Lecture Principle of inventory and material management - Lecture 15

Lecture 15 - Purchasing and Supply Chain. The contents of this chapter include all of the following: Purchasing overview, purchasing cycle, purchasing function, make or buy decision, purchasing techniques, JIT purchasing, supply chain management, outsourcing, ethics in supply chain.

Lecture 15 Purchasing and Supply Chain Books • Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P.E., CFPIM, CIRM, Fleming  College, Emeritus, Stephen N. Chapman, Ph.D., CFPIM, North Carolina State University, Lloyd M.  Clive, P.E., CFPIM, Fleming College • Operations Management for Competitive Advantage, 11th Edition, by Chase, Jacobs, and Aquilano, 2005,  N.Y.: McGraw­Hill/Irwin • Operations Management, 11/E, Jay Heizer, Texas Lutheran University, Barry Render, Graduate School of  Business, Rollins College, Prentice Hall Objectives • • • • • • • • • Purchasing overview Purchasing cycle Purchasing function Make or buy decision Purchasing techniques JIT purchasing Supply chain management Outsourcing Ethics in Supply chain Purchasing Overview • • Purchasing – The acquisition of goods and services Purchasing Activity – Helps identify the products and services that can be  best obtained externally; and – Develops, evaluates, and determines the best  supplier, price, and delivery for those products and  services Purchasing Objectives • • • • Obtaining goods and services of the required quality  and quantity Obtaining goods and services at the lowest cost Ensuring the best possible service and prompt delivery  by the supplier Developing and maintaining good supplier relations  and developing potential suppliers Purchasing Functions • • • • Determining purchasing specifications: quality,  quantity, delivery Selecting suppliers Negotiating terms and conditions of purchase Issuing and administering purchase orders Purchasing Cycle • • • • • • • Receiving and analyzing purchase req’s Selecting suppliers Determining the right price Issuing purchase orders Following up to assure delivery dates are met Receiving and accepting goods Approving supplier’s invoice for payment The Typical Procurement Cycle Order Cycle (one to three weeks) Order Request Verification by inventory  control Purchasing researches  suppliers, obtains quotes, etc Signatures obtained Order mailed Receiving Cycle (one week) Receiving Incoming inspection Inventory control receives   order, updates records,   and notifies department Supplier Cycle (one to many weeks) Supplier receives and   enters order Supplier manufactures   or “picks” order Supplier ships order Purchasing Terminology • Purchasing Agent – • Has legal authority to execute contracts on behalf of the  firm Make or Buy Decision – – – Choosing products and services that can be  advantageously obtained externally or produced  internally depending on which is best for the company Vertical Integration Developing the ability to produce goods or services  previously purchased, or actually buying a supplier or a  distributor Make­or­Buy Decisions Reasons for Making Maintain core competence Lower production cost Unsuitable suppliers Assure adequate supply (quantity or delivery) Utilize surplus labor or facilities Obtain desired quality Remove supplier collusion Obtain unique item that would entail a prohibitive commitment for a supplier Protect personnel from a layoff 10 Protect proprietary design or quality 11 Increase or maintain size of company Make­or­Buy Decisions Reasons for Buying Frees management to deal with its core competence Lower acquisition cost Preserve supplier commitment Obtain technical or management ability Inadequate capacity Reduce inventory costs Ensure alternative sources Inadequate managerial or technical resources Reciprocity 10 Item is protected by a patent or trade secret Supply Chain Management Important activities include determining Transportation vendors Credit and cash transfers Suppliers Distributors Accounts payable and receivable Warehousing and inventory Order fulfillment Sharing customer, forecasting, and production information A Supply Chain for Beer Global Supply Chain Issues Supply chains in a global environment must  be able to React to sudden changes in parts availability, distribution, or shipping channels, import duties, and currency rates ỵ Use the latest computer and transmission technologies to schedule and manage the shipment of parts in and finished products out ỵ Staff with local specialists who handle duties, freight, customs and political issues ỵ HowSupplyChainDecisionsImpactStrategy Low-Cost Strategy Response Strategy Differentiation Strategy Suppliers goal Supply demand at lowest possible cost (e.g., Emerson Electric, Taco Bell) Respond quickly Share market