The Control Of Purchasing Cost In Supply Chain Management

The products made in China are popular all over the world. Chinese goods can be able to compete more successfully with foreign competitors because of low cost. The low product cost comes of low labor cost. But the advantage is going to be disappearing with the increase of the salary. How to reduce the cost is very important for manufacturers. The purchasing cost is about more than fifty percent of the product price. So it is crucial to reduce the purchasing cost in manufacturing industry. With the development of horizontal integration theory, it is enable firms to respond the marketing demand quickly using exterior resource. Firms are able to save the investment, cut costs and get advantage of competition. The new supply chain management practice keep companies getting more profit. It also brings firms a new way to cut purchasing cost. With the development of supply chain management practice and theory, it is unaccommodated for traditional purchasing cost management. How to control the purchasing cost is worthwhile to research using supply chain management. The paper discusses the purchasing cost management and control from the point of view of supply chain management. First, the paper introduces the definition of purchasing and total cost of ownership, analyses the structure of the purchasing cost in details, and point out the elements what influence the costs. Then it sum up the ways of how to reduce traditional purchasing cost, analyses the advantage and disadvantage, bad around the purchasing cost control by supply chain management and summarize the means and ways of how to reduce the purchasing cost. Finally the paper discuss an actual case by using the theory: make a purchasing decision by using total cost of ownership, analyses the actuality of the case in purchasing cost and make suggestions by supply chain management.