Strategic Integration & Supplier Relationship Management
Strategic Integration in Purchasing
What is Integration? The process of bringing together different groups, functions, or organizations to work together to achieve organizational goals.
Internal Integration in Purchasing
1- Operations: Material requirements, performance feedback.
2- Quality Assurance: Supplier evaluation, supplier development.
3- Engineering: Technology used.
4- Accounting & Finance: Cost reduction, buying decisions, budget.
5- Legal Environment & Safety: Intellectual property, workplace safety.
6- Marketing: Marketing agencies, material needs for ads.
External Integration in Purchasing
1- Suppliers: Supplier selection, performance evaluation, contracts.
2- Government
3- Local Community: Social goals, local suppliers, ethical issues.
Collaborative Buyer-Seller Relationships
A collaborative relationship involves:
- One or a limited number of suppliers for each purchased item.
- A win-win relationship with mutual benefits.
- Joint efforts to improve supplier performance.
- Joint efforts to resolve disagreements on 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
1- Trust: Sharing sensitive data and taking advantage of each other’s strengths.
2- Long-Term Relationships: Supplier investment in new items and high development for the supplier.
Evolving from Adversarial to Collaborative Relationships
Phase 1: Traditional SCM: Minimal trust, short-term relationships.
Phase 2: Mere Suspicion: Increasing but not full trust.
Phase 3: Closer Buyer & Seller Relation: Buyer understands the importance of closer relations, trust increases.
Phase 4: Total Trust: Mutual commitment, total trust, long-term relationships.
Factors Affecting Purchasing Positions
1- History
2- Type of Industry
3- Total value of purchased goods
4- Other factors: Organizational philosophy
Purchasing Levels
Top Level: CEO – VP Manufacturing
Middle Level: CEO – VP Manufacturing – Director of Purchasing
Lower Level: CEO – VP Operations – Director of Material Management – Purchasing
Organizing Purchasing Functions
1- Negotiation
2- Purchasing Research
3- Operational Support: Providing what is needed on time
4- Administration
Purchasing Activities
1- Buying: The primary activity of the purchasing department.
2- Expediting: Making processes faster with direct control.
3- Inventory Control: Managing materials already in hand for production.
4- Transportation
5- Managing Counter Trade Agreements: Exchanging goods for goods.
6- Outsourcing: Security, cleaning, maintenance.
7- Value Analysis: Improving purchases by comparing cost and benefits.
8- Purchasing Research or Material Forecasting: Researching materials.
9- Supply Management: Reaching the best number of suppliers and managing them.
Supplier Evaluation & 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: Filtering suppliers to find the best number of suppliers.
6- Determine Methods of Supplier Evaluation: Supplier visits, provided information, use of preferred suppliers.
7- Select Suppliers & Agreements
Key Supplier Evaluation Criteria
1- Management Capability: Employee turnover, manager experience, long-term contract practices, commitment to total quality, customer focus, management directions.
2- Employee Capability: Employee commitment, skills, relations with management, morale.
3- Cost Structure: Understanding supplier costs.
4- Total Quality Performance & Philosophy
5- Technical Capability
6- Environmental Regulations Compliance
7- Financial Stability
8- Long-Term Relationship Possibility