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 PROCUREMENT
AND SUPPLY CHAIN
MANAGEMENT
EIGHTH EDITION

ARJAN J. VAN WEELE AND FRANK ROZEMEIJER

Australia • Brazil • Canada • Mexico • Singapore • United Kingdom • United States

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 This is an electronic version of the print textbook. Due to electronic rights restrictions,
some third party content may be suppressed. Editorial review has deemed that any suppressed
content does not materially affect the overall learning experience. The publisher reserves the right
to remove content from this title at any time if subsequent rights restrictions require it. For
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 Procurement and Supply Chain © 2022, Cengage Learning EMEA
Management, Eighth Edition
WCN: 02-300
Arjan J van Weele and Frank Rozemeijer
ALL RIGHTS RESERVED. No part of this work may be reproduced,
transmitted, stored, distributed or used in any form or by any means,
Publisher: Annabel Ainscow electronic, mechanical, photocopying, recording or otherwise, without
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Cover Image(s): © Shutterstock Inc.

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library.

ISBN: 978-1-4737-7911-2

Cengage Learning, EMEA

Cheriton House, North Way
Andover, Hampshire, SP10 5BE
United Kingdom

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your course, visit www.cengage.co.uk.

Printed in United Kingdom, Ashford Colour Press Ltd

Print Number: 01 Print Year: 2022

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 Brief contents

SECTION I Introduction and context 1

1 Introducing procurement 2
2 The procurement process 23
3 Procurement as a business function 49

SECTION II Processes and strategies 75

4 Outsourcing 76
5 Category sourcing: developing effective sourcing strategies 98
6 Sourcing business services 127
7 Contracting and contract management 147
8 Public procurement 170

SECTION III Interfaces 209

9 Procurement and supply chain management 210
10 Supplier relationship management 236
11 Innovation sourcing 261
12 Procurement with purpose: driving sustainability in supply chain
relationships 282

SECTION IV Enablers 317

13 Organizing procurement 318
14 Procurement systems 346
15 Managing procurement performance 365

iii

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Contents

List of memos ix Step 1) The specification phase 35

Acknowledgements xi Step 2) Supplier selection and supplier
Preface to the eighth edition xii assessment 36
Introduction xiv
Step 3) Negotiation and contracting 38
List of abbreviations xx
Prices and terms of delivery 38
Terms of payment 38
Penalty clauses and warranty conditions 39
SECTION I Other arrangements 40

Introduction and context 1 Step 4) The ordering process 42

Step 5) The expediting process 43
1 Introducing procurement 2 Step 6) Follow-up and evaluation 44
Learning objectives 2 Theory snapshot 2.1: Systems theory 45
Introduction 2 Major bottlenecks and problems 45
Case study: Procurement and supply chain Summary 47
management at Damen Shipyards 3 Assignments 48
The role of procurement in the value chain 4 Additional reading 48
Definition of concepts 6 References 48
Importance of procurement to business 12
Theory snapshot 1.1: The power of theory 16 3 Procurement as a business
Classification of purchased goods 16 function 49
Challenges and changes in the procurement Learning objectives 49
context 18 Introduction 49
Summary 21 Case study: Shell Houston 50
Assignments 22 Primary tasks and responsibilities 51
References 22 Theory snapshot 3.1 58
Managing procurement: a few principles 58
2 The procurement process 23 Business alignment 58
Integrated, cross-functional approach 59
Learning objectives 23
Performance-driven 60
Introduction 23
Procurement management process 61
Case study: Buying a new IT-system in a car leasing Procurement context analysis 62
company 24 Procurement canvas: preparing objectives, strategy and
Organizational buying behaviour: basic actions 63
characteristics 25 Implementation of procurement strategy 64
Models of industrial buying behaviour 27 Procurement control and evaluation 65

Procurement process management 30 How procurement develops over time 66

The linear procurement process model 31 Stage 1 Transaction orientation: serve the factory 66
Stage 2 Commercial orientation: lowest unit price 68

iv

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 Contents v

Stage 3 Synergy orientation: co-ordinated Reasons underlying cost-savings potential in

procurement 68 procurement 100
Stage 4 Internal integration: cross-functional Category management 102
procurement 69
Setting priorities for category sourcing 103
Stage 5 External integration: supply chain
management 69 Scoping the spend category 106
Stage 6 Value chain orientation 70 Procurement portfolio analysis: principles 106
Some observations from practice 71 Four basic sourcing strategies 110
Summary 72 Developing a sourcing strategy 115
Assignments 73 Category sourcing plan 118
References 73 Getting better results from suppliers 122
Summary 124
Assignments 125
SECTION II Further reading 126

