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Purchasing and the SupplyChain

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Supply Chain for a Florist. Required for facilitating goods. Required for explicit services ... wholesale/retail level. System fulfillment, issue & acknowledge ... – PowerPoint PPT presentation

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Title: Purchasing and the SupplyChain


1
Purchasing and the Supply-Chain
http//www.cips.org
2
Supply Chain for a Florist
Home customers
Commercial customers
Florist
Packaging
Local delivery service
Arrangement materials
Consumables Maintenance
FedEx delivery
Flowers market local/ international
Internet services
3
Purchasing objectives
  • Buy to requirements so that
  • Inventory is available when, where and in wanted
    form (minimum effort to use)
  • Least cost for quality
  • Optimise purchasing department/function -
    overheads, accumulated costs, cash flow,
    warehousing timely delivery
  • The BUYER is the KEY - responsible for
    researching, placing and progressing orders.

4
Questions
  • Why is purchasing for a Channel Tunnel project
    different from purchasing for Tesco or Gap ?
  • Why is purchasing for ASDA different from
    purchasing for Harrods?
  • What are the purchasing requirements of the
    Metropolitan Police?
  • Why is the futures market important for Nestle or
    Kelloggs?
  • What are the advantages of centralised vs.
    decentralised purchasing functions?
  • The know-how knowledge-base, competencies, the
    skills of the buyer for www.dabs.co.uk?
  • What is the strategic and operational
    contribution of purchasing supply?

5
A national Electric Power company
  • industry generation distribution utility
  • size 22 billion revenues
  • capacity 39,000 megawatts
  • electricity sales approx 200m. megawatt hrs
  • customers 5.9 million
  • spend 3 billion
  • transmission lines 8,000 miles
  • Service territory 197,500 sq. miles
  • Geographic Area England Wales

6
What are the purchasing requirements problems of
  • An NHS Trust?
  • Airbus industries?
  • Virgin Trains?
  • Barratts Homes?
  • Unilever Detergents Division?
  • Royal Air Force?
  • www.dabs.co.uk ?
  • Pret à Manger?

7
What research goes into purchasing?
  • Supplier investigation competencies, capacities,
    credit rating, service quality
  • Our dependency on particular suppliers
  • Competitor information
  • Advising suppliers on how to meet our quality
    requirements
  • Economic forecasting the supplier
  • Purchase targets their attainment
  • Financial targets our profit plan
  • Value analysis - of buying processes items we
    buy
  • Our quality/service requirements control
    methods

8
What research goes into purchasing?
  • Supplier investigation competencies, capacities,
    credit rating, service quality
  • Our dependency on particular suppliers
  • Competitor information
  • Advising suppliers on how to meet our quality
    requirements
  • Economic forecasting the supplier
  • Purchase targets their attainment
  • Financial targets our profit plan
  • Value analysis - of buying processes items we
    buy
  • Our quality/service requirements control
    methods

9
Procurement Role SCM Core Processes
  • identify needs materials, products or services
  • strategic buying - futures, options, hedging,
    stock-piling
  • supplies/supplier intelligence, selection
    negotiation
  • contract development POP
  • replenishment Planning - expediting materials
    services
  • maintaining catalogues
  • supplier performance measurement
  • transportation logistics
  • procurement systems
  • diversity spend management
  • vendor-managed inventory
  • JIT
  • What of supply chain processes are
  • centralised?
  • decentralised
  • automated?

10
Purchasing procedures methods?
  • Instructions for contract
  • The terms, the detail, cancellation penality
    issues, packaging, export import docs, insurance,
    transport, contract security, credit control,
    receipt arrangements, quality data recording
  • Catalogues, drawings/specifications.
  • CAD , bill of materials MRP1 - the detail of
    what we order
  • Catalogue changes - part change the ripple
    effect
  • Deletion or launch of products
  • POP
  • Requests, authorisations, purchase orders, GRNs,
    invoices, payments. Call-offs from orders.
  • Segmentation of duties, physical verifications
  • SOP, forecasting POP

11
Purchasing procedures methods?
  • Purchasing by commodity group
  • Knowledge of the buyer
  • Price leverages
  • Data collection analysis
  • Exception for action progress reports for
    planning
  • Audit monitoring procedures wastage,
    obsolescence, theft, stock-outs. Pareto 80/20,
    warehousing costs

