978-1292016016 Chapter 1

Instructor’s Manual

Procurement, Principles

and Management

Eleventh edition

Peter Baily

David Farmer

Barry Crocker

David Jessop

David Jones

For further instructor material

please visit:

www.pearsoned.co.uk/baily

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PEARSON EDUCATION LIMITED

Edinburgh Gate

Harlow CM20 2JE

United Kingdom

Tel: +44 (0)1279 623623

Web: www.pearson.com/uk

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Contents

Part 1 Procurement Objectives and Development 6

Chapter 1 Procurement scope and development 7

Objectives of this chapter 7

List of Cases, Research Boxes and Figures in this chapter 7

Teaching notes 9

Chapter 2 Strategic procurement and supply chain management 11

Objectives of this chapter 11

List of Cases, Research Boxes and Figures in this chapter 11

Teaching notes 13

Chapter 3 Public sector procurement 15

Objectives of this chapter 15

List of Cases, Research Boxes and Figures in this chapter 15

Teaching notes 16

Part 2 Key Procurement Issues 22

Chapter 4 Outsourcing 23

Objectives of this chapter 23

List of Cases, Research Boxes and Figures in this chapter 23

Teaching notes 23

Chapter 5 Quality management 26

Objectives of this chapter 26

List of Cases, Research Boxes and Figures in this chapter 26

Teaching notes 27

Chapter 6 Inventory management 30

Objectives of this chapter 30

List of Cases, Research Boxes and Figures in this chapter 30

Teaching notes 31

Chapter 7 Lead time and time compression 35

Objectives of this chapter 35

List of Cases, Research Boxes and Figures in this chapter 35

Teaching notes 35

Chapter 8 Sourcing strategies and relationships 37

Objectives of this chapter 37

List of Cases, Research Boxes and Figures in this chapter 37

Teaching notes 37

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Chapter 9 Price and total cost of ownership (TCO) 43

Objectives of this chapter 43

List of Cases, Research Boxes and Figures in this chapter 43

Teaching notes 44

Chapter 10 Negotiations 49

Objectives of this chapter 49

List of Cases, Research Boxes and Figures in this chapter 49

Teaching notes 49

Part 3 Applications 54

Chapter 11 Project procurement 55

Objectives of this chapter 55

List of Cases, Research Boxes and Figures in this chapter 55

Teaching notes 56

Chapter 12 Procurement of commodities 59

Objectives of this chapter 59

List of Cases, Research Boxes and Figures in this chapter 59

Teaching notes 59

Chapter 13 International and global sourcing 63

Objectives of this chapter 63

List of Cases, Research Boxes and Figures in this chapter 63

Teaching notes 64

Chapter 14 Capital procurement 67

Objectives of this chapter 67

List of Cases, Research Boxes and Figures in this chapter 67

Teaching notes 68

Chapter 15 Retail procurement and efficient consumer response (ECR) 69

Objectives of this chapter 69

List of Cases, Research Boxes and Figures in this chapter 69

Teaching notes 69

Chapter 16 Services procurement 72

Objectives of this chapter 72

List of Cases, Research Boxes and Figures in this chapter 72

Teaching notes 73

Chapter 17 Corporate social responsibility 75

Objectives of this chapter 75

List of Cases, Research Boxes and Figures in this chapter 75

Teaching notes 76

Part 4 E-Procurement Systems and Contract Management 79

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Chapter 18 E-procurement systems 80

Objectives of this chapter 80

List of Cases, Research Boxes and Figures in this chapter 80

Teaching notes 81

Chapter 19 Contract management and performance measurement 83

Objectives of this chapter 83

List of Cases, Research Boxes and Figures in this chapter 83

Teaching notes 84

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PART 1

Procurement objectives and

development

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CHAPTER 1

Procurement scope and development

Objectives of this chapter

• To discuss the scope of purchasing

• To identify the purchasing cycle concept

• To discuss purchasing and supply as a service activity

• To discuss the changing role of purchasing and supply

• To explain how purchasing might develop from an independent function to an

integrated activity

• To identify the internal and external influences that have affected the evolution of

