Purchasing Management: Supplier Selection, Cost Analysis, and ICT Use

This article provides a comprehensive report on purchasing management, focusing on supplier selection criteria, purchasing cost analysis, and the use of information and communication technology (ICT) in purchases. It includes recommendations for supplier selection and cost reduction, as well as insights into the benefits of ICT in purchasing operations. The report is prepared from the perspective of a purchasing manager at Nestle, a global company in the beverage industry.

Running head: PURCHASING MANAGEMENT 1
Purchasing management
Institution
Student name
Date

Purchasing management 2
Executive summary
This article is designed to deliver the report on the three main areas of purchasing
management, that is; supplier selection criteria, purchasing cost and the use of information and
communication technology in purchases and purchasing management. The report herein is
prepared at the capacity of the purchasing manager in one of Nestle branches.
The method of data and information collection used in this report focuses on Nestle, a
global company with a good foundation and representation in Singapore, a company dedicated to
the provision of beverages with the likes of MILO, NESTUM, and OMEGA. The information
and the data collected on the subject from the organization are assumed to be universal and apply
in all other organizations limiting the information collected on the topic.

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Table of Contents
Introduction.................................................................................................................................................4
Nestle background information...................................................................................................................4
Product....................................................................................................................................................4
Suppliers..................................................................................................................................................5
Nestle competitors..................................................................................................................................5
Nestle goals and strategies......................................................................................................................5
Supplier selection criteria, issues, and recommendation............................................................................5
Single supplier.........................................................................................................................................6
Multiple suppliers....................................................................................................................................6
Local supplies..........................................................................................................................................6
Overseas supply.......................................................................................................................................7
Recommendation selection of the supplier.................................................................................................7
ICT for purchasing operations and recommendations.................................................................................7
Supplier purchaser portal........................................................................................................................8
Peter Kraljic.................................................................................................................................................9
Leverage items........................................................................................................................................9
Strategy to reduce purchases risk............................................................................................................9
Bottleneck items....................................................................................................................................10
Strategic items.......................................................................................................................................10
Non-critical items..................................................................................................................................10
Recommendation on how to reduce the cost for water............................................................................10
Recommendations on the use of ICT.........................................................................................................11
Purchasing cost analysis............................................................................................................................11
The total cost of the product.....................................................................................................................12
Recommendation purchases cost analysis................................................................................................12
Conclusion.................................................................................................................................................13

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Recommendation on the report................................................................................................................13
References.................................................................................................................................................14
Introduction
The objective of preparing this report as the purchasing manager is to highlight and
explain the main activities that are handled in the process of making purchases. The explanation
of the report shows that the factor affecting purchases revolve the available communication and
information technology, the actual cost of purchasing the product, and the criteria the
management used to select the supplier. The criteria for choosing the supplier arise from the
dilemma of choosing between single or multiple suppliers and whether to make the purchases
locally or overseas. The report also details the contribution of technology, especially in
communication and information in business as far as making purchases is concerned.
Nestle background information
Product
The establishment of the business was driven by the motivation and the objective of
making a profit just like any other business from the provision of products like MILO,
NESCAFE, NESTUM, and OMEGA. Collectively, the products are beverages meant to improve
the build a healthier community in Singapore (Monczka, Handfield, Giunipero, & Patterson,
2015).

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Suppliers
The suppliers for Nestle are the farmers of products like coffee, cocoa, and dairy
products. The organization is, therefore, farming based, and its production process relies on farm
productivity, therefore the organization exercise responsible sourcing and practice environmental
conservation activities through plastic pollution control and trees planting.
Nestle competitors
Dealing with the farm raw material and manufacturing beverages is the main activity in
the organization. Accounting on the early discovery of farming suggests that there exist vast
information on the processing of the raw farm products. The situation implies that Nestle is not
the sole global beverages produces hence faces tough competition form the organization that
produces beverages under other names like MARS, Mondelez, Kraft Foods, Danon, Hershey's,
Heinz, Unilever, General Mills.
Nestle goals and strategies
Nestle strategy for maintaining relevance in the market is based on an evaluation of its
capital structure, which acts as a reflection of the market changes and the level of completion in
the industry. The strategy for growth strives to address the issue of increasing the earnings per
share and combating completion in the industry (Gadde, & Wynstra, 2018).
Supplier selection criteria, issues, and recommendation
Nestle being a manufacturing business, has to outsource the cocoa, coffee, and the dairy
product from the farmers since the organization is not involved in farming directly. The goal for
purchasing these materials is to provide the organization with the raw material for the production
process. The fact to be appreciated in this note is that production of any product in any business
can’t commence without the raw material being availed at the production site.