12
Procurement - Key Skills?
  • Business awareness and strategic procurement
  • Developing managing procurement systems
  • Purchasing techniques and methods
  • Supplier evaluation and selection
  • Risk and value management
  • Contract management Legal aspects of procurement
    (contracts)
  • Purchasing negotiations
  • Quality management
  • Service level agreements
  • Ethical behaviours in procurement
  • Relationship management (client-server)
  • Performance evaluation of suppliers self
  • Change management

13
Buying and negotiation?
  • Supplier partnerships vs. competitive (least
    cost) buying
  • Negotiation skills
  • researching sources, assessing sources, customer
    relationships management, win-win mutual
    respect.
  • Methods to keep costs down - tendering, WWW
    B2B, Buying portals
  • Negotiate preparation, the negotiation,
    completing the buy.
  • Attention to detail
  • Humour, patience, self-control, Avoid dramatics
  • Analytical approach to problems
  • Questioning listening
  • Verification - contract formulation testing

14
Supply Chain Management Drivers
Improve customer service Improve order
management corporate Growth Improve asset
use Improve demand planning Improve
warehouse/distribution activities Accelerate
cash to cash cycle Supplier/Supply base
management Strengthen partnerships Regulatory
compliance
15
Planning, logistics zero working capital
Strategic Forecast
Sales Order Demand
Pull
Pull
Supplier owned managed strategic inventory
Point of Use MTO
Distributor/Customer
ContractTO
Point of Use
Distributor/Customer
MTS
Point of Use
Distributor/Customer
  • Optimize
  • Capacity
  • Daily Through-put
  • J.I.T. for Common Parts

Flow Manufacturing
Min/Max Replenishment Common Inventory
BANK
JIT
JIT
Supplier
16
Information sharing, dataflows feedback
SupplierManagement
Rules configuration
Real time availableto promise
Delivery on Demand
At Point of Use
J.I.T.
Continuous flowmanufacturing
Interprise Visibility
First PromisedDeliver Date
Inventory
WIP
CorrectConfiguration
Distributor
Supplier
17
Integrating SCM Applications
Integration of Process and Technology
  • functional areas
  • accounts payable
  • inventory
  • procurement
  • Performance indicators for SCM
  • Optimise
  • material sources track/measure supplier
    performance, scorecard them
  • spending patterns/supplier
  • materials handling - available when/where needed
  • inventory levels - reduce out-of-stock or
    overstock

Available to Promise
Production Optimization
Advanced Planning
ERP Engines - Oracle - SAP
Purchasing
Order Management
Export / Import Freight Management
Warehousing Distribution
Forecasting and Demand Planning
18
Supply/Procurement Issues
Resource Usage
Quality
  • make or buy (contract out)
  • market-based purchasing?
  • supply partnerships?

Speed
Performance objectives
Reliabiity
Market competitiveness
Flexibility
Supply network relationships
Cost
Capacity
Process technologies
buyers market sellers market
Decisions
19
Consider
  • the detail of B2B system interactions
  • planning, design, control of information
    materials flows along the SC to meet customer
    requirements efficiently, now future.
  • methods of coordination in the SC
  • how can the SC be improved 'structurally?
  • what technology e.g. EDI, WWW/internet has
    affected the development of SCM?

20
Tiered supply relationships
  • a company can trade with
  • 1st tier - immediate suppliers
  • 2nd tier - suppliers of suppliers
  • end-customers
  • Consider balance of each
  • Non-exclusive relationships e.g. Firm C - may
    single source (exclusive supply) or multi-source
    item X
  • Exaluate relationships
  • close intimate? Make or contract in
    (outsource)?
  • For what items strategic, trivial?
  • Many suppliers or a few?
  • Keiretsu (collaborative) vs. Transactional
    (arms-length)

21
Flows of products, services information
Supply side
Demand side
Company A
2nd-tier suppliers
1st-tier suppliers
1st-tier customers
2nd-tier customers
Company B
Up stream
Down stream
Company C
X
X
X
X
X
For Company A Internal supply network Immediate
supply network Total supply network
22
Analysis of supply relationships
Long term virtual operation
Vertical integration
Close - few suppliers
Partnership supply relationship
Market relationship
Type of inter- firm contact
Traditional market supply
Virtual spot trading
Transactional - many suppliers
Resource scope
Do nothing
Do everything
Character of internal operations activity
23
Aggregate Plan ?? MRP1
23
Aggregate Plan (product groups)
MRP2
Firm orders
Forecast random orders
Master production schedule (MPS)
Design changes
Plan how many when where we will build each
finished product.
Bill of materials
MRP1
Inventory data
Stock movements
Control Reports
24
Distribution Channels Logistics
  • distribution channels routes methods from
    producer ? distributors ?customer
  • Logistics management synonymous with SCM?
  • narrowly defined concerned with inbound
    transportation, storage (warehouse) outbound
    distribution.

