LEARNING UNIT 2

THE TASK OF PURCHASING AND SUPPLY MANAGEMENT

Overview of learning unit 2

As part of Topic 1 (Overview of purchasing and supply management), learning unit 2

outlines the basic management tasks performed by the purchasing and supply
management function on the different management levels. Although the basic
management tasks of planning, organising, coordinating and controlling are performed in
all organisational functions, this unit will focus on performing these tasks in the purchasing
and supply function on strategic (top management), tactical (middle management) and
operational (lower management) management levels. Figure 2.1 below illustrates where
learning unit 2 fits into the MNP2601 syllabus. As previously stated in learning unit 1, this
figure will be presented at the beginning of every learning unit in this module with the
specific learning unit to be discussed, highlighted.

Figure 2.1: Presentation of learning unit 2 within the MNP2601 syllabus

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 LEARNING UNIT NUMBER 2

The task of purchasing and supply management

TITLE OF UNIT

NOTIONAL STUDY HOURS 8 hours

NUMBER OF PLANNED 5
LEARNING ACTIVITIES

NUMBER OF Not applicable

ASSESSMENT-LINKED
ACTIVITIES

NUMBER OF DISCUSSION 1
ACTIVITIES

To achieve the outcomes of learning unit 2, you will need to work through learning unit 2
in conjunction with chapter 2 of your prescribed book.

LEARNING OUTCOMES

After you have studied this learning unit, you should be able to
• align/relate the different levels (strategic, tactical and operational) of purchasing
and supply planning in a given scenario, taking the organisational goal into account
• recommend and substantiate suitable structures for organising the purchasing and
supply function, given a case study
• explain how coordination as a basic management task in purchasing and supply
management is applied in a given case study
• analyse the performance evaluation control task of purchasing and supply
management

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 KEY CONCEPTS

• Strategic purchasing and supply planning

• Tactical purchasing and supply planning
• Operational purchasing and supply planning
• Centralised purchasing and supply organisational structure
• Decentralised purchasing and supply organisational structure
• Cross-functional teams
• Purchasing and supply coordination
• Purchasing and supply control
• Purchasing and supply proficiency
• Purchasing and supply efficiency
• Benchmarking

2.1 INTRODUCTION

Study the introduction and section 2.1 in chapter 2 of the prescribed book.

When studying the different disciplines (or functions) in Business Management in other
modules that you are registered for, for example Marketing, Finance, Operations or
Human Resources, a chapter in these modules will most likely be devoted to where the
function fits into the broader scope of the organisation to show its unique contribution in
the successful functioning of the organisation in delivering products or services. Every
organisational function operates as a system and interacts with both co-workers and other
functions. The influence of purchasing and supply on other organisational functions was
already discussed in learning unit 1. Together, individual organisational functions
contribute to the functioning of the entire organisation which in turn forms part of a bigger
supply chain. These interactions and contributions of individuals, functions, organisations
and supply chains are managed on different levels and are ultimately aimed at building
the economy by serving final customers. In this learning unit, the basic management of
the purchasing and supply function will be described. Though the management tasks of

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planning, organising, coordinating and controlling are discussed in a linear way in this
unit, the interrelatedness of these tasks cannot be denied.

It should also be noted that since you should have been introduced to the
basic management process in your first year of study at the College, the
discussion in this learning unit will focus on the application of the process in
the purchasing and supply context and would thus assume that basic knowledge on the
management process has been gained.

The discussion will be structured according to the four basic management tasks of
planning, organising, coordinating and controlling the purchasing and supply
function.

2.2 PLANNING FOR PURCHASING AND SUPPLY MANAGEMENT

Study section 2.2 in chapter 2 of the prescribed book.

The strategic position of the purchasing and supply management function was highlighted
in learning unit 1. Effective strategic purchasing and supply decisions may have a
profound influence on the competitive position, profitability and market share of the
organisation, as reflected in Example 2.1 (Apple supply management – CPO to CEO) in
chapter 2 of the prescribed book. Not only would purchasing and supply managers
contribute to formulating organisational goals during organisational planning, but this
function would also implement the organisation’s overall (corporate) goals in coordination
with other functions by implementing these goals on strategic, tactical and operational
levels. The importance of aligning within and between organisational functions cannot be
overemphasised. The YouTube video “How to generate alignment & buy-in for your
strategic plan” (https://youtu.be/r5PYPIKOY3g) [duration 6:10] illustrates the cascading
of organisational goals to lower management levels and shows the importance of
involving the management team in strategic planning, ensuring alignment and effective
communication to achieve organisational goals. Although the video describes the generic

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process of formulating and implementing strategic plans, the application to the purchasing
and supply function should become relevant and clear as the discussion in this unit
proceeds.

