Production
and
Norman Gaither
Operations Management Greg Frazier
Slides Prepared by John Loucks
1999 South-Western College Publishing
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Chapter 15 Supply Chain Management
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Overview
Introduction Supply Chain Management Purchasing Just-in-Time Purchasing Logistics Warehousing Expediting Benchmarking the Performance of Materials Managers Third-Party Logistics Management Providers Wrap-Up: What World-Class Producers Do 2
Introduction
Materials are any commodities used directly or indirectly in producing a product or service. Raw materials, component parts, assemblies, and supplies A supply chain is the way materials flow through different organizations from the raw material supplier to the finished goods consumer.
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Supply Chain Management
Supply chain management includes all management functions related to the flow of materials from the company’s direct suppliers to its direct customers. Includes purchasing, traffic, production control, inventory control, warehousing, and shipping. Materials management and logistics management are two alternative names for supply chain management.
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Purchasing Factors increasing the importance of purchasing today: Tremendous impact of material costs on profit -60-70% of sales dollar paid to material suppliers Popularity of JIT manufacturing -- supply deliveries must be exact in timing, quantity, and quality Increasing global competition -- more competition for scarce resources, and geographically stretched-out supply chain
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Mission of Purchasing
Develop purchasing plans for each major product or service consistent with operations strategies: Low production costs Fast and on-time deliveries High quality products and services Flexibility
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Purchasing Management
Maintain data base of available, qualified suppliers Select suppliers to supply each material Negotiate contracts with suppliers Act as interface between company and suppliers Provide training to suppliers on latest technologies
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Advantages of Centralized Purchasing
Buy in large quantities --> better prices More clout with suppliers --> greater supply continuity Larger purchasing department --> buyer specialization Combine small orders --> less order cost duplication Combine shipments --> lower transportation costs Better overall control
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Purchasing Process Material Requisition Request for Quotations
Select Best Supplier Purchase Order Receive and Inspect Goods
From any department, to purchasing From purchasing, to potential suppliers Based on quality, price, lead time, dependability From purchasing, to selected supplier From supplier, to receiving, quality control, warehouse 9
Buyers’ Duties
Know the market for their commodities Understand the laws.... tax, contract, patent..… Process purchase requisitions and quotation requests Make supplier selections Negotiate prices and conditions of sale Place and follow-up on purchase orders Maintain ethical behavior
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Make-or-Buy Analysis Considerations in make-or-buy decisions: Lower cost - purchasing or production? Better quality - supplier or in-house? More-reliable deliveries - supplier or in-house? What degree of vertical integration is desirable? Should distinctive competencies be outsourced?
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JIT Purchasing The key elements of JIT purchasing are: Cooperative, not adversarial relationships Longer-term relationships, fewer suppliers Delivery and quality enters into selecting a supplier JIT in supplier’s operation Suppliers nearby Shipments delivered directly to production line Deliveries in small, standard-size, returnable containers Minimum of paperwork 1 2
Logistics
Logistics usually refers to the management of: the movement of materials within the factory the shipment of incoming materials from suppliers the shipment of outgoing products to customers
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Movement of Materials within Factories The typical locations from/to which material is moved: Incoming Vehicles
Receiving Dock
Quality Control
Warehouse
Work Center
Other Work Centers
Packaging
Finished Goods
Shipping
Shipping Dock
Outgoing Vehicles 1 4
Shipments To and From Factories
Traffic departments routinely examine shipping schedules and select: shipping methods time tables ways of expediting deliveries
Traffic management is a specialized field requiring technical training in DOT and ICC regulations and rates. 1 5
Shipments To and From Factories
Distribution, or physical distribution, is the shipment of finished goods through the distribution system to customers.
A distribution system is the network of shipping and receiving points starting with the factory and ending with the customers.
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Shipments To and From Factories
Distribution requirements planning (DRP) is the planning for the replenishment of regional warehouse inventories. DRP uses MRP-type logic to translate regional requirements into central-distribution-center requirements, which are then translated into gross requirements in the MPS at the factory. Distribution resource planning extends DRP so warehouse space, workers, cash, and vehicles are provided in the correct quantities at the correct times. 1 7
Innovations in Logistics
New developments affecting logistics include: All-freight airports Inter-modal shipping In-transit rates Consolidated shipments Air-freight and trucking deregulation Advanced logistics software
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Warehousing
Warehousing is the management of materials while they are in storage. Warehousing activities include: Storing Dispersing Ordering Accounting
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Warehousing
Record keeping within warehousing requires a stock record for each item that is carried in inventories. The individual item is called a stock-keeping unit (SKU). Stock records are running accounts that show: On-hand balance Receipts and expected receipts Disbursements, promises, and allocations
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Inventory Accounting
In the past, inventory accounting was based on: periodic inventory accounting systems -- periodic (end-of-day) updating of inventory records physical inventory counts -- periodic (end-of-year) physical counting of all SKUs at one time Today, more and more firms are using: perpetual inventory accounting systems -- real-time updating of records as transactions occur cycle counting -- ongoing (daily or weekly) physical counting of different SKUs
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Measuring the Performance Materials Managers
Level and value of in-house inventories Percentage of orders delivered on time Number of stockouts Annual cost of materials Annual cost of transportation Annual cost of warehouse Number of customer complaints Other factors
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Wrap-Up: World-Class Practice
See materials management as key element in capturing global market share Form partnerships with suppliers Use computers extensively to manage logistics
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End of Chapter 15
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