Project Procurement Management

Purchasing and Supply Management
            Purchasing and Supply Management is a critical component to running of any corporation today. According to The Institute of Supply Management (ISM) , supply chain management is "The design and management of seamless, value-added processes organizational boundaries to meet the real needs of the end customer. The development and integration of people and technological resources are critical to successful supply  chain integration. (Leenders, 2010) term of value chains is used to trace a product or services through its various moves and transformation. 

The money spent on suppliers for a corporation is approximately over $18 trillion according to (Leenders, 2010). The impact of corporate spending in supply management can be illustrated by various methods, profit-leverage effect which is measured the the increase in profit to multiply gains and losses. Leveraging can be accomplished by borrowing money, buying fixed assets and using derivative. (Effect) There are also return-on-assets effect, reduction in inventory investment, which adds to the supply contribution in a corporation.

The creation of a project supply, services, and material budget from detailed requirements is due to a number of things working in harmony between departments: supply, purchasing, vendors, and management to coordinate the efforts. There is decisions that have to be made in a management strategy and social policy to decide on what suppliers to use to buy the supplies you need to produce a specific product. The success is based upon buying materials at the lowest quantities possible to increase the profit margin on the final product.

Wal-Mart is an example of a corporation that buys volumes in the millions of such items as toilet paper and canned goods to insure they get a very low per item cost. Their computerized warehouse system, which is one of the most sophisticated, and largest in the world. (Anonymous., Philadelphia: Feb 2010. Vol. 5, Iss. 2; p. 18 (1 page) ) The are the world's largest retailer with over $400 billion in sales. They spend over $100 billion on buying private label products like the Faded Glory apparel lines and its Great Value food and home product. Less than a fifth of the goods are bought directly from suppliers." Their goal in the long-term is to shift to sourcing about 80 percent of purchasing directly. They have operations with 8,500 stores in 15 countries, including China, Mexico, South America.

Companies such as Wal-Mart are tremendously successful at expansion around the world. They have many products such as clothing outsourced to Asian countries and the Middle East for clothing and shoe manufacturing. Their strategies in Japan and Germany were not successful due to cultural differences where small grocery chains and competition are favored over large conglomerates. During the course of operation, the purchasing of materials management is important to every company that is in operation. A store like Wal-Mart not only has to have sources for buying the cheapest clothing and food goods for people, but must consider lowering costs for operations. In a move in 2005, Wal-Mart is leading the way to several environmental measures to increase energy efficiency. If they reduce greenhouse gas emissions by 20% in every years, and reduce energy use at 30%, and cuts solid waste by 25% in three years, that translates to increase profit to lower overhead costs to run the stores, and costs of transportation of goods to each chain store. Any supply organization including Wal-Mart has objectives.

Supply Organization is of the key reasons for Wal-Mart's tremendous success. They team with giant retailers such as PepsiCo to buy directly to reduce the middle man distributor costs. But, sometimes the commodity management decision on consolidating its purchasing of raw materials with these powerful partners. (Wolf, 2010)  A retailing giant such as Wal-Mart utilizes its power of being a high end consumer of supplier goods that corporation such as Pepsi respect the profitability of being a distributor. Due to the strength and power of Pepsi, they will not yield to the demands of Wal-Mart due to their powerful clout in the marketplace. (Wolf, 2010)

The objectives of supply management at Wal-Mart have been to improve their competitive position, provide and interrupted flow of materials, supplies , and services to run the company, and keep inventory investment  and loss to a minimum. They have found and try to maintain and improve their quality of goods from their suppliers. They try to have standardization of products and items when possible.

