Eskom Procurement Book 2015

PRINCIPLES OF SUPPLY CHAIN AND PROCUREMENT MANAGEMENT

Figure 1.1: An example of supply chain management and procurement.

Figure 1.1 shows how a company that manufactures breakfast cereal purchases grain from the farmer and processes it to make the cereal. Apart from the cereal, it also purchases paperboard from a paper manufacturer and labels from a label manufacturer. The paper manufacturer, in turn, purchases trees to make paper, while the label manufacturer purchases semi-finished stock to make labels. After making the cereal and packaging it, the cereal manufacturer sends the cereal to the distributor. The distributor then ships the product to the grocery store, which then sells it to the end customer. As materials or products move from one source to another, information flows between members. But it is worth remembering that members are only willing to share information where there is trust. This is important because information flow is necessary to ensure that the right product is delivered to the right place, at the right time and at the right price. Figure 1.1 is a simple illustration of supply chain. Supply chains can become more complex in organisations with multiple products, technologies and processes. In some organisations, such as automobile manufacturers, the supplier networks include thousands of supplier organisations providing items ranging from raw materials, such as steel and plastics, to complex assemblies and sub-assemblies, such as transmissions, brakes and engines [13]. For the purposes of this chapter, procurement, purchasing and buying are used interchangeably.

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