purchasing

• To examine the ‘total acquisition cost’ concept

• To consider the adoption of relationships based on mutual benefits as an alternative to

the traditional transactional, adversarial approach

• To highlight the evolution of concepts relating to purchasing development

• To identify key practices encountered in developed strategic purchasing

• To provide mini case studies demonstrating how companies are developing their

purchasing functions

List of Cases, Research Boxes and Figures in this chapter

Mini Case Studies

• Hertz

• Nokia

• IBM

• Unisys

• BMW

• Bulwell Precision Engineers

• Phillips

Baily et al., Procurement, Principles and Management, 11e © Pearson Education Limited 2015,

Instructor’s Manual

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Case Studies

• Nokia

• Ford

• BOC Group

• Feedwater

• Britvic

• E.ON UK

• Siemens

• Barclays Bank

• Clarks

• Sanofi

Research Boxes

• The Ariba Study – The 2006 Global Spend Agenda

Figures

• Figure 1.1 The increasing importance of purchasing and supply in the manufacturing

sector

• Figure 1.2 The ‘transactional’ relationship

• Figure 1.3 The ‘mutual’ relationship

• Figure 1.4 The ‘procurement positioning’ tool

• Figure 1.5 Supplier objectives

• Figure 1.6 The price/cost iceberg

• Figure 1.7 Example of the scope of a procurement function: some goods and services

necessary to operate a passenger aircraft (Source: Courtesy British Airways)

• Figure 1.8 A four-stage purchasing development model (Source: Reck and Long, 1988)

• Figure 1.9 The three principal areas of focus (Source: Syson, 1989)

• Figure 1.10 The purchasing development matrix (Source: Jones, 1997)

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Teaching Notes

All organisations need inputs of goods and services from external suppliers or providers.

In this chapter, we examine the developing role of the purchasing and supply function in

managing these inputs, and comment upon the ways in which the activity can contribute to the

efficiency and effectiveness of the organisation, offering mini case studies demonstrating how

companies are developing their purchasing/procurement contribution.

We identify ways of measuring the stage of development reached by an organisation and

demonstrate how the development stage reached can affect performance of the purchasing

activity.

Key concepts covered in this chapter, therefore, include a comparison of traditional procurement

approaches with a more strategic value-added procurement approach, utilising the models by

Reck and Long, Sysons and Jones, as cited above in Figures 1.7, 1.8 and 1.9.

Many cases have been included as examples of how companies are making/have made the

transition to a more strategic procurement approach and they include the benefits being enjoyed

as a result.

For example, the mini case study of Unisys in page 13, demonstrates the dramatic changes

which can be made as procurements moves from a disorganised, fragmented approach to a more

strategic approach using best practice techniques.

The other cases can be used to demonstrate the similar approach being adopted as companies

make the transition.

The case study of Sanofi near the end of the chapter is a most useful vehicle for allowing

students to assess and evaluate the Critical Success Factors in the development of the function

Students can also be asked to match the categories contained in the Kraljic matrix, with the

categories contained in the Supplier Preferencing model as these are key positioning tools for an

organisation.

For example, a Critical item on the Kraljic matrix would want to be positioned in the Develop or

Core box in the Supplier Preferencing model.

Students can be asked to look for the key pre-requisites which have been identified across these

cases, and to present an overall summary.

The following list includes many of the ideas taught to students of purchasing/procurement at

all levels.

Clearly, this good practice will not be practicable in an organisation with a less than fully

developed purchasing function.

• Identify and work with key suppliers

• Develop openness and transparency

• Align systems with strategic initiatives

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• Articulate mutual goals

• Forge partnerships where appropriate

• Use complementary competencies

• Employ dedicated complementary assets

• Employ appropriate technology

• Use appropriate e-technology/systems

• Share competencies and resources

• Establish common language

• Emphasise mutual benefits

• Implement Kaizen

• Remove decoupling points

• Empower individuals

• Empower suppliers

• Focus on customer needs

• Pursue and eliminate waste

• Consider core/non-core questions

• Build knowledge base

• Use knowledge base

• Be responsive, and ready to change

Students should look for these approaches in the case studies provided.