Supply Management, Eighth Edition
By David N. Burt, Sheila D. Petcavage and Richard L. Pinkerton
The Foundation 1
- The Progression to Professional Supply Management 5
- Organizational Issues 30
- Supply Management: An Organization-Spanning Activity 49
- A Portfolio of Relationships 63
The Requirements Process 89
- New Product Development 93
- Purchasing Descriptions and Specifications 118
- Managing for Quality 141
- The Procurement of Equipment 177
- Purchasing Services 194
Sourcing: Sourcing Perception and Corporate Outsourcing 215
- Outsourcing 217
- Sourcing 240
- Global Supply Management 273
Cost Management 301
- Total Cost of Ownership 303
- Price and Cost Analysis 321
- Methods of Compensation 352
- Negotiation 371
Managing Contracts and Relationships 397
- Contract Formation and Legal Issues 399
- Contract and Relationship Management 419
- Ethics and Social Responsibilities 437
Materials Management 459
- Production and Inventory Control 461
- Demand Management and Logistics 527
22. Implementing Value Network Management 541
23. Implementing Value Network Management 543
Name Index 585
Subject Index 590
Welcome to the exciting, wonderful world of supply management! During the first portion of the 21st century, more changes are taldng place in the areas of supply management, supply chain management, value network management, buyer/supplier alliances, and virtual corporations than in the history of humankind.
Dynamic collaborative and trusting alliance relationships and networks are the keys to survival and success in the 21st century. On the supply side, these relationships are best established and nurtured by supply management professionals. Information technology, engineering, marketing, operations, quality, and finance all play critical, enabling roles in our quest of value-add relationships.
The transformation from clerical and mechanical purchasing through proactive procurement and supply management to value network management parallels the evolution of mankind from caves to visiting the moon. In some ways, this transformation has been mirrored by one of the leading supply management professional organizations. Where we once had the National Association of Purchasing Agents, and then the National Association of Purchasing Management, today we have the Institute for Supply Management.
What is the primary reason for the shift from tactical purchasing roles to strategic supply management and value network roles? Supply management has major impact on the organization’s bottom line. It can facilitate or destroy marketing’s efforts to increase sales. Supply management has always been a part of the “front line” defense to contain costs. Today supply management and value network management have as much or more impact on the organization’s return on assets than does any other business function.
The term “supply chain management” came into vogue during the 1990s. Many information technologists, logisticians, management scientists and industrial engineers have argued that their individual function should be the drivers of the chain. But informed practitioners and academics alike recognize that carefully developed cross-functional supply management teams are the key to successful supply chains and supply networks. All functional areas must collaborate with relevant suppliers to realize the greatest opportunity for success.
Many executives have been brainwashed by aggressive software vendors into believing that e-commerce will eliminate the need for supply professionals. Wrong. Dead wrong!
E-commerce must be viewed for what it is and what it contributes: e-commerce and the Internet are wonderful, powerful enablers. They are slaves, not masters!
The thinking underlying this edition of our text began in the 1950s when I enjoyed my first appointment as a Chief Procurement Officer. Many wonderful people and events have contributed to my knowledge and evolving philosophy during the years subsequent to 1955. My evolving philosophy first saw the power of the press in 1984 with the publication of “Proactive Procurement: The Key to Increased Profits, Productivity, and Quality.” In 1984, I was privileged to join Lamar Lee, Jr., my former Professor of Purchasing during my days at Stanford, and his co-author, Donald W. Dobler, as the junior co-author of the 4th edition of Purchasing and Materials Management: Text and Cases.
Our new edition has benefited enormously from the invaluable contributions of countless colleagues. Rommy Los (my former student and currently a manager at Henkel KGaA) developed the important material addressing supply management’s role in protecting Mother Earth. Tom Olesen, formerly of Nationwide Insurance, assisted with the services chapter. Robert Porter Lynch has contributed to my insight on buyer/supplier alliances. Ray Hummell took my preliminary work on the total cost of ownership and carried it forward as a key cornerstone of the cost portion of the last two editions. Ray also provided invaluable assistance in upgrading and updating our material on price and cost. Bill Richardson provided deep insight into Deere & Company’s approach to supplier development. Professor Craig Barkacs brought our work on legal and ethical issues into the 21st century. R. David (Dave) Nelson, Chairman of the Institute of Supply Chain Management™, formerly employed as VP of Worldwide Supply Management at Deere & Company and as VP of Global Purchasing at Delphi Automotive Systems, has provided invaluable insight through the book’s evolution. Bob Kemp (former President of NAPM); Emiko Banfield, VP, Shared Services at Southern California Edison; Teresa Metty, VP Motorola; Dr. Dave Lehmann, VP Operations, Solar (ret.); Merle Roberts, Founder and President of Perpetual Frontiers; and Professor Scott Kunkel of USD, all played important contributing roles. Dr. Stephen Starling provided valuable input to the 7th edition. We also want to thank Joseph V. Shannon, President of Po$e in Cleveland, Ohio for his review of the Transportation Appendix, Tricia Sharp of Minuteman Press in Strongsville, Ohio, for assistance on word processing, and Dr. Ken Killen, ISM Shipman Medalist and Professor Emeritus, of Cuyahoga Community College in Cleveland, Ohio, for his invaluable advice. In addition, special thanks go to Jim Reeds, who played a key role in developing the Graduate Program in Supply Management at the University of San Diego, and former co-authors of Burt, Warren Norquist, Jimmy Anklesaria, Michael Doyle and Stephen Starling for their contributions cited in this edition.
It is with a combination of pleasure and pain that we say adieu and bon voyage to former co-author Donald W. Dobler. Don has played a key role in the success of the previous six editions of our text. Don’s contributions to the fields of purchasing and materials management resulted in his selection as a Shipman Medalist by the National Association of Purchasing Management. His accomplishments are listed on the dedication page of this edition.
David N. Burt