1.6 The status of purchasing and supply management (PSM). 19. Case study. 26
... 71. 2.16 Strategic purchasing and supply chain process models. 73 vii ...
Eighth Edition
Purchasing and Supply Chain Management KENNETH LYSONS MA, MEd, PhD, Dipl.PA, AcDip.Ed., DMS, FCIS, FCIPS, Flnst M, MILT
BRIAN FARRINGTON BSc(Econ), MSc, PhD, FCIPS
PEARSON Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Auckland • Singapore • Hong Kong Tokyo • Seoul • Taipei • New Delhi • Cape Town • Sao Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan
Contents
Preface Acknowledgements Publisher's acknowledgements Plan of the book
xvi xvii xviii xix
Part 1 Introduction and strategy
i
1 What is purchasing?
3
Learning outcomes Key ideas Introduction 1.1 Perspectives on purchasing 1.2 Definitions 1.3 The evolution of purchasing 1.4 Purchasing and change 1.5 World class purchasing 1.6 The status of purchasing and supply management (PSM) Case study Discussion questions Past examination questions References
3 3 3 4 5 9 16 17 19 26 27 27 28
2
30
Strategy and strategic procurement
Learning outcomes Key ideas Introduction 2.1 Strategic thinking 2.2 What is strategy? 2.3 Strategy development 2.4 Levels of organisational strategy 2.5 Corporate strategy 2.6 Growth strategies 2.7 Business-level strategy 2.8 Strategic management 2.9 Strategic analysis 2.10 Important environmental factors 2.11 Internal scrutiny 2.12 Strategy formulation 2.13 The evaluation of alternative strategies 2.14 Strategy implementation 2.15 Post-implementation evaluation, control and review 2.16 Strategic purchasing and supply chain process models
30 30 31 31 32 34 37 38 38 41 44 44 45 49 51 56 67 71 73 vii
Contents
Case study Discussion questions Past examination questions References
76 77 78 79
3
81
Logistics and supply chains
Learning outcomes Key ideas Introduction 3.1 What is logistics? 3.2 Materials, logistics and distribution management 3.3 Reverse logistics 3.4 Supply chains 3.5 Supply chain management (SCM) 3.6 Supply chain vulnerability 3.7 SCM and logistics 3.8 Value chains 3.9 Value chain analysis 3.10 Supply chain optimisation 3.11 Supply chains and purchasing Case study Discussion questions Past examination questions References
81 81 82 82 83 88 89 92 97 98 98 103 106 109 112 113 114 114
4
117
Structure and supply chains
Learning outcomes Key ideas Introduction 4.1 Organisational structures 4.2 New type organisations 4.3 Networks 4.4 Factors in configurations 4.5 Lean organisations 4.6 Agile organisations and production 4.7 Supply and value chain mapping Case study Discussion questions Past examination questions References
117 117 118 118 125 126 134 138 140 144 148 149 150 150
5
153
Purchasing structure and design
Learning outcomes Key ideas Introduction 5.1 Business environmental factors and purchasing structures 5.2 Purchasing as a functional department VIM
153 153 154 154 156
Contents
5.3 Horizontal organisations and processes 5.4 Teams 5.5 Cross-functional purchasing 5.6 Some problems of cross-functional teams 5.7 Cross-organisational teams 5.8 Divisional purchasing structures 5.9 Centralised purchasing 5.10 Decentralised purchasing 5.11 Purchasing in multi-plant organisations 5.12 Evolving purchasing structures 5.13 Organisational change Case study Discussion questions Past examination questions References
157 159 160 161 162 162 164 165 166 169 170 174 175 176 176
6
178
Purchasing procedures and supporting tools
Learning outcomes Key ideas Introduction 6.1 The sequence and impact of purchasing procedures 6.2 Analysing a procurement process 6.3 E-commerce, e-business, e-SCM and e-procurement 6.4 The evolution of e-procurement models 6.5 Electronic data interchange (EDI) 6.6 E-hubs, exchanges, portals and marketplaces 6.7 E-catalogues 6.8 E-auctions 6.9 Reverse auctions 6.10 E-payment 6.11 Low-value purchases 6.12 Purchasing manuals 6.13 Supplier manuals 6.14 Legal aspects of purchasing Case study Discussion questions Past examination questions References
178 178 178 179 180 181 184 185 189 192 195 196 200 202 203 205 206 210 211 212 212
Part 2
215
Strategy, tactics and operations 1: purchasing factors
7 Supplier relationships
217
Learning outcomes Key ideas Introduction 7.1 Relationship purchasing and purchasing relationships 7.2 The contrast between transactional and relationship purchasing, taking account of contractual requirements
