A Discussion of Purchasing and Supply Management - Case Study Example

Purchasing and Supply Management and the Importance to the Business World PURCAHSING AND SUPPLYING MANAGEMENT An organization’s success in the business world is highly dependent on an effective and efficient purchasing and supply management. It is evident that, organizations, which have embraced purchasing and supply management, are successful in the industry. The organization’s management cannot ignore purchasing and supply, in fact, researches have been conducted with the objective of establishing better management of purchasing and supply. Today’s competitive business world, has forced the organization to adapt in terms of speedy procuring, manufacturing and delivery of quality products to customers. All the activities carried out under purchasing and supply management, call for cost-effectiveness. Individuals assigned the tasks of purchasing and supply management have to apply tactics and strategies when selecting suppliers and negotiating prices. This paper provides a discussion of purchasing and supply management. The discussion includes the importance of purchasing and supply to the business world, steps in creating project supply, service, and material budget, selecting suppliers, strategies for negotiating prices and costs of outsourcing. The paper concludes by evaluating organizations that are benchmark in purchasing and supply management. Purchasing entails acquiring goods and services necessary for the organization’s day to day operation or manufacturing of products. Supply management, also referred to as supply chain management is the process employed by organizations with the objective of having a cost-effective and efficient supply chain. In commerce, through purchasing, industries and public corporations procure raw materials, supplies and services. The important processes included in purchasing are identifying the needs, selecting the supplier, negotiating appropriate price, reviewing the terms and conditions, issuing the order or contract, and finally, follow up on the delivery. Basically, purchasing is centered on the task of ensuring that materials or products, which are of right quantity, quality and price are obtained from the selected supplier at the right time and place. Purchasing is done either for resale by retailers and wholesalers or for transformation that is industrial purchasing (Benton, 2006). A supply chain in most cases comprises five important stages, which are plan, develop, make, deliver and lastly return. In supply chain management, the first stage, known as a plan is to determine how goods and services will satisfy customers’ requirements and needs. Develop, as the second stage in supply management, entails building a sustainable relationship with the main suppliers of the essential raw materials required to make products to be delivered to the customers. Still in the second stage, identifying potential suppliers, shipping methods, delivery and payment methods are done at this stage. Make, comes as the third stage, here manufacturing, testing, packaging, and scheduling for delivery take place. The fourth stage is delivering; the goods and services are availed to the customer. The final stage in supply chain management is return; customers are given the chance of returning the defective products availed to them (Benton, 2006). Importance of purchasing and supply management to the business world Through purchasing and supply management, organizations are put in positions in which they are able to obtain raw materials with the highest quality at the lowest possible cost. Personnel from purchasing and supply department have to ensure savings are made in terms of negotiating the right price with suppliers. Furthermore, value is created through strategic purchasing (Leenders, 2006). The long-term success of an organization is brought out by purchasing professions contracting orders out to suppliers. Furthermore, long-term contracts given to suppliers by purchasing professions will see to it that an organization does not suffer in case of a shortage in supply. A supplier will ensure a steady supply of raw materials and services essential for production (Leenders, 2006). Negotiation is a very important aspect when it comes to purchasing and supply management. In the business world, it is important to have steady and accommodative prices when negotiating. The personnel negotiating will have to put in mind during the process quality of materials, cost and delivery. In the long run, a good deal secured by companies establishes mutual benefits (Leenders, 2006). Steps followed in creating project supply, service and material budget Project budget entails the total amount of money allocate to cater for an organization’s project for a particular period of time. The money allocated in this situation is used to acquire the necessary raw materials required for production of goods. The essence of creating a successful project supply, service and material budget, is sticking to the proposed plan (Benton, 2006). The steps in creating project supply budget begin with determining the scope of the whole project. All required materials are defined under the plan. The objectives and goals of the project are determined in this step. The organization’s expectations are considered in this case that is the requirements needed by the organization. A team of personnel from various departments in the organization is formulated to handle the whole process of creating project supply budget (Benton, 2006). The second step in project supply budget involves risk analysis. The whole project is viewed all round with the objective of establishing any aspect that is bound to go against the proposed plan. The knowledge on anything that can go against the proposed plan aids the management in anticipation. The problems that might occur are categorized in terms of magnitude and intensity (Leenders, 2006). The third step in this process is writing the budget itself. The budget is written putting into consideration what the organization intends to spend when purchasing the materials. In the step, in is important to have inter-departmental consultation in order to establish what should be purchased and whatever financial constraints might arise. Projection either negative or positive should be included in the budget top cater for issues like salaries and wages for the job to be done (Warne, 2003). The fourth step entails scheduling timelines describing the different purchases to be made over a range of time already defined. The schedule may be in terms of purchasing the supplies in parts at different times of the year or in a bulk. Scheduling will ensure that the proposed plan is followed in detail and at the same time avoid time wastage (Leenders, 2006). The fifth step is crucial since in involves selecting the appropriate supplier of the required materials. Selecting the appropriate supplier is through looking at quality of materials, cost-effectiveness, suppliers’ reputation and the number of bids put across. Terms of payment or contract should be discussed with the supplier (Benton, 2006). Lastly, when creating a project