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Selecting the supplier is a very difficult decision the management has to make.
Depending on the desired quality and the cost of the purchases the purchasing manager decides
on what raw material to be imported or purchased from which supplier and when to ensure that
the issues related to raw material does not halt the activities of the business (O'brien, 2019). The
following are some of the scenarios that are likely to be observed in purchases:
Single supplier
Nestle branch may opt to receive supplies from a single supplier on the foundation of the
quality of the product of the farmer. Some farmers are reckless in the farming activities and yield
to poor quality production emanating from diseases attack for both plants and animals as well
malnutrition. A single supplier can also be chosen based on ease in agreement on the amount and
the time of payment for the supplies.
Multiple suppliers
Monotony in business is the main source of consumer exploitation. To combat this, the
management of the supplies may opt to source the raw material from several suppliers. On the
other note, a single supplier is inconvenient on the ground of the challenges that may affect the
single farmer affects production directly (Spina, Caniato, Luzzini, & Ronchi, 2016).
Local supplies
The convenience of making local purchases may lead the organization to make local
purchases. Receiving the supplies from the locals saves the organization the cost and the
inconveniences of transport associated disadvantages. Making local purchases suggests that the
simplicity in the process and quick arrival of the goods to the organization. The use of the same
currency also saves the organization the trouble of conversion during payments.

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Overseas supply
On making the purchases, the manager considers the benefit and the utility of the product
to the organization. If the product is only available overseas, the organization has no option
rather than going for it. At times, global products are better than the locally produced products
based on the mechanisms used in production and the differences in technology of production and
the climate differences attributes to the quality of the product (Zhao, Xu, Tian, Ren, Lv, Yin, &
Liang, 2016). This implies the product of the best quality may only be available globally, and
Nestle has no option rather than picking the global farmer as the supplier.
Recommendation selection of the supplier
A single supplier is also likely not to have the capacity of supplying the organization with
adequate raw materials hence the preference for multiple suppliers. Relying on a single supplier
is risky since a simple misunderstanding between the supplier and the organization may lead to
stoppage of the supplier from the supplier during the protest. The recommendation to the
management is to adopt a multiple supplier’s option.
ICT for purchasing operations and recommendations
Technology in the information and communication field has evolved drastically. As the
knowledge on revolution dictates, information technology is one of the biggest revolutions in the
history of man after the invention of fire, farming, and the invention of the wheel. Perhaps, if it
were not by the information and communication technology, doing and submitting this report
would not be possible (Fredendall, & Hill, 2016).
Information technology in the business has played a vital role. The organization and the
farmers are at the disposal of the information about substance use in their business activities. The

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farmers are aware of the potential buyers of their products both locally and globally and the
prices the product sells at in all the markets hence efficiency in selecting the market for their
products based on competition. Nestle; on the other hand, is aware of the existing farmers and
their locations as well as the prices and the quality of the produce at the various markets (Benit,
Lannelongue, Ferreira, & Zapatero, 2016). Competition on the market is, therefore, fare, and the
organization can select the most favorable supplier.
Supplier purchaser portal
Information technology and the discovery of the internet has played a major role in the
transformation of the business from the traditional methods of making purchases to the use of
computerized selling and buying. The farmers have been disposed to the use of e-commerce in
trade. The cost of putting up stores has been reduced for the farmers hence reducing the cost
incurred in the production of the farm products. The reduction in the cost of production of raw
materials suggests the price of the raw materials to other organization will be low hence
favorable to the operations of the organization.
The use of ICT in purchasing automates the inventory hence increasing its efficiency.
The organization can keep track of supplies and the organization possession effectively. The
retrieval of the data on the organization's supplies is accessible on the click of a button. The
management henceforth can know which raw material needs to be supplied and when the supply
should be made. The control and management of the supplier’s product in the organization is
also made easier (Touboulic, & Walker, 2015). The inventory system facilitates tracking of the
goods, and the management can identify the suppliers who delivered high-quality goods and the
supplier who made a low-quality supply or even spoilt goods.