LEARNING ACTIVITY 2.1

Learning outcome assessed

Illustrate the different levels (strategic, tactical and operational) of purchasing and supply
planning. Taking the organisational goal into account, align/relate the different levels
(strategic, tactical and operational) of purchasing and supply planning in a given scenario.

Learning activity 2.1

Read the module case study (“Supply chain chaos brings opportunities”) and provide
an example in the purchasing and supply management function of how a broad
organisational goal related to cost saving can be implemented by the purchasing and
supply function on strategic, tactical and operational levels with specific reference to
inventory decisions after the pandemic during the Russia-Ukraine war. Complete the
following diagram to structure your answer.

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 (Table 2.1 in chapter 2 of your prescribed book provides some examples of the
different levels of purchasing and supply objectives. This question encourages
you to go beyond the information in your prescribed book to determine whether
you grasp the concept of aligning goals and objectives in different organisational functions
on different management levels. You may even take this activity a bit further to see the
interrelatedness of functions by analysing the same broad overall organisation goal of
cost saving as implemented by the other organisational functions (e.g. Marketing,
Finance, Human Resources).

2.3 ORGANISATION OF PURCHASING AND SUPPLY FUNCTION

Study section 2.3 in chapter 2 of the prescribed book.

By definition, organising as a management task is the creation of a structure according to

which tasks can be assigned and resources allocated, and which assists in coordinating
activities so that plans can be implemented with ease. In section 2.3 it is clear that the
creation of an effective organisational structure for the purchasing and supply function is
a threefold process.

Firstly, a decision is made about the position of the purchasing and supply function in the
broad organisational structure (section 2.3.1 in the prescribed book). The discussion in
section 2.3.1 mentions that the most popular purchasing and supply organisational
structures identified in literature are centralised, decentralised, a hybrid or combination,
and using cross-functional teams. However, note that cross-functional teams are not an
organisational structure per se. These teams represent collaborative groups comprising
members from different functional areas, such as procurement, logistics, operations and
finance, working together to optimise the procurement and supply processes. Cross-
functional teams can thus be utilised within different organisational structures on either a
temporary or permanent basis. Let us look at an example:

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 Example of the functioning of a cross-functional team

In a motor manufacturing plant, a cross-functional team consisting of members from,

for example, procurement, supply chain, engineering, finance and quality assurance,
could be formed to investigate the purchasing and supply processes followed for a
specific component used in manufacturing that are causing delays and increasing cost.
The team would analyse the existing purchasing and supply processes to identify
bottlenecks and to set goals to improve efficiency.

Through a process of collaboration, the team would be able to identify opportunities for
streamlining the supplier selection and evaluation process. A viable option would be to
implement a centralised supplier database that includes performance metrics such as
delivery reliability, quality and costs. The team could also introduce a standardised
purchasing and supply process that stipulates clear specifications and requirements for
the component. By doing this, ambiguity may be reduced and communication with
suppliers improved. The team could also provide inputs on ways to optimise inventory
management by recommending a just-in-time (JIT) inventory philosophy whereby
excess inventory and associated costs could be reduced. The cross-functional team
could then closely monitor supplier performance, lead times and costs. Regular
meetings could be held to review progress, address any issues and make adjustments,
if necessary.

As a result of this team effort, the manufacturer may experience shorter lead times,
reduced costs and improved overall quality for the specific component. Such
collaboration between the different organisational functions and the optimisation of the
purchasing and supply processes may ultimately improve the organisation’s efficiency
and competitiveness.

Secondly, a decision is made about the internal organisational structure of the purchasing
and supply function according to the purchasing and supply activities that should be
performed (section 2.3.2 in the prescribed book).

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Thirdly, management decides on the extent to which all activities relating to the supply of
material should integrate cross-functional teams with other organisational functions and
supplier networks (section 2.3.3).

