hasing and Supply Management

7/23/2019 hasing and Supply Management

1/232

MGT 634

Purchasing and Supply

Management

Dr Atul Kanyalkar


2/232

The Course Objective To

provide an overviewof the Purchasing and Supply

Management (PSM) Function

understand the processes, procedures and policies

followed in PSM

provide a brief understanding about PSM functionalities in

ERPsystems

provide the information about the tools and trends in PSM.

MGT634 Purchasing and SupplyManagement


3/232

At the end of this course

You will be able to

Appreciate the significance of PSMfunction in

an organization

Appreciate relevance of various processes

followed in PSM function

Understand relevance of ERPin PSM.



4/232

Procurement-Production-Distribution System

Manufactu-ring Plant

Selling

Location 1

SellingLocation 2

Selling

Location 3

Port

Inbound logistic or Procurement ProductionOutbound logistic or

Distribution

Supplier 1

Supplier 2

Supplier 3



5/232

5

Supply Chain

Own

Manufactu-

ring Plant 1

LL

Manufactu-

ring Plant 3

Selling

Location 2

Selling

Location 3

Selling

Location 4

Selling

Location 5

Selling

Location 6

Selling

Location 1

Port 1

Port 2

Supplier 1

Procurement Production Distribution

Supplier 2 TP

Manufactu-ring Plant 2

HUB Stockiest

Retailer


6/232

The syllabus

1. PSM Concepts2. Staging Policies and PSM

3. Purchasing Process

4. Make or buy decisions5. Purchase Negotiations

6. Ethics in Purchasing

7. Legal Aspect in Purchasing8. EDI and e-sourcing

9. Vendor development and evaluation



7/232

The syllabus

10. Vendor Managed Inventory11. Vendor Performance Measurement

12. Capital Equipment Purchasing

13. Service Sourcing14. Multi-Location Procurement Problem

15. Purchasing Functionality in ERP

16. Business Planning17. Supplier Certification



8/232

The syllabus

18. Material Storage and WarehouseActivities

19. Warehouse Utilization

20. Safety and Security Aspect21. Obsolescence

22. Disposal of scrap

23. Material Handling24. ERP in Warehouse

25. New Product Development



9/232

References

1. Dobler D. W. and Burt D. N., Purchasing and supply

management, Tata McGraw-Hill Publishing company, 1996.

2. Monczka R., Trent R. and Handfield R., Purchasing: An

integrated supply chain approach, South-western Cengage

Learning. 2005.

3. Coyle J.J., Bardi E.J. and Langley(Jr.) C.J., The management

of business logistics, 7thed., South-western Cengage

Learning, 2003.

4. Tony Arnold J.R. and Chapman S.N., Introduction toMaterials Management, 5th ed., Pearson Education, 2004.

5. Cases and papers provided time to time



10/232

Class Discipline

Attendance

Class timings (attendance will be taken at

the beginning)

AuditAttendance and minimum passingcriterion

Academic Dishonesty



11/232

Course Evaluation

1. Assignments (30%)

Case Analysis / Paper Reviews (Group & Individual) : [30%]

Tests (70%)1. Mid-term test & class tests: [20%] *

2. End-term Test: [50%] *

* Closed Book



12/232

Teaching Sequence


Mon Tue Wed Thu Fri Sat Sun

1 2

3 4 5 6 7 8 9

10 11 12 13 14 15 16

17 18 19 20 21 22 23

24 25 26 27 28 29 30

1 2 3 4 5 6 7

8 9 10 11 12 13 14

15 16 17 18 19 20 21

22 23 24 25 26 27 28

29 30 31 1 2 3 4

Sep

Oct


13/232

Introduction to Purchasing and

Supply Management


14/232

Purchasing Supply Management : Terms

MarketingManufact. &

DistributionPurchasing1st Tier

Supplier2nd Tier

SupplierCustomer

Value Chain Management

Demand Chain ManagementSupply Chain Management

Business Logistics

Physical DistributionPurchasing and Supply Management

Logistics Management



15/232

Purchasing and Supply Management :

Definitions

Supply Management It is the process responsible for the development and

management of a firms total supply systemfor both internal

and external components.

Purchasing The purchasing function comprises of the essential activities

associated with the acquisitionof the materials, services, andequipments used in the operation of an organization.



16/232

Objectives

SupportProduction

Reduce CostOf Materials

Ensure Consistent Quality

Reduce Inventory Investment Improve Corporate ImageSupplier Relations

Maintenance of Records

Preserve and ConserveMaterials in Stock Improve Competitive Strength



17/232

Purchasing and Supply ManagementActivities

Materials Planning and Scheduling Make or Buy

Procurement(materials, equipments, tools,

supplies and services) Transportation

Warehousing

Salvageand Scrap Disposal



18/232

Importance

Cost Quality

Sales

Profits

Product development

time

Technologies and

innovation

Customer service

Competitive

advantage

Purchasing and Supply Management can have a majorimpact on organization success by influencing:



19/232

Why Purchasing is Important

Industry Materials/Sales RevenuePetroleum 76%

Automobile 70%

Wood Products 61%Textile Mills 59%

Food Manufacturing 59%

Machinery 50%

Electrical Equipment 49%Computers and electronics 44%



20/232


Purchasing as a profit producer

Profit = Revenues - Cost

Impact of Purchasing onRevenues

Impact of Purchasing oncosts


Profit = Revenues - Cost


21/232


Profit-Leverage Effect Assuming an 8% margin

THEREFORE, in this example, the Profit-LeverageEffect is . . .

08.0

15.12

000,100

000,250,1


Profit(Rs 100,000) = Revenues - Cost (Rs 100,000)

Profit(Rs 100,000) = Revenues (Rs.1,250,000) - Cost


22/232

Costs Involved Basic Cost Of Materials

Government Levies And Taxes

Ordering Cost

Inventory Carrying Cost

Packaging And Packing Cost.

Material Handling Cost

Freight Cost

Insurance Cost

Wastage During Receipt , Storage etc.



