Supply Chain Ch 1-5

1. Measurements as to the efficiency and accuracy of the procurement process. 2. Specific transaction data and information is captured and used during periodic supplier performance review meetings. 3. In procurement organizations, every step will be completed, many automatically by the e-Procurement system using defined rules for approval of purchases

Analysis, Purchasing Process Steps

1. Refers to a company acquiring one or more of their suppliers. 2. Other Types of Make/Buy Strategic Decisions

Backward Vertical Integration

- Concentrate on core capabilities - Reduce staffing levels - Accelerate reengineering efforts - Reduce internal management problems - Increase capabilities and flexibility

Benefits to outsourcing:

1. A tender, proposal, or quotation submitted in response to a solicitation from a contracting authority.

Bid

Centralized Versus Decentralized Purchasing A hybrid purchasing organization (large org w/centralized control) Large national contracts centralized at the corporate level and smaller specific items decentralized at the business unit / local level. (Most Common large company structure)

Centralized - Decentralized

Purchasing Organization is dependent on many factors, such as market conditions and 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 at the plant level, making their own purchasing decisions

Centralized Versus Decentralized Purchasing

If the PO has been received complete, and all terms and conditions have been met, then the PO is closed out in the purchasing system.

Close out the Purchase Order, Purchasing Process Steps

Offers submitted by multiple individuals or firms competing for a contract, privilege, or right to supply specified services or merchandise.

Competitive Bidding

A term used for the acquisition of services

Contracting

1. is a management approach to long-term success through customer satisfaction based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work. Everyone in the organization has to take ownership for quality.

Total Quality Management

1. part of Total Cost Of Ownership 2. Price Negotiation 3. Delivery Confirmation 4. Purchase Order Adminstration 5. Transporation 6. Delivery/Receiving 7. Reconcilation 8. Taxes/Tariffs/Duties 9.Invoicing/Payment 10. Incoming Inspection 11. Rejected Goods Return to Supplier 12. Close-out Activities carried out as part of the actual buy and sell transaction

Transaction Costs

Centralized Versus Decentralized Purchasing (continued) A hybrid purchasing organization (large multiunit org) decentralized business units purchase their own materials and services and the corporate level only purchases for corporate operations.

Decentralized - Centralized

1. The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer 2. The coordinated set of techniques to plan and execute all steps in the global network used to acquire raw materials from vendors, transform them into finished goods, and deliver both goods and services to customers

Definitions of Supply Chain

1. Also known as the Logistics phase, this is the part of supply chain management that oversees the planning and execution of the forward flow of goods and related information between various points in the supply chain to meet customer requirements. 2. Where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to transport products to customers, and set up an invoicing system to receive payments, among other aspects.

Deliver Processes in The Supply Chain Model

1. Enabling processes facilitate a company's ability to manage the supply chain and are spread throughout every stage. - We must enable our capabilities as we plan, source, make, and deliver (and return). 2. Enabling processes include elements such as: Supply Chain Systems and Network Operations Systems Configuration Control Interfaces Gateways Database Administration Electronic Data Interchange (EDI) Telecommunications Services Performance Measurement Contract Management Business Rules Standards Training and Education

Enable Part of The Supply Chain Model

1. Speedway to Acquire Hess Retail 2. With this significant geographic expansion, we will be able to further leverage our integrated refining and transportation logistics operations, providing an outlet for an incremental 200,000 bpd of assured sales from our refining system."

Example of Forward Vertical Integration

1. Boeing acquires second 787 supplier plant 2. Boeing has been forced to take over one of the key suppliers to its troubled new jet, the 787 Dreamliner, in an effort to gain tighter control of the production process. It has agreed to pay at least $580m for the facility that makes chiefly composite sections for the 787, from Vought Aircraft Industries, to strengthen the global supply chain.

Example of Other Types of Make/Buy Strategic Decisions

1. Refers to a company acquiring one or more of their channel partners. 2. Other Types of Make/Buy Strategic Decisions

Forward Vertical Integration

The supplier ships & delivers the item(s) or service to the buying organization as per the PO.

Fulfillment, Purchasing Process Steps

1. is beneficial because it means the company is generating sales efficiently to sell inventory.