DISCUSSION 2.1

Learning outcome assessed

Given a case study, recommend and substantiate suitable structures for organising the
purchasing and supply function

Discussion activity 2.1

Read the module case study (“Supply chain chaos brings opportunities”) and debate
the use of either a centralised or a decentralised purchasing and supply structure on
the discussion forum. Consult the document “How to apply theory to cases and
scenarios” to get guidance on approaching scenario or case study questions and
avoiding the pitfalls when applying theory.

Question

You are working for a large retail grocery store that recently purchased a dark store of
10 000m². As the purchasing and supply manager you are tasked to investigate which
organisational structure would be the best fit in optimising the benefits of a dark store.
Would a centralised or a decentralised purchasing and supply organisational structure
be more beneficial? Your answer should substantiate why one of these structures
would be more beneficial, and why the other structure would be less beneficial.

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 LEARNING ACTIVITY 2.2

Learning outcome assessed

Given a case study, recommend and substantiate suitable structures for organising the
purchasing and supply function.

Learning activity 2.2

Read Example 2.1 (“75% of cross-functional teams are dysfunctional”) in chapter 2 of

the prescribed book and summarise the following from the information provided in the
example:
(a) the reasons why cross-functional teams are dysfunctional
(b) how to address the reasons for failure in cross-functional teams

2.4 COORDINATING PURCHASING AND SUPPLY FUNCTION

Study section 2.4 in chapter 2 of the prescribed book.

In laymen’s terms, coordination would mean working together with others in a way that
makes sure everyone knows what to do, communicates well and combines their efforts
to achieve a shared goal. In the purchasing and supply function, coordination is generally
concerned with the management of dependencies within the organisation and
externally with the suppliers, as well as between activities (coordinating
resources).

When studying this section, keep the analogy of a set of interlocking gears in mind (see
figure 2.2 below). By comparing coordination in purchasing and supply management to
interlocking gears, the analogy highlights the importance of synchronisation, integration
and collaboration both internally within the organisation and externally with suppliers. It
emphasises the need for seamless interaction and alignment of activities to achieve
optimal supply chain performance.

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 Figure 2.2: Coordination in the purchasing and supply function

LEARNING ACTIVITY 2.3

Learning outcome assessed

Explain how coordination as a basic management task in purchasing and supply

management is applied in a given case study.

Learning activity 2.3

Read the case study at the end of chapter 2 of the prescribed book (“The management
of procurement and supply through automation”) and answer the question at the end of
the case study.

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2.5 CONTROL: PERFORMANCE EVALUATION OF THE PURCHASING
AND SUPPLY FUNCTION
Study section 2.5 in the prescribed book.

The word “control” often evokes negative, stressed and fearful emotions. In everyday life,
being confronted with control measures, such as traffic control, security control, access
control, weight control, and so on, cause people subconsciously to start wondering if they
would adhere to standards. The underlying truth of control is that things that are important
should be measured and controlled to determine where room for improvement lies. Just
as a mirror reflects our physical appearance, control can reflect the result of actions,
behaviours and choices. Control provides mechanisms to observe and evaluate our
conduct, allowing us to assess whether our actions align with our desired outcomes or
values. From a purchasing and management point of view, control would entail mirroring
the function’s performance against the expected goals and objectives formulated during
the planning process (section 2.2 of the prescribed book) to determine areas that may
need improvement or redefining. Planning and control are often referred to as the
Siamese twins of management since the one task cannot be successfully performed
without the other task. To successfully control actions, proper goals and objectives should
be formulated during the planning process, and goals and objectives cannot be properly
implemented and assessed if control measures are not in place.

Section 2.5 starts by defining what performance evaluation of purchasing and supply
activities entails, and then outlining the objectives and principles of performance
evaluation (section 2.5.1 in the prescribed book), as well as the difficulties related to
performance evaluation (section 2.5.2 of the prescribed book). The whole of section 2.5.3
is devoted to the basic control process as applied to the performance evaluation of the
purchasing and supply function.

The entire control process is depicted in figure 2.7 in the prescribed book and for ease of
studying, a simplified version of the process is provided below in figure 2.3 to identify the
main events in the control process.

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 Figure 2.3: The basic purchasing and supply control process

Although the discussion on purchasing and supply performance evaluation in

section 2.5 of the prescribed book is well structured, the following clarification
may help in distinguishing between the performance measures of purchasing and
supply proficiency and purchasing and supply efficiency (as discussed in step 2
of the purchasing and supply performance evaluation/control process).