23/232

Interdepartmental Relations

Production

Sales And Marketing

Finance

Research And Development Engineering

Quality Control

Planning

Legal

Security



24/232

Purchasing and Supply Management

Procurement

Material

Source

Price

Quality

Quantity

Time

Place



25/232


Storage

Receive

Store

Track



26/232


Usage / Issue

Material

Sequence

Price

Quality

Quantity

Time

Place



27/232


Procurement

Storage

Usage



28/232

Recap

Introduction

Defn

Objectives

Activities

Importance

Costs

Procurement / Storage / Usage



29/232

Classification Of Materials

Large number of materials.

Planning, Procurement, storage, accounting of

so many materials is a Problem.

Common procedures for Planning, Control,

storage, issue, accounting for all materials



30/232

Basis Of Classification

Stage of conversion Process Direct (Raw materials / WIP etc)

Indirect

Nature of Material Finished goods

Semi-finished goods

etc.



31/232

Staging Policies

Engineer to order No stock at all.The purchase and order of materials takes place based on the specificcustomer order. E.g. construction companies and shipyards.

Make to order Only raw materials and components are kept in stock. Every customer is a specificproject. E.g. beer and lemonade cans, basic construction materials

Assemble to order Only systems elements, modules or subassemblies are in stockat the manufacturingcenter, whereas final assembly takes place based on a specific customer order.

E.g. cars, computers.

Make to stock Finished products are kept in stock at the end of the production process and arefrom there shipped to geographically dispersed customers. E.g. dairy

products.

Design Ship

Purchase Inventory Ship

Purchase Inventory Manufacture Inventory Ship

Purchase Inventory Assemble Inventory ShipMake to Stock

Assemble to Order

Make to Order

Assemble

Manufacture

Manufacture

Manufacture

Assemble

Assemble

Staging Policies

Engineer to OrderPurchase



32/232

Staging Policies

Engineer to order Procurement (?), Storage (?), Issue (?)

Make to order Procurement (?), Storage (?), Issue (?)

Assemble to order Procurement (?), Storage (?), Issue (?)

Make to stock Procurement (?), Storage (?), Issue (?)

Design Ship




Assemble to Order

Make to Order

Assemble

Manufacture

Manufacture

Manufacture

Assemble

Assemble

Staging Policies




33/232

Procurement Process

Major elements of the purchasing system


34/232

11. Non-acceptance:

return to supplier

8. Incoming inspection

and quality control

9. Invoice

processing

10. Supplier

evaluation

7. Order monitoring and

expediting

6. Order processing

5. Quotation

4. Supplier selection

3. Purchase

requisitions

Article file

Supplier file

Contract file

Major elements of the purchasing system

2. Make

or Buy

1. Need

Make


S i P li i


35/232

Staging Policies

Design Ship




Assemble to Order

Make to Order

Assemble

Manufacture

Manufacture

Manufacture

Assemble

Assemble

Staging Policies


ETO (for each materials)Requirement Generation

Receiving and analysing PR

Supplier selection

Right pricePO

Follow up

Receiving and accepting

Invoice approval and payment


S i P li i


36/232

Staging Policies

Design Ship




Assemble to Order

Make to Order

Assemble

Manufacture

Manufacture

Manufacture

Assemble

Assemble

Staging Policies


MTS (for most materials)

Supplier selection

Right priceRequirement Generation

Receiving and analysing PRPO

Follow up

Receiving and accepting

Invoice approval and payment



37/232

1. Need


38/232

Need


Need

Reorder point (Officestationary)

Lot size

Lead time

MPS / MRP (ETO, ATO, MTS)

Lot Size

Lead time

DependentIndependent

Optimization (ETO, ATO, MTS)

Lot SizeLead time

Dependent

Independent

Project Plan (ETO)

Technical & Unique

requirements

Well definedtimelines

Capacity Plans (Machines)

Technical & Unique

requirementsWell defined

timelines

Strategic Plans (Services)

Long term decisions

Timelines can be

uncertain

Plan and mitigation

plan


39/232

2. Make or Buy Decisions


40/232

Make or Buy

Strategic decision.

Precisely what business do we

really want to be in, to maximize

the use of our core competenciesas we proceed into future.



41/232

Make or Buy

Economics:It is not always economical for thecompanies to make all the materials used in itsmanufacturing process.

Abilities / Technical skills

Capacities Quality

Design protection

Assured supply

MGT634 Purchasing and Supply

Management


42/232

Make / Buy ? ?


Making

Lower production cost Unreliable or unsuitablesuppliers

Assure adequate supply(Quantity)

Utilize surplus laborcapacity

Obtain desired quality

Protect special design or

quality Expected benefit in longterm

Buying

Lower acquisition cost Inadequate capacity

Reduce inventory costs

Ensure alternative sources

of supply

Item is protected by a

patent or trade license


43/232

Make or Buy

Choosing between making or buying an item is largely

dependent on the Vertical Integration strategy of a company.

Vertical integration - developing the ability to produce goods

or services that are previously purchased

It can take the form of forward or backward integration.



44/232

Forward / Backward Integration



45/232

Planned Order


46/232

Planned Order

Lead Time

Opening Period

Purchase OrderSpecific Information

Purchase

RequisitionPlanned Order

General information

Planned order is used for visibility


??

??


47/232

3. Purchase Requisitions


48/232

Purchase Requisition

Formalcommunication

to Purchase department

to initiateprocurement activities and procurethe material mentioned in the

requisition.


XXXDepartment

PurchaseDepartment

Supplier

WarehouseProduction


49/232

Purchase Requisition

The PR Should contain following information

Originator

Material Specification

Quantity and Unit of measure

Delivery date and place

Any other information

Signed (approved)

Account to be charged



50/232

4. Supplier Selection


51/232

Strategic Sourcing Plan

Discovery

Evaluation

Selection

Development Management



52/232

Strategic Sourcing Plan

Engineer to Order

Make to Order

Assemble to Order

Make to Stock



53/232

Discovery

1. Supplies catalogue2. Print media :Trade directories, trade

journals, news papers, yellow pages

3. Salespersons4. Trade exhibition, fairs, conferences

5. Colleagues in similar field

6. Internet

..



