chapter 41 procurement and supply management. chapter 4management of business logistics, 7 th ed.2...

Chapter 4 1

Chapter 4

Procurement and Supply Management

Chapter 4Management of Business Logistics, 7th

Ed. 2

Material Management

Electronic Procurement – e-Commerce


Ed. 3

Material Management


Ed. 4

Inbound Logistics along the Supply Chain

Each firm in the food system supply chain graphic in Figure 4-1 has important differences in their inbound logistics systems. Mining firm Steel firm Container firm Food firm Retail outlet Individual firm complexity


Ed. 5

Figure 4-1 A Food System Supply Chain

Important note: one ends with customers may serve as the other End as vendor value


Ed. 6

Table 4-1 Industry Supply Chain Logistics Emphasis


Ed. 7

Materials Management Definition - Materials management is the

planning and control of the flow of materials that are part of the inbound logistics system.

Materials Management Activities(procurement, warehousing, production planning, inbound

transportation, receiving, materials quality control, inventory management, and salvage and scrap disposal)

1. Procurement2. Importance of Item and Service Purchased3. The Special Case of Procurement Price4. Other Materials Management Activities


Ed. 8

Materials Management: 1.Procurement

Buying goods and services for a firm, a process of obtaining goods and services for the firm

Importance Contributes to the competitive

advantage of the firm Significant portion of the logistics

costs


Ed. 9


Definition of Procurement 12 Activities

1. Identify or reevaluate needs2. Define and evaluate user

requirements3. Decide whether to make or buy4. Identify the type of purchase5. Conduct a market analysis6. Identify all possible suppliers


Ed. 10


Definition of Procurement Activities…

8. Prescreen all possible sources9. Evaluate the remaining supplier base10. Choose a supplier11. Receive delivery of the product or

service12. Make a post purchase performance

evaluation (see next slide for the flows)


Ed. 11

Figure 4-2 1.Procurement Process


Ed. 12

Materials Management: 2.Importance of Item and Service Purchased

Products and services purchased by a company are not all the same.

Some are more important than others and require greater procurement attention.

The quadrant technique enables the supply chain manager to assess the relative importance of each item based on the degree of perceived value and risk.


Ed. 13

Materials Management: 2.Importance of Item and Service Purchased

There are four possible combinations in the quadrant techniques model: Generics --- low risk, low value Commodities --- low risk, high value Distinctives --- high risk, low value Criticals --- high risk, high value

Figure 4-3 illustrates the relationships in the quadrant technique model.


Ed. 14

Figure 4-3 2Item Procurement Importance Matrix


Ed. 15

Materials Management: 2. Managing the Procurement Process in 4 Steps

1. Determine the type of purchase

New purchase Straight rebuy Modified rebuy


Ed. 16

Materials Management: 2. Managing the Procurement Process in 4 Steps

2. Identify levels of investment Determine the necessary levels of

investment of time and information. The more complex the purchase, the

more time needs to be spent and more information needs to be gathered to get it right the first time.


Ed. 17

Materials Management: Managing the Procurement Process in 4 Steps

3. Perform the procurement process Do those activities that are necessary

to effectively make a purchase and satisfy the user’s requirements.

4. Evaluate the effectiveness of the procurement process Were the user’s needs satisfied? Was the investment necessary?


Ed. 18

Materials Management: 2.Managing the Procurement Process

Supplier/Vendor Evaluation and Relationships Maintaining a healthy vendor

relationship is a critical part of a successful supply chain.

Developing a true partnership relationship with a firm’s vendors grows more important as the number of vendors shrinks and/or the vendors are being sought by other competing supply chains.

TQM begins with the vendors.


