chapter  5
29 Pages

Managing supply

Why is purchasing and supply management such an important topic area? There are several reasons. First, the purchasing function has the responsibility for managing the timely delivery, quality and prices of the firm’s inputs, including raw materials, services and sub-assemblies, into the organization. When we consider that many firms purchase around 80 per cent of their products and services, this is no small task. Secondly, any savings achieved by purchasing are reflected directly in the company’s bottom line. In other words, as soon as a price saving is made this will have a direct impact on the firm’s cost structure. In fact, it is often said that a 1 per cent saving in purchasing is equivalent to a 10 per cent increase in sales. Thirdly, purchasing and supply have links with all aspects of operations management, and so we need to understand their importance. Finally, the way a company controls its sourcing strategy will have a direct impact on how the firm does business. For example, the firm will sometimes ‘outsource’ elements of its business – including catering, travel, and aspects of information technology. The implementation and development of these approaches relies heavily on purchasing’s expertise. It is important to understand how purchasing and supply are linked with operations management in the provision of goods and services to the end customer.