54/232

Evaluation

Background

Informed

Surveys

Financial checks Facility visits

Quality

Capacity

Management / Systems IT Systems

--------



55/232

Supplier Selection

Check the following Whether the items were purchased earlier ?

(Straight rebuy)

Any change since then ? (Modified rebuy / new

buy)

Are the items similar / related to any other

item purchased ?

Can we replacethe item by any other itemwhich we are currently purchasing ?

Are the items standard ?



56/232

Supplier Selection

Bidding Value of Purchase

Clear specifications

Number of sellers available Vendors interested in order

Time


Negotiation Situations when cost

estimates are difficult

Price is only the onlyimportant factor

Supplier may have better

knowledge then the buyer

Bidding and then negotiation

Overview of Vendor Selection Criteria


57/232

Overview of Vendor Selection Criteria



58/232

Prioritization Matrix


Weight Score Weighted

Score

Quality

Reliability

Capability

Financial

Others

Final result


59/232

Supplier Development


????????

-Alignment of systems-Alignment of expectations

-Knowledge transfers

--------


60/232

Managing Suppliers


Management

FeedbacksSituation recheck

Corrective actions

Realignment


61/232

Supplier Selection Issues

Size Relationship

Usage of International Suppliers

Competitors as Suppliers

Countertrade Requirements

Social Objective


Management


62/232

Pricing

Sources of Price Information


63/232

Sources of Price Information


Management

Price

Commodity Markets

Exists for basic materials (grain, oil,

sugar etc.)Demand and supply

Long term prices

Price Lists

For standard productsVendors catalog

Quantity discounts

available

Price Quotations

For both Standard and

specialty itemsUseful for promoting

competition

RFQ (Should contain the

manner in which suppliershould submit offers)Specifications

Quantity

Period

NegotiationsFor long term relationships or for high cost items

Time consuming Process

Can lead to significant quality and price benefits

Total Cost of Ownership


64/232

Total Cost of Ownership


Management

Acquisition Costs

Price

Planning costsDuties

..

Ownership costs

Downtime costsRisk

Cycle time

.

Post Ownership Costs

Warranty costs

Product Liability

..

Remember: As a purchasing Manager you should also focus

on suppliers manufacturing cost

P Mill C


65/232

Paper Mill Case


Management

Purchased Fabric Belt12 FT X 60 FT (Circumference)

25000 USD

Lasts for 40 days

Belts break on the machine

Replacement takes 8 Hrs (16 man hours @ 45 USD per hour)

Per day downtime cost of the plant 100,000 USD

4 6 belts are kept in inventory

Industry average life of a belt is 60 days

Benchmark belt life span 470 days @ 500,000 USDThere are 20 plants across the world


66/232

Negotiations and e-Sourcing/Auctions


Management

Purchaserequisitions

SupplierSelection

Negotiations

E-Sourcing/Auctions

Negotiations/ Discussion

RFQ/ Quotations


67/232

Learning Curve


68/232

Learning curve

Improvement in output due to learning The learning rate represents productivity improvement

as production doubles.

Improvement in

Labour work style Process modification

Product modification

Applicable when

New product / process Complex product

Labour intensive


Management


69/232

Learning curve

Cumulative Units(N)

Total Labour Hrs(A)

Avg Labour Hrs perunit

(B)

Learning Rate (%)(C)

= (Bn-1-Bn)/Bn-1

1 20 20 -

2 34 17 15.0

4 58 14.5 14.7

8 100 12.5 14.8

16 168 10.5 16.0

32 288 9.0 14.3

64 493 7.7 14.4


Management


70/232

Quantity Discounts

Discounts on purchase of higher quantities

Tradeoff between

Discounts

Inventory carrying costs

Storage costs

Obsolescence costs

The order uncertainty getting transferred tothe buyer.


Management


71/232

Quantity Discount

1 Unit @ $ 85

3 Units @ $ 80

6 Units @ $ 70

10 Units @ $ 69

Find Incremental price and units for the order Incremental price per units


Management


72/232

Quantity Discount

15 Unit @ $ 10 Each 610 Units @ $ 8 Each

11- 20 Units @ $ 7.8 Each

21- 100 Units @ $ 7.6 Each

Find Incremental price (for max order) and

units for the order. Incremental price per units.


Management


73/232

Negotiations

What Is Negotiation?


74/232


A process of formal communication,

either face-to-face or via electronic means,

where two or more people come together

to seek mutual agreement about an issue

or issues.*Purchasing & Supply Chain Management, Monczka, Trent, Handfield


Management

Wh t I N ti ti ?


75/232


Involves the

management of time,

information,and power

between individuals and organizations who are

interdependent

*Purchasing & Supply Chain Management, Monczka, Trent, Handfield


Management

Wh N ti ti R i d?


76/232

When Negotiation Required?

Is bid process inadequate?

Are many non-price issues involved?

Is contract large?

Are technical requirements complex?

Does contract involve plant, equipment or/andcustomization?

Does contract involve a partnership?

Will supplier perform value-addingactivities? Will there be high risk or uncertainty?*Purchasing & Supply Chain Management, Monczka, Trent, Handfield


Management

Non-price NegotiationQ lit

S t


77/232

p gQuality

Specification compliance

Performance compliance

Test criteria

Rejection procedures

Liability

Reliability

Design changes

Support

Technical assistance

Product research, development, and/or design

Warranty

Spare parts

Training

Tooling

PackagingData sharing, including technical dataSupply

Lead times

Delivery schedule

Consignment stocks

Expansion options

Supplier inventories

Cancellation options

Transportation

FOB terms

Carrier

Commodity classification

Freight allowance/equalization

Multiple delivery points

* From Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill IrwinMGT634 Purchasing and Supply

