a zero-defects rate, Japanese companies use the kanban approach: Form of JIT scheduling
based upon fixed volume lot delivery. When a lot is used, the kanban (card) will be send to the supplier as a
signal to replenish for that lot.
JIT AND THE PURCHASING FUNCTION (P.249)
When following JIT, companies need to do the following with their suppliers:
1. Develop long-term contracts

2. Consider single sourcing (instead of multiple suppliers)
TRADITIONAL VS. JIT APPROACH (P.250)

Purchasing Traditional approach JIT approach
activity
Supplier selection Minimum of 2 suppliers; price is central Often one local supplier; frequent deliveries
Change of orders Delivery time and quality often changed Delivery time and quality fixed; quantities are
at the last moment adjusted within predetermined margins if
necessary
Follow-up orders Many phone calls to solve delivery Few delivery problems thanks to sound
problems agreements; quality and delivery problems are
not tolerated
Incoming Inspection of quality and quantities of Initial sample inspections; later, no inspections
inspection nearly every delivered order necessary
Supplier Qualitative assessment; delivery Deviations are not accepted; price is fixed based
assessment deviations of sometimes up to 10% are on open calculation
tolerated
Invoicing Payment per order Invoices are collected and settled on a monthly
basis
ADVANTAGES AND DISADVANTAGES FOR SUPPLIERS (P.250)
Advantages of JIT for suppliers: Disadvantages of JIT for suppliers:

• Regularly informed about quantities • Demands are usually imposed onto suppliers from
• Reduction of costs large buyers
• Constant communication eventually leads to • Requires high investments and efforts to accomplish
innovation zero-defect level
• Long-period contracts • High dependency on a single buyer
JIT AND SUPPLIER SELECTION (P. 253)
The central issue affecting supplier selection is not so much the purchase price, as the level of the total cost, i.e.
the costs including the “waste” that results from poor supplier performance, safety stocks, quality and
incoming inspections. Hence supplier should be excellent in: Quality and On-Time-Delivery
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ELEMENTS OF THE PURCHASING INFORMATION SYSTEM (P.254)
In order to handle all the invoices, orders, stock-keeping units, payments and so forth, adequate information
systems are needed.
 Requisition and Ordering: Internal users express what they need and the requirements (either
through IT or manually).
 Product, Contract and Supplier Database: A purchase order document is created for the supplier
 Order Follow-Up: An overdue list monitors if products did not arrive on time. An inspection report
monitors rejected products Field expediting involves frequently visiting the supplier to check the
process
 Delivery: When the goods arrive, the (freight bill) which the supplier issued will be signed. Inspection
will ensure that the goods are correct. If not, a complaint sheet will be fed into the system that helps
monitoring the suppliers
 Invoice handling and Payment: The supplier will issue the invoice and the finance and administration
department will check the invoice and initiate the payment to agreed-terms.
COORDINATING PROBLEMS BETWEEN PURCHASING AND LOGISTICS (P.258)
There are several problems to face in real-life purchasing due to the complexity of supply chains and
production planning. Some of them are:
 Lack of well-defined specifications: Specifications for purchasing managers often are not specific
enough or are not completed in time.
 Lack of standardization: Sometimes specifications get to complex even for simple products. This limits
the buyers latitude and lead to an expansion of the article assortment
 Frequent changes in materials planning: Frequent changes in material planning lead to disruptive
delivery schedules and increase the number of rush orders
 Unreliable planning information: Not keeping MRP systems up-to-date leads to unnecessary costs
due to extra orders
 Insufficient integration of purchasing in logistics management
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CHAPTER 12: ORGANIZATION AND STRUCTURE OF PURCHASING (P.261)
PURCHASING ORGANIZATION STRUCTURE (P.263)

The organization of purchasing within a company is very dependent on:
 Business characteristics
 Situational Factors
 Type of industry
 Characteristics of the products being purchased
A hybrid structure is the most popular organizational arrangement.
Hybrid Purchasing Organization: A hybrid structure represents a combination of the centralized and
the decentralized structure. The terms ‘hybrid’, ‘pooling’, and coordination’, are used
interchangeably.
FACTORS INFLUENCING THE LOCATION OF PURCHASING IN THE ORGANIZATION (P.

