SCM 425 Chapter03 Fall2012

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SCM 425 Chapter03 Fall2012 Powered By Docstoc
					Purchasing Policy
 and Procedures
             Chapter 3
          The Term “Policy”

 Refers to set of purposes, principles,
  and rules of action that guide an
  organization
   Standard operating procedures
   Rules and regulations
 Formal (written) vs. informal policies
   Part of organizational culture


                                           2
   Advantages of Using Policies

 Define and clarify top management
  objectives
   Means for executives to communicate
    their leadership and views
 Provides framework for consistent
  decision-making and action
 Defines rules and procedures for all
  employees

                                          3
 Disadvantages of Using Policies

 Often difficult to communicate
  throughout large organizations
 Might be viewed as substitute for
  effective management
   Not a set of “how-to” instructions
 May restrict innovation and flexibility



                                            4
What Makes for an Effective Policy?

   Action-oriented guidelines
   Relevant
   Concise
   Unambiguous/well-understood
   Timely and current
   Helpful in solving problems


                                  5
Categories of Purchasing Policies

 Defining role of purchasing
 Defining conduct of purchasing
  personnel
 Defining social and minority business
  objectives
 Defining buyer-supplier relationships
 Defining operational issues

                                          6
 Defining the Role of Purchasing

 Origin and scope of purchasing
  authority
 Objectives of purchasing function
 Corporate purchasing office
  responsibilities




                                      7
Objectives of Purchasing Function

 Select suppliers that meet requirements
 Purchase materials and services that
  comply with appropriate standards
 Promote buyer-supplier relations and
  encourage supplier contribution
 Treat all suppliers fairly and ethically



                                         8
   Corporate Purchasing Office

 Carry out executive policies
 Develop and publish purchasing
  policies and procedures
 Coordinate strategy development
 Evaluate purchasing effectiveness
 Provide expert support at all levels
 Perform other corporate level tasks and
  activities
                                        9
      Defining the Conduct
     of Purchasing Personnel
 Ethics policy (Caterpillar case p.103)
 Reciprocity policy
 Contacts and visits to suppliers
 Former employees representing
  suppliers
 Reporting of irregular business dealings
  with suppliers

                                        10
Avoid the Appearance of Reciprocity

 Giving preference to suppliers that buy
  from you
 Expecting suppliers to purchase your
  products as condition for securing
  purchase contract
 Looking favorably on competitive bids
  by suppliers who buy from you


                                        11
          Former Employees

 Access to insider knowledge
   Include ban for a stated period of time in
    employee contracts
 Knowledge of policies and procedures
 Relationships with buyer’s personnel




                                                 12
   Irregular Business Dealings

 Establish reporting mechanism
   Specify proper office for reporting
   Create safeguards to protect reporting
    party
 Report suspected irregularities as soon
  as possible



                                             13
    Examples of Irregular Dealings

   Accepting bribes or kickbacks
   Cronyism
   Accepting late bids
   Owning a stake in supplier’s company
   Other behavior not considered part of
    the “normal” course of doing business


                                        14
   Defining Social and Minority
       Business Objectives
 Support minority business suppliers
 The best companies for minority
  supplier contracting (p 97)
 Challenges
   Lack of access to capital
   Inability to attract qualified managerial and
    technical professionals
   Relatively small size

                                                15
  Identifying Minority Suppliers

 Is supplier fully qualified?
 Does supplier satisfy U.S. government
  criteria by definition?
 Does supplier meet our standard
  performance requirements?
 Is supplier price competitive?
 How much business can we award
  supplier given its capacity?
                                          16
 Corporate Social Responsibility

 Low-cost country sourcing
 Environmental issues
 Labor and human rights




                                   17
       Environmental Policies
 Now required by governments,
  investors, and major customers
   Use of recycled materials
   Strict compliance with local, state, and
    federal regulations
   Proper disposal of waste materials
   Documented disposal of hazardous
    materials
 Implement back through supply chain
 IBM Example (p 99)                           18
Labor and Human Rights Policies

 Also now required by governments,
  investors, and major customers
   Ethical treatment of suppliers’ employees
     Living wages
     Safety and security
     Overtime
 Implement back through supply chain


                                                19
     Defining Buyer-Supplier
          Relationships
 Treating suppliers fairly and with
  integrity
 Supporting and developing motivated
  suppliers
 Providing prompt payment on invoices
 Encouraging suppliers to submit
  innovative ideas and jointly sharing
  benefits
                                     20
     Defining Buyer-Supplier
          Relationships
 Developing open communications
  channels
 Informing suppliers as to why they did
  not receive purchase contract
 Establishing fair and transparent
  process to award purchase contracts



                                           21
    Qualification and Selection

 Price/cost              Management of own
  competitiveness          suppliers
 Product quality         Management
 Delivery performance     capability
 Financial condition     Ability to work with
 Engineering and          buyer
  manufacturing           Potential for
  technical                innovation
  competence

                                              22
    Labor or Other Difficulties
           at Suppliers
 Guidelines for strikes or labor problems
  at supplier facilities
 Legal removal of company-owned
  materials, inventory, and/or tooling
 Address emergency disruptions to
  supply chain



                                        23
    Defining Operational Issues

 Hazardous materials
 Supplier responsibility for defective
  material
 Purchased item comparisons
 Other operating policies




                                          24
        Hazardous Materials

 Controlling and/or minimizing waste
  generation
 Obeying environmental laws
 ISO 14000
   Environmental management system
 Proper handling of toxic and hazardous
  waste

                                        25
         Supplier Responsibility
         for Defective Material
 Charge-back costs due to supplier
  nonperformance
     Material inspection and rework
     Repackaging and extra material handling
     Returned goods shipping costs
     Costs of lost or delayed production
 Purchasing authority to negotiate and
  settle claims against suppliers
                                                26
   Purchased Item Comparisons

 Periodic market comparison and
  evaluation of supplier’s competitors
     Cost
     Quality
     Delivery
     Technology
 Requesting new bids for item from
  qualified suppliers
                                         27
     Other Operating Policies
 Compliance with laws and regulations
 Restrictions on “maverick spending”
 Proper disposal of material assets
 Legal right to terminate contracts
 Supplier responsibility for premium
  transportation costs
 Supplier-requested contractual changes
 Supplier use of trademarks or logos
                                      28

				
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