Management

Negotiation Strategy : Basic Steps


78/232

g gy p

* From Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

1. Develop the specific objectives(outcomes) desired from the negotiation

2. Gather pertinent data

3. Determine the factsof the situation

4. Determine the issues

5. Analyze the positions of strengthfor both (or all) parties

6. Set the buyers position on each issue, and estimate the sellers position

on each issue based on your research

7. Plan the negotiation strategy

8. Brief all persons on the negotiation team

9. Conduct a dress rehearsal (Devils Advocate)

10. Conduct the actual negotiations with an impersonal calmness

11. Recordthe process and outcome


Management


79/232

Negotiation planning and execution


Management

Game plan for Negotiation


80/232

* From Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin


Management

The Zone of Negotiation


81/232

The overlap between what the

Buyer will pay and what the

Seller will accept defines theZone of Negotiation

$220,000 $230,000 $240,000 $250,000 $260,000 $270,000 $280,000 $290,000 $300,000Buyer's Range

Seller's Range


Management

The Zone of Negotiation


82/232

There is a gap between what the

Buyer will pay and what the Seller

will accept. There is NO DEAL

without Creativity or Compromise

$220,000 $230,000 $240,000 $250,000 $260,000 $270,000 $280,000 $290,000 $300,000

Buyer's Range

Seller's Range


Management

S f N i i P


83/232

Sources of Negotiating Power

Informational power Access to information to be used forpersuasion using facts, data etc. (Only un/favorable is presented)

Reward power One party can offer something of value expectingsomething in return. Give / Take.

Coercive power One party can withdraw something of value.

Legitimate power Position of the person

Expert power Special form of informational power Referent power Personal qualities and attributes of individuals*Purchasing & Supply Chain Management, Monczka, Trent, Handfield


Management

B i Eff i N i


84/232

Being an Effective Negotiator Willing to compromiseor revise goals

View issues independently

Establish upper and lower rangesfor each majorissue

Exploreadditional options Build on common ground between parties

Avoid making irritating comments

Avoid argumentationby presenting too many

reasons (quickly) Make fewer counterproposals*Purchasing & Supply Chain Management, Monczka, Trent, Handfield


Management

O i T ti


85/232

Overcoming Tactics

Modify tactics when they dont work

Preparefor likely tactics to be used against

you

Tactics are more effective on you if you are

unprepared, stressed, under severe deadlines,

inexperienced, fatigued, or disinterested

Try not to react without thinking*Purchasing & Supply Chain Management, Monczka, Trent, Handfield


Management

I fl i f t i N ti ti


86/232

Influencing factors in Negotiations

Low ball / High ball Honesty / Openness

Questions

Breaks

Trial Balloon Price increase

Best and final offer

Silence

Planned concessions

Venue



Management

Wi Wi N ti ti


87/232

Win-Win Negotiation

Win-losecompetitive or distributivebargaining

Win-wincollaboration or integrative

bargaining



Management

Wi Wi M th d


88/232

Win-Win Methods

Expand the pie Ways to expand resources or value obtained

Logroll Tradeoff of disagreeing issues

Cost Cut Join hands in cutting costs and sharing benefits

Bridge Involves inventing new options to satisfy both parties

Non specific compensation One party achieves objectiveother gets something of value as reward



Management


89/232

Ethical Issues

Ethi


90/232

Ethics

The set of moral principles or valuesguidingour behavior

In business, ethical behavior is the use of

recognized social principlesinvolvingjustice

and fairness



Management

R l f Ethi l B h i


91/232

Rules of Ethical Behavior Buyers must committheir attention and

energies for the employers benefit rather thantheir own

Buyers must act ethically towards suppliers andpotential suppliers

Buyers must uphold the ethical standards setforth by the profession



Management

P T d U thi l B h i


92/232

Pressures Toward Unethical Behavior

Purchasing has control over large sums ofmoney.

Incentiveslinked to cost reduction.

Suppliers may have great pressure to meet

aggressive sales goals, leading to questionablesales practices *Purchasing & Supply Chain Management, Monczka, Trent, Handfield


Management


93/232

Types of Unethical Behavior


94/232

Types of Unethical Behavior

ReciprocityPreferential treatment to suppliers whoare also customers to the organization.

Personal buyingPurchasing for personal needs of theemployees.

Accepting supplier favorsGifts and favors. Sharp practicesMisrepresentation just short of fraud.

Financial conflicts of interestinvestment in othercompanies.



Management

Reciprocity


95/232

Reciprocity

Giving preferential treatment to suppliers whoare also customers

Restrain competition

Must rely on legitimate performance criteriato evaluate supplier capability


Management

Personal Buying


96/232

Personal Buying

Purchasing department purchases materials orgoods for the personal needs of its employees

Subject to trade diversion laws

Some exceptions do exist Often a gray area as to what to do


Management

Accepting Supplier Favors


97/232

Accepting Supplier Favors

Accepting gifts

May effect a buyers judgment

At what point does the gift represent showing

appreciation vs. and attempt to influencefuture buying behavior

Gifts from potential suppliers are particularly

questionable


Management

Sharp Practices


98/232

Sharp Practices

Willful use of misinformation

Exaggerating problems

Requesting bids from unqualified suppliers

solely to drive down prices from qualifiedsuppliers

Gaining information unfairly through

deception


Management

Sharp Practices


99/232

Sharp Practices

Sharing information on competitivequotations

Not compensating suppliers for design or

other work Taking unfair advantage of a suppliers

financial situation

Lying or misleading


Management

Financial Conflicts of Interest


100/232

Financial Conflicts of Interest

Direct financial interest in a supplier company

Buying companies typically require disclosure

by buyers having significant personal financial

interest Similar to insider knowledge in buying and

selling stocks


Management

Behaviors


101/232

Behaviors

Maintain highest standard.

No gifts / favors

Slow but steady

Remember: These are digital decisions interms of actions and occurrences


Management

Cases


102/232

Cases

Gift delivered at home ?

Equipment purchased higher then the normal

price ?

Unwanted equipment purchased ?


Management

Cases


103/232

Cases

You joined a new company and found thatsome of the employees are suppliers.

Find other employees accepting / demanding

gifts from suppliers


Management


104/232

Legal Aspects

Contract Terms


105/232

Contract Terms Ex-works: In an ex-works contract, the purchaser

accepts full responsibility for arrangingtransportation from the suppliers location.

