Chapter 11

CHAVEZ, ANDREA O.
CBET-01-601P
Chapter 11: Supply Chain Management
OBJECTIVES:
 Discuss the goal of Procurement

 Discuss the main steps in purchasing cycle
 Discuss the difference of Centralized Purchasing and Decentralized Purchasing
 Discuss the importance of ethical behavior in business
 List some advantages of e-business
 Describe the key aspects of supplier management
 Discuss the importance of Inventory Management in SCM
Procurement
Many people use the terms purchasing and procurement, interchangably. They may have
similarities but they have different meaning. Purchasing is the process how goods and services
are ordered while procurement deals with sourcing activities, negotiation, and strategic selection
of goods and services.
The goal of procurement is to develop and implement purchasing plans for products and
services that support operations strategies. We can say that procurement is tacticalin nature
because of its process of physically buying a product or services.
Purchasing Interfaces
Purchasing is the connecting link between the organization and the suppliers. Discussed
below are the interaction between purchasing and other areas in organization.
Operations. It establish the main source of requests for purchased materials. If

quality, quantity, and delivery goals are to be met, close cooperation with purchasing
department is essential.
Accounting. It is accountable for handling payments to supplier and recording all

transactions in the accounts.
CHAVEZ, ANDREA O. CBET-01-601P
Design and engineering.They usually prepare material specifications, which must

be communicated to purchasing.
Receiving. They are in charged of inspecting the incoming shipments and

verification of the quality and quantity of the goods ordered.
Suppliers. They work closely with the purchasing team to know what materials
will be purchased and what kinds of specification will be required in terms of quality,
quantity, and deliveries.
Purchasing Cycle
Purchasing cycle is a series of steps that begin with a request for purchase and end with
notification of shipment received in satisfactory condition.
The main steps in the purchasing cycle are:

1. Purchasing receives the requisition
2. Purchasing selects a supplier
3. Purchasing places the order with a vendor
4. Monitoring order
5. Receiving orders
Centralized Purchasing versus Decentralized Purchasing

In centralized purchasing, the purchasing is handled by one special department while
decentralized purchasing have individual departments or separate location handle their own
purchasing requirements.
E-business
E-business refers to the use of electronic technology to facilitate business transaction. It
involves interaction of different business organizations as well as the interaction of individuals
with business organizations.
There are two essential features of e-business: the Web site and order fulfillment. Order
fulfimment includes order processing, billing, inventory management, warehousing, packing,
shipping, and delivery.
Supplier Management
Reliable and trusrtworthy suppliers are a vital link in an effective supply chain. Described
here are various aspects of supplier audits, including supplier audits, supplier certification,and
supplier partnering.
Choosing Suppliers. Choosing a supplier involves taking into account many of the
same factors associated with making a major purchase. These factors include quality and
quality assurance, flexibility of the supplier in handling changes, location of the supplier,
and etc.
Supplier Audits. Periodic audits of supplier are a means of keeping current on

suppliers’ production capabilitites, quality and delivery problems and resolutions, and
suppliers’ performance on other criteria. Among the factors covered by a supplier audit
are management style, quality assurance, materials management, the designproceused,
process improvement policies, and procedures for corrective action and follow-up.
Supplier Audits are also an important first step in supplier certification programs.
Supplier Certification. It is a detailed examination of the policies and capabilities

of a supplier. This is generally important in supplier relationships, but it it particularly
important when buyers are seeking to establish along-term relationship with suppliers.
Supplier Relationship Management. Business organizations are becoming

increasingly aware of the importance of building good relationships with their suppliers.
Keeping good relations with suppliers is increasingly recognized as an important factor in
maintaining a competitive edge.
Supplier Partnerships. More business organizations are seeking to establish

partnerships with other organizations in theri supply chain. Among the possible benefits
of supplier partnership are higher quality,increased delivery speed and reliability, lower
inventories, lower costs, higher profits, and, in general, improved operations.
Inventory Management
Inventories are a key component of supply chains. Certain aspects of inventory
management are particularly important for supply chain management. They relate to the location
of inventories in the supply chain, the speed at which inventory moves through the supply chain,
and dealing with the effect of demand variability on inventories.
Inventory velocity. The speed at which goods move through supply chain.
Bullwhip effect. Inventory oscillations become progressively larger looking backward
through the supply chain
Order Fulfillment
Order fulfillment refers to the processed involve in responding to customer orders. Some
common approaches are discussed below.
Engineer-to-Order (ETO). This approach is frequently used for large-scale

construction projects. The fulfillment time can be relatively lenghty because of the nature
of the project.
Make-to-Order (MTO). This approach is used by aircraft manufacturers.
Fulfillment time is generally less than with ETO fulfillment, but still fairly long.
Assemble-to-Order (ATO). Computer manufacturers such as Dell operate using
this approach. Fulfillment times are fairly short,often a week or less.
Make-to-stock (MTS). This approached is used in department stores and
supermarkets. The order fulfillment time is immediate.
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CHAVEZ, ANDREA O.

Chapter 11: Supply Chain Management

 Discuss the goal of Procurement

Operations. It establish the main source of requests for purchased materials. If

Accounting. It is accountable for handling payments to supplier and recording all

Design and engineering.They usually prepare material specifications, which must

Receiving. They are in charged of inspecting the incoming shipments and

The main steps in the purchasing cycle are:

Centralized Purchasing versus Decentralized Purchasing

Supplier Audits. Periodic audits of supplier are a means of keeping current on

Supplier Certification. It is a detailed examination of the policies and capabilities

Supplier Relationship Management. Business organizations are becoming

Supplier Partnerships. More business organizations are seeking to establish

Engineer-to-Order (ETO). This approach is frequently used for large-scale

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