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Peter Kraljic
Kraljic made one of the greatest purchasing analyses still in use to date. In his analysis,
he looked to the factors affecting purchases in two dimensions depicted in the table below.
In his analysis, Kraljic argued that the main factors that affect the purchases of raw
material are the power to buy and the availability of the raw material. The table below is critical
in this issue as far as the implementation of Kraljic knowledge in Nestle is concerned.
The analysis led to the development of the below matrix of raw material.
Leverage items Strategic items
Non-critical items Bottle-neck items
Leverage items
These are the raw material where stopped supplies imply the processing activities of Nestle will
be halted. These goods constitutes of coffee, cocoa and dairy products. These products constitute
of the major purchases of Nestle and their availability to the organization implies effective
production process hence profit.
Strategy to reduce purchases risk
The risk in this category of raw materials is high since the Nestle is reliant to the raw material
supplier. Nestle should adopt tendering and sound supplier selection. This will reduce the
inconveniences in supplies hence efficiency in production thus profit.
value
risk

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Bottleneck items
Although these items are not high in values rates, they are critical for production, and
they are vulnerable in the supply chain on matter transport to Nestle. The product under this
category is particularly dairy product. This is because of the high perishability nature of the
product and could even perish on the transport process from the farmer to Nestle.
The recommendation to combat the risk in purchases of dairy products is to establish
organization owned transport route to reduce the loss on perishability risk.
Strategic items
This is the critical items in production; at Nestle, these products are not part of the final
product of say NESCAFE, MILO from the long list of the products available. However they are
critical to production of all the products. They include electric power, water and human resource.
Non-critical items
These are the items of the least risk to Nestle production activity; their supplies to Nestle
have little financial risk and are likely to have no effect on actual processing. These items
include the pens, papers, binders and the tapes.
Substantial risk on the supply of these products is on transport of the products where at
times the actual price of the product happens to be lower than the transport cost.
Recommendation on how to reduce the cost for water
Water is essential in production; it is either as the raw material of a product to support
products like machine cooling and washing. To reduce the cost for water in the production
organization, the purchases manager has to ensure the product is available from several suppliers
hence the inability of one supplier to supply has no significant effect on production. The

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transport system water should also be reliable and, preferably pipeline transport. To reduce the
cost for the water and the risk associated with long distance between the supplier and the
purchaser, the management should seek for the closest supplier.
Recommendations on the use of ICT
Paperwork in the making of purchases was faced by challenges costing the organization
high amounts. Papers are vulnerable to sabotage and destruction by the individuals of ill motif;
the organization henceforth end up losing information critical to the operations of the
organization. Imagine losing the data on the supplier on what he supplied, when and how much
the organization owes him. The use of ICT is fitted with the use of passwords and authentication
as a measure to information security on the processes, and the particulars entered. The use of this
technology is, therefore, all for good and streamlines the activities of the organization through
ensuring proper track of the goods and retrieval of information is possible on button clicking.
The computing technology, in combination with the use of the internet, facilitates the
generation and propagation of blog on the organization matter. The blogs ease advertisements,
and on attracting huge traffics, earning the organization revenue.
Purchasing cost analysis
The decision to purchase a product is motivated primarily by the ability of the buyer to
raise the price of the product. If the buyer has the capability of purchasing the product, he will go
for it. On the other hand, the ability to raise the price of the product can be undermined in
deciding to buy the product if the quality of the product is worth relooking at to verify the
efficiency of the product.