For Purchaser this involves:

Arranging transportation, insurance, and documentationto move the goods to the required source port (air or

sea)

Have them loadedon to the mode of transport

Transported to, and unloadedat the destination port Cleared through customs and transported to the

purchasers location.


Management

Contract Terms


106/232

Contract Terms

Free alongside (FAS): In this arrangement, the supplieragrees to deliver to the (source) port specified by thepurchaser

For Supplierthis involves Arranging transportation, insurance, and documentation

to move the goods to the required source port (air or sea)

For Purchaserthis involves Have them loadedon to the mode of transport

Insured, transported to, and unloaded at the destination

port Clearedthrough customs and transported to the



Management

Contract Terms


107/232

Contract Terms Free on board (FOB): Here the supplierpays for and

arranges loadingon to the outward-boundtransportation and thereafter the purchaser becomesresponsible.


to move the goods to the required source port (air or sea) Have them loadedon to the mode of transport

For Purchaserthis involves Insured, transported to, and unloadedat the destination

port Clearedthrough customs and transported to thepurchasers location.


Management

Contract Terms


108/232

Contract Terms

Cost and Freight (C&F): This is a split responsibilityarrangement in that the supplierarranges and pays fortransportationto an agreed point,


to move the goods to the required source port (air or sea) Have them loaded on to the mode of transport

Transported to, and unloadedat the destination port

For Purchaser this involves

Pay insurance from when the goods are loaded on board. Clearedthrough customs and transported to the



Management

Contract Terms


109/232

Contract Terms

Cost, Insurance, and freight (CIF): This is similar to C&FBut here the insurance during transportation isresponsibility of the supplier.


to move the goods to the required source port (air or sea) Have them loadedon to the mode of transport

Insured, transported to, and unloadedat the destinationport

For Purchaserthis involves Cleared through customs and transported to the



Management

Contract Terms


110/232

Contract Terms

Delivered: This is the opposite of ex-works in that thesupplier has total responsibility for the goods, theirtransportation, insurance, and all documentation untilthey are delivered to the purchaser.


to move the goods to the required source port (air or sea)

Have them loadedon to the mode of transport

Insured, transported to, and unloadedat the destination

port Clearedthrough customs and transported to thepurchasers location.


Management

Contract Terms


111/232

Contract Terms


Management

Contract Terms


112/232

Supplier Port Ship Transit Ship Port Purchaser

Ex Works

TransportSupplier

Purchaser

InsuranceSupplier

Purchaser

Free Alongside

TransportSupplier

Purchaser

InsuranceSupplier

Purchaser

Free On Board

TransportSupplier

Purchaser

Insurance SupplierPurchaser

Cost and Freight

TransportSupplier

Purchaser

InsuranceSupplier

Purchaser

Cost Insuranceand Freight

TransportSupplier

Purchaser

InsuranceSupplier

Purchaser

Delivered

TransportSupplier

Purchaser

InsuranceSupplier

Purchaser


Management


113/232

EDI and E-Sourcing

Groups and cases


114/232

Groups and cases

Metal craft (12 Oct)

E Sourcing strategy (13 Oct)

Bose (19 Oct)

Multisite case (20 Oct)


Management

Types of e-Procurement


115/232

1. Web-based ERP(Electronic Resource Planning): Creating andapproving purchasing requisitions, placing purchase orders and

receiving goods and services by using a software system based onInternet technology.

2. e-MRO (Maintenance, Repair and Operating): The same as web-based ERP except that the goods and services ordered are non-product related MRO supplies.

3. e-sourcing:Identifying new suppliers for a specific category ofpurchasing requirements using Internet technology.

4. e-tendering: Sending requests for information and prices tosuppliers and receiving the responses of suppliers using Internettechnology.

5. e-reverse auctioning: Using Internet technology to buy goods andservices from a number of known or unknown suppliers.

6. e-informing: Gathering and distributing purchasing informationboth from and to internal and external parties using Internettechnology. MGT634 Purchasing and Supply

Management

Reverse Auctions


116/232

Reverse Auctions When possible ?

Requirements ?

Steps ?


Management

Reverse Auctions


117/232

Reverse Auctions

Problems ?


Management

Electronic Data Interchange


118/232


The EDI (Electronic Data Interchange) enables

customers and suppliers to electronically exchange

transactioninformation such as PO, invoices, and

MRP.

Simplifications:This eliminates time consuming

paperwork and facilitate easy communication

between buyer and supplier


Management



119/232

Electronic Data Interchange External Supplier

RPM Supplier E-mail to the supplier

Uploading the information on the portal

Subcon / TPM E-mail to the supplier

Uploading the information on the portal Linkage through ERP system

Internal Supplier Intercompany

E-mail to the supplier

Linkage through ERP system


Management



120/232

Purchaser: Requirement generation

Purchaser: Scheduled line is generated against blanket order /Scheduling agreement and sent to the supplier and accountselectronically

Supplier: receives and acknowledges the order.

Supplier: sends the shipping notification while dispatching the

material. Purchaser: records the shipping notification in expected

receipt file.

Purchaser: on receipt of the material the entryis madeagainst expected receipt and the scheduling line and an

intimation is sent to accounts payable. Purchaser: accounts payable dept electronically transfer the

payment to the suppliers account.

Purchaser: sends remittance advice to the supplier.


Management

Electronic Procurement


121/232

Disadvantages Securityof electronic messages

Lack of face-to-facecontact

Other technologicalconcerns Standard protocols

System reliability


Management


122/232

Purchasing

Purchasers Duties


123/232

Know the market for their commodities; ascertainingprice

Understand the laws (tax, contract, patent)

Process purchase requisitions and quotation requests

Make supplier selections Negotiateprices and conditions of sale

Place, follow-up, expedite purchase orders

Supplier relations

Maintain ethicalbehavior

Do you see any problem


Management

Strategic Sourcing and Planner Buyer


124/232

g g y

Strategic Sourcing Know the market for their commodities; ascertaining price

Understand the laws (tax, contract, patent)

Make supplier selections

Supplier relations

Negotiateprices and conditions of sale Maintain ethical behavior

Planner Buyer Determine material requirements

Generate purchase requisitions, PO and schedules.

