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Chapter
Introductory Chapter: Purchasing
and Supply Management
Syed Abdul Rehman Khan and Zhang Yu
There is no doubt that each and every firm have their purchasing department/
professionals. Purchasing is the process of acquiring materials, components, and
services from another firm. Professional purchasing have addresses following main
rights: purchase of the right material, component or service, in the right quantity
and quality, at the right place and time [1]. Purchasing gives the foundation of
supply management, which tends to have a wider scope of activities [2]. The focus
shifts from price to the total cost of ownership.
Supply management is a five-phase process that starts with the identification of
the materials or components required to fulfill the requirement of the enterprise.
During this phase, the need is to convert into a statement describing the materials or
components required to fulfill the need. It is projected that around 85% of the cost
of material is determined during this phase [3, 4]. In sophisticated and
multinational firms, supply management professionals and pre-qualified vendors
are involved in this phase. The second phase of supply management contains identifying the supplier who will best fulfill the need. The third phase comprises the
process of establishing a reasonable and fair price for the material to be purchased.
The fourth phase results in an enforceable contract for the purchase that fulfills
the requirement of both firms (supplier and buyer). The last phase needs managing
the relationship to guarantee quality and delivery time of the material. During
this last stage, the supply management firm may work with the supplier in an effort
to enhance the efficiency of the supplier with the objective of reducing cost and/or
improving quality [2, 5].
1. Definition of supply management
There is a long list of definitions on supply management and procurement
management (Figure 1). But the most common definition of supply management
is as follows:
“The process of obtaining and managing of materials, components or services needed
to operate a business or other type of firm. The elements of supply management
contain the actual materials/components, budgets, information, and employees. The
key purpose of this procedure is to keep costs stable and use resources effectively to
increase the efficiency of the business and profits” [6].
Following are the basic responsibilities of an effective purchasing and supply
management team.
1
Purchasing and Supply Management
Figure 1.
The complex procurement process.
2. Reducing cost
Purchasing has a direct impact on firms’ profitability and expenditure. The
procurement professional task is to reduce the cost of product, material or service
through supplier relationship development and negotiations [7]. In addition, procurement professionals have a responsibility to create value for the firm in terms of
cost reduction and improving the quality of the item. Generally, the material cost is
two and a half times the payroll costs [1, 8]. It is the key reason firms see great value
in procurement professionals who are able to increase the quality of products and
savings.
3. Negotiation
Negotiation plays a vital role in the reduction of cost and enhancing the quality
of the item. Procurement professionals are tasked with negotiating terms with
suppliers that benefit to the firm in terms of delivery time, quality of materials, and
reduction in price/cost of material [1, 9, 10]. Undeniably, this not only affects the
sales and revenue of firms but also create a competitive advantage. The successful
supply management professionals’ team is relying on the ability to foresee longterm business relationship and strong negotiation skills.
4. Developing supplier relationships
Usually firms require suppliers on an ongoing basis due to one-off purchases is
very costly and as a result, it is crucial to building a long-term relationship with
suppliers. A supplier–buyer good relationship can create flexibility in the supply
chain [6, 11]. In addition, by working with the supplier on a long-term basis, firms
may increase competitive edge, higher cost savings, and fine-tune schedules.
2
Introductory Chapter: Purchasing and Supply Management
DOI: http://dx.doi.org/10.5772/intechopen.85380
Further, buyer–supplier relationships benefit both and build trust and collaboration, which allowing both parties to succeed [12].
5. Mitigating risk
Purchasing and management have a responsibility to understand the potential
risks and develop innovative strategies to manage them. An effective risk mitigation
strategy may protect firms from a big loss [1, 13]. Potential risks contain transparency and fraud, counterfeit materials and intellectual property. Further, supply
management professionals need to have a plan B in place if supplies are delayed
from the suppliers’ side or due to changes in schedule.
Author details
Syed Abdul Rehman Khan1* and Zhang Yu2
1 School of Economics and Management, Tsinghua University, Beijing, China
2 School of Economics and Management, Chang’an University, Xi’an, China
*Address all correspondence to: sarehman_cscp@yahoo.com
© 2019 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms
of the Creative Commons Attribution License (http://creativecommons.org/licenses/
by/3.0), which permits unrestricted use, distribution, and reproduction in any medium,
provided the original work is properly cited.
3
Purchasing and Supply Management
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