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Section A answer:- Traditional vs.

modern purchasing strategies


Poor procurement data often hinders traditional purchasing. By contrast, strategic
sourcing professionals are willing to perform the pick-and-shovel work to get the
data necessary to achieve best-in-market results.
In traditional purchasing, the typical mantra is get three bids and go with the
lowest. Strategic sourcing assesses the supplier market and internal needs,
develops multiple sourcing strategies, identifies qualified suppliers regardless of
location, and engages in a rigorous Request for Proposal (RFP) effort. .
Apart from pre-procurement activities, such as supply markets analysis, supply
planning, participation in the preparation of specifications and budgets, purchasing
has traditionally involved three main phases:
1. The identification phase: Notification of the need to procurement by either a
requisition or a bill of materials.
2. Ordering phase: Involving the steps of enquiries/requests for quotations,
receipt of quotations and preparation of purchase orders.
3. Post-ordering phase: Including activities such as expediting orders, delivery
arrangements, quality inspections, storage, payment processing and
documentation.
The above traditional procedures are administrative and merely provide a
documented logistical trail. The inefficiencies include:
1. A sequence of non-value adding clerical activities.
2. Tendency to result in excessive documentation.
3. Excessive order processing time.
4. Excessive administrative cost for pure transactional activities.
To stay competitive and relevant in todays business environment, progressive
organisations need to transform this administrative function into value-added
processes by reducing, eliminating or combining the traditional purchasing
procedural steps, and by embracing the strategic implications of IT and eprocurement.

Just as where the African man sits and sleeps on a Gold Mine is where the other
developed countries come and take away their diamonds the national resource
belonged to the land using their own man strength.
We could identify few core purchasing strategies that could be identified in the
modern purchasing management as listed below,
Supplier optimization
TQM (Total Quality Management)
Risk management
Global sourcing
Vendor development
Green purchasing channels
Lean production
There are few common differences we could identify in traditional and modern
purchasing those are given below
Modern purchasing
Systematic
Long term
Holistic
Traditional purchasing
Short term
Transactional
Reactive

Section B answer:-

Halldorsson et al. (2007) contend that there is no right theory for understanding the
management of integrated supply chains
Purchasing has played a key role in any organization from past to present in order to
get required materials for lowest possible price. But due to the changes occurred
purchasing evolved into cost saving. Today the purchasing used to identify as the
foundation of the organization.

Organization is the combination of people or unit who trained to achieve particular


goals and objectives (BusinessDictionary.com, 2016). In this definition also we could
identify that organization is trying to achieve particular set of goals. The main goal of
an organization is to achieve profit. Purchasing involves activities like sourcing,
purchasing and delivery of goods and services. To achieve these goals purchasing
department also plays a critical role.
According to chary (2004) argues that the considerable amount of profit potentially
exist in purchasing activities further chary (2004) states that 20%-30% of
companies profit is gained from purchasing activities. Few functions of the
purchasing department are below.
Take economies of scale
Maintain good relationship with the customers and suppliers
Purchase materials at lowest possible cost while maintaining quality
Its important to have a sound good effective purchasing system. Simply a
purchasing system is the method or the techniques that is used to buy the required
products or services. In present time there are few types of purchasing systems
could be identified such as,
1. Tender
2. Stockless purchases
3. Blanket order
4. E- purchases
5. Subcontracting
6. Rate contract method
7. Petty cash system
8. Capital equipment purchase
Purchasing system plays a vital role in achieving objectives of any organization,
good purchasing system will help to minimize errors and reduce time and money
spend.
According to (McKinney, 2004) there are few features of well-run purchasing system
that can be identified and included those are,
A written and updated policies and procedures manual.
A purchase-requisition system to communicate purchase requirement.
A purchase-order system to communicate commitment to the vendors.

An updated list of employees who are authorizes to request purchases.


A pre- audit system with which to compare requisition before issuing the
purchase order.
A well- functioning system for evaluating bill- type purchases.
A system to expedite overdue orders.
Maintenance of a system to locate suppliers that meet specified
requirement in terms of low price and good schedule.
A recent study (Sollish and Semanik, 2005) states that the organization should
reduce
the purchase order price which they pay for a product or services in order to obtain
good profit. Cost and profit there is a ratio of 1:1 if we reduce the cost profit
increases.

Figure1. Relationship between Cost and Total Sales


In figure 1 It shows how the cost can be reduced in order to increase the sales of the
organization. So as we know when sales increase profit also increases.
To earn more profit reduction of cost is important and the total cost of ownership also
have to be reduce its must to reduce cost of ownership in order achieve the goals ,
total cost of ownership means the cost incurred to an asset conception through the
disposal at the end of its useful life. Measuring the purchasing performance is
important as far as purchasing department plays a vital role in achieving the target
goal of the organization which is profit. Its measured by following

Cost saving
Increased quality
Purchasing improvement
Transportation improvement
There are few purchasing techniques in order to reduce the cost and order to
purchased required materials those techniques are,
Bulk buying
Opportunity buying
Local vendors
Partnership with major vendors
E- procurement
To reduce the cost organization may adopt to new lean production methods as well
in lean production no overproduction or over processing is done because of that
scenario we could easily obtain maximum from purchasing also few roles like
negotiation and willingness to work with suppliers too is important which is also why
purchasing have a central role in the organization.
There are few major factors we could use to identify how the purchasing is important
to an organization how it plays the central role of an organization those are
Reduce the cost
Gain Technological development
Achieve Economies of scale

