Purchasing and Supply Management

Abstract

Purchasing is the function in a firm responsible for the professional management of a firm's interface with the supply market, to ensure its supply with the necessary goods and services provided by other organisations, i.e. suppliers. Industrial firms spend more than half of their turnover on supplies, which is why the purchasing function has become a central success factor for modern firms. Purchasing can be distinguished into strategic sourcing (supply planning, supplier selection and contracting) and operative procurement (material ordering, expediting and paying). The activities of a purchasing department can be organised in a purchasing year cycle, which repeats on an annual basis. Next to ensuring a safe and timely supply, purchasing has the target to achieve good costs as well as to contribute to innovation and improve the strategic position of a firm. For that several tools have been developed, such as the Kraljiĉ-Matrix (which helps to develop sourcing tactics), the lever analysis (used to systematically achieve cost savings) or the preferred customer approach (used to achieve competitive advantages through smart purchasing).