Supply chain management 2
Institute of Supply management defined supply management as the
"Identification, acquisition, access, positioning, and management of resources an organization needs or potentially needs in the attainment of its strategic objectives."
any function within an organization that enables the organization to successfully deliver its products and services.(The Benchmarking Exchange).
business processes
purchasing department located at the firm's corporate office makes all the purchasing decisions
centralized purchasing
centralized large national contracts at corporate level and decentralized items specific to business unit
centralized-decentralized
advantages of decentralization
closer knowledge of requirements local sourcing less bureaucracy
contract is usually awarded to lowest priced responsive & responsible bidder
competitive bidding
often known as the acquisition of services
contracting
the original exporter agrees to sell goods or services to a foreign importer and simultaneously agrees to buy specific goods or services from the foreign importer
counterpurchase
Procurement: Frequently used in place of purchasing and includes:
development of specification, Value analysis, negotiation, expediting, contract administration, supplier quality control and some logistics quality control.
Process that seeks to improve the performance of primary and support process of the organization.
development process
involves coproduction, or a joint venture and exchange of related goods or services
direct offset
direct cash payment
explicit cost
uniform rules that simplify international transactions of goods with respect to shipping costs, risks, and responsibilities of buyer, seller and shipper
incoterms
involves exchange of goods or services unrelated to the initial purchase
indirect offset
Purchase raw materials for conversion, services, capital equipment, & MRO supplies. They transform these raw materials into usable goods and also purchases services, capital equipment and maintenance, repaire and operating.
industrial buyers
Increased inventory turnovers indicate optimal utilization of space and inventory levels, increased sales, avoidance of inventory obsolesce
inventory turnover effect
The process of developing graphic representations of the organizational relationships and /or activities that make up a business process
mapping
Wholesalers and retailers who purchase for resale; they buy in large quantity to take advantage of discount, transportation and storage efficiency
merchants buyers
Key activities of supply management include not only the basic purchasing, but also
negotiations, logistics, contract development and administration, inventory control and management supplier management.
import quotas, licensing agreements, embargoes, laws and other regulations imposed on imports and exports
non-tariff barriers
exchange agreement for industrial goods or services as a condition of military-related export
offset
Buying materials and components from suppliers instead of making them in-house. The trend has moved toward outsourcing.
outsourcing
protection against 3rd party liens not fulfilled by bidder
payment bonds
work will be on time and meet specification
performance bonds
Adds Value to the organization eg. Delivering services or manufacturing a product.--- because some customers are willing to pay for the resulting output.
primary process
A set of logically related tasks or activities performed to achieve a defined business outcome
process
A process map is a detailed map identifying the specific activities that make up the informational, physical, and/monetary flows of a process.
process map
ROA can be written as the product of two ratios
profit margin and asset turnover
Obtaining merchandise, capital equipment; raw materials, services, or maintenance, repair, and operating (MRO) supplies in exchange for money or its equivalent key business function for acquiring materials, services, & equipment
purchasing
is dependent on many factors, such as market conditions & types of materials required
purchasing organization
Suppliers have better technology, process, skilled labor, and the advantage of economy of scale
quality
measures the return earned on each dollar invested by the firm in assets
return on assets
A high ROA indicates managerial prowess in generating profits with lower spending (caveat- ROA ratios vary from one industry to another)
return on assets effects
are used to satisfy the Invitation for Bid (IFB) and are opened in public display
sealed bids
list of 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
supply base
Non-value added activities
support process
An official schedule showing the duties, taxes, or customs imposed by the host country on imports or exports
tariff
a small apt indicates
that the company is able to finance a fraction of it's operation from money owed to suppliers
Is the buyer's offer & becomes a binding contract when accepted by supplier. When initiated by the supplier on their own terms, the document is a sales order. The Uniform Commercial Code (UCC) governs transactions in the U.S., except Louisiana.
the purchase order
A measure that uses the performance and importance scores for various dimensions of performance for an item or service to calculate a score that indicates the overall value of an item or service to a customer.
value index
Purchasing contributes to these objectives by:
Actively seeking better materials and reliable suppliers, Work closely with and exploiting the expertise of strategic suppliers to improve quality and materials Involving suppliers and purchasing personnel in new product design and development efforts.