264):
The importance of purchasing in a company’s hierarchy depends on the following factors:

1. Purchasing’s share in the end-products price – the higher the more important purchasing will
be
2. The financial position of the company – the more problematic the more pressure will be on
purchasing
3. Dependence of company on suppliers’ market
LEVELS OF TASK, RESPONSIBILITIES AND AUTHORITY (P.265):

There are different levels of tasks, responsibilities and authority in different organizational roles
within purchasing:
Strategic Level: Purchase decisions, which influence the market position in the long-run.
Tactical Level: Encompasses the involvement of the purchasing function affecting product, process,
and supplier selection.
Operational Level: All activities related to the ordering and expediting function, like ordering
materials, monitoring deliveries, and settling quality issues.
ORGANIZATIONAL STRUCTURES WITHIN PURCHASING (P.267):
STRUCTURE OF PURCHASING IN MULTI-UNIT COMPANIES (P.267):

Multi-unit companies can have several alternatives of purchasing organization:
 Decentralized
 Centralized
 Hybrid
 Cross-functional
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DECENTRALIZED PURCHASING STRUCTURE (P.267):

“A major characteristic is that all business unit managers are responsible for their department’s
financial results. Hence, the management of the business unit is fully responsible for all its
purchasing activities.”
CENTRALIZED PURCHASING STRUCTURE (P.267):

“In this situation at the corporate level, a centralized purchasing department can be found where
corporate contracting specialists operate at the strategic and tactical levels.”
LINE/STAFF ORGANIZATION (P.269):
Usually limited to larger international companies. The purchasing department is split in centralized
and decentralized.
The centralized function does the following:
• Design, procedures, and guidelines for purchasing
• Conduct audits it requested by business unit
• Supply market studies for business units to follow up with
• Solve co-ordination issues
• No tactical purchasing activities are conducted
HYBRID STRUCTURE (P.269):
Some examples of hybrid structures are explained:

 Voluntary Coordination: Purchasing units exchange information and small teams with the
most important users coordinate purchasing
 Lead Buyership: The largest purchasing unit with the largest volume negotiates prices, which
other units then benefit from
 Lead Design Concept: The business unit that designs new products is responsible for settling
the suppliers as well. Hence this is more for technical complex products, which may also
require early supplier involvement.
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CENTRALIZED VS. DECENTRALIZED PURCHASING: SOME CRITERIA TO CONSIDER (P.273):

The following factors or criteria are commonly used when deciding about centralization and
decentralization:
• Commonality of Purchase Requirements – the more standardized the products the more
centralized the organization should be
• Geographic Location – the less dispersed the more centralized purchasing usually is
• Supply Market Structure – the more power at the supplier side, the more centralized the
organization should be
• Saving Potential – the more potential the more centralized
• Expertise Required – the more complex the more centralized
• Price Fluctuations – the more volatile the prices the more centralized
• Customer Demands – the more demanding customers are where a supplier
has to buy the more decentralized
PURCHASING ORGANIZATION IN SINGLE‐UNIT COMPANIES (P.276):

In a single-unit organization the issue of centralized versus decentralized purchasing relates to the
question as to what extent purchases need to be made. The following points influence the authority
which purchasing will receive:
• Management’s View Towards Purchasing

• Information Technology – better technologies lead to greater sophistication of purchasing
organization
• Personal Relationships: Total Cost Approach – Purchasing reporting relationships in a single
unit organization may take different forms:
o The Fully Integrated Logistics Structure: Here purchasing reports directly to the
logistics manager at the same level as production planning and physical distribution.
o The Partially Integrated Logistics Structure: Purchasing, production planning and
physical distribution report to the logistics manager in variously ways (figure on page
276)
PURCHASING JOB PROFILES (P.279):

• Corporate Procurement Officer (CPO) –Responsible for the management and co-ordination
of key purchasing and supply processes throughout the organization
• Corporate Buyers – Negotiating large volume contracts and large investments. Expert
product and market knowledge is necessary for these buyers.
• Purchasing Engineers – Usually short-term tasks at operational level in decentralized
organizations. They are liaisons between product development and purchasing.
• Project Buyers – Deals with investment goods and is a very specialized buying task.
• Material Planners – Focus on calling off the materials required against prearranged
framework agreements. Furthermore, they monitor and control suppliers on their quality
and deliver performance.
• NPR Buyers – Non-product related (NPR) goods and services.
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CHAPTER 13: PERFORMANCE MEASUREMENT AND GOVERNANCE IN PURCHASING (P.

