Table of Contents

Chapter 1 - Overview of Purchasing. 1

The Purchasing Function. 1

Purchasing within the Organization. 2

The Supply Chain. 5

Purchasing Planning. 6

Reactive Purchasing. 6

System-Generated Purchasing. 6

Proactive Purchasing. 6

Summary of Purchasing Planning. 7

Purchasing Positions. 7

Purchasing Manager. 7

Buyer. 8

Supply Chain Inventory Planner. 8

Purchasing Department Relations. 8

Purchasing Ethics. 9

Chapter 2 - Purchasing Processes. 13

Purchasing Objectives. 13

Purchase Notification Alternatives. 14

The Purchase Requisition. 14

The Statement of Work. 17

Automated Materials Orders. 18

Manual Reorder Point Notifications. 19

Purchase Order Issuance Procedure. 19

Variations on the Purchasing Procedure. 24

The Bidding Procedure. 25

E-Procurement 27

Chapter 3 - Procurement Cards. 29

When and How to Use Procurement Cards. 29

Additional Procurement Card Topics. 30

Card Issuer Relations. 30

Card Rebates. 31

Cash Flow Management 31

Card User Relations. 31

Departure of Card Users. 31

International Purchases. 32

Chapter 4 - Supplier Selection. 34

Overview of Supplier Selection. 34

General Considerations. 34

When to Conduct a Supplier Selection. 36

Locating Suppliers. 36

Supplier Selection Criteria. 37

Mandated Suppliers. 37

Selection Rigor. 38

Selection Criteria. 38

Supplier Financial Analysis. 38

Supplier Capability Analysis. 39

Supplier Responsiveness Analysis. 40

Other Analysis Issues. 41

Site Visits. 42

Supplier Scoring. 45

Preferred Suppliers. 47

Summary. 47

Chapter 5 - Supplier Management 49

Commodity Strategy. 49

Supplier Relations. 49

Attending to Supplier Needs. 50

The Supplier Scorecard. 50

Supplier Performance Index. 52

Other Supplier Monitoring Systems. 53

Supply Chain Improvement 54

Supplier Risk Management 56

The Maverick Supplier. 60

Chapter 6 - Competitive Bidding. 62

When to Use Competitive Bidding. 62

Types of Bidding Requests. 62

Third-Party Assistance. 63

Contents of a Bid Package. 63

Locating Suppliers. 64

The Bidding Process Flow.. 65

Handling Inquiries. 66

Handling Complaints. 66

Reverse Auctions. 67

Unethical Supplier Bidding Practices. 67

Chapter 7 - Supplier Negotiations. 70

The Need for Negotiations. 70

The Negotiation Team.. 71

Initial Positions. 72

Negotiation Tactics. 72

Negotiation Sessions. 73

Negotiator Characteristics. 74

Negotiation Topics. 75

Negotiation Considerations. 77

Negotiation Failures. 78

Negotiation Follow Up. 78

Chapter 8 - Contract Management 81

Contract Terms and Conditions. 81

Commercial Terms. 84

The Employee or Contractor Designation. 84

Contract Pricing Arrangements. 85

Firm Fixed Price. 85

Fixed Price with Adjustments. 86

Cost plus Pricing. 86

Time and Materials Pricing. 87

Summary of Pricing Arrangements. 89

Contract Templates. 89

Duration-Based Contractual Issues. 89

Contract Approval Process. 91

Contracts and Purchase Orders. 91

Change Order Management 92

Contractual Disputes. 93

Contract Auditing. 93

Document Retention. 93

Chapter 9 - Inventory Management Issues. 96

Types of Inventory. 96

Excessive Inventory Issues. 97

Inventory Record Accuracy. 101

Operating with Reduced Inventory. 101

Basic Inventory Reduction Activities. 101

Advanced Inventory Reduction Activities. 101

A Reduced-Inventory Environment for Suppliers. 103

Bottlenecks in the Supply Chain. 103

Reasons to Retain Some Inventory. 104

Other Inventory Best Practices for Suppliers. 104

Supplier Lead Times. 104

The Total Inventory Concept 105