High Turnover Ratio

1. A person or company engaged in the purchase and sale of imported commodities for profit 2. They buy and take title to the goods being imported and then sell the goods domestically.

Import Merchants

1. Taking in house activities / operations and deciding to purchase from suppliers instead. Outsourcing has become a key method to reduce costs and increase flexibility. 2. Someone else does the work

Outsourcing

1. Planning establishes the parameters within which the supply chain will operate. 2. Companies need a strategy for managing all of the resources necessary to address how a product or service will be created and delivered to meet the needs of their customers. 3. Planning includes the determination of marketing and distribution channels, promotions, quantities, timing, inventory and replenishment policies, and production policies.

Planning In The SCM Model

Part of Total Cost of Ownership 1. Returns from Customer 2. Replacement 3. Repair Parts & Labor 4. Maintenance 5. Disposal of Returned Product Activities carried out following the actual buy and sell transaction

Post Transaction Cost

Part of Total cost of ownership: 1. Identifying Sources 2. Quality Sources 3. Certifying Sources 4. Supplier Database Update 5. Training/Education of Supplier Activities carried out prior to the actual buy and sell transaction

Pre-Transactional Cost

1. The process of selecting and vetting suppliers, negotiating contracts, establishing payment terms, and the actual purchasing of goods and services. 2. Procurement is concerned with acquiring all of the goods and services that is needed by an organization 3. Procurement is the overarching or umbrella term within which the action of purchasing can be found.

Procurement

1. Purchasing Management 2. Strategic Sourcing 3. Supplier, Relationship and Management

Procurement Steps

1. A 10% Cost Reduction generates significantly more Profit Before Tax than a 10% Sales Increase. 2. This is one of the main reasons that Procurement Managers are under significant pressure from senior management to reduce purchasing costs.

Profit-Leverage Effect

1. A decrease in purchasing expenditures directly increases profits before taxes (assuming no decrease in quality or purchasing total cost). -Bottom line impact is $ for $

Profit-Leverage Effects, The Financial Significance of Purchasing

1. Producing stock in response to actual demand 2. Responsive Business Model - 10% 3. Sell - Buy Components and Materials - Manufacture - Deliver

Pull or Make-to-Order:

The Buyer's offer to the supplier to acquire goods or services. Becomes a legally binding contract only when accepted by the supplier.

Purchase Order (PO)

1. A Document that defines the need for goods and/or services. An internal document. Does not constitute a contractual relationship with any external party.

Purchase Requisition

1. The action of obtaining merchandise, capital equipment; raw materials, services, or maintenance, repair, and operating (MRO) supplies in exchange for money, or its equivalent. * Purchasing is the process of how goods and services are ordered. * Purchasing is the transactional function of procurement for acquiring goods or contracting services.

Purchasing

1. is also a term commonly used in business to represent the function of, and the responsibility for, acquiring materials, supplies, and services for an organization. - It is a separate department within a company and is considered part of the supply chain management group within a company.

Purchasing

1. Identify a need and a Purchase Requisition is issued - Request for goods or services submitted to the Procurement/Purchasing organization for action typically initiated by a user within an organization 2. Obtain authorization as necessary - A Purchase Requisition is routed to authorized approver(s) depending on the type of material or service being requested and/or the dollar value of the request. - Multiple authorizations, in a prescribed sequence, to various management levels of the organization, may be necessary depending on the value. 3. Identify and evaluate potential suppliers - May be from a list of company approved Suppliers. If so skip step 4. 4. Make supplier selection RFI RFP RFQ 5. Create Purchase Order (PO) and deliver to the supplier. 6. Supplier confirmation of the Purchase Order 7. Fulfillment 8. Receipt of Goods 9. Invoice 10. Reconciliation 11. Payment 12. Reclamation of Taxes 13. Close Out the Purchase Order 14. Analysis

Purchasing Process Steps

1. The business-to-business (B2B) electronic purchase transaction of supplies and services over the Internet via EDI (Electronic Data Interchange).

e-Procurement

1. The purchase order will identify the item(s) to be procured, the quantity required, the requested delivery date(s) and the price to be paid. It will also identify the delivery location and any terms and conditions that relate to the order. 2. The PO is the Buyer's formal offer to the supplier to obtain the item(s). 3. The PO becomes a binding contract only when accepted by supplier.