285):
FACTORS INFLUENCING PURCHASING PERFORMANCE MEASUREMENT (P. 286):
• Operational, administrative activity

• Commercial activity
• Part of integrated logistics
• Strategic business area
Purchasing effectiveness: Defined as the extent to which, by choosing a certain course of action, a previously
established goal or standard is being met
WHY MEASURE PURCHASING PERFORMANCE (P. 288):
• Purchasing performance evaluation will lead to better decision-making

• It may lead to better communication with other departments
• It creates transparency
• It may contribute to better motivation
HOW TO ASSESS PURCHASING PERFORMANCE? (P. 289):
Purchasing efficiency: Relates to the resources which are required to realize the previously established goals
and objectives and their related activities. Essentially, it refers to the relationship between planned and actual
costs.
MEASURING PURCHASING PERFORMANCE: FOUR KEY AREAS (P. 290):
1. Purchasing price/cost dimension

a. Price/cost control: Refers to the continuous monitoring and evaluation of prices and price
increases as they are charged by suppliers.
b. Price/cost reduction: Relates to the continuous monitoring and evaluation of activities
initiated to reduce costs in a structured way associated with purchased materials and
services.
2. Purchasing product/quality dimensions:
a. Purchasing’s involvement in new product development: This relates to purchasing’s
contribution to product innovation. Measures used are the number of personal hours spent
by purchasing on innovation projects, the number of engineering hours spent by suppliers,
the project’s overall lead-time.
b. Purchasing’s contribution to total quality control: Parameters such as reject incoming
goods, line rejects rates, number of approved suppliers, number of certified suppliers,
number of reject reports, number of suppler quality agreements, number of ISO certified
suppliers etc.
3. Purchasing logistics dimension
a. Control of the timely and accurate handling of purchasing requisitions
b. Control of timely delivery by suppliers
c. Control of quantities delivered
4. Purchasing’s organizational dimension
a. Purchasing staff, Purchasing management, Purchasing procedures and guidelines,
Purchasing Information systems
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PURCHASING BDUGETS, PURCHASING SAVINGS AND OTHER PERFORMANCE MEASURES

(P. 294):
PURCHASING MATERIAL BUDGET (P. 294)

This budget results from forecasting the volume of materials needed per year and the expected price
for it. The volume is estimated from the production materials requirement plan.
PURCHASING BUDGET INDIRECT MATERIALS (P. 295)

This budget results from forecasting the department spend category. Forecasting is usually made on
historical data. The budget includes IT equipment, stationary, facility goods & services, insurance and
so on.
THE INVESTMENT AND TOOLING BUDGET (P. 295)

Investments and Tooling budgets are two different things.
• Investment goes to enlarging capacity with a machine
• Tooling is the money spend on molding and other required tools
PURCHASING DEPARTMENTAL BUDGET (P. 295)

This budget includes all costs, which cover the purchasing department. Usually 1-2% of the
company’s payroll.
PURCHASING COST SAVINGS: DEFINITIONS AND MEASURES (P.295)

This is the most popular but also most difficult item to measure. Distinctions have to be made
between:
• Cost avoidance: is the difference between the historical price and the actual price paid per
unit. A cost avoidance is not considered to be sustainable because it involves playing off
suppliers and pushing for lower prices.
• Cost reductions: is a result of change of specifications, change of supplier
RATIO AND KEY PERFOR MANCE INDICATORS (P. 297)
See page 297 - 299
SARBANES-OXLEY AND PROCUREMENT GOVERNANCE (P. 301):

Procurement governance includes ‘the coherent set of rules and guidelines within a company that
arrange for the ownership, management accountability, reporting penalties and incentives of all
activities related to external providers who conduct activities for the company on the basis of
commercial contract’
PURCHASING AUDIT AS A MANAGEMENT TOOL (P. 301):

• An audit researches how effective purchasing is
• It shouldn’t threaten employees but help them to become professional
• An audit can be preventive (periodical) or corrective (acute problems).
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CHAPTER 14: PURCHASING, CORPORATE SOCIAL RESPONSIBILITY AND INTEGRITY (P.

307):
BUSINESS PRINCIPLES AND PROCUREMENT (P. 309):

A company should have clearly defined limits and ethical standards. For example it should be
clarified what an employee needs to do if customs ask for bribery.
TOWARDS A SUSTAINABLE ENVIRONMENT: ‘PEOPLE, PLANET, PROFIT (P. 310):
Large buying companies need to make sure that suppliers comply with internal and legal
specifications. Audits and supplier development programs can help to assure that.
EXAMPLE OF UNILEVER’S SUSTAINABLE LIVING PLAN (P. 313):
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TRUST, BUSINESS INTEGRITY AND ETHICS (P. 316):
During the past decade there have been many debates over the issue of integrity and trust in business-to-
business relationships. As companies become more dependent on each other, trust and integrity are an
important subject for supply chain research.
• Research has found that building long-term relationships based on trust is extremely difficult.
• Trust can only be generated if employees work in a consistent and reliable
CHAPTER 15: SUPPLIER MANAGEMENT: COST APPROACH AND TECHNIQUES (P. 339)
HOW IS THE PURCHASE PRICE DETERMINED? (P.340)
Basically, the price ultimately paid for materials and

services is the result of environmental factors – both
internal and external.
The price is can be determined with the following

formula:
∑[𝑓(𝑐) + 𝑓(𝑚)] = 100% 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑟𝑖𝑐𝑒
𝑓(𝑐) = 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑐𝑜𝑠𝑡 𝑓𝑎𝑐𝑡𝑜𝑟𝑠

