Samenvatting Purchasing and
supply chain management
Chapter 1
1 the role of procurement in the value chain
Procurement = managing the company's external resources in such a way as to ensure the provision
of all goods, services, capabilities and knowledge necessary to run, maintain and manage the
company's primary and support activities under the most favourable conditions .
Delivery = at least includes purchasing, material management, entry control and receipt. Supply is
used in relation to buying on a total cost of ownership basis in a manufacturing environment.
The value chain consists of various value activities and a margin realized by these activities. Value
activities can be broken down into physical and technical groups of activities.
Porter distinguishes between primary and support activities
Value chain management = all stakeholders belonging to the same value chain are challenged to
improve the value proposition of the (buying) company to its end customers.
Value activities can be divided into physically and technically different groups of activities. Porter
distinguishes between primary activities and supporting activities.
Primary activities = are those activities that are necessary to provide the company's value
proposition to its customers. They consist of inbound logistics, operations, outbound logistics,
marketing and sales, and customer service. They focus on the physical transformation and handling
of the end products that the company supplies to its customers. Distribution to the customer and
service provision are among these primary activities
5 generic categories of primary activities:
1. Inbound Logistics: These activities are related to receiving, storing, and distributing inputs to the
production process, such as inbound transportation, inbound inspection, material handling,
warehousing, inventory management, and reverse logistics.
2. Operations: Activities associated with converting inputs into the finished product, such as
machining, assembly, packaging, equipment maintenance, testing, printing, and facility operations.
3. Outbound Logistics: These are activities associated with collecting, storing, and physically
distributing the finished product to customers, such as finished goods storage, material handling,
outbound transportation, order fulfillment, and planning.
4. Marketing and Sales: These activities include advertising, promotion, sales, distribution channel
selection, channel relationship management and pricing.
,5. Services: Activities related to providing services to customers to increase or maintain the value of
the product, such as installation, repair and maintenance, training, parts supply and product
customization.
Supporting activities = those value activities that are necessary to support the company's primary
activities. These include procurement, technology development, human resources, and facilities
management (the company's infrastructure).
The supporting activities are divided into 4 categories
1. Purchasing= refers to the function of purchasing inputs used in the company's value chain. This
can include raw materials, supplies and other consumables, as well as assets such as machinery,
laboratory equipment, office equipment and buildings.
2. Technological Development: Technology has a very broad meaning in this context as every activity
uses technology. Ex: processes, systems or product designs.
3. Human resources management: these are all activities aimed at recruiting, hiring, training,
developing and compensating all types of personnel.
4. Solid infrastructure: the entire company is a customer of these activities. Infrastructure does not
support one or more primary activities: rather, it supports the full set of business processes. Ex:
management, legal affairs, government affairs, quality management and facilities management. At
large companies, which often consist of different divisions and business units.
Primary Activities: The procurement function must meet material requirements. With regard to
operational management and inbound and outbound logistics. Production processes can be
characterized according to the following elements:
- Make and Distribute to Stock (MTS): Standard products are manufactured and stored and
customers are served from a stock of finished products. Production takes place on special machines,
often in large series. (e.g.: raw materials and semi-finished products: steel sheet, pipes, food
ingredients, construction equipment)
- Make To Order (MTO) = Products are manufactured from raw materials or the inventory of
purchased components after an order has been received and accepted from the customer and are
therefore made to order. This often occurs in situations with very large customer-specific product
ranges (e.g. bulk products that are very expensive to store, packaging boxes)
- Engineer to order (ETO) = all production activities from design to assembly and even procurement
of the required materials are related to a specific customer order. Production usually takes place on
multifunctional machines, which require highly skilled operators. (e.g. luxury yachts, customer-
specific production resources and machines)
(these production situations show that purchasing activities can vary enormously from company to
company and also from which sector they come)
- Production purchasing (PR) = purchasing for primary activities, purchasing production items or
direct sales. Usually this area gets the most attention from the management e.g.: computer software
for IT department, office equipment, drinks and food for canteen, company cars,…
,- Non-production purchasing (NPR) = indirect purchasing or general costs (maintenance, repair and
supplies)
Facilities management = relates to the management and realization of housing, the related services
and other resources to enable the organization to realize its mission.
Direct procurement = procurement of all materials and products used to manufacture a company's
end products
Indirect Procurement = Procurement of all materials, components and services used to support the
company's infrastructure and back-office operations.
Definition of concepts
Expediting= following up on a purchase order to ensure that the supplier will perform as confirmed
through the purchase order confirmation. There are three types of acceleration: 1. Routine health
check; 2. Advanced health check; 3. Expedition in the field.
The linear purchasing process model:
The figure shows the most important purchasing activities. These activities are closely intertwined.
Specific activities in the purchasing function (fig 1.1):
1. Determining specification: Assess whether the company should consider make vs buy (own
resource needs vs external resources) and determine the procurement needs through specifications
(required quality and quantity of the goods, services and solutions.
2. Selecting supplier: Selecting the best possible supplier and developing procedures and routines
3. Contracting: Deciding which contract to conclude, preparing, negotiating
, 4. Ordering: placing purchase orders with a selected supplier under pre-agreed conditions. using
efficient purchase order and ordering routines
5. Expediting and evaluation: Monitor and control the order to ensure delivery
6. Follow-up and evaluation: Follow-up and evaluation
Purchasing function = includes activities aimed at determining the purchasing specifications on the
basis of 'fitness for use'; selecting the best possible supplier and developing procedures and routines
to do so; preparing and conducting negotiations with the supplier to reach an agreement and draw
up the legal contract; placing the order with the selected supplier or developing efficient purchase
order and fulfillment routines; monitoring and checking the order to secure delivery (expediting);
follow up and evaluate.
Purchasing Management= refers to all activities necessary to manage supplier relationships so that
their activities are aligned with the company's overall business strategies and interests.
Classification of purchased goods
- Explain the reason for the variety of goods and services managed by a company:
• The company buys different types of goods to function, for example office equipment so that the
staff can work optimally, raw materials to produce products and much more. They buy services
because they are not specialized in certain areas or do not want to invest their time and money. For
example, working with a transport company so that they do not have to provide transport
themselves.
- Explain the categories used to group the goods and services, with examples.
• Raw materials: materials that have not undergone transformation serve as basic material for a
production process. Physical resources (iron ore, copper ore and coal), natural resources (grains, soy
and coffee)
• Additional materials: materials that are not physically included in the final product, they are
consumed during the production process (lubricating oil, cooling water, polishing materials, industrial
gases)
• Foils and semi-finished products: these products have already been processed and will be further
processed at a later stage. They are components present in the end product (sheet steel, rolled wire,
plastic)
• Components: are manufactured goods that do not undergo any further physical changes. Are
included in the system with which there is a functional relationship by connecting other components.
They are built into an end product. (motor parts, electrical parts, lamp units,..)
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