Purchasing Process Steps , Create Purchase Order (PO) and deliver to the supplier , Purchasing Process Steps

1. Once the item(s) arrives at the designated location, the Buyer will conduct a receiving process where the item(s) are checked to ensure that they conform to the details of the PO, including quality and quantity.

Purchasing Process Steps , Receipt of Goods

1. Supplier prepares an invoice for the item(s) ordered and transmits to the Buyer.

Purchasing Process Steps, Invoice

1. Invoice payment is processed using an appropriate payment method per the terms of sale outlined on the purchase order

Purchasing Process Steps, Payment

1. The invoice is reconciled to the purchase order and goods receipt before payment is made. This is referred to as a "3-way match"

Purchasing Process Steps, Reconciliation

1. Actively seeking quality materials and reliable suppliers 2. Working with the expertise of strategic suppliers to improve quality and materials 3. Involving suppliers and purchasing personnel in new product design and development efforts.

Purchasing contributes to these objectives by:

1. Producing stock on the basis of anticipated demand. Demand forecasting can be done via a variety of sophisticated techniques. 2. Efficient Business Model - 90% 3. 3. Forecast - Buy Components and Materials, Manufacture - Warehouse - Sell - Deliver

Push or Make-to-Stock

1. are more subjective and include such things as control over quality, the reliability and reputation of the potential suppliers (internal or external), and the impact of the decision on customers and suppliers.

Qualitative Factors

1. rimarily involve the incremental costs of either making or purchasing the item, such as the availability of manufacturing facilities, needed resources, and manufacturing capacity.

Quantitative Factors

1. Focus on core competency - If it is a not a strategic item 2. Cost Advantage - Suppliers may provide the benefit of economies of scale. 3. Insufficient Capacity - A firm may be at or near capacity and subcontracting from a supplier may make better sense. 4. Lack of Expertise - Firm may not have the necessary technology and expertise 5. Quality - Suppliers may have better technology, process, skilled labor, etc. 6. Multi Sourcing Strategy - To mitigate risk a multi sourcing strategy using an external supplier in addition to an internal source. 7. Inventory Considerations - opting to have the supplier hold inventory of the item or the materials required to produce the item. 8. Brand Strategy - take advantage of a supplier's brand image, reputation, popularity, etc. 9. Labor Arbitrage - is the practice of searching for and then using the lowest-cost workforce to produce products or services.

Reasons for Buying (or Outsourcing), The Make versus Buy Decision

1. When a companies cost of producing is the exact same 2. The company is the only one techn to do so 3. There are no competent supplier 5. Could be better quality control because there depending on members on their team 6.

Reasons that Producers Make things themselves

1. Receive product / service & invoice. Confirm quantity, quality, performance. Match to invoice & pay. <3 way match>

Receive Inspect & Pay in the Basic Purchasing Process

1. In some situations, the supplier will be obligated to charge a tax, but the buyer may be eligible to reclaim some or all of the tax based on type of transaction, tax laws and corporate status.

Reclamation of Taxes, Purchasing Process Steps

1. (RFI) is a document whose purpose is to gather information to help make a decision next steps the acquisition of a product or service. 2

Request for Information

1. (RFP) - A detailed evaluation document that is used to precisely determine a supplier's capability, interest and price in supplying the required product or service.

Request for Proposal

1. Also known as Reverse Logistics, this is the part of supply chain management that deals with planning and controlling the process of moving goods specifically from the point of consumption back to the point of origin for repair, reclamation, remanufacture, recycling, or disposal. 2. As this process quite literally goes against the normal outbound flow of products to the market, supply chain managers have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have questions and problems

Return Process in The Supply Chain Model

1. a 10% cost reduction generates a significantly higher Return on Assets (ROA) than does a 10% sales increase, given the same number/value of assets.

Return on Assets (ROA) Effects

1. Improve ROA by increasing profit using the same assets or the same profit with less assets. Indication of management efficiency and effective use of capital.

