Purchasing and supply chain relationship

Purchasing, Procurement and Supply Chain Management

purchasing and supply chain relationship

10 Strategies for Improving Supplier Relationship Management (SRM) Review article titled “Purchasing Must Become Supply Management.”. This research tested four hypotheses on the relationship of strategic purchasing to supply chain management. The hypotheses were tested with a survey of. Request PDF on ResearchGate | The Relationship between Purchasing and Supply Management's Perceived Value and Participation in Strategic Supplier Cost.

Capital goods include factories, machinery, tools, equipment, and various buildings which are used to produce other products for consumption.

Capital goods also refer to any material used or consumed to manufacture other goods and services. Capital goods are important to businesses, because they use capital goods to help their business make functional goods for the buying public or to provide consumers with a valuable service.

The significant exception to this is depreciation allowance, which like intermediate goods, is treated as a business expense. Buy The major factors that must be taken into consideration when you are deciding to lease or buy a piece of capital equipment. What are the major factors that must be taken into consideration when you are deciding to lease or buy a piece of capital equipment? A minimal down payment consisting of a first and last payment is usually required in advance, and the monthly payments remain the same for the duration of the lease.

purchasing and supply chain relationship

Plus, electronic documents can be generated the same day as the approval so you can watch a machine demo, apply for credit, have documents signed and receive a purchase order all in the same day. The use of a piece of machinery to make a product is what makes a company income. Leasing provides an easy, affordable method of using equipment that allows a monthly payment without obtaining a bank loan or worrying about budget justification. Leasing also keeps your other lines of credit open and total system financing, including delivery and installation, can be spread over the lease term.

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When acquiring new equipment, leasing provides advantages such as: Longer terms and lower payments — Lease terms can be flexible up to 84 months. Periodic equipment updates — Reduce obsolescence risks with life cycle management. Manageable upfront costs — Little or no down payment. Purchase options — At lease end, purchase at agreed upon price or return the equipment.

Tax advantages — As an expense, lease payments may reduce tax liability. Simplified documentation — Minimal paperwork.

Customized lease options and payment plans — Alternatives to meet your cash-flow needs. Significant factors to consider when choosing to lease or buy equipment are: Your cash — Hold or spend it; leasing preserves capital for other uses whether they are known or those that are unforeseen. Cost level — Instead of a large upfront dollar outlay when purchasing equipment, leasing minimizes it.

Another way of asking that question is: LCC applies to both equipment and projects. LCC costs are found by an analytical study of total costs experienced during the life of equipment or projects.

purchasing and supply chain relationship

The object of LCC analysis is to choose the most cost-effective approach from a series of alternatives so the least long term cost of ownership is achieved. LCC analysis helps engineers justify equipment and process selection based on total costs rather than the initial purchase price of equipment or projects.

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LCC provides best results when both art and science are merged together with good judgment as is true with most engineering tools. LCC costs have two major elements: Acquisition and sustaining costs are not mutually exclusive. Frequently the cost of sustaining equipment is 2 to 20 times the acquisition cost. In order to handle these decisions, firms have to make an assessment of the size of the outflows and inflows of funds, the lifespan of the investment, the degree of risk attached and the cost of obtaining funds.

The main stages in the capital budgeting cycle can be summarized as follows: Identifying project s to meet needs. Selecting the best alternatives.

purchasing and supply chain relationship

Looking at investment appraisal involves us in stage 3 and 4 of this cycle. We can classify capital expenditure projects into four broad categories: Even the projects that are unlikely to generate profits should be subjected to investment appraisal. So investment appraisal may help to find the cheapest way to provide a new staff restaurant, even though such a project may be unlikely to earn profits for the company.

One of the most important steps in the capital budgeting cycle is working out if the benefits of investing large capital sums outweigh the costs of these investments. The range of methods that business organizations use can be categorized one of two ways: This is literally the amount of time required for the cash inflows from a capital investment project to equal the cash outflows.

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The usual way that firms deal with deciding between two or more competing projects is to accept the project that has the shortest payback period. Payback is often used as an initial screening method. But what if the project has more uneven cash inflows? Then we need to work out the payback period on the cumulative cash flow over the duration of the project as a whole.

Arguments in favor of payback Firstly, it is popular because of its simplicity. Research over the years has shown that UK firms favor it and perhaps this is understandable given how easy it is to calculate.

Secondly, in a business environment of rapid technological change, new plant and machinery may need to be replaced sooner than in the past, so a quick payback on investment is essential. Thirdly, the investment climate in the UK in particular, demands that investors are rewarded with fast returns.

Many profitable opportunities for long-term investment are overlooked because they involve a longer wait for revenues to flow. Relationship Between Purchasing and Sales Department Your sales department depends on your purchasing department to have the inventory in place to fulfill completed sales.

Your purchasing department in turn depends on your sales department to allow enough lead time between the time an order is placed and the promised fulfillment date.

purchasing and supply chain relationship

Procurement staff can make this process easier by clearly communicating how long it takes to obtain the items being sold. Sales staff can in turn make this process easier by promising customers only what is comfortably possible for the procurement department.

If you sell furniture and it takes two weeks to obtain the materials for a custom order, it's counterproductive to promise a customer that your company will have an order ready in a week and a half.

purchasing and supply chain relationship

Purchasing and Finance The relationship between your purchasing department and finance department requires ongoing feedback in both directions. Your purchasing department needs to know about the possibilities and constraints that your finance department handles. These include new sources of capital that make it possible to make advantageous inventory purchases and cash flow difficulties that limit purchasing power. In turn, your finance department needs to know when purchasing and supply is working towards an upcoming expenditure such as a new piece of equipment or a shipment of stock to keep your sales department supplied.

Although there may not be bountiful funds available, if there is an opportunity to buy a bulk amount of a key item at an advantageous price, it may be worthwhile for finance to get creative and find the money even if cash is tight. Similarly, your purchasing department may opt to buy in smaller quantities or stagger orders to coordinate with your financing department's timeline.

Purchasing and Production Smooth and timely production depends of having needed parts on hand. Ordering these parts is the responsibility of the purchasing department.