Page 332 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes Though purchasing is a major constituent of the supply chain, it is also important that an
organization have an integrated view of the elements within the supply chain.
The purchase department interacts with many departments within the organisation and it
interacts with the suppliers which are external to the organisation. There is a two way
interaction between various departments and purchasing function.

Purchasing can be both from the internal supply chain and the external supply chain,
however, the purchasing department normally is associated with the external supply
chain.
Purchasing identifies, selects and evaluates potential suppliers, develops detailed
specifications for the products or services needed by a firm, certifies the quality of supplier's
goods and services, negotiates contractual terms and conditions, and develops long-term
relationships with key suppliers.

The procurement cycle occurs at the manufacturer/supplier interface and includes all
processes necessary to ensure that materials are available for manufacturing to occur
according to schedule.
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.

Centralized purchasing means buying and managing purchases from one location for all
locations within an organization. This can also be run by a central location buying in to
distribution warehouse that feeds smaller warehouses. This is called a hub and spoke
system.
Decentralized operation allows any employee to buy what he needs. You can also run this
operation with a designated buyer assigned to the site to do the buying.
The purchasing professionals all over the world are required to follow certain code of
ethics so that they prove to be an asset for the company and take the company to new
heights.

14.7 Keywords

Centralized Purchasing: Buying and managing purchases from one location for all locations
within an organization.
Decentralized Purchasing: It allows any employee to buy what he needs
Expediting: Monitoring of supplier deliveries of materials that in some way have become critical
for the customer.
ISO: International Standards Organisation
Procurement Cycle: It occurs at the manufacturer/supplier interface and includes all processes
necessary to ensure that materials are available for manufacturing
Purchasing: It is responsible for obtaining the materials, parts and supplies and services needed
to produce a product or provide a service
Purchasing Cycle: The process of purchasing materials
Purchasing Interfaces: Interaction of the purchasing and other aspects of the firm like legal,
operations etc.

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