TOPIC : What is supply management and how it differs from Purchasing?
Purchasing is the process to buy professionally goods and services where as Supply management covers a broad range of responsibilities such as Purchasing, Strategic sourcing,Negotiations,Cost reduction,Inventory management,New product.Supplier performance,Logistics etc.
Each of the above topics are briefed below for the benefit of the Industries & Buyers.
Purchasing - This is also called procurement, broadly classified in two parts.
1)Direct material & 2)Indirect material.
1)Direct material :Purchasing parts and raw materials required for production.This is an important link in the Supply chain. Manufacturing plant is expecting the incoming materials on just In time basis from outside for uninterrupted production.
2)Indirect material: These are the materials not directly used as a part of production/product. Indirect and MRO purchases is a black hole, even today,at most of the companies.Tracking and consolidated spend is almost impossible.Buyers can go for B2B purchase. This system allows you to negotiate lower cost for goods from suppliers. Future recommendation should be E Procurement.an internet power tool.
Strategic Sourcing - Selecting suppliers and negotiating the best deals.This is one of the most effective buy-side solutions across most of the industries. Strategic sourcing describes processes that helps the buyers to select in two ways.
A) Single round RFQ process collecting bid from each supplier then choose a best bid.
B) Reverse Auctions, however, can be a far more cost effective means to purchase products in large quantities.The reverse auction process allows you to invite several suppliers to compete against one another in real time,dynamic,open bidding for buyer-designed components. This is rated as more powerful than Free Markets. In both a & b selecting the right suppliers through the appropriate step is critical to your satisfaction with the process.This will help the organization to reduce spend and increase operational efficiencies.
Negotiation - This is a very interesting and a power tool for buyers.To be an effective negotiator,supply management personal absolutely must prepare for negotiation. Failure to prepare can cause negotiations to be longer and difficult and eat away companies time and money. Always create a win win atmosphere.
Cost Reduction - Supply management focal area of Cost reductions are raw material/Component procurement logistics - inbound and outbound Global sourcing and international purchasing will help to source parts at a reduced price and help to insist Local suppliers to rework their costings.
Inventory Management - The effects of maintaining and managing too much inventory ripple through your entire value chain. Optimum inventory helps your company to use the working capital elsewhere. On line schedules to suppliers. Use correct kanban size. Update BOM on a regular basis,communicate suppliers instantly.Vendor managed inventory only will help to reduce stock and increase inventory index. Vendors to maintain ownership of their material until final point of assembly.
New products - Supplier involvement in the new products will fetch you more innovative ideas,helps in obtaining other manufacturers knowledge,lead time reduction.ultimately will help to reduce the cost and reduce lead time of introduction of product.
Supplier performance.- Supplier performance is critical to an organization. A supplier performs well can help the organization to be more efficient,produce higher quality products,reduce costs,and increase profits. Supplier performing bad can disrupt companies operation and make the organization to fail in their commitment to customer. Supplier should be rated regularly for their performance and good suppliers should be motivated.
Logistics - Both inbound and outbound logistic is very useful.Buyers can select appropriate cost effective logistics for their material delivery to stores. In the light of recent trends with the most impact on purchasing and supply management professionals include cost pressures,global sourcing. hope this article will give some relief. Supply Management is big, the writer is able to project only a few.Before applying techniques, study them thoroughly and use appropriate ones suitable to your industry.