𝑓(𝑐𝑚) = 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑚𝑎𝑟𝑘𝑒𝑡 𝑓𝑎𝑐𝑡𝑜𝑟𝑠
Prices are based on three +1 different model:
1. Cost-based pricing: The supplier’s sales

price is derived directly from its cost price;
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what most systems boil down to is that a particular profit margin is added to all costs, including the
costs of sales (mark-up pricing).
2. Mark-up pricing: The most common way of setting a price is by adding a fixed percentage mark-up to
the cost price.
3. Market-based pricing: the price of the product is determined on the market, and is generated
exclusively by market circumstances such as demand, supply, stock positions, the economic situation,
and political factors (i.e.: raw materials)
4. Competitive bidding: The price of the product is influenced by market factors as well as cost factors
this situation is the most common.
PRICING METHODS (P.344):
The factors that influence the selling price are given below:
• The expected demand for its product
• The number of competitors in the market
• The expected development of the cost price per product unit
• The customer’s order volume
• The importance of the customer to the supplier
• The value of the product to the customer
In practice, the following pricing methods can be distinguished:

• Mark-up pricing – The most common way of setting a price is by adding a fixed percentage mark-up to
the cost price.
• Target return pricing – setting a minimum order volume in order to achieve a certain price per unit
• Perceived value pricing – setting the price based on the customers willingness to pay for a good
• Value pricing – offering low-cost products with an efficient way of operating
• Going rate pricing – Basing price on competition
• Auction type pricing – Using marketplaces online with reverse auctions
The following discount practices are usually practices:

• Cash discount – usually offered if the customers pays in a certain time frame
• Quantity discount – for larger volumes
• Volume bonus – discount is based on a purchased volume in a time period
• Geographical discount – for suppliers located in a certain areal distance
• Seasonal discount – taking orders in off-seasons for a lower price and delivering the products in
seasons
• Promotional discount – Temporarily stimulating sales to lower the entry barrier.
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THE LEARNING CURVE (P. 346):
The learning curve suggests that production price per unit decreases with the volume produced. The following
factors play a role:
• Reduced supervision after time
• Improved efficiency
• Reduced defects
• Increased batch size (less setup time)
• Improved production equipment
• Improved process control
• Reduced engineering changes
Knowing that prices will decrease allows the buyer to renegotiate prices after a while. This should be stated in
the contracts as well.
SUPPLIER ASSESSMENT LEVELS OF ASSESSMENT (P.348):
Supplier assessment takes place at four different levels of abstraction:

1. Product Level: Improving product quality through inspections
2. Process Level: Inspecting and improving the suppliers production process
3. Quality Assurance System Level: Ensuring quality through constantly updates procedures
4. Company Level: Also taking financial aspects and management quality of the supplier into
consideration.
SUPPLIER ASSESSMENT METHODS (P. 349):

The following methods can help to assess a supplier: base
• Spread-sheets: Using matrix analysis to compare multiple suppliers
• Qualitative Assessment: Having experienced buyers within the company rate an existing supplier
• Vendor Rating: Rating almost entirely with quantitative measures such as price, defect rates, lead
times
• Supplier Audit: Visiting the supplier and checking with a detailed checklist.
• Cost Modeling: A very detailed approach with which the cost of the supplier is evaluated based on
reviews. A “should cost” analysis helps to discuss prices. Table 15.3 helps to identify the most critical
cost factors
FINANCIAL ASSESSMENT (P.351):

Making judgments based on annual reports and historical data in order to compare it with other suppliers. In
Europe, suppliers usually have to make financial data available for the public. The results of analyzing a
supplier’s annual report give a first impression of the quality of the supplier’s management.
SUPPLIER DEVELOPMENT (P. 352):

Segmenting suppliers can help to develop the right relationships with the right suppliers. Examples of
differentiation are:
1. Strategic Partnerships
2. Performance Based
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3. Preferred Suppliers
4. Competitive Suppliers
In order to develop an important supplier, the buyer needs to do the following actions:
• Provide constant and honest feedback
• Regularly discussing performance reports together
• Checking the suppliers satisfaction with the buyer
• Providing resources and knowledge to the supplier
In order to bring supplier to the “next level” the following three steps can help:
1. Supplier Suggestion Program: actively soliciting ideas for improvement from suppliers
2. Supplier Development: Constantly asking questions and accessing the partnerships benefits (mainly
this is knowledge exchange)
3. Supplier Satisfaction Survey: Inviting suppliers to address concerns in order to improve them.
Jonas Heller 48