217 217 217 218 218 ix
Contents
7.3 Collaborative business relationships 7.4 Relationship formation 7.5 Models of supplier relationships 7.6 Practical considerations of supplier relationship management 7.7 The termination of relationships 7.8 Further aspects of relationships Case study Discussion questions Past examination questions References
218 221 223 229 232 234 235 236 236 237
8
238
Purchasing: product innovation, supplier involvement and development
Learning outcomes Key ideas 8.1 Innovation and kaizen 8.2 Environmentally sensitive design 8.3 Purchasing and new product development 8.4 Early supplier involvement (ESI) 8.5 Advantages and problems of ESI 8.6 Supplier development 8.7 Supplier associations'(SA) Case study Discussion questions Past examination questions References
238 238 240 243 246 248 250 251 254 256 257 258 258
9
Specifying and managing product quality
260
Learning outcomes Key ideas 9.1 What is quality? 9.2 Quality systems 9.3 The importance of TQM 9.4 Specifications 9.5 Alternatives to individual specifications 9.6 Standardisation 9.7 Variety reduction 9.8 Quality assurance and quality control 9.9 Tests for quality control and reliability 9.10 The cost of quality 9.11 Value management, engineering and analysis Case study Discussion questions Past examination questions References
260 260 261 263 263 268 272 275 279 280 280 293 293 305 305 307 308
10
309
Matching supply with demand
Learning outcomes Key ideas 10.1 Inventory, logistics and supply chain management
309 309 309
Contents
10.2 Reasons for keeping inventory 10.3 Inventory classifications 10.4 Scope and aims of inventory management 10.5 Some tools of inventory management 10.6 The economics of inventory 10.7 Inventory performance measures 10.8 Safety stocks and service levels 10.9 The right quantity 10.10 The nature of demand 10.11 Forecasting demand 10.12 'Push' and 'pull' inventories 10.13 Independent demand 10.14 Dependent demand 10.15 Just-in-time (JIT) 10.16 Materials and requirements planning (MRP) 10.17 Manufacturing resource planning (MRP II) 10.18 Enterprise resource planning (ERP) 10.19 Supply chain management systems 10.20 Distribution requirements planning (DRP) 10.21 Vendor-managed inventory (VMI) 10.22 Purchasing and inventory Case study Discussion questions Past examination questions References
310 310 311 312 317 318 319 ,322 323 324 329 330 334 334 341 345 347 349 349 351 354 354 355 356 357
11 Sourcing and the management of suppliers
358
Learning outcomes Key ideas 11.1 What is sourcing? 11.2 The sourcing process 11.3 Sourcing information 11.4 Analysis of market conditions 11.5 Directives 11.6 E-sourcing 11.7 Locating suppliers 11.8 Supplier assessment 11.9 Supplier approval 11.10 Evaluating supplier performance 11.11 Policy issues in sourcing 11.12 The supplier base 11.13 Outsourcing 11.14 Outsourcing manufacturing 11.15 Outsourcing services 11.16 Drivers of outsourcing 11.17 Types of outsourcing 11.18 Benefits of outsourcing 11.19 Problems of outsourcing
358 358 359 360 361 361 363 365 365 366 374 375 378 379 380 381 386 388 388 388 389 xi
Contents
XII
11.20 Handling an outsourcing project 11.21 Sub-contracting 11.22 Partnering 11.23 Intellectual property rights and secrecy .24 Support for marketing .25 Intra-company trading 11.26 Local suppliers .27 Purchasing consortia .28 Sustainability .29 Sourcing decisions .30 Factors in deciding where to buy Case study Discussion questions Past examination questions References
390 392 393 403 404 405 406 406 407 408 410 412 413 414 415
12 Managing purchase prices
417
Learning outcomes Key ideas 12.1 What is price? , 12.2 The buyer's role in managing purchase prices 12.3 Supplier pricing decisions 12.4 The supplier's choice of pricing strategy 12.5 Price and cost analysis 12.6 Competition legislation 12.7 Collusive tendering 12.8 Price variation formulae Case study Discussion questions Past examination questions References
417 417 418 418 426 428 430 433 435 436 438 440 441 442
Part 3 Strategy, tactics and operations 2: buying situations
443
13 Contrasting approaches to supply
445