Wal-Mart maintains warehouses of millions of square feet because of the incredible flow of goods that has to flow to its chains of stores around the world. They have to maintain supply and design engineering, supply and operations, supply and marketing/sales, supply and accounting/finance, and strive to find new ways to lower operating costs. The model that Wal-Mart has laid out is a guide to many grocery retailers of how to operate. Their (SCM) supply chain management is amongst the largest in the world. Their fundamental principle behind Wal-Mart's strategy is to sell high volumes of discounted products. (Cherie Blanchard, Bradford: 2008.) Due to the supply distribution center they utilize Universal Product Codes and computers to manage much of their inventory control system. By focusing on using (RFID) radio frequency identification tags, there is a n increase efficiency to reduce further inefficiencies and costs. The practices are categorized into four segments: strategic concepts, logistics, distribution, information technology, and supplier collaboration. The demand-based supply chain flow, production quantities are determined by accurate short-term  forecasting due to the computerized inventory supply system. Wal-Mart has to be aware of the individual cultural needs at each of its stores due to their ethnic makeup and dietary needs. Wal-Mart with their private truck fleet maintains significant control over deliveries. Electronic data interchange (EDI) gives "real time" information to suppliers for better ordering accuracy. (Cherie Blanchard, Bradford: 2008.)

Grocery chains stores such as Aldi with $58 billion in U.S. Sales, is competing with the large retail grocery stores such as Safeway, Stop and Shop, and Food Basket, which supply the largest selection of goods. Aldi is a discount supermarket chain based in Germany. They have suppliers and purchasing agents who have a private label put on their goods at prices lower than Wal-Mart. They have a strategic focus and the ability to pay for private suppliers to provide lower cost merchandise and produce. They don't have as a selection as Wal-Mart superstore or Stop and Shop, but the basics are lower than Wal-Mart. The ability to centralize has these benefits and those of critical mass, cost of purchasing is low and the ability to coordinate and control of policies and procedures for the suppliers and managing organization to provide a lost cost of supply to maintain lower costs to the corporate structure.

The leading and managing teams at large grocery chains include their supportive organizational culture, structure, and systems. All functional areas involved in up-front planning, shared leadership roles, and role flexibility. (Leenders, 2010)pg 46. The author indicate the dedication to performance and implementation with decision delegate to the appropriate level, integration of all relevant functional areas and various teams throughout the project life cycle.   Senior management's success or failure at the implementation of managing teams is that the sourcing teams , development teams, and commodity management teams must have effective communications, and coordination for better control over standardization of marketing and supply programs. These people must work together as an effective unit to maintain the communications to the supplier of what the various purchasing agents need for the coming week, or month. Team playing between groups is crucial to anticipate the orders of goods to be sold to the public.

There are various teams to consider, teams with supplier participation, teams with customer participation, co-location of supply with internal customer, co-location of supplier in the buying organization, supplier, and supply councils which comprise of a senior supply staff to coordinate the supply and purchasing process. The needs in the supply process include paperwork to be filed for the flow of requisitions  by the various stores.

Steps in the supply process is a complicated communications process, (Leenders, 2010)pg 61.,

1. The recognition of need

2. The description of the need,

3. Identification, analysis of possible sources of supply,

4. Supplier selection and determination of terms,

5. Preparation and placement of the purchase order.

6. Follow-up and/or expediting the order.

7. Receipt and inspection of goods

8. Invoice clearing and payment.

9. Maintenance of records and relationships.

The types of requisition include a standard requisition with basic supplier information, traveling requisition for less sophisticated systems, and bill of materials. In an engineering company or environment, a product is composed of various parts to product the product. We create an engineering bill of materials that is generated in the final design that is sent to documentation control, purchasing, and supply management. When the final product is ready for production, purchasing tries to find to the lowest cost suppliers of the parts needed to make the product, including approved vendors, and machine shops necessary to fabricate parts that are not bought but designed for the product.

Potential sources are usually established by determining an approved vendors list that meets the company criteria. There is an initial request for quotation, request for proposal, or request for bid. Then it is up to the engineer or purchasing to determine which bid to accept. By analysis of the quotes, bids, or proposals to select the proper supplier, the company has an established set of guidelines to determine if the supplier meets the criteria. Formatting and routing of the purchase order forms is important to insure that all of the criteria of the parts needed is communicated to the potential vendor. Computers have made the coordination of suppliers and purchasing managers an easy process, compared to fifty years ago.

Information systems and technology have created a boom in the ability to expand a business without a substantial increase in the number of people needed to employees. Web-based application have contributed to the efficiency and effectiveness of the acquisition process. (Leenders, 2010). Strategic-level systems include ESS with sales planning to corporate budget, financial forecasts, operations planning, and H.R. planning. Management-level systems , knowledge-level systems, and operational-level systems which includes everything from order tracking, machine scheduling, cash management, accounts payable and receivable to payroll.

