principles of supply chain management: a balanced approach prepared by daniel a. glaser-segura, phd
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Principles of Supply Chain Management: A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD
Introduction
Purchasing- Obtaining merchandise, capital equipment; raw materials, services, or maintenance, repair, and operating (MRO) supplies in exchange for money or its equivalent.
Merchant Buyers-wholesalers and retailers who purchase for resale.
Industrial Buyers-
purchase raw materials for conversion, services, capital equipment, & MRO supplies.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 2
The Role of Purchasing in an OrganizationThe primary goals of purchasing are:
1. Ensure uninterrupted flows of raw materials at the lowest total cost,
2. Improve quality of the finished goods produced, and 3. Optimize customer satisfaction.
Purchasing contributes to these objectives by: Actively seeking better materials and reliable suppliers, Work closely with strategic suppliers to improve quality
materials, and Involving suppliers and purchasing personnel in new product
design and development efforts.Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and
Tan.
© 2005 Thomson Business and Professional Publishing 3
The Purchasing Process
Manual Purchasing-Older system, prone to duplication of effort and error
Step 1-Material Requisition/Purchase Requisition- stating product, quantity, and delivery due date are clearly.
Step 2- The Request for Quotation (RFQ)- Buyer identifies suppliers & issues a request for quotation (RFQ). Step 3- The Purchase Order (PO)- The purchase order is the buyer’s offer & becomes a binding contract when accepted by supplier.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 4
The Purchasing Process- Cont.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 5
The Purchasing Process- Cont.Electronic Procurement (e-Procurement)
Step 1- Material user inputs a materials requisition- relevant information such as quantity and date needed.
Step 2- Materials requisition submitted to buyer- at purchasing department (hardcopy or electronically).
Step 3- Buyer assigns qualified suppliers to bid- Product description, closing date, & conditions are given.
Step 4- Buyer reviews closed bids & selects a supplierPrinciples of Supply Chain Management: A Balanced Approach by Wisner, Leong, and
Tan.
© 2005 Thomson Business and Professional Publishing 6
The Purchasing Process- Cont.Advantages for the e-Procurement System
Time savings Cost savings Accuracy Real time Mobility Trackability Management Benefits to the suppliers
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 7
Small Value Purchase Orders
Processing costs can be substantial. Small value purchases should be minimized through: Procurement Credit Card/Corporate Purchasing CardBlank Check Purchase OrdersBlanket or Open-End Purchase OrdersStockless Buying or System ContractingPetty CashStandardization & Simplification of Matls & ComponentsAccumulating Small Orders to Create a Large OrderUsing a Fixed Order Interval
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 8
Sourcing Decisions: The Make-or-Buy Decision Outsourcing -buying materials and components
from suppliers instead of making them in-house. The trend has moved toward outsourcing.
Backward integration refers to acquiring sources of supply
Forward integration refers to acquiring customer’s operations.
The Make or Buy decision is a strategic decision.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 9
Sourcing Decisions: The Make-or-Buy Decision- Cont.
Reasons for Buying or Outsourcing Cost advantage: Especially for components that are non-
vital to the organization’s operations.
Insufficient capacity: A firm may be at or near capacity.
Lack of expertise: Firm may not have the necessary technology and expertise.
Quality: Suppliers have better technology, process, skilled labor, and the advantage of economy of scale.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 10
Sourcing Decisions: The Make-or-Buy Decision- Cont. Reasons for Making
Protect proprietary technology No competent supplier Better quality control Use existing idle capacity Control of logistics- lead-time
transportation, and warehousing cost Lower cost
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 11
Sourcing Decisions: The Make-or-Buy Decision- Cont.
The Make-or-Buy Break-Even Analysis
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 12
Roles of Supply Base
Supply Base- suppliers that a firm uses to acquire its materials, services, supplies, and equipment.
Firms emphasize long-term strategic supplier alliances consolidating volume into one or fewer suppliers, resulting in a smaller supply base.
Preferred suppliers provide: Early supplier involvement- Information on the latest trends in
materials, processes, or designs Information on the supply market Capacity for meeting unexpected demand Cost efficiency due to economies of scale
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 13
Supplier Selection
Product and process technologies
Willingness to share technologies and information
Quality Cost Reliability
Order System and cycle time
Capacity Communication
capability Location Service
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 14
The process of selecting suppliers, is complex and should be based on multiple criteria:
How Many Suppliers to Use
Reasons Favoring a Single Supplier
To establish a good relationship
Less quality variability Lower cost Transportation economies Proprietary product or
process Volume too small to split
Reasons Favoring More than One Supplier
Need capacity Spread risk of supply
interruption Create competition Information Dealing with special kinds
of businessPrinciples of Supply Chain Management: A Balanced Approach by Wisner, Leong, and
Tan.
© 2005 Thomson Business and Professional Publishing 15
Single-sourcing- a risky proposition. Although trends favor fewer sources, avoid single source.
Purchasing: Centralized vs. Decentralized Purchasing Organization dependent on many factors, such as market conditions & types of materials required.
Centralized Purchasing- purchasing department located at the firm’s corporate office makes all the purchasing decisions.
Decentralized Purchasing-
individual, local purchasing departments, such as plant level, make their own purchasing decisions.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 16
Purchasing: Centralized vs. Decentralized Advantages- Centralization
Concentrated volume- leveraging purchase volume
Avoid duplication Specialization Lower transportation costs No competition within units Common supply base
Advantages- Decentralization
Closer knowledge of requirements
Local sourcing Less bureaucracy
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 17
A hybrid purchasing organization- both decentralized at the corporate level and centralized at the business unit level may be warranted.
International Purchasing/Global SourcingGlobal sourcing-
Opportunity to improve quality, cost, and delivery performance.
Requires additional skills and knowledge to deal with international suppliers, logistics, communication, political environment, and other issues.
Import broker or sales agent- performs service for a fee. Import merchant- buys and takes title to the goods. Trading company- imports & carries wide variety of goods.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 18
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