Issue and controlling Shop orders for factory

Place, follow-up, expedite purchase orders

Maintain ethicalbehavior


Management


125/232

6. Order Processing

Purchase Order


126/232

Significance

Parts of PO


Management

Purchase Order.


127/232

The PO is a legal offer to purchase. Once accepted by supplier it becomes a legal

contract for delivery of goods according to the

terms and conditions specified in the purchaseagreement.


Management

Major Parts of a P.O.


128/232

Fixed prices and quantities (including taxes)

Buyers right of inspection and rejection Right to make specification/design changes

Holding buyer harmless, patent infringement

Suppliers right to assign contract to a third party Instructions regarding risk of loss

Statement of credit and payment terms

Identification Packing and preparation

Statements of warranty


Management

Major Parts of a P.O.


129/232

j

Shipment quantities, dates and place Assignment of sellers rights

Arbitrationclause

Right to cancel unshipped portion

And other relevant information etc.


Management


130/232

7. Order Monitoring and

Expediting

Order Monitoring and Expediting


131/232

g p g

Significance


Management

Follow-up(Including expedite and de-expediting)


132/232

Supplier is responsible for delivery. Purchase department is responsible for

ensuring the delivery.

Follow-up is required for Changesin the plans

IRA issues

QA issues in previous delivery

Product structure change

etc.


Management


133/232

8 Incoming Inspection and

Quality Control

Incoming Inspection and Quality

Control


134/232

Control

Significance


Management

Receiving


135/232

Warehouseis responsible for receiving thegoods. They should confirm

Item

Quantity

Place

Absence of transit damage

Open Purchase Order

Delivery due date Provide acknowledgement.


Management

Receiving


136/232

Markthe goods Storethe goods

Operate information system

Communicateto QA and other concerned

departments


Management


137/232

Self Certification

Self Certification


138/232

Significance

Where to use

Staging policies

Lot size and consumption

Stocking policies


Management

Supplier Self Certification


139/232

Companies spend a large amount of money on

quality inspectionof incoming material

This is time consuming and complicated.

Supplier self certification is therefore very useful.

In this supplier certifies and assures that the qualityof the material is as per the company standard.

Cost implication ?


Management

Supplier Self Certification


140/232

STEPS

Agreeing upon common Specs.

Process Parameter standardization. Vendor audits and Inputs.

Trial Lots.

Roll out.


Management


141/232

9. Invoice Processing

Invoice Processing


142/232

Significance

Factors to be considered


Management

Payment


143/232

Accountsis responsible for payment (after QA releaseof the received material).

Three way reconciliation Suppliers invoice

PO

Received quantity

To confirm Conditions

Prices

Quantities The accounts should be very efficient and accurate


Management


144/232

10. Supplier Evaluation

Supplier evaluation


145/232

Why

Better decision making Better communication

Feedback

Motivate and direct behavior

Problems

Too much data

Wrong measures

Conflicting measures

Drive wrong performance


Management

Performance Measurement - Importance

S t ti i ti l


146/232

Systematizes organizational memory

Pool information across plants Remove excuse for poor quality

Ensure consistent policies across supplier andplants

To identify the supplier performance andimprovement opportunities.

Helps in decision making.

Negotiations Resource allocations etc.


Management

Performance Measurement

Ch i i f d f


147/232

Characteristics of good performance measure

The measurement should be usable. Without any scope for adjustment

Communicate / Agreed

Simple to measure


Management

Measures


148/232

Strategically Significant Driving Right

Behaviors

Balanced

Aligned

Owned

Linked to Compensation

Actionable Easy to Collect

Measu res Must Be ...


Management

Balance


149/232

Balance is Assessed and Viewed Across Three Specific Dimensions:

1. Financial v. Customer v. Process v. People2. Leading v. Lagging

3. Efficiency v. Effectiveness

Why Does Balance In These Dimension s Matter?

1. Complete Business Perspective

2. Causality

3. Cost (Time, Resources, Investment) & QualityMGT634 Purchasing and Supply

Management

E l M S tLeading v Effective v

Balanced Measures


150/232

Example Measure Set F-C-P-P [1]Leading v.

Lagging

Effective v.

Efficient

[1] Financial v. Customer v. Process v. People (from The Balanced Scorecard)

Percent Sales from New Products Financial Lagging Effectiveness

Net Trade Sales Total Growth Financial Lagging Effectiveness

NPV of NPD Pipeline (NPDC Data) Financial Leading Effectiveness

Market Share (TRx) Customer Lagging Effectiveness

Line Item Fill Rate Process Lagging Effectiveness

Percent Growth of Net Trade Salesfrom Existing Products

Financial Lagging Effectiveness

Manufacturing Compliance Index Process Lagging Effectiveness

Adverse Events/Product (Top 5 Products) Customer Lagging Effectiveness

S/G&A Productivity Process Leading Efficiency

R&D Productivity Process Leading Efficiency

Resource Alignment Index People Leading Effectiveness

Percent Critical Positions Filled People Leading Effectiveness

Acceptable/

Satisfactory

Caution/

Additional

Work Reqd.

Unacceptable;

AdditionalWork Reqd.


Management

Balanced Process MeasuresSuppliers Inputs Process Outputs Customers


151/232

Suppliers Inputs Process Outputs Customers

S-1S-2

S-3

I-1I-2

I-3

O-1O-2

O-3

C-1C-2

C-3

Input

MeasuresProcess

Measures

Outcome

Measures

Leading

Lagging

Effectiveness

Efficiency

X X

X

X X X

XMGT634 Purchasing and Supply

Management

The Operational Definition


152/232

A Precise Description that communicates how to arrive at a value for

an objective. Identifies Who, What, Where, When, How

Who = Measure Owner

What = What to Measure (Clear, Specific, Objective)

Where = Where the Measure Data Resides

When = When Measured & Reported

How = How to Measure (Mathematical Formula) (Longer

Term)

Not al l of the Measure Playbook attr ibu tes need to be

defined at the same time its okay to let them mature as the

measure focus m atures.

