Purchasing Management

Purchasing management is the management of purchasing process, and related aspects in an organization. Because of production companies purchase nowadays about 70% of their turnover, and service companies purchase approximately 40% of their turnover, purchasing management is one of the most critical areas in the entire organization and needs intensive management. Purchasing management also covers the areas of outsourcing and insourcing. Models used to aid purchasing managers include the Newsboy model as well as the Order up To (OUT) model. There does not exist many definitions of Purchasing Management and the difference to the well known concept strategic purchasing is not very clear. Strategic Purchasing is often described and defined as: when purchasing activities are linked to the corporate strategic planning process. Here is one more explicit definition of strategic purchasing written by Carr and Smeltzer (1997): “Strategic purchasing is the process of planning, implementing, evaluating, and controlling strategic and operating purchasing decisions for directing all activities of the purchasing function toward opportunities consistent with the firm's capabilities to achieve its long‐term goals”. This book will be based on this definition and it will in other words work as a definition for the books concept Purchasing Management as well. This is done since Purchasing Management can be defined as the concept of managing strategic purchasing. The structure of the book and the concept of Purchasing Management will also be described with help of a conceptual model which is developed and mostly based on existing literature within the topic of purchasing and supply chain management. The main focus of this model is that Purchasing Management is located at the boundary between a corporate organization’s external and internal business network. The business network is defined as a network of activities, resources and actors (Ford, et al., 2003). On the internal side of the business network the activities are often represented of internal process within the own organization and resources are often owned by the focal firm. The actors here are usually employees or departments within the corporate organization. On the external side of the industry network, the activities are represented by supplier activities or joint activities between different actors as competitors, customers and suppliers. The resources are owned by suppliers or jointly owned by different actors such as competitors, customers and suppliers. The actors on the external side of the industry network are primarily the suppliers, see Figure 1. Figure 1 ‐ Conceptual model of Purchasing Management. The purpose with this book is to cover the conceptual model (see Figure 1) by describing the various elements of the model in to the books different chapters. Furthermore, the purpose of the book is to present a state‐of‐the‐art way of operating and manage purchasing activities. This will be done by presenting some successful guidelines and methods based on both literature and real business case examples. The impact of Purchasing Management A large study based on 175 company surveys with a respond rate of 22% performed by Carr and Pearson (2002) shows that the factors strategic purchasing and Purchasing Management have a positive impact on the firm’s financial performance in both small and large firms. Carr and Pearson (2002) also write that Purchasing Management and supplier involvement does affect the success of a new product introduction. This study also shows that a link exist between implementation of strategic Purchasing Management and achievements of a firm’s comprehensive goals. It is also stated in the report by Carr and Pearson (2002) that it is believed that most firms recognize the importance of strategic purchasing, because they spend a large percentage of their sales on purchased inputs. Carr and Pearson (2002) also finish their study with the words “Based on this study, management should better understand the importance of Purchasing Management, supplier involvement, strategic purchasing and its relationships with firm’s financial performance. Internal organizational tasks: Collaborate with the internal network Operating purchasing decisions Define purchasing strategies Organize the boundary interaction External collaboration tasks: Collaborate with the external network Mange supplier relations Coordinate joint