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Unit 14: Purchasing

schedule and can plan supply based on this information. Where the supplier has a large lead Notes
time, the supplier produces to forecast because the manufacturer's production schedule may not
be fixed that far in advance.

In practice, there may be several tiers of suppliers, each producing a component for the next tier.
A similar cycle would then flow back from onstage to the next. The processes in the procurement
cycle are shown in Figure 14.3.
Figure 14.3: The Procurement Cycle

Order Based on Manufacturer Receipt at
Production schedule or
Supplier’s Stocking Needs s’s Premises

Supplier Production Component Manufacturing
Scheduling and Shipping

Task Visit any one businessman in your locality and find out about the purchasing
cycles of different products.

14.3 Value Analysis

Value Analysis in purchasing refers to the examination of each procurement item to ascertain its
total cost of acquisition, maintenance, and usage over its useful life and, wherever feasible, to
replace it with a more cost effective substitute. It is sometimes also called value-in-use analysis.
The basic premise of value/engineering analysis is that it an individual, or team, can identify
potentials for efficiency gains.
During the last few years purchasing and supply management, along with most other areas of
organizational activity, have evolved from a process (how many purchase orders were processed)
to a strategic (how can our organization achieve meaningful differentiation, low cost, or both)
orientation. This means:
1. Make-or-outsource decisions may be driven more by access to world-class technology
than by shaving a few percentage points off cost. A key issue here is likely to be whether
the activity is core to the organization. Core competencies will tend not to be out-sourced
(regardless of the "economics") while peripheral activities may be actively outsourced so
that the organization can focus its efforts on core activities.
2. Lease-or-buy decisions have evolved from identifying the best financial options to gaining
access to appropriate technology under favorable financial arrangements.

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