In this chapter, the following content will be discussed: Define the role of procurement, appreciate the importance of procurement in the logistics chain, choose an appropriate supplier, appreciate the advantages of choosing single or multiple sourcing, discuss the steps in a procurement cycle, describe e-procurement and its advantages, talk about different arrangements for purchasing.
Logistics Management LSM 730 Lecture 14 Dr Khurrum S Mughal 1-1 COG Method Method appraisal • A continuous location method • Locates on the basis of transportation costs alone The COG method involves • Determining the volumes by source and destination • Determining the transportation costs based on • Overlaying a grid to determine the coordinates of and/or destination points • Finding the weighted center of gravity for the graph CR (2004) Prentice Hall, Inc point $/unit/mi source 13-2 COG Method (Cont’d) X V R X i i i i V R i i i ,Y V R Y i i i i V R i i i where Vi = volume flowing from (to) point I Ri = transportation rate to ship Vi from (to) point i Xi,Yi = coordinate points for point i = coordinate points for facility to be located X, Y CR (2004) Prentice Hall, Inc 13-3 COG Method (Cont’d) Example Suppose a regional medical warehouse is to be established to serve several Veterans Administration hospitals throughout the country The supplies originate at S1 and S2 and are destined for hospitals at H1 through H4 The relative locations are shown on the map grid Other data are: Note rate is a per mile cost Annual Rate, Point i S1 S2 H1 H2 H3 H4 Products A B A&B Location Seattle Atlanta Los Angeles A & B Dallas A & B Chicago A & B New York CR (2004) Prentice Hall, Inc volume, $/cwt/ cwt mi 8,000 0.02 10,000 0.02 5,000 0.05 3,000 4,000 6,000 0.05 0.05 0.05 Xi 0.6 8.6 2.0 Yi 7.3 3.0 3.0 5.5 7.9 10.6 2.4 5.5 5.2 13-4 COG Method (Cont’d) Map scaling factor, K CR (2004) Prentice Hall, Inc 13-5 COG Method (Cont’d) Solve the COG equations in table form i Xi 0.6 8.6 2.0 5.5 7.9 10.6 Yi Vi Ri 7.3 8,000 0.02 3.0 10,000 0.02 3.0 5,000 0.05 2.4 3,000 0.05 5.5 4,000 0.05 5.2 6,000 0.05 CR (2004) Prentice Hall, Inc ViRi 160 200 250 150 200 300 1,260 V iR iX i 96 1,720 500 825 1,580 3,180 7,901 13-6 ViRiYi 1,168 600 750 360 1,100 1,560 5,538 COG Method (Cont’d) Now, X = 7,901/1,260 = 6.27 Y = 5,538/1,260 = 4.40 This is approximately Columbia, MO The total cost for this location is found by: TC where K V R K (X i i i i X )2 (Yi Y )2 is the map scaling factor to convert coordinates into miles CR (2004) Prentice Hall, Inc 13-7 COG Method (Cont’d) CR (2004) Prentice Hall, Inc 13-8 COG COG Method (Cont’d) TC1 8,000(0.02)(500) (0.6 6.27)2 (7.3 4.40)2 Calculate at i Xi total Yi cost Vi 0.6 COG Ri TC 7.3 8,000 0.02 509,482 8.6 3.0 10,000 0.02 271,825 2.0 3.0 5,000 0.05 561,706 5.5 2.4 3,000 0.05 160,733 7.9 5.5 4,000 0.05 196,644 10.6 5.2 6,000 0.05 660,492 Total 2,360,882 CR (2004) Prentice Hall, Inc 13-9 Example • • The firm is considering alternative sites for its new facility, France and Denmark After evaluating the firm’s Needs, the Managers have Narrowed the list of Important Selection Criteria down into major Factors – Labor availability and attitude – People to car ratio – Per capita income – Tax structure Factor Rating Example • Since factor weights, selected factors, and assigned scores are all determined subjectively, the managers should be very careful in selecting these items and numbers ... Xi 0.6 8.6 2.0 Yi 7.3 3.0 3.0 5.5 7.9 10.6 2.4 5.5 5.2 1 3-4 COG Method (Cont’d) Map scaling factor, K CR (2004) Prentice Hall, Inc 1 3-5 COG Method (Cont’d) Solve the COG equations in table form... factor to convert coordinates into miles CR (2004) Prentice Hall, Inc 1 3-7 COG Method (Cont’d) CR (2004) Prentice Hall, Inc 1 3-8 COG COG Method (Cont’d) TC1 8,000(0.02)(500) (0.6 6.27)2 (7.3 4.40)2... weighted center of gravity for the graph CR (2004) Prentice Hall, Inc point $/unit/mi source 1 3-2 COG Method (Cont’d) X V R X i i i i V R i i i ,Y V R Y i i i i V R i i i where Vi = volume flowing