25
SC Partnership - Shared information
  • e.g. production rate (as of capacity)
  • on-hand inventory
  • inventory in transit
  • advance ship notices
  • forecasts
  • damaged goods
  • actual vs. delivered amounts
  • real-time alerts
  • planned product engineering changes

26
Measuring PS contribution to Corporate
performance
  • suppliers include contractors for work
    services
  • performance monitoring measuring supplier
    ability to comply with contractual obligations
    delight (PS is a supplier)
  • Balanced Scorecard "SMART" objectives
  • Proactive visible alignment of PS strategy
    operations to fit corporate position
  • the basics contribute to value-add (right
    goods/services, right place, right time, right
    price).
  • ample evidence if P S is delivering key
    objectives
  • post contract monitoring - vendor rating
  • What corporate objectives?
  • innovative products/services - differentiation
    advantage
  • control over costs thru. systems
  • supplier development RD
  • appraisals of new supply chains.
  • reputation is not at risk by activities within
    the SC
  • Product quality
  • MTBF (Mean Time to Fail)
  • of incoming rejects (delivery accuracy)
  • warranty claims
  • Audit service quality (against agreed SLAs)
  • call-out service response times
  • performance against agreed delivery lead times
  • Specific
  • Measurable
  • Achievable
  • Realistic
  • Time-bound

27
Some yardsticks of performance (PS Function
Suppliers?)
  • quality of supplier performance - fundamental to
    contract management
  • relationships management
  • evaluating the supply base supplier profiles
    e.g. growth, market share performance
  • transaction processing costs, prices cost
    avoidance contribution to revenue targets
  • impact on spend controlled, directly
    influenced, not yet targeted
  • year on year improvement
  • no. of suppliers their rationalisation (single
    sourcing vs. competitive sourcing)
  • robust, effective procurement systems
    eProcurement
  • no purchasing fraud
  • price benchmarking - comparing similar
    organisations

28
Measuring Supply-Chain Performance
  • Stock Turnover Cost of items sold
    .
  • Average aggregate inventory value
  • Weeks of Supply Avg. aggregate inventory value
  • cost of items sold/week

Delivery Quality Time Cost
  • Company report states costs of goods sold for
    year 160 m. total average inventory (prodn.
    materials WIP) 35 m.
  • usual stock turn ratio 10.
  • What is this years stock turnover ratio?
  • What does it mean?

29
Supply-Chain Performance - answer
  • Stock Turnover
  • Cost of goods sold/Average aggregate inventory
    value
  • 160/35
  • 4.57
  • stock turnover has dropped from 10 to 4.57
  • inventory is not turning over as quickly
  • Compare with the industry average
  • See also value density
  • the value of an item per unit. A significant
    measure when deciding where items should be
    stocked
  • geographically
  • how they should be shipped

30
Strategic alliances
  • Joint SCM improvement objectives
  • share/feedback demand information
  • MURA, quality, reliability, speed, JIT
    replenishment, costs, security
  • 1st 2nd tier suppliers read/write permission to
    enter BOMs, enter new suppliers, enter alerts,
    update status, acknowledge requests, view reports
    etc?

31
Outsourcing?
  • moving a firms internal activities (production
    service delivery)
  • to outside providers. Why do it? Drivers
  • Core competencies, stick to the knitting. No
    strategic expertise loss
  • Improvement - contractor is more competent,
    reliable, high quality, price/cost effective,
    release of management time
  • Finance releases internal assets. Out-source
    costs are less than or equal to DIY costs
  • Short term revenue gains - selling off fixed to
    out-source agent
  • Specialist labour market - cannot hire expert
    staff we need.
  • No expected loss of flexibility or growth
    potential
  • WHAT ARE THE PROBLEMS?