Ed. 19

Materials Management: 2.Managing the Procurement Process Vendor Selection Criteria

1. Quality2. Reliability3. Capability4. Financial5. Miscellaneous Other Qualities6. Vendor Location7. Factor Importance Will Vary

(Itemized see next slide)


Ed. 20

Figure 4-4 Overview of Vendor Selection Criteria


Ed. 21

Materials Management: 3. The Special Case of Procurement Price

1. Sources of Price1. Commodity markets2. Price lists3. Price quotations4. Negotiation


Ed. 22

General spectrum of expanding procurement approaches to the supply chain ---- see next slide


Ed. 23

Figure 4-5 Hierarchy of Price Measurement Approaches


Ed. 24

Components required to be considered in order to obtained overall optimized solution (see next slide)


Ed. 25

Figure 4-6 Total Procurement Price

See next slidesFor details


Ed. 26

Materials Management: The Special Case of Procurement Price

2. Types of Costs 1. Traditional basic input costs -

primary product price 2. Direct transaction costs - all other

related costs of detecting and transmitting information to suppliers (e.g., EDI)

3. Supply relational costs - costs of maintaining relationships with suppliers


Ed. 27


3. Other types of Costs 4. Landed costs -

actual transport costs + sales terms 5. Quality costs/factors -

do the goods conform to standard?


Ed. 28


Other types of Costs 6. Operations/logistics costs

Receiving and make-ready costs Lot size costs Production costs Other logistics costs affected by

product’s size, weight, density and shape


Ed. 29

Materials Management: 4. Other Materials Management 5 Activities

1. Warehousing Type of facilities

required (such as open air …

Chapt 8)

2. Production Planning and Control (forecasting, see Figure 4-7)

Coordinating product supply with product demand

3. Transportation Vendor control Modal choice (rail,

water..)

Rush shipments Inspection Damage claims


Ed. 30

Figure 4-7 Overview of Production Planning and Control


Ed. 31

Materials Management: Other Materials Management Activities

4. Quality Control Quality standards

did customer receive what was ordered?

Quality implications GIGO concept

Sample inspection statistical QC from vendor to assure

100% quality


Ed. 32

Materials Management: Other Materials Management Activities

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

firm. Disposal must adhere to

environmental regulations.


Ed. 33

Electronic Procurement


Ed. 34


Business-to business (B2B) purchases are estimated to be $1.3 to $2.0 trillion by 20036.

Former uses of electronic data interchange (EDI) were costly and required special technology to implement have given way to the publicly available Internet.

This has opened the door to increased applications of E-commerce techniques to procurement.


Ed. 35


6 Common uses of E-commerce1. Research vendor and product

information2. Electronic check of available stock3. Price negotiation4. Order products or services5. Check on the status of an order6. Issue invoice and receive payment


Ed. 36


Advantages of E-commerce outlined in Figure 4-8.

Disadvantages Security of electronic messages Lack of face-to-face contact Other technological concerns

Standard protocols System reliability


Ed. 37

Figure 4-8 Advantages of Electronic Procurement


Ed. 38

Four Basic Types of E-commerce Models7

1. Sell-side system (B2B)

Administered by the seller Usually free to the buyer www.officemax.com, www.globalcomputer.com,

2. Electronic marketplace Administered by a third party Collection of electronic catalogs One-stop sourcing for buyers www.plasticsnet.com, www.e-chemicals.com, www.metalsite.com


Ed. 39

Types of E-commerce Models

3. Buy-side system Administered by the buyer Pre-approves vendor access Expensive and usually the domain of large

companies ERP, will discuss more later

4. On-line trading community Maintained by a third party Used by multiple buyers and sellers www.eaby.com, www.travelocity.com, www.nte.net

Chapter 4 40

Chapter 4:Summary and Review

Questions

Students should review their knowledge of the chapter by

checking out the Summary and Study Questions for Chapter 4.

This is the last slide for Chapter 4

Chapter 4 41

End of Chapter 4 Slides

Procurement and Supply Management

chapter 41 procurement and supply management. chapter 4management of business logistics, 7 th ed.2...

Documents

supply management slide

material management

inventory management

procurement process

logistics costs

inbound logistics systems

firm importance

vendor value slide