Purchasing Constitutes an Activity Faced Term Paper

Excerpt from Term Paper :

The other supply chain -- KPIs can comprise of vendor performance, obsolescence, and items available but which is not being used, supplier pricing and much more. Supplier Relationship Management -- SRM: This is the new brand concept of developing and handling long-term relations with the suppliers of specialist equipments and replacement parts. In case of asset-intensive industries, several suppliers have an almost exclusive position due to the uniqueness of their replacement parts.

Vendor-managed Inventory --VMI: In cases where the raw material inventory is owned by the suppliers till it is needed, comprises a strategy which lowers the inventory and administrative costs, while fulfilling the demand for components and equipments. Outsourced asset management and maintenance: It follows the pattern for the execution of non-core businesses. In the case of asset-intensive companies, the broad infrastructure and deep knowledge base needed to deal with some strategic assets can well be beyond their capacity. Collaborative commerce and Internet-enabled collaboration within enterprises presently supports remote asset monitoring and proactive maintenance services. Advanced EAM solutions have the potential to support this business model by giving the potential to share the needed real-time information in and out of the business. (Proven, controversial, and new approaches are part of an effective asset management program)

Planning for significant purchases is a processes concentrating on the management of a particular purchase. It might entail planning for a one-time purchase of a good or service which is crucial or it might entail planning for a group of goods and services which are recognized as vital. Planning for significant purchases helps in the following manner (i) identifies the optimum manner to approach the procurement of goods or services by means of information gathering and analysis (ii) finds out the risk connected with the purchase of goods or services early so that these can be managed and (iii) finds out the ways of achieving the objectives defined for the purchase, keeping in line with the department's/agency's Corporate Procurement Plan. (Planning for Significant Purchases)

As a constituent of the corporate procurement planning process the total of a department's/agency's purchases are found out and the total expenditure on individual or collection of goods and services is also being found out. In case of every good/service or group of goods/services, its extent of problems of securing supply is required to be found out. The goods and services which are purchased in any of the high relative expenditure or difficult to secure supply categories are regarded as important purchases. In case the goods and services are important to a department/agency depends on (i) the significance of the good or service to the department's / agency's operations (ii) the possibility of supply failure; and (iii) the influence of supply failure. Risk exposes in terms of the purchase or particular types of goods emerge from four sources. These are (i) purchaser organization inclusive of criticality of the purchase to its operations or standing. (ii) The product or service (iii) the supplier; and/or (iv) the market. (Planning for Significant Purchases)

Industry Examples:

IBM holds that companies must do business with various suppliers, not much for the greater part for social reasons, but since it makes good business proposition, according to the head of IBM's supplier diversity program. It is expected that IBM will spend roughly $2 billion with various suppliers in the year 2005 out of which 60% would be ethnically owned and 34% which are being owned by women. IBM has about 300 diverse suppliers in the U.S.A. It is crucial to possess diverse suppliers, in the opinion of Theo Fletcher who is the Vice President of the Security, Compliance and diversity of IBM's Integrated Supply Chain Group. Fletcher goes on to opine that the company does not think of the same in relation to social benefits even though there are a lot of these. Nevertheless, it constitutes a business necessity. It is important for the company that it has a supply base which appears like the employee base and that appears akin to the market the company is trying to attract. (IBM says diverse suppliers are good for business)

Apart from that as diverse suppliers develop and make their growth, they turn to be customers for IBM's products and services. Having diverse suppliers is good business, as IBM desires to be viewed as the vendor of preference as regards the items that sell. IBM sets objectives for the amount of various diverse suppliers and the amount it expends with the suppliers every year. During the previous year it spent around $1.6 billion. The amount of suppliers and the amount which is being spent with the suppliers are found out by IBM's 32 Commodity councils. It is Fletcher's opinion that one challenge is trying to find out varied suppliers in certain articles. In order to locate skilled suppliers of commodities, IBM is associated with a number of organizations which develop and recommend diverse suppliers. Those organizations comprise the National Minority Supplier Development Council and the Women's Business Enterprise National Committee. (IBM says diverse suppliers are good for business)

IBM is a member of each of those organizations. The company also looks to find out new diverse suppliers by inclusion of their names in requests for proposals and requests to quotations. According to Fletcher, challenge several of the OEMs encounter in developing a diverse supplier base is defeating the myth that in case a company uses diverse suppliers, the quality and competitiveness aspect is sacrificed. According to him, crossing the myth is vital. The quality of the products, services and support the company has from its diverse suppliers stacks up against any of their other suppliers. But IBM works closely with its different suppliers to make them better. According to Fletcher, the company has a huge amount of knowledge regarding the manner in which to improve businesses.

Among the way IBM works with its different suppliers is via its supplier mentoring program. Under the program, one of the executive from IBM works with the CEO of the diverse supplier. The plan is to find the strengths and weakness of the supplier and convert its weakness into strengths. The crucial thing at IBM is for the supplier is to have a close look at its business and for the leader of the supplier to act in unison with the professionals at IBM and examine the supplier's business. It is important that they consent as to where the improvements are required to be made and what are the plans that need to be put in place. (IBM says diverse suppliers are good for business)


Carbone James. IBM says diverse suppliers are good for business. 11 August, 2005.

Retrieved at http://www.purchasing.com/article/CA631780.html. Accessed 20 October 2005

Good Purchasing Practice. Retrieved from https://my.sunderland.ac.uk/web/services/purchasing/purchasing_strategy/Good%20Purchasing%20Practice.doc. Accessed 18 October 2005

Hamilton County Finance Division: Purchasing Department. Retrieved at http://www.hamiltontn.gov/Purchasing/default.htm. Accessed 18 October 2005

Kennedy, Sheila. Proven, controversial, and new approaches are part of an effective asset management program. Retrieved at http://www.mt-online.com/articles/1102_indus.cfmAccessed 20 October 2005

Planning for Significant Purchases. July, 2000. Retrieved at http://www.qgm.qld.gov.au/PDFguides/signif.pdf. Accessed 20 October 2005

Purchasing Good Practice. Retrieved at http://lsc.wwt.co.uk/documents/othercouncilpublications/other_pdf/Purchasing_Good_Practice.pdf. Accessed 18 October 2005

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