32
Logistics Air Force Operations
Brunei
Other Detachments Thailand, Indonesia,
Bangladesh, N. Zealand
33
  • before landing, radio defect symptoms to control
  • control analysis/troubleshoot
  • identify parts for indent
  • trigger pick items at warehouse
  • apply FIFO priority
  • issue movement update
  • collect defect items ? Repair shop
  • check repair status
  • tracking global assets freight

34
- Item Data creation - Endorse requirement, -
Funds allocation - PO release
Provisioning(MRP)
Procurement
- FMS or commercial - R for Quote - PO - Payt
Disposal
Usage
-Inspect -accept locate -reject ?
quarantine/claim -wholesale/retail level
Warehousing
Store Issue
  • Documentation
  • breakage
  • System fulfillment,
  • issue acknowledge
  • stock take

Distribution
35
Gems of PO Receiving
  • how goods are received can be a headache
  • receiving problems are credit/payment problems
  • errors confusions cause delays more
    processing
  • Transactions on goods received
  • correct Order Ref, quantity, specification
    pricing
  • Items shipped match PO invoiced quantity?
  • split shipments - item consolidation? How?
  • reaction to shortage
  • What of invoices are paid via auto-pay?
  • When do we have to pay?
  • If it is valuable someone will steal it !!!!

36
Segregation of Duties Fraud
  • No one individual can influence purchasing
    outcomes to own advantage or has responsibility
    for more than one of
  • specification/requisition process authorisation
  • supplier selection tender lists receipt,
    short-listing, negotiation parties
  • contract award deciding the supplier authorisor
    of contract/order
  • goods received checking exact order received
    to be paid for
  • payment authorisation signing off invoices
    setting system tolerances
  • Control Methods
  • procurement procedures, processes policies
    (incl. ethical code re-transparency declaration
    of interest).
  • risk analysis
  • random audits of different contracts
    procurement projects.
  • financial limits e.g. open-to buy, how much each
    buyer can commit
  • disciplinary whistle blowing policies
  • rotations buyers not too close to favourite
    suppliers

37
eBusiness - B2B
  • value of transactions over the Internet? B2B,
    B2C?
  • significant channel for purchasing
  • MNCs can get best prices without using open
    eMarketplace.
  • growth in Intranet B2B applications installed
    operational
  • EDI (point to point) still an important re-volume
    of B2B transactions
  • Fax email is common
  • online B2B portals (eMarketplaces) offer
  • Supplier/supplies intelligence (specialist
    groupings)
  • opportunities/collaborations e.g. networked
    participants (SMEs? Hospitals) to combine spend
    bargaining volume.
  • potentially lower buying costs operating
    efficiencies

NHS Purchasing Supply Agency http//www.pasa.doh
.gov.uk/
38
Inventory at Different Stocking Points
39
What is a Supply Chain?
  • Chain
  • of processes, transactions information that
    takes product or service from suppliers thru.
    manufacturing distribution to the end consumer.
  • Network
  • a group of organisations in a market-place that
    interact to buy, sell, deliver goods and
    services (client-server processes activities).
    Generally B2B transactions (not retail B2C).
  • Server aims to delight add value to each client
    so the end customer.
  • Failure to receive supplies on time can --
    problems
  • cash flow - overstocking - obsolescence

40
Supply Chain Dynamics for Facial Tissue
41
Materials Management
42
Materials Management
43
Materials Management
44
Materials Management
45
Materials Management
46
Inventory Measures
Average inventory 2 million Cost of goods sold
10 million 52 business weeks per year
47
Inventory Measures
48
Supply-Chain Process Measures
49
Supply-Chain Design
Factor Efficient Supply Chains Responsive Supply
Chains
Operation Make-to-stock or Assemble-to-order,
make- strategy standardized
services to-order, or customized emphasize
high services emphasize volume,
standardized service or product services or
products variety
Capacity Low High cushion
Inventory Low, enable high As needed to enable
fast investment inventory turns delivery time
Lead time Shorten, but do not Shorten
aggressively increase costs
Supplier Emphasize low prices, Emphasize fast
delivery selection consistent quality,
on- time, customization, time
delivery variety, volume flexibility, top
quality
50
Reading and WWW sources
  • Saunders M, Strategic Purchasing and Supply Chain
    Management, FT Prentice Hall, 1997
  • Handfield Nichols, Supply Chain Redesign, FT
    Prentice-Hall, 2002
  • Ross D, Competing Thru. Supply Chain Management,
    Kluwer, 1998
  • Heywood B, E-procurement A Guide to Successful
    E-procurement Implementation, FT Prentice Hall.
    2001
  • www.cips.org (Chartered Institute of Purchasing
    and Supply)
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