Chapter 1: Purchasing & Supply Management January :10 PM

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1 Chapter 1: Purchasing & Supply Management January :10 PM Crprate Supply Challenges Opprtunities Increased utsurcing --> suppliers need t respnd t end-custmer's needs Dependence n supplier's respnsibility fr design & build subassemblies and subsystems Increased glbal cmpetitin New prduct develpment New infrmatin systems Single surcing with fewer key suppliers and strategic alliances Reduce unit csts fr prducts and services Increase revenue Supply initiatives t imprve custmer satisfactin Reduce ttal cst f wnership Imprve efficiency and efficacy f supply prcess Maximize value frm suppliers Wrk with key suppliers t prvide prduct and service innvatins The Supply Functin reliable access t supply f raw materials, supplies and services 1970s internatinal shrtage f raw materials, and price inflatin, put senir management at the attentin f the supply functin 1990s Glbal supply chains and increased reliance n suppliers Outsurcing 2000s Technlgical develpments Supply chain integratin Lwer transactin csts Faster respnse times Sustainability, glbalizatin, supply chain security, risk management

2 Supply Chain Management (SCM) SCM: The design and management f seamless, value-added prcesses acrss rganizatinal bundaries t meet the real needs f the end custmer. The develpment and integratin f peple and technlgical resurces are critical t successful supply chain integratin. SCM: The management f all activities, infrmatin, knwledge, and financial resurces assciated with the flw and transfrmatin f gds and services up frm the raw materials suppliers, cmpnent suppliers and ther suppliers in such a way that the expectatins f the end users f the cmpany are met and exceeded. **Minimize csts and lead times acrss tiers in the supple chain t the benefit f the final custmer. Fcus is n the entire value chain Includes: Lean prductin JIT (just-in-time prductin) TQM (ttal quality management) Purchasing, supplier selectin, partnership Prduct/service design, utsurcing Steps f SCM 1. Recgnitin f need 2. Translatin f need int cmmercially equivalent descriptin 3. Search ptential suppliers 4. Selectin f suitable surces 5. Order/cntract agreement 6. Delivery f prducts/services 7. Cmpletin f payment Further Respnsibilities f SCM Receiving, inspectin

3 Material handling, warehusing, inventry cntrl Delivery scheduling, transprtatin, dispsal Strategic surcing, lng-term supplier relatin Operatinal respnsibilities: day-t-day activities f the supply rganizatin Strategic respnsibilities: fcuses n lng-term supplier relatin and cmmdity plans with the bjectives f identifying pprtunities in cst reductins, new tech advancements, and supply market trends. Purchasing Purchasing: prcess f buying: learning f the need, lcating, and selecting a supplier, negtiating price and ther pertinent terms, and fllwing up t ensure delivery f payment. A.K.A. supply management, prcurement Lgistics Management Lgistics Management: It plans, implements, and cntrls the efficient frward and reverse flw f strage f gds, services, and related infrmatin between the pint f rigin and the pint f cnsumptin in rder t meet custmer's requirements. Transprtatin, handling, warehuse, capacity, etc. Activities f Lgistics Management Custmer service Demand frecasting/planning Inventry management Lgistics cmmunicatins Material handling Order prcessing Packaging Parts and service supprt Plant and warehuse site selectin Return gds handling Reverse lgistics prcess f mving gds frm their typical final destinatin fr the purpse f capturing value, r prper dispsal Traffic and transprtatin Warehuse strage Financial Impact f Crprate Spending Dllars spent with suppliers as a percentage f ttal revenue are a gd indicatr f supply's financial impact. Prfit-leverage Effect Measured by the increase in prfit btained by a decrease in purchases spent.

4 IE: Organizatin with revenue f $100M, purchases f $60M, prfit f $8 befre taxes. 10% reductin in purchase spending --> prfit f 75% --> leverage f 7.5 IE: T achieve $6M increase in prfit by increasing sales. T d this, increase sales by 75%, r decrease purchase spend by 10%.??Prfit-n-Assets Effect Financial experts are increasingly interested in ROA as a measure f crprate perfrmance. Supply Cntributin 3 Majr Perspectives 1. Operatinal vs. strategic a. Operatinal is characterized by truble avidance Cncerns itself with day-t-day peratins traditinally assciated with purchasing. Executing current tasks as designed. b. Strategic is characterized as pprtunistic Future riented and searched fr pprtunities t prvide cmpetitive advantage. New and better slutins t rganizatinal supply challenges. 2. Direct & indirect a. Direct Supply savings, prfit-leverage effect, return-n-assets effect demnstrate a direct cntributin t the cmpany's financial statements. Inventry reductin and purchasing savings (measurable). b. Indirect Supply functin enhances perfrmance f ther departments r individuals in the rganizatin. Better quality may reduce rewrk, lwer warranty csts, increase custmer satisfactin, and/r increase the ability t sell mre r at a higher price. Increasing cmpetitive advantage. Includes: Infrmatin surce Effect n efficiency Effect n cmpetitive psitin/custmer satisfactin Effect n rganizatinal risk peratinal, financial, reputatinal Effect n image large spend, external cntact Training grund new managers Management strategy marketplace 3. Negative, neutral, & psitive Case 1-1 Qmnt Mining 1. List the main prblems/cncerns.

5 a. Mix f centralized and decentralized purchasing. i. Prblems with bth methds. b. Drilling crews vs. cntract drilling crews. c. Payment withut cnfirmatin f delivery. d. Multiple rders/deliveries fr same part frm different suppliers. e. Multiple rders/deliveries fr same part frm same suppliers. i. Different peple are rdering withut crdinatin. 1. Engineering and peratins rdering...lack f supplier expertise. ii. Supplier may be irrespnsible in this case in their lack f crdinatin and versight. f. Cst f freight exceeding value f item transprted. i. Culd g with third-party cmpany that crdinates transprtatin. 2. D yu have sufficient infrmatin? Did the chice f 3 sites ver a 4-mnth perid represent a reasnable sample? a. N inf abut active mines. i. These are large peratins that require large amunts f supply. b. N inf abut start-up mines. 3. What additinal infrmatin wuld be helpful? a. Life expectancy and rder frequency f parts. b. Lcatins f sites and supply vlume fr each item. c. Use f technlgy. Better tech can bridge the infrmatin gap --> better crdinatin & cllectin f infrmatin. d. Respnsibility f rdering. i. Use supply management prfessinals.

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