SECTION C answer:Recently, after hearing the positive yet unexpected outcome of a transportation
strategic sourcing effort, a senior executive asked the project leader a million-dollar
question: How in the world did you get 15 percent savings from a supplier weve
been using for more than 15 years, let alone more than 25 percent from their biggest
competitor? While the results were compelling, the executive in question was
surprised and somewhat angry that a long-term supplier he viewed as a partner had
been willing to yield such significant savings. The answer to his question was simple:
process. Specifically, the Strategic Sourcing process used to deliver these savings

was vastly different from the process in place for decades prior at this multi-billiondollar manufacturer.
Chen, Paulraj and Lado, (2004) cites, (Ellram and Carr 1994; Cooper and Ellram
1993) that once purchasing was a neglected business function but with the growing
importance towards supply chain management Purchasing has evolved as a key
strategic role and a vital business partner in the organisation. Also Krause, Pagell
and Curkovic (2001) cites, Watts et al. (1992) states since the core of purchasings
role is to support the production and operations activities with an uninterrupted flow
of materials and service, the purchasing and manufacturing strategies must be
consistent with each other, and they must be able to support the corporate level
competitive strategy.
According to Buffa (1984) these strategies towards competitive advantage on
purchasing has been mainly based on 4 significances as quality, cost, flexibility and
dependability but Ward et al (1990) adds another priority as innovation which makes
it five significances (cited in Chen, Paulraj and Lado, 2004).

Fig. 1. The relationship between competitive strategy and functional area strategies.
Adapted from Watts et al. (1992).
Corporations apply purchasing strategies to make profitable decisions on purchasing
from a different group of well organised suppliers that offer on time supplying, quality
products and at commonly pleasant terms (purchasing-procurement-center.com,
2015).

Following are The 6 Basic Strategic Purchasing Approaches undertaken by almost


every organisation,
1. Supplier optimization
As cited by Krause, Pagell and Curkovic (2001), Clark (1989) expresses that
effective management of supplier Capabilities by purchasing can lead to
increased

manufacturing

flexibility,

technology-based

competitive

advantage, reasonable protection from price competition in finished goods


and an advantage in lead-time-based competition. Also Chen, Paulraj and
Lado, (2004, cited in Dyer and Singh, 1998; Kale et al., 2000; Leenders et al.,
2002) the base of sustainable competitive advantage is mainly towards
creating and building the relationships between the suppliers and the buyers.
2. Total quality methods
Using these methods have helped the organisations to maintain its quality and
standards to the optimum level while contributing towards the purchasing

strategy as well. Some of the methods are,


Total quality management
Total quality management refers to A management philosophy for continuous
improvement of the quality of an organization's products and processes in
order to meet or exceed customer expectations (Total Quality Management

Techniques, 2015).
Six sigma
Six sigma refers to Focusing and improving the quality of process outputs by
identifying and removing the causes of defects while minimizing the variability
in

manufacturing

and

business

process(Total

Quality

Management

Techniques, 2015).

Just in time
Just in time refers to A production strategy for improving return on investment
by reducing in process inventory and associated carrying cost (Total Quality
Management Techniques, 2015).
GonzlezBenito (2002) cites, (Bartezzaghi and Turco,1989; Chan et al.,
1990; Gilbert, 1990; Sakakibara et al., 1993; Schonberger, 1982; Voss and
Robinson, 1987) mainly the JIT system was used in the automobile industry
but different authors prcised that the suppliers play the most important role in

just in in time systems who has to deliver small batches just when needed so
a specific way of managing purchasing and supplying activities is called JIT
Purchasing
3. Risk Management
Many companies acquire their required supplies from around the world eg:
china which is famous for cheap labour, so these companies are anxious
about the risk management process even it is advantageous regarding the
price, these advantages can be contradicted due to natural disasters and
various

other

unavoidable

circumstances

(purchasing-procurement-

center.com, 2015).
4. Global Sourcing
Multinational corporations consider the whole world as a market place and
they choose and source from different suppliers and vendors in the world,
basically the application of a comprehensive strategic sourcing strategy
effectively means supplies of goods and services of all countries that can
manufacture goods or provide the most economical service. And Strategic
Sourcing means best products and services at best value using a process
that achieves a significant reduction in operating costs (purchasingprocurement-center.com, 2015).
5. Vendor development
Some corporations depend only on one supplier, but if this suppliers is unable
to provide the required standards the purchaser or the purchasing department
will help the vendors to improve their service as well to develop the
procurement cycle (purchasing-procurement-center.com, 2015).
6. Green Purchasing
Green procurement refers to the purchase of products and services that have
an effect on human health and the environment compared to products or
services that serve the same purpose competing . This comparison may
consider raw materials acquisition, production , manufacture , packaging ,
distribution , reuse , operation , maintenance and disposal of the product or
service (Financial.ucsc.edu, 2015).
Basically Green purchasing is known as environmentally preferred
purchasing

(EPP),

environmentally

responsible

purchasing,

green

procurement, affirmative procurement, eco-procurement, and environmentally


responsible purchasing (Financial.ucsc.edu, 2015).

Reference Index
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