Purchasing and Supply Chain Management, Seventh Edition
By Arjan J. Van Weele
Contents:
List of memos x
Acknowledgements xi
Preface xii
Introduction xiii
List of abbreviations xviii
SECTION I
Core concepts 1
1 The role of purchasing in the value chain 2
Learning objectives 2
Introduction 2
Case study: Purchasing and supply chain management at Damen Shipyards 3
The role of purchasing in the value chain 4
Definition of concepts 7
Importance of purchasing to business 12
Classification of purchased goods 15
Challenges and changes in the procurement context 16
Summary 19
Assignments 20
References 20
2 Industrial buying behaviour: decision- making in purchasing 21
Learning objectives 21
Introduction 21
Case study: Buying computer systems in a car leasing company 22
Organizational buying behaviour: basic characteristics 22
Models of industrial buying behaviour 24
Variables that affect the buying process 24
Purchasing process management 28
The linear purchase process model 28
The extended purchasing model 32
Role of the buyer 35
The specification phase 36
Supplier selection and supplier assessment 37
Negotiation and contracting 39
Prices and terms of delivery 40
Terms of payment 40
Penalty clauses and warranty conditions 40
Other arrangements 41
The ordering process and expediting 44
Follow-up and evaluation of the buying process 45
E-procurement 46
Major bottlenecks and problems 49
Summary 51
Assignments 52
References 53
3 The purchasing management process 54
Learning objectives 54
Introduction 54
Case study: Shell Houston 55
Primary tasks and responsibilities 56
Professionalizing purchasing: a few principles 63
Business alignment 63
Integrated, cross-functional approach 63
Performance-driven 64
Purchasing management process 65
Purchasing and supply (market) research 66
Purchasing and supply objectives, strategy and planning 67
Implementation of purchasing policy 67
Control and evaluation 70
How purchasing and supply management develops over time 70
Stage 1 Transaction orientation: serve the factory 71
Stage 2 Commercial orientation: lowest unit price 72
Stage 3 Co-ordinated purchasing 73
Stage 4 Internal integration: cross-functional purchasing 73
Stage 5 External integration: supply chain management 74
Stage 6 Value chain orientation 74
Some observations from practice 75
Summary 76
Assignments 77
4 Buying business services 79
Learning objectives 79
Introduction 79
Case study: Buying marketing services at a European telecom provider 80
The increasing importance of services 81
Differences between goods and services 82
Towards a classification of services 84
The pre-contractual stage 86
Specifying: defining the scope of work for service providers 86
Selecting service providers 90
Contracting for services 91
The post-contractual stage 92
Involvement of purchasing in contracting for services 95
Summary 96
Assignments 97
References 97
5 Contract management for complex projects 98
Learning objectives 98
Introduction 98
Case study: What happened at the Amsterdam metro project 99
Contract management and contracts: agency theory 100
The contracting process 103
Pre-contractual stage 103
Contractual stage 103
Contract execution 103
Post-contractual stage 104
Problems in contract management 104
Perspectives on contract management 106
Contract models 108
Contract building blocks: pricing and payment mechanisms in contracts 110
Pricing mechanisms 110
Payment terms 112
Penalty clauses, liquidated damages and warranty conditions 113
Subcontracting and project execution 114
Contract governance 116
Summary 117
Assignments 118
References 119
6 Public procurement 120
Learning objectives 120
Introduction 120
Case study: What is good procurement? 121
The nature of public procurement 121
Public procurement law 125
Scope of the European Directives on public procurement 126
Scope 126
Framework agreements 127
Excluded assignments 128
Threshold values 128
Notices and public procurement procedures 129
Notice 129
European procurement procedures 130
Open procedure 130
Restricted procedure 130
Competitive procedure with negotiation 131
Negotiated procedure without prior publication 132
Competitive dialogue 132
Innovation partnership 133
Design contest 133
Dynamic purchasing system 133
Procurement process 134
Defining specifications 134
Supplier selection 135
Soliciting bids and awarding contracts 137
Implications for public procurement 139
Summary 140
Assignments 141
Integrative case 6.1: Procurement of multi-functionals in the Blue Lake Hospital 142
Appendix 1 145
Appendix 2 146
Integrative case 6.2: Technix 147
Appendix 1 150
Appendix 2 151
Appendix 3 155
Integrative case 6.3: Fred’s Fresh Supermarket 156
SECTION II
Strategy and planning 159
7 Purchasing and business strategy 160
Learning objectives 160
Introduction 160
Case study: Harnessing the power of the network to
deliver results 161
The strategic role of purchasing 162
Is purchasing strategic … or not? 163
Purchasing’s role in strategic management theory 163
Strategic planning and marketing theories 163
Competitive strategy 165
Innovation strategy and competence management 166
From internal to external resource management 167
Strategic management thinking: implications for
purchasing and supply management 168
Towards purchasing excellence 169
Strategic management processes 169
Enabling processes 172
Purchasing portfolio analysis: principles 174
Four basic supplier strategies 178