Measure Playbook


Management

A Well-Dressed MeasureQuick Reference Legend

Clean Data Display, Control Limits,

M d T d Li d G l


153/232

3

Data Legend and

Chart and Data

Owner Information,

Update Frequency

Description,

Explanation, and

Action Plan

5

Quick Reference Legend

I.E. Trend Up = Good

4

Mean, and Trend Line and Goal

2Title

1


Management

Performance Measurement

SP = W X P


154/232

SP = WiX Pi

WiWeight attached to the performancecharacteristic i

PiPerformance of characteristic I

It can be

Quality (material / documentation ) Delivery

Quantity

Flexibility

Technical Contribution etc.

Or treat individual performance characteristicseparately.


Management

Measures Implementation


155/232

Drive down from OGSM

Develop specific measures

Identify the base line data

Finalize details

Communicate and implement

Measure and identify projects.


Management

MeasuresE i d


156/232

Engineer to order

Make to order

Assemble to order

Make to stock


Management


157/232

11 Non AcceptanceReturn to

Supplier

Return to supplierB d th PO


158/232

Based on the PO

Local / Imported

Rework / Destroy

Credit note


Management


159/232

Others


160/232

Multi-location problem

MSPPDS: Multi-SiteProcurementProductionDistributionSystem


161/232

Manufactu-

ring Plant 1

Manufactu-

ring Plant 2

Selling

Location 2

Selling

Location 3

Selling

Location 4

Selling

Location 5

Selling

Location 6

SellingLocation 1

-Alternate sourcing for manufacturing and selling locations

-Opportunities for reduction in costs and improved availability

Port 1

Port 2

Supplier

Inbound logistic or Procurement Production

Outbound logistic or

Distribution


Management

MSPPDS: Multi-SiteProcurementProductionDistributionSystem


162/232

Manufactu-

ring Plant 1

Manufactu-

ring Plant 2

Selling

Location 2

Selling

Location 3

Selling

Location 4

Selling

Location 5

Selling

Location 6

SellingLocation 1

-Alternate sourcing for manufacturing and selling locations

-Opportunities for reduction in costs and improved availability

Port 1

Port 2

Supplier

Inbound logistic or Procurement Production

Outbound logistic or

Distribution


Management

EXTENT OF CONTROL


163/232

Centralized v/s Decentralized Purchase Centralized

- Ease Of Operation, buyer specialization, Less ordering

cost, control.

- Consistency

- Better Pricing, more clout, better continuity

- Better Maintenance Of Records


Management

EXTENT OF CONTROL


164/232

Decentralized- Better Time To React

- Developing Local Vendors

- Better Control On Local Vendors

- Close Co-ordination with Plant


Management

Optimization


165/232

GLPK Path command

Program file / Data file

Set / Param / Var / Min / Max / s.t. / end.


Management

Simulation


166/232

Random parameters interacting with eachother.

Arena

Vensim / Stella


Management


167/232

Purchasing Functionality of ERP

ERP - What is it?


168/232

ERP is a generic term used to describe acomprehensive information system designed to

integrate allthe business processes found in anenterprise.

Efficiency and productivityare improved through

the integration of information and the removal of

duplicate information and processes.


Management

MRP OVERVIEW


169/232


Management

MRP RUN


170/232


Management

PLANNING FILE AND MRP


171/232


Management

PLANNING SEQUENCE


172/232


Management

BOM EXPLOSION


173/232


Management

MRP: NET REQUIREMENT CALCULATION


174/232


Management

LOT SIZING PROCEDURES


175/232


Management

MRP SCHEDULING


176/232


Management

STATIC LOT SIZING PROCEDURES


177/232


Management

PERIOD LOT SIZE PROCEDURE


178/232


Management

Safety stock


179/232


Management

Fixed safety stock

Range of coverage

Safety days

Purchasing master Data


180/232

Vendor master (at client level) Information about the vendor.

Source list (at Plant level)

The master which links a material to a vendor for aperiod.

Purchase Info Record (at Plant level)

The master containing pricing and other information

of the material if sourced from a particular vendor(This data gets adapted while converting PR to PO)


Management

Purchasing master data


181/232

Outline agreement The agreement against which scheduled lines are

generated.


Management

Process


182/232


Management

Purchase

Requisition of amaterial

Sourcelist Vendor

Purchase

Info Record /

SchedulingAgreement

Follow-up

Receipt

PO/ Scheduled

Line

Payment

Quality UD


183/232

Business Planning in an ERP

system

Business Planning in an ERP System


184/232

Once a year activity Based on the Business Plan for the next

periods.

To arrive at Annual production plans

Standard costs

Machine loadings Annual Purchase volumes


Management



185/232

The output is used to Arrive at the variances during the year.

Bargain with supplier

Decide on the focus cost improvement ideas


Management



186/232

1. The business plan is uploaded in System in ascenario.

2. Master data is corrected in the scenario.

3. MPS orders for the Business Plan are generated

4. Machine loading is checked to make appropriatecorrections are made.

5. MRP is generated for the entire period using

appropriate assumptions6. Total consumptions is checked.


Management


187/232

Material Storage

Why Storage is required ?


188/232


Management

Material Storage

Inventory

Pilferage

SLOB

IRA

Material

Handling

Is it only a storage facility?


189/232

A warehouse is typically viewed as a place tostore inventory.

However, in many logistical system designs,the role of the warehouse is more properly

viewed as a switching facility as contrasted to

a storage facility. Value Addition?


Management

Storage


190/232

Objective Minimize costs

Maximize customer service

This is achieved by Timely customer service

Keep track of the items

Minimize total physical efforts Provide requisite communication


Management

Storage Costs


191/232

Costs Capital costs

Space

Material handling equipments

Etc.

Operating costs

Labor costs

Etc.