supply budget communication is an important aspect to be included in the steps. In the plan, communication should be clearly outlined and stated. Through communication, the human resource department will be able to single out the workers required to manage the work force ahead. Qualified contractors able to manage the process of project supply budget are contacted. Through communication, hierarchy of authority and tasks are assigned to individuals involved with the whole process of project supply budget (Benton, 2006). Selecting the most qualified suppliers Identifying a perfect supplier to handle the supply of materials in an organization is pretty a hectic task. An organization which contracts either one supplier or more than two suppliers will come across various advantages or disadvantages as a result of choosing either. Settling on one supplier leaves the organization open to disappointment when the supply is not able to deliver. On the other hand, having more than two suppliers brings about the lack of specialization. Contrary to the above, one supplier will ensure that the organization get a constant supply of materials. Moreover, more than one supplier ensures that incase the first supplier experiences shortage of materials, the second supplier can be relied upon. When it comes down to the point in which the organization has settled on a type of supplier it must have based its judgment on the positive characteristics of the suppler. Research should be conducted to determine and select the most qualified supplier through the following factors (Leenders, 2006). The speed and flexibility of the supplier in terms of delivering the ordered materials by the organization is crucial when selecting a qualified supplier. Suppliers, who are flexible in terms delivering materials, will make certain that delivery is done whenever and whatever time there is an upsurge in ordered materials. Flexible suppliers can also be in terms of accepting to deliver required materials at whatever small portions the organization asks (Benton, 2006). A supplier will also qualify if they are able to provide goods that are of high quality and reliable. A supplier should ensure that the delivered materials are up to standards, and at the same time maintain consistency in supplying. Poor quality materials will ultimately lead to production of low quality products, and hence unsatisfied customers. It is a threat, for the organization to have unsatisfied customers it is fatal for the organization’s operation. A supplier with quality products qualifies as an ideal supplier (Benton, 2006). The price a supplier offers should not make the organization Settle for that supplier, in other words low prices set by the supplier does not qualify the supplier as the best. Reliability and quality in a material is not determined by the price. It would be efficient for the organization to go an extra mile, and pay up the duly amount that can acquire raw materials that are reliable and of quality. A qualified supplier is able to deliver quality and reliable products at an acceptable price (Warne, 2003). Another aspect important, when selecting a qualified supplier is the supplier’s reputation. Reputation is build according to past operations of the supplier with other organizations. A supplier who in the past has exemplified professionalism in terms of delivering materials has a good reputation, which can be used when categorizing it as a qualified supplier. On the other hand, a supplier who has been witnessed supplying materials of low quality and late has a bad reputation, which disqualifies it as qualified supplier (Leenders, 2006). Strategies for negotiating prices In business, negotiating of prices is inevitable, in fact, it is a day to day practice conducted by buyers and suppliers. It is recommended that whenever a negotiation is taking place it should result in a win- win situation on both sides of the buyer and seller. Negotiation is employed when, first, advanced technologies are to be applied, but prices for such a transaction have not yet been set. Secondly, the purchase will call for use a large amount of money. Thirdly, negotiation is applied when the supplier is forced to invest a substantial finance in acquiring new equipment for the purchase (Warne, 2003). Individuals in the organization, who should be called to negotiate with the supplier about the price, should have a mind capable of fighting mental psychological warfare. A background research should be conducted to gain first hand information on the supplying company and its managers. Purchasing personnel should fully understand the objectives and requirements of the negotiation process. Brainstorming on strategies to be use should be done, but this is a task assigned to professionals on the field of negotiations. It is crucial to negotiate with legitimate with legitimate representatives of the supplying company. The demands called during the negotiations should be stated higher in the initial stages of negotiations. When pressure between the two teams negotiating arises in the room, this will call for a break or recess. The break will allow temperatures to cool, and the negotiators think rationally about the decisions. Being fair is a principle on the negotiating table (Leenders, 2006). Cost -benefits of outsourcing Outsourcing is done with the objective of saving the organization money. Outsourcing should be conducted by an organization and supplier who fully understand each other, and have mutual self, interest. The notion of saving money through outsourcing is aimed at ensuring that hidden charges are identified. Outsourcing in most cases is applied in situations where a department in the organization will take a considerably long amount of time and more resources in carrying a certain task. As a result of that fact, an external company exists which can handle the activity at a low cost and little time possible. Costs present themselves on the process of outsourcing such as wastage of time resolving issues arising as a result of misunderstanding between the organization and the outsourcing company. Outsourcing is in the rise in both developed developing countries since it has advantages in terms of cost saving. Organizations do not have to acquire expensive equipments to use in conducting some processes (Warne, 2003). Conclusion Purchasing and supply management is an activity crucial for the daily running of the organizations’ processes. Today’s competitive business world, has forced the organization to adapt in terms of speedy procuring, manufacturing and delivery of quality products to customers. All the activities carried out under purchasing and supply management, call for cost-effectiveness. Individuals assigned the tasks of purchasing and supply management have to apply tactics and strategies when selecting suppliers and negotiating prices. Reference Benton W. (2006). Purchasing and supply management. New York: McGraw-Hill Irwin. Leenders F. (2006). Purchasing and Supply Management. Ventura: Academic Internet Publishers. Warne T. (2003). State DOT outsourcing and private-sector utilization. Washington DC: Transportation Research Board. Read More