Global sourcing 183
Summary 185
Assignments 186
References 187
8 Outsourcing and risk
management 188
Learning objectives 188
Introduction 188
Case study: Outsourcing of IT 189
Outsourcing as a business concept 189
Definitions and concepts 190
Rationales for outsourcing 192
Success of outsourcing as a business strategy 194
The outsourcing process 195
Strategic phase 195
The transition phase 197
The operational phase 199
Risk assessment 200
Critical success factors of outsourcing 203
Summary 204
Assignments 205
References 206
9 Category sourcing: developing effective sourcing strategies 207
Learning objectives 207
Introduction 207
Case study: HP shows how to outsource production while keeping control over suppliers 208
Reasons underlying cost-savings potential in purchasing 209
How to identify cost-savings potential 212
Developing a sourcing strategy 214
Category sourcing planning 216
Getting better results from suppliers 219
The myth of partnership 221
Summary 223
Assignments 224
References 224
10 Purchasing, innovation and quality management 225
Learning objectives 225
Introduction 225
Case study: Suppliers as a source of innovation: PSA’s Pluriel project 226
Purchasing and innovation 227
The role of suppliers in new product development: early supplier involvement 229
Purchasing and new product development 233
Purchasing and quality management 237
Definition of terms: quality and quality assurance 237
The costs of quality 240
Supplier quality assurance 242
Assessing supplier quality: diagnostic methods 245
Implementing SQA: consequences for purchasing 247
Summary 248
Assignments 249
References 250
11 Purchasing, logistics and supply
chain management 251
Learning objectives 251
Introduction 251
Purchasing, logistics and supply chain management: definitions and concepts 251
Case study: Li & Fung 252
Materials requirements planning 257
Basic logistics structures 260
Just-in-time management 262
Characteristics of just-in-time management 262
Order quantities and batch sizes 263
Quality and zero defects 265
JIT and the purchasing function 266
Advantages and disadvantages for the supplier 267
JIT and supplier selection 270
Elements of the purchasing information system 271
Co-ordination problems between purchasing and logistics 275
Summary 276
Assignments 276
Reference 277
12 Purchasing organization 278
Learning objectives 278
Introduction 278
Case study: Building blocks of change 279
Purchasing organization structure 280
Factors influencing the location of purchasing in the organization 282
Levels of tasks, responsibilities and authority 283
Strategic level 283
Tactical level 283
Operational level 284
Organizational structures within purchasing 284
Structure of purchasing in multi-unit companies 284
Decentralized purchasing structure 284
Centralized purchasing structure 285
Hybrid structure 286
Line/staff organization 287
Category sourcing structure 289
Centralized versus decentralized purchasing: some criteria to consider 292
Purchasing organization in single-unit companies 294
Purchasing job profiles 295
Summary 299
Assignments 300
References 300
13 Performance measurement and governance in purchasing 301
Learning objectives 301
Introduction 301
Case study: The introduction of a quality programme by an industrial components manufacturer 302
Factors influencing purchasing performance measurement 302
Why measure purchasing performance? 304
How to assess purchasing performance 305
Measuring purchasing performance: five key areas 306
Purchasing price/cost dimension 308
Purchasing product/quality dimension 308
Purchasing logistics dimension 308
Supplier relationship dimension 309
Purchasing’s organizational dimension 309
Purchasing budgets, purchasing savings and other
performance measures 311
Purchasing materials budget 311
Purchasing budget indirect materials 312
The investment and tooling budget 312
Purchasing departmental budget 313
Purchasing cost savings: definitions and measures 313
Ratios and key performance indicators 315
Sarbanes–Oxley and procurement governance 318
Purchasing audit as a management tool 319
Summary 322
Assignments 323
Integrative case 13.1: International Foods
Industries 324
Appendix 1 326
Appendix 2 326
Integrative case 13.2: European Airlines 328
Integrative case 13.3: Serving the customer at Joycies Products Ltd 330
SECTION III
Special topics 335
14 Supplier management: cost approaches and techniques 336
Learning objectives 336
Introduction 336
Case study: Building a new headquarters 337
How is the purchase price determined? 337
Pricing methods 341
The learning curve 344
Supplier assessment 345
Levels of assessment 345
Supplier assessment methods 346
Financial assessment 348
Supplier development 350
Summary 353
Assignments 354
References 355
15 Purchasing, corporate social responsibility and integrity 356
Learning objectives 356
Introduction 356
Case study: Mattel’s reputation at stake through sourcing in China 357
Business principles and procurement 358
Towards a sustainable environment: ‘people, planet, profit’ 359
From the Resource-Based View to stakeholder theory 363
Sustainable purchasing: towards sustainable supply chains 364
How to drive CSR in supply chain relationships 366
Circular sourcing 369
Trust, business integrity and ethics 371
Summary 374
Assignments 376
References 376
Integrative case 15.1: Legends Car Company 376
Integrative case 15.2: Nespresso 378
Glossary 385
Index 393