Purchasing is referred to as the activity that is responsible for obtaining parts, materials, supplies and services to create a product or to provide a service (Joyce, 2006). Van Weele (2000 cited in Day, 2002) defines purchasing as the activities done to obtain all types of goods, services, knowledge and capabilities from external sources which are essential for running, managing and maintaining the organisation’s primary and support activities at the most preferred conditions. Leenders et al. (2002, cited by Quesada et al., 2010) defined purchasing as a “clerical function” essentially. Purchasing was “generally regarded” as essentially being a “service to production”, where the managers paid little to no attention towards the issues faced …show more content…
Traditional purchasing was more of the exchange of resources were more contractual than relational, states Dubois and Gadde, (2000, cited in Svahn and Westerlund, 2009).Traditional purchasing strategy, which is highly related from the then initial thinking and assumption of purchasing, was where only adversarial buyer-supplier relationships were mostly created and only short term orders were placed with the supplier, whoever offered the lowest price, states Nellore et al., (2001, cited in Bevilacqua and Petroni, …show more content…
1.1: The traditional purchasing cycle. The traditional purchasing strategies faced issues, from the buying organizations side, such as the cost of the preparation of invoices and documents in order to obtain payment, and with regard to the seller, the time taken to receive payment and the cost of delaying a purchase order or honoring an invoice leading to issues where the vendors refused to take part in the process and those who were willing to, charged high prices in order to cover up any of those aforementioned cost (Parikh and Joshi, 2005) In the modern context, purchasing strategies follow the concepts of both relational purchasing and performance. Modern purchasing strategies such as green channel suppliers, which is about creating close buyer-supplier relationships which enables the organization to obtain special discounts towards its purchases, obtain highly sought-after items, exchange of “mutually beneficial” information on new products, raw materials and trends (Monczka et al., 1998; Purdy and Safayeni, 2000, cited in Parikh and Joshi, 2005), the rise of E-procurement, where buyers can look for suppliers on e-procurement web sites, thus enabling the buying organizations to purchase at “volume discounts” and obtain “special offers” (searchcio.techtarget.com, 2016). Other forms of modern purchasing strategies include reverse auction, where the primary objective is to compete at the lowest purchase price (Purchasingauctions.com, 2016), Tendering where the organization
W.C. Benton, Jr., 3rd Edition, “Purchasing and Supply Chain Management.” (2010). Text. 2.
Suppliers must maintain good relations with the companies in the industry. This is low because there are multiyear service contracts and the delivery industry uses items such as vehicles, employee benefits, general goods and airline contracts associated with overhead of running business, but all contracts are rewarded through an RFP process. There are enough players in the market and had high fixed cost and thus have substantial buying power.
It has been said that retailers may no longer compete purely retail activity alone and must incorporate various factors relating to overall efficiency of the whole supply chain and in turn overcoming ever expanding management issues of which arise throughout business activities. (Fernie & Sparks. 2004)
In 2010, for instance, Wal-Mart racked up over $400 billion in sales. Instead of offering just selected items at a low price to bring in customers, Wal-Mart uses its massive buying power to force supplier companies to become more efficient and sell products at a low price all the time. (Huebsch, n.d.). Thus, Walmart strategy is firstly oriented towards low prices. In order to reach it, it has to work more efficiently than its competitors, lower the costs inside the company and also the prices of the supplier provided products. In a company, which has chosen low price strategy, one should not expect high salary or the best customer service (Stankevičiūtė, Grunda, & Bartkus, 2012).
In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization.
The core product offered by the supplier, does not represent the single source of value creation for a business customer. Rather, value emerges from the entire customer-supplier interactions, which represent a pillar in using the core resource according to Gronroos (2010). In the following figure is presented the match between customer and supplier processes, which has implications upon both sides’ businesses, in terms of value creation.
Supplier evaluation is a term used in business and refers to the process of evaluating and approving potential suppliers by quantitative assessment. The purpose of supplier evaluation is to ensure a portfolio of best in class suppliers is available for use. There are several techniques are used by companies to evaluate suppliers and measure performance. The first step in implementing any of the techniques being discussed is to determine the attributes that should be considered. A firm should focus on the attributes that it finds most important. Some attributes are easy to measure while others are not. Some models are proficient in considering total costs, but they are usually very difficult to implement and time consuming. Thus, the resources
Over the last decade, the supply chain management has influence to business all over the globe. Purchasing is one function within supply chain which becomes the most important element to establish value-added products or services. The major aspect of purchasing is supplier selection. It is recognized that selecting appropriate supplier is one of the key success factors of a firm. Selecting the right supplier is always a difficult task for purchasing manager (Liu et al., 2005). Right suppliers selection can lead the company to success and achieve the objectives. On the contrary, wrong supplier selection can lead the company to financial problem. Therefore, purchasing departments need to emphasize about supplier performance evaluation which not only concern one criterion such as price, but also consider of multi criteria for evaluating suppliers in order to select the right supplier.
Supply chain management has been defined as that process that involves the management of information, materials, and all the finances that are handled within and across the entire supply chain process (Christopher, 2016). The management is usually done through out the entire supply chain management from that moment when the suppliers are involved through all the manufacturing activities, different distribution activities, and the way that the products are served to the final product consumer (Turban, et al., 2002). The process also includes all the activities that different organizations offers to their customers as after sale services for purposes perfecting their services and products towards their highly valued customers (Christopher,
Xia, M. & Xia, N. (2008) 'The Complementary Effects of E-Markets on Existing Supplier--Buyer Relationships in a Supply Chain', J.Manage.Inf.Syst., 25 (3), pp.9-64.
Buyer-supplier relationship established since human beings started to trade goods and services. The relationship developed naturally over time after buyer and supplier developed trust and friendship which was supported by quality of product and services (Wilson. D.T, 1995). The relational development is accelerated as firms attempt to improve their relationship to achieve company goals. At the same time, the expectations in the performance have increased, and this has making the satisfactory relationship became more difficult.
Wal-Mart Stores, Inc. is a renowned retail goods superstore that sits atop the Fortune list at number one. It would be very difficult to find an individual who is unaware of Walmart’s position as the largest brick-and-mortar retail chain in the world. The company has thrived over the past few years and is continuing to grow by effectively managing its store operations and distribution strategies. One of the major contributors to the business consistently meeting market expectations is directly attributable to their management approach. Walmart has revolutionized the way retail companies manage their supply chains in more ways than one. But, perhaps the most revolutionary was the practice of unprecedented coordination with suppliers (Chekwa,
(2014) deduced that procurement performance can be assessed by focusing ondelivery,flexibility, quality, cost and technology. Optimal performance attainment is dependent onhow current suppliers`relationships aremanaged so asto ensure constant availability of needed quality supplies at the organization. This will ensure that sourced materials are indeed procured at the right costand atthe right time. Procurement performancestrives toenable improvements in the procurement process at the organizationso as to improve on qualitydelivery of firm products and servicesatleast possible time and
In the 1980’s successful Japanese firms proved to be leaders in modern management techniques with strong relationships with suppliers, allowing them to produce products of a higher quality and a faster rate than their American and European counterparts. (Ehret, 2004) Their business model focused on economies of scope, as opposed to economies of scale. Industrial firms realised they needed to manage buyer-seller relationships in order to manage cross-functional and cross-organisational processes that would allow them to become more flexible.