Return on Assets (ROA) Effects, The Financial Significance of Purchasing

- Potential loss of control over production decisions, intellectual property, etc. - Increased reliance on suppliers - Increased need for supplier management - Public perception / Brand impact

Risks associated with outsourcing include:

Plan , Source, Make, Deliver and Return 1. Plan A. Source, Make Deliver 2. Source A. Source Make Deliver 3. Make

SCM Basic Model

1. Intense global competition - enter new concepts for quality, inventory management & development of alliances. 2. Instead of only focusing on internal goals, companies started to look beyond their "four walls" and incorporate their supply chain partners into their core activities.

1980's, 1990's & early 2000's

Leveraging purchase volume Avoiding duplication Specialization Lower transportation costs No competition within units Common supply base

Advantages of Centralization

Knowledge of local requirements Local sourcing / relationships Less bureaucracy Customization

Advantages of Decentralization

GM North America output at risk by supplier bankruptcy A longtime General Motors supplier has filed for bankruptcy and repercussions could wreak havoc on the automaker's North American production. Clark-Cutler-McDermott Co. filed for Chapter 11 bankruptcy protection on Thursday, July 7, after GM filed a motion to acquire dedicated equipment, GM tooling and certain inventory. VW Halts German Production Over Unprecedented Fight With Supplier Volkswagen AG factories in Germany are grinding to a halt after a supplier took the unprecedented step of cutting off the automaker as the two battle in court and engage in a public war of words about who's to blame for the impasse. The production holdup threatens to reduce Volkswagen's earnings by as much as 40 million euros ($45 million) a week

Importance of Supplier Selection

purchase raw materials for conversion into products, and/or purchase services, capital equipment, and MRO supplies.

Industrial Buyers

1. The opportunity to improve quality, cost, and delivery performance 2. To exploit global efficiencies: - Access to low cost labor and materials. - Take advantage of tax breaks and low trade tariffs - To respond to insufficient domestic capacity - To achieve access to better process and product technology -To take advantage of reciprocal trade and countertrade arrangements

International Purchasing - Reasons for Global Sourcing

1. Companies interested in pursuing international purchasing arrangements must acquire some specialized knowledge particular to buying products and services internationally. 2. This specialized knowledge includes aspects of: Financial (Tariffs) - Duties, taxes, or customs imposed by the host country for imported or exported goods. Non-Financial Barriers - Quotas, licensing agreements, embargoes, laws and regulations imposed on imports and exports

International Purchasing - Specialized Knowledge

1. Inventory is an asset but it also represents financial capital tied up and not available for use in other parts of the business. 2. Inventory turnover represents the number of times the company sold through inventory in a given time period. 3. COGS / Inventory 4. A high turnover ratio is beneficial because it means the company is generating sales efficiently to sell inventory 5. A low turnover ratio is unfavorable as it means the company is not selling through products efficiently. The company is likely making/buying too much inventory for demand and may end up marking down or throwing out expired or unsaleable products.

Inventory Turnover Effect

1. Increased inventory turnovers indicate optimal utilization of space and inventory levels, increased sales, avoidance of inventory obsolescence. -Improvement of Cash Flow

Inventory Turnover Effect, The financial significance of Purchasing

1. Determine flow of information & goods. Establish terms of sale. State item, quantity, price

Issue Purchase Order in the Basic Purchasing Process

1. Material Requisitio 2. Supplier Determinato 3. Issue Purchase Order 4. Receive, Inspect & Pay

The Basic Purchasing Process

is a philosophy of manufacturing based on the planned elimination of all waste and continuous productivity improvement. Modern thing in SCM

Just-in-Time

Amount of time they you give a supplier to deliver the product The amount of when the purchase order got accepted to the amount of time the product is delivered to the dock and is in the hand of the company and is able to be used. Business Lead time: is Six weeks to 120 days

Lead Time

is unfavorable as it means the company is not selling through products efficiently. The company is likely making/buying too much inventory for demand and may end up marking down or throwing out expired or unsaleable products.

Low Turnover Ratio

- Protect proprietary technology - No competent supplier -Overall lower cost - Better quality control - Use existing idle capacity - Control of lead-time - Control of transportation and warehousing costs

Make -vs- Buy is a strategic decision, Reasons for Making

1. Make or manufacturing is the series of operations performed to convert materials into a finished product. 2. Finished product is manufactured, tested, packaged, and scheduled for delivery. 3. Quality management is a core component of the manufacturing process. 4. This is the most metric-intensive portion of the supply chain, where companies are able to measure quality levels, production output, and worker productivity.

