Network of

Suppliers

warehouses,

operations,

warehouses,

distribution centers,

retail outlets,

and customers.

Supply Chain

Factory Wholesaler Distributor Retailer Customer

Replenishment order

Replenishment order

Replenishment order

Customer order

Production Delay

WholesalerInventory

Shipping Delay

Shipping Delay

DistributorInventory

RetailerInventory

Item Withdrawn

Supplier

Replenishment order

ManufacturerInventory

Shipping Delay

Overview

Different companies do not have identical supply chains.

Closer Vendor Relationship

•Price is now a secondary issue; frequent small deliveries of high quality goods, also flexibility and quick response.

•Cooperation between buyer and supplier is an integral part of Supply Chain Management.

•Narrow down the number of suppliers to a few, develop a long term relationship.

•Do not make suppliers against each others, develop a friendly environment.

•Burden of ensuring quality shifts to the supplier. The ultimate goal of the buyer is to certify a vendor as a producer of high quality goods.

•Integration is easier when supplier is dedicated to only few buyers.

•Tier approach to suppliers

Purchasing Receiving Storage Operations Storage

Production Distribution

Purchasing

Purchasing is responsible for obtaining the materials, parts, and supplies needed to produce a product or provide a service.

The importance of purchasing is more than just cost of material purchased, but also quality and timing.

Purchasing

Legal

AccountingOperations

Dataprocessing

Design

ReceivingSuppliers

Purchasing Interfaces

Purchasing Interfaces

Purchasing is the connecting link between the organization and its suppliers.

Operating units are the main sources of request for purchase. Close relationship between purchasing and operating units is required to achieve proposed quality, quantity, and timing.Changes in specifications, quantities and lead times should be immediately communicated between operating units and purchasing.

Assistance of the legal department is required in bid specifications and contract negotiations

Accounting is responsible for A/P, must be notified when material are received.

Purchasing

Legal

Account-ing

Opera-tions

Dataprocess-ing

Design

Receiv-ingSup-

pliers

Purchasing Interfaces

Design and engineering prepare material specifications and should have close communication with purchasing. Purchasing could also inform design and engineering about new products and material improvements. Design and purchasing work together to see whether changes in design or specification can reduce the cost of purchased material.

Receiving checks incoming shipment for their quantity, quality and timing. Information is sent from receiving to both purchasing and A/P.

Suppliers work closely with purchasing to learn what material will be purchased and with what specifications, quality, and timing.

Purchasing

Legal

Account-ing

Opera-tions

Dataprocess-ing

Design

Receiv-ingSup-

pliers

• Requisition received

• Supplier selected

• Order is placed

• Monitor orders

• Receive orders

Purchasing Cycle

• Value analysis– Examination of the function of purchased

parts and materials in an effort to reduce cost and/or improve performance

• Outsourcing– Buying goods or services from outside

sources rather than making or providing them in-house

Value Analysis vs Outsourcing

• Cost to make vs. cost to buy

• Stability of demand

• Quality from suppliers

• Maintaining close control

• Idle capacity available

Outsourcing

• Fixed or predetermined prices – for standards items that are bought frequently

• Competitive bidding– for large orders of standard parts, e.g. government purchases of

standard goods or services

• Negotiating– for one or few customized purchases where specifications are vague

Determining Prices

• Centralized purchasing; Purchasing is handled by one special department.– may be able to quantity discount due to higher

volumes– may be able to obtain better service and attention– few items in high volume are purchased by

specialists

Centralized Purchasing

• Decentralized purchasing; Individual departments or locations handle their own purchasing requirements– better understanding of local needs– quick response– saving in transportation costs

• Some companies have a combination

Decentralize Purchasing

• Movement material to-within-from facility

• Material includes row material, components, finished goods, supplies, etc.

• Logistics indeed is physical flow of material in supply chain

Logistics

RE

CE

IVIN

G

Storage

Workcenter

Work centerWork center

Storage

Workcenter

Storage

Shipping

Material Movement

Determine which shipping alternative, 1 day or 3 days is preferred. Holding cost is 1000 per year, shipping cost is 40 $ for 1 day delivery, and for 3 days delivery is

a) 35 $

b) 30 $

Holding cost for two days is (1000/365)2 = 5.48

If 1 day delivery is 35, then 35-30 = 5 extra cost, while

saving is 5.48. We prefer 1 day delivery

Shipping Alternatives

If 1 day delivery is 40, then 40-30 = 10 extra cost, while saving is 5.48. We prefer 3 days delivery

Shipping Alternatives

• Bar Codes

• Electronic Data Interchange

Purchasing and SCM Facilitators

Bar coding or universal product codes (UPC); patterns of black lines and white spaces that can be read by scanning devices, containing a variety of information.

Bar codes are used for recording prices and quantities, printing sales receipts, and updating inventory records.

Enable companies to keep track of items in warehouses, throughout the production and en route to customers

0

214800 232087768

Bar Coding

• EDI is the intra-organization transmission of transactions. Transactions such as purchase orders, shipping notices, debit or credit memos are transmitted from computer to computer between organizations.

• EDI also serves as Kanban between down stream (customers) and upstream (suppliers) of manufacturing and service systems.

• EDI allows manufacturers to have better understanding of their customer behavior and preferences.

Electronic Data Interchange (EDI)

• Wal-Mart has a satellite network for electronic data interchange that allows vendors to directly access point-of-sale data in real time. Enabling them to improve their forecasting and inventory management. The system is also used for issuing purchase order and receiving orders from vendors.

Electronic Data Interchange (EDI)

• A system for inventory management and distribution planning.

• It connects demand points with a network of multi-echelon warehouses and factories in order to satisfy the demand and replenish the warehouses

Distribution Requirement Planning

ClassPPTs and Lecture Notes

BookThe whole chapter supports the PPTs

Solved ProblemsProblem 1 on page 711