Integration and Supplier Relationships in Purchasing

Posted on Jan 13, 2025 in Economy

What is Integration?

Integration is the process of bringing together different groups, functions, or organizations to work together to achieve organizational goals.

Internal Integration in Purchasing

  • Operations: Material requirements, performance feedback.
  • Quality Assurance: Supplier evaluation, supplier development.
  • Engineering: Technology used.
  • Accounting & Finance: Cost reduction, buying decisions, budget.
  • Legal & Safety: Intellectual property, safety in the workplace.
  • Marketing: Marketing agencies, material needs for advertisements.

External Integration in Purchasing

  • Suppliers: Supplier selection, performance evaluation, contracts.
  • Government.
  • Local Community: Social goals, local suppliers, ethical issues.

Collaborative Buyer-Seller Relationships

  • One or a limited number of suppliers for each purchased item.
  • Win-win relationship to have mutual benefits.
  • Joint efforts to improve supplier performance.
  • Joint efforts to solve disagreements in terms of price, quality, delivery, or contracts.
  • Exchange of clear and up-to-date information.
  • Commitment to work together.
  • Commitment to quality.

Advantages of Closer Buyer-Seller Relationships

  • Trust: No taking advantage of each other, ability to share sensitive data.
  • Long-Term Relationship: Supplier investment in new items to offer and high development for the supplier.

Evolving from Adversarial to Collaborative Relationships

  • Phase 1: Traditional School of SCM: No trust, but if both parties show minimum trust, it’s a short-term relationship.
  • Phase 2: Mere Suspicion: Trust is increasing but still not full.
  • Phase 3: Closer Buyer-Seller Relationship: The buyer starts to understand the importance of a closer relationship with the supplier, and trust increases.
  • Phase 4: Total Trust: Mutual commitment, total trust, long-term relationship.

Factors Affecting Purchasing Positions

  • History
  • Type of industry
  • Total value of purchased goods
  • Other factors: Philosophy of the organization

Levels of Purchasing

  • Top Level: CEO > VP Manufacturing > Purchasing
  • Middle Level: CEO > VP Manufacturing > Director of Purchasing > Purchasing
  • Lower Level: CEO > VP Operations > Director of Material Management > Purchasing

Organizing Purchasing Functions

  • Negotiation
  • Purchasing research
  • Operational support: Provide what is needed on time.
  • Administration

Purchasing Activities

  • Buying: The primary activity of the purchasing department.
  • Expediting: Making the process faster with direct control.
  • Inventory Control: Managing the material already in hand for the production process.
  • Transportation.
  • Managing Countertrade Agreements: Exchanging goods for goods.
  • Outsourcing: Security, cleaning, maintenance.
  • Value Analysis: The relationship between value and cost to improve purchases by comparing cost and benefits.
  • Purchasing Research or Material Forecasting: Research about the materials.
  • Supply Management: Reaching the best number of suppliers and managing them.

Supplier Evaluation and Selection Process

  1. Recognize the Need for a Supplier: Is the supplier needed, and why?
  2. Identify Key Sourcing Requirements: What is needed for the business?
  3. Determine Sourcing Strategy: Single vs. multiple suppliers, short-term vs. long-term contracts, full-service vs. non-full-service, domestic vs. foreign suppliers.
  4. Identify Potential Supplier Sources: Internet, conferences, directories.
  5. Limit Suppliers in the Selection Pool: Filter suppliers to find the best number, avoiding confusion, loss of control, and financial risk.
  6. Determine Methods of Supplier Evaluation: Supplier visits, provided information, use of preferred suppliers.
  7. Select Suppliers and Reach Agreements.

Key Supplier Evaluation Criteria

  • Management Capability: Employee turnover, experience of managers, long-term contract practices, commitment to total quality, customer focus, management direction.
  • Employee Capability: Employee commitment, skills, employee relations with management, employee morale.
  • Cost Structure: Understanding supplier costs.
  • Total Quality Performance and Philosophy.
  • Technical Capability.
  • Environmental Regulation Compliance.
  • Financial Stability.
  • Long-Term Relationship Possibility.