Processes and strategies 75 References 126

4 Outsourcing 76 6 Sourcing business services 127

Learning objectives 76 Learning objectives 127

Introduction 76 Introduction 127

Outsourcing as a business concept 77 Case study: Sourcing marketing services at a

European telecom provider 128
Case study: Outsourcing of IT 78
The increasing importance of services 130
Theory snapshot 4.1: The resource-based view
of the firm 79 Differences between goods and services 131

Definitions and concepts 79 Towards a classification of services 133

Rationales for outsourcing 82 The pre-contractual stage 134

Success of outsourcing as a business strategy 85 Specifying: defining the scope of work for service
providers 134
The outsourcing process 85
Selecting service providers 138
Strategic phase 86
Contracting for services 139
Theory snapshot 4.2: Transaction cost economics
The post-contractual stage 141
(TCE) 87
The transition phase 88 Theory snapshot 6.1: Triads and service
The operational phase 90 deliveries 142

Risk assessment 91 Involvement of procurement in sourcing

services 144
Critical success factors of outsourcing 94
Summary 145
Summary 95
Assignments 146
Assignments 97
References 146
References 97

7 Contracting and contract

5 Category sourcing: developing management 147
effective sourcing strategies 98
Learning objectives 147
Learning objectives 98
Introduction 147
Introduction 98
Case study: What happened at the Amsterdam
Case study: Tesla’s sourcing challenge for lithium 99
subway project? 148

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
vi Contents

Contract management and contracts: agency Design contest 184

theory 149 Dynamic purchasing system 184
Theory snapshot 7.1: Principal-agent theory Procurement process 185
(Agency theory) 151 Defining specifications 185
The contracting process 153 Supplier selection 186
Pre-contractual stage 153 Soliciting bids and awarding contracts 187
Contractual stage 154 Implications for public procurement 190
Contract execution 154 Summary 191
Post-contractual stage 154
Assignments 192
Problems in contract management 155
References 192
Perspectives on contract management 157
Integrative Case II.1: Procurement of multi-
Contract models 159 functionals in the Blue Lake Hospital 193
Contract building blocks: pricing and payment Appendix 1 196
mechanisms in contracts 160
Appendix 2 197
Pricing mechanisms 160
Payment terms 163 Integrative Case II.2: Technix: material supply
Penalty clauses, liquidated damages and warranty problems in offshore dredging in Rio 198
conditions 163 Appendix 1 201
Subcontracting and project execution 164 Appendix 2 202
Contract governance 165 Appendix 3 206
Summary 168
Assignments 169
References 169 SECTION III
Interfaces 209
8 Public procurement 170
Learning objectives 170 9 Procurement and supply chain
Introduction 170 management 210
Case study: What is good procurement? 172 Learning objectives 210
The nature of public procurement 172 Introduction 210
Public procurement law 175 Procurement and supply chain management:
Scope of the European Directives on public definitions and concepts 211
procurement 176 Case study: Li & Fung 211
Scope 176 Materials requirements planning 217
Framework agreements 178
Basic logistics structures 220
Excluded assignments 178
Threshold values 179 Just-in-time management 222
Characteristics of just-in-time management 222
Notices and public procurement procedures 180
Order quantities and batch sizes 223
Notice 180
Quality and zero defects 225
European procurement procedures 181
JIT and the procurement function 226
Open procedure 181
Advantages and disadvantages for the supplier 227
Restricted procedure 181
JIT and supplier selection 230
Competitive procedure with negotiation 182
Negotiated procedure with prior publication 182 Elements of the procurement information
Negotiated procedure without prior publication 183 system 231
Competitive dialogue 183
Innovation partnership 183

