Concept of Purchasing Management

Question: Describe about the concept of purchasing management. Answer: Introduction The study elucidates the concept of purchasing management by concentrating on three key aspects. These three key aspects include supplier selection criteria and related issues, use of Information and Communication Technologies (ICT), and purchasing cost analysis. The prime purpose of this study is to discuss the topic in brief manner trough analyzing these three aspects. In order to establish a clear concept, the study has chosen a case study. Here, the researcher has been appointed as purchasing manager in the company 7-Elevent Convenient Store in Singapore. The study analyzes as well as discusses about the purchasing management of this particular organization. Figure 1: Logo of the Company (Source: corp.7-eleven.com, 2016) The company 7-Eleven is an international chain of convenience stores that headquartered in Dallas, city of United States (corp.7-eleven.com, 2016). In the year 1982, the company has started the trend of convenience stores in Singapore (corp.7-eleven.com, 2016). From the year of 1984, the outlets of this company continued to increase in a difficult time of business market when other chains found difficulties in expanding their business (corp.7-eleven.com, 2016). The products it offers, include Big Gulp beverages, partially frozen soft drinks, carbonated beverages, Slurpee drinks, energy drinks, 7-Select private brand products, coffee, sandwiches, some other prepared foods, dairy products, bakery items and so on (corp.7-eleven.com, 2016). Along with that, they provide financial services and product delivery services (corp.7-eleven.com, 2016). As per the record of 2016, it has 58,300 stores across the world (corp.7-eleven.com, 2016). They supply their products and services in 17 countri es that are located in Asia, Europe, North America, and Oceania (corp.7-eleven.com, 2016). The major competitors of this company in Singapore market include Dairy Farms Cold Storage supermarkets and Giant Hypermarket. Their vision statement states that their long term goal is to become the best retailer on convenience (corp.7-eleven.com, 2016). Apart from this, their mission statement states that they aim to offer products as per the changing needs and expectations of the customers. Supplier selection criteria and issues In this context, it is important to mention that 52% of its supply includes foods and beverages and 48% includes the non food items (corp.7-eleven.com, 2016). Akehurst Alexander (2013) discussed that the company is running their business with over 1000 suppliers. The major suppliers of this company include CocaCola, PG, Unilever, Nestle, Pepsi, Arnotts, Quaker, and many more. The code of conduct of 7-Eleven is placed in between the respective company and the suppliers by relying on the strong Suppliers Agreements. Through Franchise Agreements, the respective organization completes all financial transactions with franchisees. Without the 7-Elevens express permission, no payment can be made directly to the franchisees (Lin, Marshall Dawson, 2013). Akehurst Alexander (2013) explained the selection criteria of the organization. It is discussed that fair and lawful deal must be made between the parties. In order to establish a good trading relationship with the suppliers, it is importa nt to build fair and lawful deal. In the rules of fair dealing of this company, they mentioned that no delivery and payment issues would be there. Along with that, the al the deals would be made for the betterment of the business. Besides, no personal conflicts of interest are allowed by the principle of fair dealing. As opined by Verma (2014), the supplier selection criteria is the factors depend on which the retailers make the supplier selection decisions. Based on these criteria, the retailers decide which supplier purchases will be made. Being the purchasing manager of 7-Eleven, the researcher indentifies that the organization has 30 supplier selection criteria, among which 10 receive the most priority. The supplier selection criteria of the respective company include procurement price, product quality, product consistency, food safety, product return and complaints policy, quantity discount and allowance, on-time delivery, professionalism of salespeople and delivery reliability. The purchasing goal of the respective organization is directly related to the sales goal. Their purchasing goal is to make large deals with the suppliers whose products have high demand in the market. Furthermore, their purchasing goal is to meet the sales target. Being the purchasing manager of the company, the researcher states that the business is presently confronting some issues in their supplier selection process. They are facing price and level of service oriented issues. Chai, Liu Ngai (2013) stated that the firms always want to purchase commodities at lower possible prices so that they would able to attract customers by selling lower priced commodities. The respective organization face challenges in selecting the suppliers by balancing the prices and quality. In order to provide recommendation, the researcher suggests that the company should conscious about the product quality more than the product price. This would help them to confront fewer dilemmas in selection process. In this context, it is important to mention that the reputation and financial stability o f the business might be hampered if they concentrate more on selecting the suppliers that supply low priced products (Verma, 2014). Furthermore, they are confronting issues regarding the level of service. Some of the suppliers are delaying in supplying their products. The researcher suggests that the company should make the terms and conditions more strong. This might help them to eliminate or restrain the issues. ICT for purchasing operations In the prior section, the purchasing goal of the organization has been mentioned. Monczka et al. (2015) defined that the purchasing operations are the management functions of purchasing commodities from external sources. The purchase department of the respective organization purchase final commodities from large organizations and resale their products. Apart from this, the business purchase raw materials from the suppliers in order to manufacture their own products. The purchasing management of the organization look over the supplier selection, relation with suppliers and the sense of the suppliers in maintaining the terms and conditions of the deals (Rodrguez-Escobar Gonzlez-Benito, 2015). All the purchasing activities are managed as well as monitored by the purchasing management