Learning outcomes Key ideas Introduction 13.1 Industrial products 13.2 Capital investment items 13.3 Capital expenditure 13.4 Factors to be considered when buying capital equipment 13.5 Controlling the acquisition of capital equipment 13.6 New or used equipment 13.7 Financing the acquisition of capital equipment 13.8 Selecting suppliers of capital equipment 13.9 Evaluating capital investments 13.10 The buyer and capital investment purchases
445 445 446 446 446 447 448 449 450 452 456 458 461
Contents
13.11 Production materials 13.12 Raw materials 13.13 Futures dealing 13.14 Methods of commodity dealing 13.15 Purchasing non-domestic gas and electricity 13.16 Energy regulation 13.17 Energy supply chains in the UK 13.18 Markets 13.19 Pricing 13.20 Procuring energy contracts 13.21 Energy consultants and management 13.22 Component parts and assemblies 13.23 Consumables 13.24 Construction supplies and bills of quantities 13.25 Purchasing services Case study Discussion questions Past examination questions References 14
Buying from overseas
Learning outcomes Key ideas 14.1 Terminology 14.2 Motives for buying from overseas 14.3 Sources of information for overseas suppliers 14.4 Overcoming challenges when sourcing overseas 14.5 Incoterms 14.6 Ocean shipping terminology 14.7 Customs and excise 14.8 Transport systems, costs and considerations 14.9 Freight agents 14.10 Methods of payment 14.11 Countertrade 14.12 The true cost of overseas buying 14.13 Buying capital equipment overseas 14.14 Factors in successful overseas buying Case study Discussion questions Past examination questions References
Part 4 15
Strategy, tactics and operations 3: negotiation, support tools and performance
Negotiation
Learning outcomes Key ideas
462 462 464 467 470 470 470 471 ' 472 473 476 476 477 478 480 487 489 490 492 493 493 493 494 494 495 496 500 505 506 507 509 512 514 517 517 519 520 520 521 522
523 525 525 525 xiii
Contents
XIV
Introduction 15.1 Approaches to negotiation 15.2 The content of negotiation 15.3 Factors in negotiation 15.4 The negotiation process 15.5 Pre-negotiation 15.6 The actual negotiation 15.7 Post negotiation 15.8 What is effective negotiation? 15.9 Negotiation and relationships 15.10 Negotiation ethics Case study Discussion questions Past examination questions References
526 529 529 533 537 538 543 549 550 550 552 556 557 558 559
16 Support tools
560
Learning outcomes Key ideas 16.1 Tendering 16.2 Debriefing unsuccessful tenderers 16.3 Post-tender negotiation (PTN) 16.4 Application of costing techniques 16.5 Lifecycle costing 16.6 Target costing 16.7 Absorption costing 16.8 Activity-based costing (ABC) and management 16.9 Standard costing 16.10 Budgets and budgetary control 16.11 Learning curves 16.12 Project management 16.13 Scheduling 16.14 Operational research (OR) Case study Discussion questions Past examination questions References
560 560 561 564 565 566 566 571 573 577 582 584 584 589 591 599 602 602 604 605
17 Purchasing research, performance and ethics
606
Learning outcomes Key ideas 17.1 Purchasing research 17.2 Purchasing performance evaluation 17.3 Accounting approaches 17.4 The purchasing management audit approach 17.5 Benchmarking and ratios 17.6 Integrated benchmarking 17.7 Management by objectives (MBO)
606 606 606 611 613 616 621 628 631
Contents
17.8
Miscellaneous approaches applicable to measuring purchasing performance 17.9 Purchasing ethics 17.10 Some ethical issues relating to suppliers 17.11 Ethical codes and training 17.12 Ethical decisions 17.13 Purchasing and fraud 17.14 Environmental aspects of purchasing Case study Discussion questions Past examination questions References
632 632 633 636 640 640 647 657 657 659 659
Appendix I: Code of professional ethics - Chartered Institute of Purchasing and Supply (CIPS) (Approved by the CIPS Council, 11 March 2009) Appendix 2: Principles and standards of ethical supply management conduct (ISM) (Adopted May 2008)
664
Definitions, acronyms and foreign words and phrases Index of names and organisations Subject index
665 670 675
662
Supporting resources Visit www.pearsoned.co.uk/farrington to find valuable online resources For Instructors: • Comprehensive Instructor's Manual containing teaching tips and notes on case studies for each chapter • Downloadable PowerPoint slides containing figures from the book For more information please contact your local Pearson Education sales representative or visit www.pearsoned.co.uk/farrington
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