Transcript PROCUREMENT AND SUPPLY MANAGEMENT

PROCUREMENT AND
SUPPLY MANAGEMENT
CHAPTER 5
MATERIAL MANAGEMENT
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Materials management is the planning and control
of the flow of materials that are part of the
inbound logistics system.
Materials Management Activities
 Procurement
 Importance
of Item and Service Purchased
 The Special Case of Procurement Price
 Other Materials Management Activities
Materials Management:
Procurement
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Importance
 Contributes
to the competitive advantage of the firm
 Significant portion of the logistics costs
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Definition of Procurement Activities
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Identify or reevaluate needs
Define and evaluate user requirements
Decide whether to make or buy
Identify the type of purchase
Conduct a market analysis
Identify all possible suppliers
Prescreen all possible source
Evaluate the remaining supplier base
Choose a supplier
Receive delivery of the product or service
Make a post purchase performance
evaluation
PROCUREMENT PROCESS
Materials Management: Importance
of Item and Service Purchased
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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.
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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
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Figure 4-3 illustrates the relationships in the
quadrant technique model.
Figure 4-3
Item Procurement Importance Matrix
Materials Management: Managing
the Procurement Process in 4 Steps
1. Determine the type of purchase
 New
 Straight
rebuy
 Modified rebuy
2. Identify the type of purchase
 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.
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?
Materials Management: Managing
the Procurement Process
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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.
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Vendor Selection Criteria
 Quality
 Reliability
 Capability
 Financial
 Miscellaneous
Other Qualities
 Vendor Location
 Factor Importance Will Vary
Overview of Vendor Selection Criteria
Materials Management: The
Special Case of Procurement Price
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Sources of Price
 Commodity
 Price
markets
lists
 Price quotations
 Negotiation
Hierarchy of Price
Measurement Approaches
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Types of Costs
 Traditional
basic input costs – primary product price
 Direct transaction costs - all other related costs of
detecting and transmitting information to suppliers (e.g.,
EDI)
 Supply relational costs - costs of
maintaining
relationships with suppliers
Total Procurement Price
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Other types of Costs
 Landed
costs - actual transport costs + sales terms
 Quality costs/factors - do the goods conform to
standard?
Overview of Production Planning and
Control
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Other types of Costs
 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
Materials Management: Other
Materials Management Activities
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Warehousing
 Type
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of
facilities
Production
and Control
Planning
required
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 Coordinating
supply with
demand
product
product
Transportation
 Vendor
control
 Modal choice
 Rush shipments
 Inspection
 Damage claims
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Quality Control
 Quality
 did
standards
customer receive what was ordered?
 Quality
 GIGO
 Sample
implications
concept
inspection
 statistical
QC from vendor to assure 100% quality
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Salvage and Scrap Disposal
 Value
of scrap may be income to the firm.
 Disposal must adhere to environmental regulations.
Electronic Procurement
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Common uses of E-commerce
 Research
vendor and product information
 Electronic check of available stock
 Price negotiation
 Order products or services
 Check on the status of an order
 Issue invoice and receive payment
Advantages of Electronic Procurement
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Disadvantages
 Security
of electronic messages
 Lack of face-to-face contact
 Other technological concerns
 Standard
protocols
 System reliability
Four Basic Types of E-commerce
Models
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Sell-side system
 Administered
by the seller
 Usually free to the buyer
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Electronic marketplace
 Administered
by a third party
 Collection of electronic catalogs
 One-stop sourcing for buyers
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Buy-side system
 Administered
by the buyer
 Pre-approves vendor access
 Expensive and usually the domain of large companies
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On-line trading community
 Maintained
by a third party
 Used by multiple buyers and sellers