LEARNING UNIT 5

The importance of the purchasing and supply function Strategic level.

- planning entails the purchasing and supply manager providing
The purchasing and supply function should: input to business planning.
•Select suppliers - the purchasing and supply function is not involved in strategic
•Purchase and arrange for the transport of materials to the planning.
business - When a business has accepted the supply chain management
•Decide what prices to accept approach, purchasing and supply will be involved in strategic
•Determine quantity and quality of materials or services planning.
•Expedite and receive materials Planning at strategic level is normally of a long-term nature. It is
•Control warehousing and inventory-holding •Determine the aimed at safeguarding materials provision, developing supplier
timing of purchases sources and maintaining the competitive position of the business.
-Typical strategic planning elements are supplier alliances,
Supply chain example supplier development, supply-chain process integration,
availability forecasting, and purchasing and supply policy.
Tactical or middle-management level.
- cover the medium-term needs of the business, including
budgeting, the purchasing and supply system and organisation
thereof, purchasing and supply methods, negotiation,
development of human resources, interface development with
other functions and suppliers (by means of cross-functional
teams), contracting and employing cost-reduction techniques.
Operations level.
- plans are formulated to allow the daily functioning of the
purchasing and supply function to proceed as smoothly as
possible.
- benefits the business as a whole, as well as other functions
serviced by the purchasing and supply function.
- includes planning the tasks of expediting, keeping records,
Control in the purchasing and supply function. maintaining the purchasing and supply system, invoice clearance,
Purchasing and supply planning handling of requisitions, enquiries and quotations, and pricing
• should be conducted in consultation with other functional decisions.
areas of the business
Four main issues need to be addressed in organising the
Planning takes place at the following levels: purchasing and supply function:
• Strategic level
• Tactical or middle-management level • The place of the purchasing and supply function in the
• Operations level organisational structure
•Formulation of objectives is one of the most important • The internal organisation of the purchasing department
planning tasks • Coordination with other functional management areas
• Cross-functional teams

Coordination with other functional management areas

Coordination occurs at three levels:

• Various purchasing and supply activities must be coordinated
internally in the purchasing and supply function
• The purchasing environment must be coordinated with
purchasing and supply activities
• The purchasing and supply function must be coordinated with
other functional management areas, as well as the needs of the
final consumer
Tasks of cross-functional sourcing teams include: Selection of purchasing and supply quantities

• Supplier selection • Need for inventory-holding

• Negotiating corporate-wide purchasing agreements • Helps ensure the operations process continues without
• Developing cost-reduction strategies interruption
• Developing sourcing strategies • Allows businesses to utilise cost savings through longer
•Developing suppliers and the evaluation of suppliers’ production runs and volume discounts.
performance
Inventory costs
The assessment of purchasing and supply management • Inventory-carrying costs
• Inventory-ordering costs
•Management is intangible and difficult to measure quantitatively • Total inventory costs
•Use of an evaluation sheet or questionnaire can be used to assess
management performance in purchasing Inventory-control systems
• The system of fixed order quantities
Control points used to observe effectiveness of purchasing and • The cyclical-ordering system
supply activities: • The materials requirements planning (MRP) system
• The just-in-time (JIT) system
• Price proficiency
• Supplier performance The selection and management of suppliers
• Timeliness
• Cost-saving The selection process:
• Workload • Compilation of a list of suppliers
• Purchasing costs • Reduce list to a short list
• Inventory-holding • Short list suppliers requested to give a quote or negotiations
with them are started
Steps of the purchasing and supply cycle: • Choose a supplier
• Evaluation of supplier performance
• Development and description of a need
• Choice of suppliers Developing suppliers
• Research on prices and availability • Black economic empowerment (BEE) through purchasing
• Issuing the order and concluding a contract • Materials or service not available
• Follow-up and expediting • Normal performance appraisals •Long-term relationships with
• Receipts, inspection and distribution suppliers.
• Handling errors and discrepancies
• Paying for the order Pricing decisions
• Closing the order • Methods depend on nature of materials and the value of the
transaction
Quality decisions – a purchasing and supply activity • Published price lists, catalogues and brochures – suitable for the
purchase of standard materials of a low monetary value
Determining the right quality: • Quotations and tenders – suitable for less standardised
• Engineers and designers – technical considerations important materials of a higher monetary value.
• End user and/or marketing function – commercial
considerations Timing of purchases

Description of quality: The aims of buying at the ‘right’ time are:

• Specifications –general method of describing quality • Ensure business is supplied on an ongoing basis
• Standardisation • Reduce risk of price fluctuations
• Other: Market grades, brands, SABS standards, engineering • Keep inventory-holding at an optimal level.
drawings and samples
Factors influencing the scheduling of purchases:
Control of quality:
• Inspection – During inspection samples of delivered materials or
• Internal factors
services are subjected to tests by quality controllers • External factors
• Supplier certificate agreement