Summary of Purchasing & supply chain management given in the pre-master course of Technology & operations management in the 1 semester. The summary is based on the slides given in the lectures supported by the book.
1.1 Core concepts
What is purchasing management -> management of firms external resources
- Ensuring supply of goods to perform the firm’s primary and support activities (Van Weele,
2010)
Purchasing today – trends book p.3-5
- From administrative to strategic function
- From buying materials/parts to buying competence
- From cost focus to performance focus
What is supply chain management (SCM)
- The management of upstream and downstream relations with suppliers and customers to
deliver superior customer value at less costs to the SC as a whole (Christopher, 1998)
Relation between purchasing and SCM
- Two different views by Larsen & Halldorsson, 2002
- Traditionalist conceive SCM as a strategic aspect of purchasing, with emphasis on supplier
development
- Relabelling simply change the name of purchasing to SCM, purchasing has already evolved to
SCM.
, - Unionist This perspective sees purchasing as part of SCM; SCM completely subsumes
purchasing.
- Intersectionist -> The intersection concept is that SCM is not the union of logistics,
operations, and purchasing. Rather, it includes elements from all of these disciplines.
The books takes a unionist perspective!!!
SCM and Purchasing relatedness
- Relationships
- Management of activities
- Performance
But they have a different focus, scope and performance aims!
1.2 TCE & RBV
(Out)sourcing -> what to make in-house? vs. what to buy?
Why outsource?
- Decrease production costs
- Access to good-quality suppliers
- Gain access to markets
- Gain access to scarce resources
Global sourcing -> practice of contracting out activities or functions to specialized suppliers around
the world
- Progress towards global sourcing (in levels)
o Level 1 Domestic -> no knowledge of international opportunities
o Level 2&3 International -> some infrastructure
o Level 4&5 Global -> global infrastructure
, Transaction costs -> cost incurred in making any economic exchange for instance buying and selling
goods and services gathering market information, price, invoicing and payment, writing a contract,
and process of negotiation between buyer and supplier.
Transaction Cost Economics (TCE) -> make or buy decision based on minimization of transaction costs
- Assets specificity to what extent are assets unique to a specific task (asset uniqueness)
- Potential for opportunistic behaviour, what are the cost of reducing uncertainty
- Make or buy?
o High? Make (high assets specificity and high potential for opportunistic behaviour)
o Low? Buy
o Hybrid long term contracts, alliances
Resource-based view (RBV) -> focuses on the unique resources and capabilities within a company:
- Sources of sustainable competitive advantage like: skills, resources, competencies
- VRIN Valuable, Rare, Inimitable and Non-substitutable
- Core? Then make
- Non-core? Then outsource
Extended resource-based view -> RBV but with relations outside the company (strategic resources)
- Collaboration to obtain sources of sustainable competitive advantage
Interaction approach -> buyer-supplier relationship and network theory
- Protect internal resources by access important resources through external relationships
What are core competencies? (by Hamel & Prahalad, 1990):
- Deliver customer value
- Differentiate firm from competitors
- Can potentially be extended and developed
- Characteristics: Valuable, Rare, Inimitable, Non-substitutable (VRIN)
- Make or buy? -> closer to the core of business keep it in-house!
Example Coca Cola make or buy based on RBV
Outsourcing and purchasing & SCM
Outsourcing decision…
- Contracting out activities to specialized suppliers
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