Downstream Postponement 106

Suppliers Own On-Site Inventory. 106

Suppliers Pre-Configure Goods. 107

Parts Standardization. 107

Design for Broad Tolerance. 107

Design around Limited Availability Components. 107

Design around Lifetime Buy Decisions. 108

Advance Material Purchase Issues. 108

Obsolete Inventory Disposal 109

Chapter 10 - Logistics. 112

Purchasing Responsibilities. 112

Free on Board Shipping Terms. 113

FOB Destination. 113

FOB Shipping Point 113

Creating a Logistics System.. 114

Transportation Brokers. 116

Just-in-Time Deliveries. 116

Additional Logistics Topics. 117

Chapter 11 - Spend Management 120

The Spend Database. 120

Spend Management Activities. 121

Spend Compliance. 122

Implications of Spend Management 123

Rollout of Spend Management 123

Chapter 12 - Quality Management 126

Quality from a Supplier’s Perspective. 126

Quality from the Company’s Perspective. 126

Quality Costs. 127

Quality Improvement Considerations. 128

Six Sigma. 128

International Quality Standards. 129

The Quality Message to Impart 130

Chapter 13 - Cost Management 133

Types of Analysis. 133

Commodity Cost Management 134

Price Analysis. 134

Supply and Demand. 134

Supplier Pricing Strategies. 135

Volume Discounts. 137

Contract Duration. 139

Materials Sourcing Considerations. 139

Unique Product and High Value-Added Cost Management 140

Target Costing. 142

The Basic Steps of Target Costing. 142

Value Engineering Considerations. 143

The Cost Reduction Program.. 144

The Milestone Review Process. 145

Problems with Target Costing. 146

The Members of a Design Team.. 146

Data Sources for Target Costing. 147

The Product Life Cycle and Target Costing. 147

Target Costing Summary. 148

Inter-Entity Price Reductions. 148

Maintenance, Repair, and Operations Cost Management 148

Product Recycling. 150

Cost Management Failures. 151

Chapter 14 - Purchasing Financial Analysis. 153

The Lease or Buy Decision. 153

Leasing Concerns. 156

Leasing Advantages. 157

The Lease or Buy Decision. 157

The Outsourcing Decision. 162

Learning Curve Analysis. 163

Quantity Discount Analysis. 164

Early Payment Discounting. 166

Chapter 15 - Supply Chain Financing. 169

Supply Chain Financing. 169

Chapter 16 - Purchasing Measurements. 172

Overview of Purchasing Measurements. 172

Cost Change. 173

Proportion of Purchase Orders above Threshold. 174

Procurement Card Usage Percentage. 175

Proportion of Spend Managed. 175

Proportion of Spend with Preferred Suppliers. 176

Proportion of Certified Suppliers. 177

Supplier Performance Measurements. 178

Supplier Fulfillment Rate. 178

Supplier Defect Rate. 179

Supplier Billed Price Variance. 180

Perfect Order Percentage. 181

Premium Transportation Charges. 181

Proportion of Targeted Inventory Dispositioned. 182

General Management Measurements. 182

Negative Effects of Measurements. 183

Chapter 17 - Applicable Information Technology. 185

Enterprise Resource Planning (ERP) 185

Supplier Relationship Management (SRM) 185

Dependent Demand Reordering Systems. 186

Warehouse Management System.. 187

Distribution Requirements Planning. 188

Advance Shipping Notices. 189

Backflushing. 189

Electronic Catalogs. 190

Electronic Requisitions. 190

Electronic Tools. 190

Inventory Data Collection Methods. 191

The Customized Systems Conundrum.. 193

Impact of information Technology on Purchasing. 194

Answers to Chapter Questions. 196

Glossary. 222

Index. 225

 

Final Examination…………………………………………………………………………………………………230