Roles of Information Technology in Purchasing
Chapter 3
Purchasing and e-Procurement
3.1 The Role of Purchasing 3.1.1 Introduction to purchasing The role of purchasing is to obtain raw material, components, parts, as well as information that are needed for the production of goods or providing services. The purchasing process includes many aspects, such as request for quotation (RFQ), supplier market analysis, supplier selection, contract negotiations, and purchase plan implementation. The purchase function plays a liaison role between various departments within an organization and numerous suppliers outside the company. The purchase goal is to develop and implement a purchasing plan that supports the company’s daily operation and the overall strategic plan. It is estimated that the purchased material cost accounts for 60% of the total product cost in the manufacture sector. In the retail and wholesale environments, the cost of a purchased commodity can be as high as 90%. According to the US Census Bureau 2002 manufacturing research report, the cost of purchased raw material, parts and components exceeds the amount of the value-added portion during the manufacturing process. Therefore, effectively managing purchasing and sourcing can enhance a firm’s competitive advantages. For a long time, purchasing was regarded as a supporting function in an organization. Today, in the age of supply chain management, the purchasing function plays an important role in implementing a
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SUPPLY CHAIN MANAGEMENT: CONCEPTS, TECHNIQUES AND PRACTICES - Enhancing Value Through Collaboration © World Scientific Publishing Co. Pte. Ltd. http://www.worldscibooks.com/business/6273.html
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Supply Chain Management: Concepts, Techniques, and Practices
company’s overall business strategy. Important aspects of supply chain management include outsourcing, searching for better quality products, and emphasizing lean and profitable production. The introduction of the Internet technology, e-commerce, on-line auction, and vendor-managed
Purchasing and e-Procurement
3.1 The Role of Purchasing 3.1.1 Introduction to purchasing The role of purchasing is to obtain raw material, components, parts, as well as information that are needed for the production of goods or providing services. The purchasing process includes many aspects, such as request for quotation (RFQ), supplier market analysis, supplier selection, contract negotiations, and purchase plan implementation. The purchase function plays a liaison role between various departments within an organization and numerous suppliers outside the company. The purchase goal is to develop and implement a purchasing plan that supports the company’s daily operation and the overall strategic plan. It is estimated that the purchased material cost accounts for 60% of the total product cost in the manufacture sector. In the retail and wholesale environments, the cost of a purchased commodity can be as high as 90%. According to the US Census Bureau 2002 manufacturing research report, the cost of purchased raw material, parts and components exceeds the amount of the value-added portion during the manufacturing process. Therefore, effectively managing purchasing and sourcing can enhance a firm’s competitive advantages. For a long time, purchasing was regarded as a supporting function in an organization. Today, in the age of supply chain management, the purchasing function plays an important role in implementing a
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SUPPLY CHAIN MANAGEMENT: CONCEPTS, TECHNIQUES AND PRACTICES - Enhancing Value Through Collaboration © World Scientific Publishing Co. Pte. Ltd. http://www.worldscibooks.com/business/6273.html
58
Supply Chain Management: Concepts, Techniques, and Practices
company’s overall business strategy. Important aspects of supply chain management include outsourcing, searching for better quality products, and emphasizing lean and profitable production. The introduction of the Internet technology, e-commerce, on-line auction, and vendor-managed
References: APICS, 1998. Dictionary, 9th edition. Falls Church, VA. Ayers, J.B. 2001. Handbook of Supply Chain Management, New York: The St. Lucie Press. Chen, I.J. and Paulraj, A. (2004) Understanding supply chain management: critical research and a theoretical framework. International Journal of Production Research. 42(1), 131-163. Chesbrough, H.W. and Teece, D.J. 1996. “Organizing for innovation: When is virtual virtuous?” Harvard Business Review, p. 6. SUPPLY CHAIN MANAGEMENT: CONCEPTS, TECHNIQUES AND PRACTICES - Enhancing Value Through Collaboration © World Scientific Publishing Co. Pte. Ltd. http://www.worldscibooks.com/business/6273.html 84 Supply Chain Management: Concepts, Techniques, and Practices Chopra, S. and Meindl, P. 2002. Supply Chain Management. New Jersey: Prentice Hall. Leenders, M.R., Johnson, P.F., Flynn, A.E., Fearon, H.E. 2006. Purchasing and Supply Management. New York: McGrawHill/Irwin. Monczka, R. Trent, R. and Handfield, R. 2005. Purchasing and Supply Chain Management, 3rd edition. Ohio: South Western. Neef, D. 2001. e-Procurement: From strategy to Implementation. New Jersey: Prentice Hall. O’Brien, Kevin “Value-Chain Report -- Strategic Sourcing.” Retrieved on February 17, 2006 from http://www.industryweek.com. “Purchasing Activity Analysis.” Retrieved on February 17, 2006 from http://www.strategicpurchasingservices.com. Schneider, Gary P. 2004. “Electronic Commerce: The Second Wave.” 5th edition. Canada: Thomson Course Technology. SUPPLY CHAIN MANAGEMENT: CONCEPTS, TECHNIQUES AND PRACTICES - Enhancing Value Through Collaboration © World Scientific Publishing Co. Pte. Ltd. http://www.worldscibooks.com/business/6273.html