Make Processes in in The Supply Chain Model

1. Total Cost to Make = Total Cost to Buy 2. Algebraically: Find break-even point <Q> by setting the total cost of the two options equal to one another and solving for Q: 4. Make Buy 25,000 + 5Q = 500 + 7Q 7Q − 5Q = 25,000 − 500 2Q = 24,500 Q = 12,250 units = Break-even point 5. If requirement is > B-E, make If requirement is < B-E, buy 6.

Make-or-Buy Financial Analysis - Break-

is a method for the effective planning of all resources of a manufacturing company. Manufacturers focused on inventory reduction to improve cash flow and reduce cost. Still internally focused.

Manufacturing Resource Planning (MRP II)

1. Identify need to acquire product or service (quantity & price)

Material Requisitio in the Basic Purchasing Process

1. is a method of determining what materials are needed and when they are needed to support the production plan.

Materials Requirements Planning (MRP)

purchase branded product for resale by wholesalers, distributors and retailers who.

Merchant Buyers -

1. The practice of basing some of a company's processes or services overseas, so as to take advantage of lower costs. 2. The work is done oversease

Offshoring

1. Supply Distribution 2. The manufacturer cannot continue production of the finished product due to the material shortage, and therefore, cannot ship finished product out to customers against their open orders creating "backorders". 3. Other suppliers keep supplying materials to the manufacturer 4. Customers keep shipping the finished product inventory that they have until it is depleted Result: The manufacturer temporarily stops shipments from all suppliers. No inventory is available throughout the distribution channels in the market creating a "stockout" impacting the business of all suppliers and all channel partners. All supply chain nodes are interconnected and a disruption with one may impact all The supply chain is only as strong as its weakest link - Disruption Impacts All Suppliers - Market Stockout Disruption Impacts all Channel Partners "Upstream" supply chain is disrupted "Downstream" supply chain is disrupted

Scenario: One supplier has a problem and cannot deliver a key material to the manufacturer as planned

1. Processing costs for small value purchases need to be minimized and the process simplified. Methods include: - Credit Card/Corporate - Purchasing Card (P-card) - Blanket or Open-End Purchase Orders -Internal Catalog Purchase Orders (Standardized supply) -Petty Cash -Accumulating Small Orders to Create a Large Order -Vendor managed purchases

Small Value Purchase Orders

1. Sourcing is the process of identifying the suppliers that provide the materials and services needed for the supply chain to deliver the finished product(s) desired by the customer(s). 2. This phase involves not only identifying reliable suppliers but also building a strong relationship with those suppliers. 3. Supply chain managers must also develop pricing, shipping, delivery, and payment processes with suppliers and create metrics for monitoring and improving the performance

Sourcing in the Supply Chain Model

1. Identify potential suppliers. Issue: (RFI,RFP,RFQ) select supplier set up supplier

Supplier Determinto in the basic purchasing Process

1. Supplier Selection is a process that requires research, analysis and detailed evaluation. The process of selecting suppliers is complex and should be based on multiple criteria using evaluation scorecards 2. A key to successful supplier selection is to ensure the alignment of business strategy 3. The following are some commonly used criteria: - Product & process - technologies - Reliability - Quality - Service - Cost - Willingness to share - information - Capacity - Communication capability - Location - Order system & cycle time

Supplier Selection

1. The Supplier formally agrees to supply the item(s) per the specifications, terms, and conditions described on the Purchase Order. This is called an Order Acknowledgement. 2. The Purchase Order then becomes a legally binding contract between the Buyer and the Supplier for the item(s) specified.

Supplier confirmation of the Purchase Order, Purchasing Process Steps

1. Intro to computer tech - aterials Requirements Planning (MRP) - Manufacturing Resource Planning (MRPII)

Supply Chain 1960's & 1970's

KNOW DIAGRAM!!!