to changing research; requirements jointly develop and demand to products and minimize options (e.g., stockouts (e.g., Benetton) Dell Computers) Primary selection criteria Select primarily for cost Select primarily for capacity, speed, and flexibility Select primarily for product development skills How Supply Chain Decisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Process characteristics Maintain high average utilization Invest in excess capacity and flexible processes Modular processes that lend themselves to mass customization Inventory characteristics Minimize inventory throughout the chain to hold down cost Develop responsive system with buffer stocks positioned to ensure supply Minimize inventory in the chain to avoid obsolescence How Supply Chain Decisions Impact Strategy Low-Cost Strategy Response Strategy Differentiation Strategy Lead-time characteristics Shorten lead time as long as it does not increase costs Invest aggressively to reduce production lead time Invest aggressively to reduce development lead time Productdesign characteristics Maximize performance and minimize costs Use product designs that lead to low setup time and rapid production ramp-up Use modular design to postpone product differentiation as long as possible Supply Chain Economics Supply Chain Costs as a Percent of Sales Industry All industry Automobile Food Lumber Paper Petroleum Transportation % Purchased 52 67 60 61 55 79 62 Supply Chain Economics Dollars of additional sales needed to equal $1 saved through the supply chain Percent of Sales Spent in the Supply Chain Percent Net Profit of Firm 10 30% $2.78 $2.70 $2.63 $2.56 $2.50 40% $3.23 $3.13 $3.03 $2.94 $2.86 50% $3.85 $3.70 $3.57 $3.45 $3.33 60% $4.76 $4.55 $4.35 $4.17 $4.00 70% $6.25 $5.88 $5.56 $5.26 $5.00 80% $9.09 $8.33 $7.69 $7.14 $6.67 90% $16.67 $14.29 $12.50 $11.11 $10.00 Outsourcing Transfers traditional internal activities and resources of a firm to outside vendors ỵ Utilizes the efficiency that comes with specialization þ Firms outsource information technology, accounting, legal, logistics, and production þ Ethics in the Supply Chain Opportunities for unethical behavior are enormous and temptations are high ỵ Many companies have strict rules and codes of conduct that define acceptable behavior ỵ Institute for Supply Management has developed a detailed set of principles and standards for ethical behavior ỵ PrinciplesandStandardsforEthicalSupply ManagementConduct LOYALTY TO YOUR ORGANIZATION JUSTICE TO THOSE WITH WHOM YOU DEAL FAITH IN YOUR PROFESSION Principles and Standards for Ethical Supply  Management Conduct Avoid the intent and appearance of unethical or compromising practice in relationships, actions, and communications Demonstrate loyalty to the employer by diligently following the lawful instructions of the employer, using reasonable care and granted authority Avoid any personal business or professional activity that would create a conflict between personal interests and the interests of the employer Principles and Standards for Ethical Supply  Management Conduct Avoid soliciting or accepting money, loans, credits, or preferential discounts, and the acceptance of gifts, entertainment, favors, or services from present or potential suppliers that might influence, or appear to influence, supply management decisions Handle confidential or proprietary information with due care and proper consideration of ethical and legal ramifications and government regulations Promote positive supplier relationships through courtesy and impartiality Avoid improper reciprocal agreements Principles and Standards for Ethical Supply  Management Conduct Know and obey the letter and spirit of laws applicable to supply management Encourage support for small, disadvantaged, and minorityowned businesses 10 Acquire and maintain professional competence 11 Conduct supply management activities in accordance with national and international laws, customs, and practices, your organization’s policies, and these ethical principles and standards of conduct 12 Enhance the stature of the supply management profession End of Lecture 15 ... practices, your organization’s policies, and these ethical principles and standards of conduct 12 Enhance the stature of the supply management profession End? ?of? ?Lecture? ?15 ... courtesy and impartiality Avoid improper reciprocal agreements Principles? ?and? ?Standards for Ethical Supply  Management? ?Conduct Know and obey the letter and spirit of laws applicable to supply management. .. standards for ethical behavior ỵ PrinciplesandStandardsforEthicalSupply ManagementConduct LOYALTY TO YOUR ORGANIZATION JUSTICE TO THOSE WITH WHOM YOU DEAL FAITH IN YOUR PROFESSION Principles? ?and? ?Standards for Ethical Supply