Supply & Purchasing Management

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Supply and purchasing management is the process of getting and managing products/services required to run a business or an organization. Supply and purchasing management refers to purchasing products, information, and services. The process also includes creating a budget for the purpose of getting and managing products/services. Supply and purchasing management has the goal of obtaining the required resources at the best possible price so that the business remains profitable and efficient. Supply and purchasing management includes the different actions of identifying, buying, and managing products/services that are required to operate the business. In practice this means purchasing goods, information, services, and other resources (3). The importance of supply and purchasing management stems from the fact that large corporations have huge budgets. The supply and purchasing can be of billions of dollars. Supply and purchasing management uses different methods to control costs, efficiently allocate resources, and gather information to be used in strategic business decisions. Some of the important purposes of supply management is to keep costs under control, efficiently procure resources, and obtain information required that can be used in strategic business decision making. From a different point of view supply and purchasing management refers to purchasing of materials, information, and finances as they move in a process from the supplier to the manufacturer to the retailer to consumer. Supply and purchasing management refers to coordinating and integrating these flows both within and among companies. For example, when Wal-Mart uses RFID tags to track its shipments from its suppliers, it is part of supply and purchasing management. One of the key goals of modern supply and purchasing management is to reduce inventory. In this way supply and purchasing plays a key role in the implementation of just in time technique. Currently, most supply and purchasing systems use software with internet interfaces.

Supply and purchasing management has several dimensions. Currently, the strategic role of supply and purchasing is considered very important. For example, large retailers such as Target get competitive advantage because of efficient supply and purchasing management. Supply and purchasing management also plays an important role in the economy of a country. For example, the economies of several South East Asian countries have improved because of global supply and purchasing management. The function of supply and purchasing has improved tremendously in recent years because of improvement in communications and information technology (1). Specifically, the improvement in transport systems, and information technology has played an important role in supply and purchasing management. The role of information technology has led to better intercompany coordination. Further, the entry of third party logistics providers has provided an important support to supply and purchasing.

Currently, there are several measures being used to evaluate supply and purchasing management performance. One approach is to use customer service verses cost tradeoff. It is desirable to have a responsive supply and purchasing management. It is important to have a reliable supply chain. The order delivery and lead time must decrease. Also, the variety of products being delivered by supply chain also increases (2). At the same time financial data is used to compare the cost incurred by supply and purchasing with the benefits delivered to the customer. Supply and purchasing management is considered critical for business success and survival. In this context organizations seek to optimize supply chain performance. When there is an expansion of business there is greater need for greater supply chain integration, and supply chain restructuring.

One of the key functions of supply and purchasing is that it influences the make versus buy decision. The function of supply and purchasing begins with identifying the core processes of business. The performance of supply and purchasing is critical when a firm aims to achieve economies of scale. The supply and purchasing must be able to gain economies through negotiation with suppliers and ensuring timely delivery of products. Supply and purchasing management and its efficiency plays an important role in the firm's make versus buy decisions. The business portfolio is also redesigned because of efficiencies realized from supply and purchasing.

Supply and purchasing management plays an important role in inventory management. It is supply and purchasing management that helps determine cycle inventory, safety stock, and pipeline inventory. Supply and purchasing management helps reduce dead stock. it also helps reduce inventory related costs. These include ordering costs, inventory carrying costs, and stock-out costs. Supply and purchasing management helps manage the stock cycle. In addition, it also manages safety stock, and seasonal stock. One of the key issues in supply and purchasing is the design of the supply chain. In several cases it is required to redesign the supply chain so that there are beneficial effects on the inventory (5). For example, the products of a firm may be such that a centralized supply and purchasing operation is required. Similarly, in a different industry it may be necessary to have decentralized procurement. Similarly, a critical decision relating to supply chain management is the decision relating to the selection of transport. Trucks have their advantages. Using water transport reduces costs. Railroad transport also has unique features. Supply and purchasing management has to select transportation based on cost structure, product demand characteristics, and choices available. For instance, it may be competitively advantageous to deliver a packet through air-freight, the cost of such delivery may outweigh the benefits from speed of delivery and the supply management has to seek alternative but effective means of making deliveries. Supply and purchasing management has to design the distribution network and weigh different options available. For example, a container based delivery system using railroad has to be compared with a truck based delivery network. Currently, supply and purchasing systems use sophisticated algorithms for vehicle scheduling. Transportation costs play an important role in selecting shipping mode as well as the business need for timely deliveries. There are specialized industries in which supply and purchasing management have a critical role to play. For example, in grocery distribution, supply and purchasing plays an important role. The ...