body of the organization. The entire purchasing operations depend on the decision made by purchasing managers. The prime responsibility of the managers is to handle the most crucial area of the organizatio nal operations and takes decisions to maximize the profitability (Chicksand et al. 2012). The purchasing management department of 7-Eleven is involved in inventory management. It ensures that the orders that the organization has made are received or would be received within certain time period. Along with controlling the inventory level, the purchasing management controls the cost of purchasing products from the suppliers. As the business is confronting issues in supplier selection criteria, it is very obvious that they face complexities in purchasing management too. Being the purchasing manager of the respective organization, the researcher brings out some suggestions in order to improve their purchasing management. The researcher recommends incorporating the information and communication technology (ICT) which is the extended term of information technology (IT). Following the statement of Bloom et al. (2014), sometimes the open sourcing programs and trending social network sites create more challenges for the purchasing managers to keep up may market changes. Thus, the ICT helps the managers to maintain the purchasing streamline processes. Through this technology, the managers are able to obtain and access necessary data and information. Jones et al. (2014) added in this context that ICT helps to computerize the shipping and tracking records. Through keeping the records by using internet based software, the organization would able to reduce the shipping errors. Besides, it would help to keep the track information of the suppliers. Through check ing the records, they can handle the situations more effectively that they face because of delaying the supply. Furthermore, the software would allow the managers to manage and organize the inventory data digitally. Some other reasons are there based on which the researcher recommended it. According to Chesley (2014), this technique would help the managers to reduce the time they spend in inventory management and keeping track information. Besides, the company spends much in receiving, compiling and managing the data. ICT would reduce both the time and money as well. As per the statement of Liu et al. (2014), RFID (Radio Frequency Distribution) is one of the most effective information technologies that are widely used by many of the organizations. This particular technology provides large number of benefits to the business. The purchasing managers can easily track the inventory records through placing the RFID chips in every product. Purchasing cost analysis As explained by Pettersson Segerstedt (2013), the cost analysis process is the breakdown of constituent costs. The degree of the sophistication of breakdown process depends on the importance of purchase. In context of this case study, the researcher has found that the managers need to identify the cost of raw materials, production, logistics, indirect and overhead processes. The purchasing management considers product packaging, advertising, marketing, and sales expenses in their indirect category. It is essential for the researcher to analyze the cost management of the organization in order to achieve the purchasing goals. The researcher has found that the purchasing cost has been increasing with small proportion and it is neglected. The reason behind this is the issues faced in term selecting the suppliers. The purchasing cost is analyzed by gathering the information regarding the orders they made to the suppliers. In this study, the researcher suggested to incorporate ICT in orde r to improve the purchasing management. Further, the researcher states that this technology would help the managers in cost analysis too. Through this technique, the managers are able to generate the future cost (Bloom et al., 2014). Thus, it can be stated that through analyzing the cost, they would able to maintain their inventory, orders, and future purchasing cost. The computerized information would help the managers in determining the cost and maintain their budget. In such a case, if the purchasing cost increases, the cost analysis process would help the managers to reduce the cost (Jones et al., 2014). However, it is important to mention that this particular technique help to analyze the cost during or after the purchases. In this context, the researcher suggests to incorporate four essential tools in purchasing cost analysis process to determine the future cost. These four tools include analogous estimating tool, parametric estimating tool, bottom up estimating tool, and three point estimating tool. Mishan (2015) opined that the analogous estimating tool is used when little information about the products are there. Though, this particular tool does not provide reliable cost estimation but it gives a probable estimated cost figure. On the other way, the parametric estimation is used when the retailer purchase same products with same amount (Drury, 2013). Based on the previous cost figure, the managers can estimate the future cost. The three point estimating tool is used to identify the biases and uncertainties in cost functions. Monczka et al. (2015) stated that the bottom up estimating tool is the most useful tool that gives more accurate outcome of cost estimation. Being the purchasing manager of the organization, the researcher decides to put more focus on the analogous estimating tool and bottom up estimating tool. Conclusion The study concludes that the respective organization confronts some issues and complexities in their supplier selection. As the researcher is appointed as the purchasing managers in the respective organization, a number of recommendations are suggested by the researcher. The study has found that the organization has 30 supplier selection criteria among which 10 are prioritized by the organization. Further, it concludes that the organization confronts price and level of supply related issues. Against the problems present in the organization, certain recommendations are made. The researcher suggested that the organization need to pay heed on the quality of products rather than the price. Further, the purchasing management can be improved by incorporating information and communication technology. Their prime goal in purchasing management is to make deal with the suppliers that have good market reputation. It has been found that their offered products have high market demand and thus it would be profitable for the business. 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