Let us start by looking at the dictionary definitions of proficiency and efficiency before
applying these concepts to the context of purchasing and supply performance.

Proficiency can be defined as follows:

The basic definition indicates that proficiency lies in being skilful, familiar and
competent. In a purchasing and supply context it would mean that when measuring the
proficiency of the purchasing and supply function during performance evaluation,
management would determine the function’s skill and competence in doing what it is
supposed to do. Purchasing and supply proficiency would therefore indicate whether
the purchasing and supply function buys at the right prices (i.e. the pricing proficiency
measure/metric), whether its selected suppliers perform as desired, because that will

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 reflect on the function’s performance) (i.e. the supplier performance measure/metric),
whether the right materials arrive on time (i.e. the material flow measure/metric), and
whether quality standards are adhered to (i.e. the quality measure/metric).

Efficiency can be defined as follows:

The basic definition of efficiency thus refers to “doing things right” by having the
optimum input-output ratio. When measuring the efficiency of the purchasing and
supply function during performance evaluation, management determines whether the
function used resources in the right way, that is, economically. Therefore, purchasing
and supply measures/metrics such a cost savings, workload and administrative
performance are used.

Now that you know the basic semantic difference between the concepts of
proficiency and efficiency and the application of these concepts in conducting
purchasing and supply performance evaluation, test your knowledge by doing
learning activity 2.4.

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 LEARNING ACTIVITY 2.4

Learning outcome assessed

Analyse the performance evaluation control task of purchasing and supply management.

Learning activity 2.4

Read the module case study (“Supply chain chaos brings opportunities”) as background
and answer the following question. This learning activity is in the form of a multiple-
choice question where you have to (1) choose the correct option and substantiate your
answer, and (2) explain why the other options are incorrect in the context of the case
study. Consult the document “How to apply theory to cases and scenarios” to get
guidance on approaching scenario or case study questions and avoiding the pitfalls
when applying theory.

Based on the information provided in the case study, which one of the following supply
proficiency measures were most prominent for the purchasing and supply managers
of the retail outlets adopting the dark store concept?

(a) Pricing proficiency

(b) Supply efficiency
(c) Material flow
(d) Quality

LEARNING ACTIVITY 2.5

Learning outcome assessed

Explain performance evaluation as part of the control task of purchasing and supply
management.

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 Learning activity 2.5

Read the module case study (“Supply chain chaos brings opportunities”) and answer
the question. This learning activity is in the form of a multiple-choice question where
you have to (1) choose the correct option and substantiate your answer, and (2) explain
why the other options are incorrect in the context of the case study. Consult the
document “How to apply theory to cases and scenarios” to get guidance on
approaching scenario or case study questions and avoiding the pitfalls when applying
theory.

Question
The module case study mentions that The Foschini Group (TFG) is pushing for local
manufacturing to counter supply chain issues and that other large retailers such as Pep,
Woolworths, Truworths and Edgars are following suit. What approach to purchasing and
supply performance was most probably followed by Pep, Woolworths, Truworths and
Edgars when they looked at their actual performance and decided to also follow the route
of local manufacturing?

(a) Benchmarking
(b) Workload analysis
(c) Team-building exercise
(d) Performance evaluation reporting

2.6 CONCLUSION

Learning unit 2 focused on the management of the purchasing and supply

function and the four basic management tasks of planning, organising,
coordinating and controlling. Though you would have come across these
fundamental management tasks in other modules, this learning unit applied them to the
purchasing and supply function. It should be noted that although these management tasks
are discussed individually, the management process is integrated with the tasks and the
management processes followed in other organisational functions.

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SELF-ASSESSMENT QUESTIONS

At the end of chapter 2 in the prescribed book, you will find four self-evaluation
questions, as well as five multiple-choice questions to assess your knowledge
of learning unit 2.

ADDITIONAL SOURCES USED

Badenhorst-Weiss, JA., Cilliers, J.O., Dlamini, W. & Ambe, I.M. 2023. Purchasing and
supply management. 8th edition. Pretoria: Van Schaik.

SME Strategy Consulting. 2019. How to generate alignment & buy-in for your strategic
plan [video file]. Available at: https://youtu.be/r5PYPIKOY3g [accessed 30 May 2023].

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