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Summary Purchasing and Supply Chain Management, Arjan

Purchasing Management (Maastricht University)

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No one cares if you are fair or not. Use this

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Summary: Purchasing and Supply Chain Management 10/19/14

Chapter 1: The Role of Purchasing in the Value Chain ............................................................................................................... 5

The role of Purchasing and in the Value Chain (P.5) .............................................................................................................. 5

Definition of the concepts (p.7) ............................................................................................................................................. 6

Importance of Purchasing to Business (P.12): ....................................................................................................................... 7

Classification of purchasing goods (p. 15): ............................................................................................................................. 7

New developments in purchasing (P. 16) .............................................................................................................................. 7

Chapter 2: Industrial Buying Behavior: Decision making in purchasing (p.21) ........................................................................... 8

Organizational buying behavior: basic characteristics (p.22) ................................................................................................. 8

Models of industrial buying behavior (p. 23): ........................................................................................................................ 8

The purchasing process (p. 28) .............................................................................................................................................. 9

The purchasing process (P. 28): ............................................................................................................................................. 9

Aspects of the purchasing process (p.29) ............................................................................................................................ 10

The added value of the professional buyer (p.30) ............................................................................................................... 10

Types of purchasing (P.31) ................................................................................................................................................... 10

The Purchasing Process Step-by-Step (p. 32) ....................................................................................................................... 11

E-procurement (p.42) .......................................................................................................................................................... 13

Forms of E-auctions (p.44) ................................................................................................................................................... 13

Major bottlenecks and problems (p.46) .............................................................................................................................. 13

Chapter 3: The Purchasing Management Process (p.51) ......................................................................................................... 14

Primary tasks and responsibilities (P. 53) ............................................................................................................................ 14

Professionalizing purchasing: a few principles (P. 59) ......................................................................................................... 14

Purchasing management process (P. 61) ............................................................................................................................. 15

Some observations from practice (p. 71) ............................................................................................................................. 16

Chapter 4: Buying Business Services (p. 75) ............................................................................................................................. 17

Introduction (p. 75): ............................................................................................................................................................. 17

The Increasing Importance of Services (p.77): ..................................................................................................................... 17

Differences between Goods and Services (p. 78): ............................................................................................................... 17

Towards a Classification of Services (p. 80): ........................................................................................................................ 17

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Summary: Purchasing and Supply Chain Management 10/19/14

The Initial Purchasing Process (p. 82): ................................................................................................................................. 18

The Post-Contractual Stage (p.85) ....................................................................................................................................... 18

Involvement of Purchasing in Contracting for Services (p. 88) ............................................................................................ 18

Chapter 6: Market Structures and Supply Market Research (P.115) ........................................................................................ 19

Introduction (P. 115): ........................................................................................................................................................... 19

Market and Market Structures (p. 116) ............................................................................................................................... 19

Supply Side (P.118) .......................................................................................................................................................... 19

Demand Side (P.119) ....................................................................................................................................................... 19

Supply Chain Market Research: Definition (P. 121) ............................................................................................................. 19

Why Supply market Research (p.123) ............................................................................................................................. 20

How to Structure purchasing market research (p.125)........................................................................................................ 20

Purchasing Market Research and Information Technology (p.128) ..................................................................................... 20

Chapter 7: Purchasing and Business Strategy (p. 149) ............................................................................................................. 21

Purchasing’s role in strategic management theory (p. 152) ................................................................................................ 21

Innovation strategy and competence management (p. 155)............................................................................................... 21

Towards purchasing excellence (P. 158) .............................................................................................................................. 22

Strategic management processes (P. 158) ........................................................................................................................... 22

Enabling processes (p. 160) ................................................................................................................................................. 23

Purchasing Portfolio Analysis: Principles (P. 162) ................................................................................................................ 23

Four basic supplier strategies (P. 166): ................................................................................................................................ 24

Chapter 8: Outsourcing and Risk Management (P.173) ........................................................................................................... 26

Definitions and concepts (P.175): ........................................................................................................................................ 26

Characteristics of outsourcing (P.174): ................................................................................................................................ 26

The outsourcing matrix (P.179):........................................................................................................................................... 28

Advantages and Disadvantages of Outsourcing (P.180): ..................................................................................................... 28

The outsourcing process (P.180): ......................................................................................................................................... 28