All large corporations today use a wide variety of applications software to manage all aspect of their business. Tools including fax transmission for orders from companies, email, voice mail, bar coding, and (MFPs) multifunction products to enhance the needs of the supplier, vendors, and purchasing departments, and online ordering.

The internet has allowed the cost management of advertising and ordering of products to a record low for any company. The cost of ownership with an online company has turned small "mom and pop" companies into international giants. Internet sales for all of 2003 rose over 26 percent to $54.9 billion. This increases efficiency and lower overhead costs. If you can make 50% of your sales online, you need smaller sales show room. Amazon.com, Bestbuy, and many other retailers who have spent money on buying online have reaped the benefits of this effort.

People don't want to go shopping in a bad winter, and prefer to buy online, instead of fighting with the mobs of people in the retail stores. Some grocery stores have pilot programs to deliver food and groceries to consumers who buy online. This has great benefit to people who are too busy for the grocery store, or those handicapped, elderly, and unable to get to the grocery store.  When a store likes Sears, and Toy R Us, make 30% sales online that reduces the number of stores necessary, employees to pay, electricity for the stores, and duplicate shipping to the store for the customer. These lower overhead costs due to online sales are passed on to the consumer.

The future of retailing, purchasing, and supply management shall all be internet driven. People will order almost everything online, groceries, electronics products, clothing, and even cars someday. Volume discounts will be possible to the consumer due to a lower overhead costs because of internet sales. Online Electronic Stores such as Newegg have the lowest prices on all electronics goods, competing with Best Buy, and Frys Electronics. They have excellent customer services and return policy, with sales, and often discounts on frequent buyer postage charges.

There are many wealthy people who have only online  business's on EBay. They still have to maintain their supplier chains and structure, With no need of a warehouse, employees, and a parking lot, the cost is passed on to the consumer. By linking sourcing of product goods with a sound strategy, good suppliers, communication, almost anyone can make a profit with an online business.  E-commerce is the future for companies with the desire to expand on a national or international level. Care must be taken when in sourcing goods from other countries, and outsourcing the materials for goods. We must evaluate the impact of "iceberg companies" that outsourcing 90% of their operations, and keep 10% in the United States as management core.

There has to be a balance in marketing, sales, supply, and demand of goods to world consumers. I would opt for buying goods locally at higher prices if there is a sacrifice to quality which has occurred for almost all instances of outsourcing consumer products, food, and electronics goods. We must consider the impact on (GNP) and balance of trade deficits to the United States when outsourcing. Consideration of in sourcing, and reversing of outsourcing with tax incentives with lower the deficit, and increase our GNP. People prefer to pay a bit more for a better quality of goods that are produced by American workers, in a world market.

                                                References

Anonymous. (Philadelphia: Feb 2010. Vol. 5, Iss. 2; p. 18 (1 page) ). Walmart to Streamline Purchasing. Home Furnishings Business.

Avery, S. (2009, Feb 12). MRO sourcing goes global. Purchasing , p. 48.

Cherie Blanchard, C. L. (Bradford: 2008.). Adding value to service providers: benchmarking Wal-Mart. Benchmarking , pp. Vol. 15, Iss. 2; p. 166 .

Earls., A. R. (2009, Aug 13). PPG tests the outsourcing waters. Purchasing. , pp. Vol. 138, Iss. 8; p. 26 .

Effect, L. (n.d.). Levarage (finance). Retrieved from Wikepedia: http://en.wikipedia.org/wiki/Leverage_effect

Leenders, J. F. (2010). Purchasing and Supply Management. McGraw-Hill.

Torres, C. (Chicago, Ill.: Feb 24, 2004). Internet purchases rise four times faster than total retail sales growth. Chicago Sun - Time , p. 57 .

Wal-Mart Puts Customers in Charge of Economic Stimulus Spending ... at No Charge; Retailer Will Cash Checks for Free and Focus On Compelling Rollbacks. ( New York: Apr 29, 2008. ). PR Newswire.

Wikepedia. (2011). Wal-Mart. Wikepedia .

Wolf, M. B. (2010, Oct 7). Wal-Mart Wants More Buying Clout. Bloomberg BusinessWeek .