Why Purchasing needs to be central to Supply Chain Management
Agenda
Are Purchasing and SCM the same?
What is a supply chain
Definition of SCM
Why SCM is different to Purchasing
The importance of Purchasing for a SCM strategy
Is Purchasing SCM?
I believe no
There are very important differences between the two that if ignored can lead to if not unsuccessful then minimised benefits of SCM
The key issue is the scope of SCM and the complete holistic management requirements of it.
However…..
I do believe Purchasing is central to its success
What is a Supply Chain?
“A supply chain consists of all stages involved directly or indirectly, in fulfilling a customer request”
Chopia and Meindl, 2001
A supply chain is an extended enterprise (Womack and Jones, 1994) consisting of a number of businesses and through which orders flow upstream from the marketplace ultimately to the raw material supplier.
What is a Supply Chain?
"…A connected series of activities which is concerned with planning, coordinating and controlling materials, parts, and finished goods from supplier to customer. It is concerned with two distinct flows (material and information) through the organization.”
Stevens 1989
Supply Chain = Supply Chain Management?
NO!
Most companies operate within Supply Chains however that does not mean ANY supply chain management is going on (especially in an adversarial environment)
“[S]upply chain management (SCM) encompasses materials/supply management from the supply of basic raw materials to final product (and possible recycling or re-use). SCM focuses on how firms use their suppliers’ processes, technology, and capability to enhance competitive advantage. When all strategic suppliers in the chain ‘integrate’ and act as a single entity, performance is enhanced throughout the chain.”
(Tan et al 1999:3)
The whole is greater than the sum of the parts.
Companies working together in a supply chain management initiative need to share a common belief that they (and their end customers) will be better off for the collaboration.
Supply chains have 2 key flow pipelines – the information flow and the product flow which are linked, essentially building a U shaped continuous flow line
The TOTAL supply chain cycle time is the time required to travel the full U shaped pipeline – time to pass the order demand back upstream and pass the material through the chain down stream
Defining TRUE Supply Chain performance
Many ‘improvements’ made in isolation by companies tend not to change the competitive advantage of a chain due to the fact it does not impact the total supply chain performance
If you’ve reduced your stock levels but haven’t changed the supply chain pipeline correctly you may just have moved the stock back to your supplier base! Therefore NO change to the SC performance
The Pipeline and SCM
It’s the continuous pipeline perspective that is critical to successful SCM – you need to design and manage a smooth business process that runs through all the organisations involved in the chain.
This requires the management and coordination of all the activities that take place
This is where organisations tend to make the mistake – Purchasing rarely has the power or position in the organisational structure to control and manage all the departments (such as manufacturing, sales and marketing) to enable the depth of coordination required to maximise the benefits of SCM
Procurements role in SCM
Procurement is central to successful SCM because of the fact it operates at the boundaries of the organization and is therefore a direct linkage to the next member of the supply chain.
And
Many of the key requirements for SCM are Procurement activities/skills
The position of Purchasing in the supply chain
Many companies understand the strategic benefit of holistic Supply Chain Management.
Procurement is seen as a good place to start……
WHY?
It is easier to influence and drive change and improvements to supply chain performance at the supplier end rather than the customer end.