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
 Contents vii

Co-ordination problems between procurement and 12 Procurement with purpose:

supply chain management 233 driving sustainability in supply chain
Summary 234 relationships 282
Assignments 235 Learning objectives 282
References 235 Introduction 282
Case study: Mattel’s reputation at stake through
10 Supplier relationship sourcing in China 284
management 236 Business principles and procurement 286
Learning objectives 236 Towards a sustainable future: ‘people, planet,
Introduction 236 profit’ 287
Case study: IKEA and supplier relationships 237 Theory snapshot 12.1: Understanding sustainability
Supplier relationship management: a thinking: from the resource-based view to
framework 238 stakeholder theory 291

Procurement and quality management 241 Procurement with purpose: towards sustainable
supply chains 292
Supplier quality assurance (SQA) 244
How to drive CSR in supply chain relationships 294
Implementing the SRM framework: supplier
management 246 Circular sourcing 297

Supplier assessment 247 Business integrity and ethics 300

Cost modelling and the learning curve 249 Summary 303

Implementing the SRM framework: supplier Assignments 304

development 252 References 304
Summary 258 Integrative Case III.1: Serving the customer at
Assignments 259 Joycies Products Ltd: from marketing to supply
chain management 305
Further reading 259
Appendix 1 308
References 260
Integrative Case III.2: Legends Car Company: how
to deal with supplier price increases 309
11 Innovation sourcing 261
Integrative Case III.3: Nespresso: creating shared
Learning objectives 261
value in the global coffee value chain 311
Introduction 261
Case study: Boeing Dreamliner 787 262
Procurement and innovation 263 SECTION IV
The role of suppliers in new product
development 265
Enablers 317

Procurement and new product development 269

13 Organizing procurement 318
Conditions for effective co-innovation with
Learning objectives 318
suppliers 275
Introduction 318
Theory snapshot 11.1: Stakeholder and stewardship
theory 276 Case study: Building blocks of change 319

Summary 279 Procurement organization 320

Assignments 280 Factors influencing the position of procurement

in the organization 322
References 280

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
viii Contents

Levels of tasks, responsibilities and authority 323 15 Managing procurement

Strategic level 323 performance 365
Tactical level 324
Learning objectives 365
Operational level 324
Introduction 365
Organizational structures within procurement 325
Procurement in multi-unit companies 325 Case study: Managing quality improvement 366
Decentralized procurement structure 325 Factors influencing procurement performance
Centralized procurement structure 326 measurement 367
Hybrid procurement structures 326 Why measure procurement performance? 369
Federal procurement model 328
How to assess procurement performance? 370
Co-ordinated procurement model 330
Centre-led procurement model 331 Measuring procurement performance: key
Centralized versus decentralized procurement: some areas 371
criteria to consider 334 Price/cost dimension 373
Procurement organization in single-unit companies 336 Product quality dimension 373
Logistics/delivery and SCM dimension 373
Adapting the procurement organization 336
Sustainability dimension 374
Staffing the procurement organization 338 Procurement organization dimension 374
Procurement competencies 340 Supplier relationship dimension 375
Summary 343 Future performance measurements 375
Assignments 344 Procurement scorecard 378
References 344 Procurement budgets, procurement savings and
other performance measures 379
14 Procurement systems 346 Procurement materials budget 380
Procurement budget indirect materials 380
Learning objectives 346
The investment and tooling budget 381
Introduction 346 Procurement departmental budget 381
Case study: How digitalization redefines Procurement cost savings: definitions and measures 382
procurement 347 Ratios and key performance indicators 383
Contemporary digital solutions for procurement 348 Procurement audit as a management tool 387
Source-to-contract solutions 351 Summary 390
Spend analytics 351 Assignments 391
E-sourcing 353
Further reading 392
E-auctions 353
B2B marketplaces 356 References 392

Purchase-to-pay (P2P) solutions 356 Integrative Case IV.1: International Foods Industries:
heading towards procurement synergy 393
e-SRM solutions 357
Appendix 1 395
Digital solutions for SRM 358
Appendix 2 395
How new IT solutions change the procurement
landscape: emerging digital procurement Integrative Case IV.2: European Airlines: about
technology 359 procurement governance and stakeholder
engagement 397
Drivers and barriers for adapting new digital
procurement technology 362 Integrative Case IV.3: Fred’s Fresh Supermarket:
selecting the best supplier 399
Summary 363
Assignments 364
Glossary 402
References 364
Index 410

Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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