US government purchases and 3rd party purchases using federal funds must buy if the US good is not more than a certain differential above the foreign good
Buy American Act (1933)
Advantages of Centralization
Concentrated volume Avoid duplication Specialization Lower transportation costs No competition within units Common supply base
The primary goals of purchasing are:
Ensure uninterrupted flows of raw materials at the lowest total cost, Improve quality of the finished goods produced, Maximize customer satisfaction.
Removed restrictions on bids less than $100,000. Micro purchases (less than $2,500) can be made without bidding
Federal Acquisition Streamlining Act (1994)
Stating product, quantity, and delivery date. May originate as a planned order release from the MRP system. Traveling requisition used for recurring orders.
Material Requisition/Purchase Requisition
Reasons Favoring Multiple Suppliers
Need capacity Spread risk of supply interruption Create competition Information Dealing with special kinds of business
reasons for global sourcing
Opportunity to improve quality, cost, and delivery performance
Processing costs for small value purchases are minimized through:
Procurement Credit Card/Corporate Purchasing Card (P-card) Blanket or Open-End Purchase Orders Blank Check Purchase Orders Stockless Buying or System Contracting Petty Cash Standardization & Simplification of Materials & Components Accumulating Small Orders to Create a Large Order Using a Fixed Order Interval
preferred suppliers provide
Product and process technology and espertise to support buyer's operations, particularly new product development and value analysis Information on latest trends in materials, processes, or designs Information on the supply market Capacity for meeting unexpected demand Cost efficiency due to economies of scale
A decrease in purchasing expenditures directly increases profits before taxes (assuming no decrease in quality or purchasing total cost)
Profit-Leverage Effect
purchasing & supply function for government & non-profit sector.
Public Procurement or Public Purchasing
Buyer identifies suppliers & issues a request for quotation (RFQ) for routine items or a Request for Proposal (RFP) for highly technical products. Supplier Development is used to develop supplier capabilities.
The Request for Quotation (RFQ)
Advantages of the e-Procurement System
Time savings Cost savings Accuracy Real time Mobility Trackability Management Benefits to the suppliers
What are the purposes of mapping a business?
To create a common understanding of the content of The process It's activities The results of the activities Who performs the various activities. Defines the boundaries of the process
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
An important ratio that defines financial leverage is
accounts payable turnover
Key components of asset turnover are
accounts receivable turnover (ART); . inventory turnover (INVT); and property, plant, and equipment turnover (PPET)
Refers to acquiring sources of supply
backward vertical integration
complete exchange of goods or services of equal value without the exchange of currency
barter
incentive to fulfill contract
bid bonds
successful bidder will accept contract
bid or surety bonds
Especially for components that are non-vital to the organization's operations, suppliers may have economies of scale
cost advantage
goods and/or services of domestic firms are exchanged for goods and/or services of equal value or in combination with currency from foreign firms
countertrade
individual, local purchasing departments, such as plant level, make their own purchasing decisions
decentralized purchasing
decentralized corporate and centralized at business unit
decentralized-centralized
Refers to acquiring customer's operations
forward vertical integration
Variety of federal, state, and local initiatives to include environmental and human health considerations when making purchases
green purchases
opportunity cost of using owners resources
implicit cost
Sales agent who performs transactions for a fee (They do not take title to the goods)
import broker
Buys and takes title to the goods and resells them to a buyer
import merchant
A firm may be at or near capacity and subcontracting from a supplier may make better sense
insufficient capacity
Firm may not have the necessary technology and expertise
lack of expertise