Management

Warehouse Activities Receive goods

Check the goods against order and Bill of lading


192/232

g g g

Check the quantities Check for damage

Inspection if necessary

Identify the goods

Dispatch to storage Hold goods

Pick

Marshal shipment

Dispatch

Operate Information system


Management

Benefits of Warehousing


193/232

Consolidation Break bulk

Processing

Postponement Stockpiling


Management


194/232

Warehouse Location

Warehouse Location

Modeling the supply chain J F Shapiro (pp 143)


195/232

Modeling the supply chain, J F Shapiro (pp 143)


Management

Warehouse LocationObjective / Constraints

Modeling the supply chain, J F Shapiro (pp 143)

Objective: Minimization of transportation cost and fixed


196/232

Objective: Minimization of transportation cost and fixed

and variable costs for warehouse

Warehouse Capacity(Supply plan


197/232

Objective: Minimization of transportation cost

Manufacturing Capacity(Production plan


198/232

Warehouse Layout

Design Considerations in Warehousing


199/232

General considerations Quantity and character of goods must be known

product profiling

Know the purpose to be served

Storage

Distribution

Cross-docking


Management

Warehousing Trade-offs Fixed / variable slot locations for merchandise


200/232

Build out (horizontal) / build up (vertical) Order-picking / stock-replenishing functions

Two-dock / single-dock layout

Labor-intensive / mechanization / automation Space devoted to aisles / space devoted to

storage


Management

Warehousing Trade-offs


201/232

Paperless warehousing / traditional paper-oriented warehousing operations

Virtual warehouse / real warehouse

Other space needs Retail store rooms


Management


202/232

Warehouse

Pallet Positions (Refer Tony Arnold)


203/232

Number of pallet positions on ground required

1. Per pallet = 30 Cartons

2. For storing 13000 Cartons

3. Number of pallets required = 13000/30 =

433.33 = 434 Pallets

4. Three high placement5. 434 / 3 = 144.67 = 145 pallet positions


Management

Accessibility


204/232

Being able to get at the goods wanted withminimum amount of work (directly)

1. Industry

2. Expiry periods

3. Fifo / Lifo etc


Management

Cube utilization (Refer Tony Arnold)


205/232

Use of space horizontally and vertically

Number of pallets actually stored / Maximum

number of pallets can be stored

Accessibility vs. Cube utilization


Management

Stock Location


206/232

Functionally similar items together Fast moving / slow moving

Physically similar items

Working stock and reserve stock


Management

Stock Location


207/232

Point of usage Central storage

Fixed location Advantages / disadvantages

Floating location

Advantages / disadvantages


Management

Order picking


208/232

Picking

Zone

Picker works in his zone

Multi orderSingleorder

AreaThrough out the warehouseselecting items for one order


Management


209/232

Warehouse Safety

Warehouse Safety


210/232

Safety Guarding Material safety data sheets

Employees safety

Industrial hygiene Ergonomics

Environment

Spills / incidences Disposals


Management


211/232


Management


212/232

Security of goods

Pilferage Protection

Shortage (IRA / loss)


213/232

Shortage (IRA / loss)

Brand name issues

Etc.


Management

Pilferage Protection Theft: Protection against theft of merchandise has

become a major factor in warehouse operations.


214/232

No private automobiles All normal precautions employed throughout theenterprise should be strictly enforced at each warehouse.

Many are honest mistakes in order selection andshipment, but the purpose of security is to restrict theft

from all angles.

Security begins at the fence.

As standard procedure, only authorized personnel shouldbe permitted into the facility and surrounding grounds

and entry to the warehouse yard should be controlledthrough a single gate.


Management

Pilferage Protection

Computerization


215/232

Computerization Computerized inventory control and order processing

systems help protect merchandise from being carried outof the warehouse doors.

No items should be released from the warehouse unlessaccompanied by a computer release document.

If samples are authorizedfor use by salespersons, the

merchandise should be separate from other inventory.


Management


216/232

Scrap Disposal


217/232

Salvage and Scrap Disposal Value of scrap may be income to the firm.

Disposal must adhere to environmental

regulations.

Ensure no possibility of misuse

The organizations interest


Management


218/232

Inventory Record Accuracy and

Cycle count

IRA and Cycle count


219/232

Please refer to Tony, Arnold


Management


220/232

VMI

Stockless Purchasing


221/232

The supplier maintains the inventory for thepurchaser.

The cost of stocking inventory has been

temporarily transferred from the purchaser tothe supplier.


Management


222/232

NPD

NPD


223/232

Timelines based on the understanding /experience

Clear expectations beforehand

Involve suppliers early


Management


224/232

Standardization

Standardization Rather than obtaining a variety of components

similar in labeling, coloring, packaging, etc.


225/232

similar in labeling, coloring, packaging, etc.The purchasing agent should try to have thosecomponents standardized.

For every component that is standardized,

There is one less invoice, one less item to beinventoried, etc.


Management


226/232

Value Analysis

Value analysis

Process of examining all elements of


227/232

a component, assembly, end product,

or service to make sure that it fulfils

its intended function at the lowestcost throughout the intended life. Objective : Increase the value of the product at the lowest cost while maintaining

quality.

Value = function / cost


Management

Value analysis


228/232

Gather information Study

Speculate

Analyse Recommend

Summerize


Management

Value analysis


229/232

Separate the object in its component Check the value addition by each component

Check the manufacturing process for each

component Check the value addition by each process step

Apply creativity


Management

Value analysis Team members

Executive management


230/232

Executive management

Suppliers

Purchaser

Design engineer

Marketing

Production

Industrial / process engineer

Quality control


Management

Team exercise

Identify Object (and its function)


231/232

de t y Object (a d ts u ct o )

Separate the object in its component(Understand the assembly process)

Understand the manufacturing process for

each component (and go on further explodingits BOM)

Identify the value addition by each process

and component Brainstorm


Management


232/232

Thanks

Best of luck

Date post:	19-Feb-2018
Category:	Documents
Upload:	john-derp
View:	216 times
Download:	0 times

hasing and Supply Management

Documents