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The total cost of the product
The cost of a product as per the organizations’ stand is broad and does not only involve
the market price of the product. The cost is calculated from adding up several aspects of the
product that the organization is likely to incur cost on purchasing it. If the product is bought
overseas, the purchases manager will consider the cost of the product in the market, add the tax
charged by the local state and calculate the non-capital cost of the time taken to transport the
product to the organization from the time the order is placed. When these costs and the inventory
cost are added up; it gives the purchases manager the clear picture of the actual cost of buying
the product (Dubois, & Salmi, 2016).
The market price of the product is determined by the cost of production, government
taxes, and inventiveness as well as regulations. The forces of demand and supply also affect the
price of the product, similar to the level of competition in the market. The total cost of the
product affects the decision of the buyer to buy the product; if the total cost is high, the
purchases manager will have to seek for an alternative of a lower rating product of the same cost.
Recommendation purchases cost analysis
The purchases manager will opt for the product that rates low price for the same quality.
The buyer should, however, not be blind to rush to make an order for a product because it rates
low price in the market without having an eye on the quality. Of most importance in this
discussion is that the purchasing manager should calculate the total cost of having the product in
the organization
The purchases manager my rush to import a product overseas on the fact it sells at a low
cost than the local market. This may end up costing the organization more when other factors on

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the cost of the product are tabled. When the taxes for importation, transport and the time taken to
transport the product to the organization are all assigned value and added to the market price of
the total cost may end up surpassing the cost of shopping locally. Time in business is valuable, if
products take long to arrive in the organization, the production process will be halted, and the
product may also perish in the transport channel costing the organization more than double
(D’Amico, Mogre, Clarke, Lindgreen, & Hingley, 2017).
Conclusion
The report is dedicated to explaining to details the process of making a purchase and the
factors to consider before placing an order. The focus is on Nestle organization, which is a global
organization and also operates in Singapore. The purchases manager argues that the purchases of
raw material in an organization are affected by several factors to ensure the decision made is
wise to serve the organization effectively.
The report highlights that; selecting the supplier of the raw material can end up being a
single supplier, multiple suppliers, and local or overseas supplier depending on which category
of the supplier favors the organization. The evolution in information technology has also
influenced the practice and has made it easier. The last and the likely most important factor that
affects purchases is the total cost of the product.
Recommendation on the report
Before making any purchases, the purchasing manager should ensure the selection of the
supplier is effective and can’t turn down the organization; preferably, the multiple suppliers are
the best. Also, the manager should ensure he is exposed to information about the product and has

Purchasing management 14
an efficient inventory control system. Lastly, he should consider the total cost of the product and
choose the low price supplier for the goods of the same quality in the market.
References
D’Amico, F., Mogre, R., Clarke, S., Lindgreen, A., & Hingley, M. (2017). How purchasing and
supply management practices affect key success factors: the case of the offshore-wind
supply chain. Journal of Business & Industrial Marketing, 32(2), 218-226.
Dubois, A., & Salmi, A. (2016). A call for broadening the range of approaches to case studies in
purchasing and supply management. Journal of Purchasing and Supply
Management, 22(4), 247-249.
Fredendall, L. D., & Hill, E. (2016). Basics of supply chain management. CRC Press.
Gadde, L. E., & Wynstra, F. (2018). Purchasing management and the role of uncertainty. IMP
Journal, 12(1), 127-147.
González-Benito, J., Lannelongue, G., Ferreira, L. M., & Gonzalez-Zapatero, C. (2016). The
effect of green purchasing on purchasing performance: the moderating role played by
long-term relationships and strategic integration. Journal of Business & Industrial
Marketing, 31(2), 312-324.
Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and
supply chain management. Cengage Learning.

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O'brien, J. (2019). Category management in purchasing: a strategic approach to maximize
business profitability. Kogan Page Publishers.
Spina, G., Caniato, F., Luzzini, D., & Ronchi, S. (2016). Assessing the use of external grand
theories in purchasing and supply management research. Journal of Purchasing and
Supply Management, 22(1), 18-30.
Touboulic, A., & Walker, H. (2015). Theories in sustainable supply chain management: a
structured lite Turner, J. R. (2017). Contracting for project management.
Routledge.rature review. International Journal of Physical Distribution & Logistics
Management, 45(1/2), 16-42.
Zhao, C., Xu, G., Tian, Y., Ren, W., Lv, C., Yin, B., & Liang, T. (2016, July). A purchasing
management strategy model about grading and classifying railway materials based on
material grouping. In 2016 International Conference on Logistics, Informatics and
Service Sciences (LISS) (pp. 1-5). IEEE.