Supply Chain Flow - Expanded

1. Supply chain management goes back to the 1950's when the discipline was limited to materials management and logistics. 2. U.S. manufacturers maintained large material inventories to keep production running. The entire focus was on how to produce as much product as possible at the lowest possible cost. They were focused on maximizing their own internal operations. - The focus was on mass production techniques as their principal cost reduction and productivity improvement strategies External collaboration and partnerships were virtually nonexistent. Every company in the supply chain focused on their own profitability often creating untrusting relationships

Supply Chain Management 1950's & 1960's

1. refers to identifying your suppliers and customers beyond Tier 1 to ensure you policies are followed throughout the supply chain. 2. Tier 1 = Direct Supplier Tier 2 = Indirect Supplier Tier 3 = Indirect Supplier Tier n = Indirect Suppliers 3. Tier 1 = Direct Customer Tier 2 = Indirect Customer Tier 3 = Indirect Customer Tier n = Indirect Customers

Supply Chain Visibility

1. Understand the company's business strategy and core customer requirements. 2. Define core competencies & how your company will serve your customers. 3. Develop supply chain capabilities to support your company's chosen strategy. Efficient: - Supply Chain and processes are designed to minimize cost * Predictable supply and low cost * Low cost production / utilized capacity High inventory turns * Ideal for Functional Products: - Staples that people buy - everywhere - Don't change much over time - Stable predictable demand Responsive: - Supply Chain designed to respond quickly to market demand * Fast response, Minimal inventory * Flexible capacity / Inventory of parts * Minimize lead time * Ideal for Innovative Products - Rapidly changing / Very short life-cycle -Great variety - Very unpredictable demand

Supply Chain must be aligned with Business Strategy

1. the term that encompasses all acquisition activities beyond the simple purchase transaction 2. The "Identification, acquisition, access, positioning, and management of resources an organization needs or potentially needs in the attainment of its strategic objectives." Institute of Supply Management (ISM)

Supply Management

1. The act of deciding whether to produce an item internally or buy it from an outside supplier. 2. Make: Producing products or performing services internally 3. Buy / Outsource: Buying materials and/or services from suppliers 5. It is important to analyze all of the relevant expenses associated with developing the capability to make a product, in addition to all of the expenses associated with buying the product. 6. Quantitative Factors: - primarily involve the incremental costs of either making or purchasing the item, such as the availability of manufacturing facilities, needed resources, and manufacturing capacity. 7. Qualitative Factors -are more subjective and include such things as control over quality, the reliability and reputation of the potential suppliers (internal or external), and the impact of the decision on customers and suppliers.

The Make versus Buy Decision

1. Total Cost to Make vs. Total Cost to Buy Calculate the total cost to make and compare to the total cost to buy: 2. Make Buy 25,000 + 5Q vs. 500 + 7Q 25,000 + (5*15,000) vs. 500 + (7*15,000) 100,000 vs. 105,500 It is less costly to make

The Make-or-Buy Financial Analysis - Total Cost

1. Ensure uninterrupted flows of materials and services at the lowest total cost 2. Improve quality of the finished goods produced 3. Optimize customer satisfaction.

The primary goals of purchasing are:

.... Other costs such as tooling, set up or minimum quantities must be considered.

Tooling

1. (TCO) is the sum of all the costs associated with every activity in the acquisition of a product. 2. Procurement professionals recognize that although the purchase price of an item remains very important, it is only one part of the total cost of ownership.

Total Cost of Ownership

1. Factors beyond the purchase price must be considered: 2. Quantity Discounts 3. Cash Disounts 4. Value-added Services 5. Administrative Expenses 6. Poor Supplier Quality or Reliability 5. Other Costs

Total Cost of Ownership (TCO)

1. flow of products & services 2. Raw material suppliers Intermediate manufacturers Finished product manufacturers Wholesalers and Distributors Retailers and Consumers

What is Supply Chain Flow

1. is simply managing all the steps involved in bringing a product to market: 2. the coordination of a network of independent 3. companies (trading partners) and internal groups all involved in bringing a product or service to market. 4. Improves profitability by effectively managing the end to end process of all the independent trading partners so that they collaborate with each another efficiently & effectively to minimize total cost of ownership.

What is supply Chain

have the Right product, for the Right customer, in the Right quantity, at the Right place, in the Right condition, at the Right time, for the Right price.

What is the Basic Goal of Supply Chain Management? (Seven R)