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Supply Chain for a Florist
Home Commercial
customers customers
Florist
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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?
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A national Electric Power company
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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
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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 What % of supply
chain processes are
• diversity spend management
•centralised?
• vendor-managed inventory •decentralised
• JIT •automated?
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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
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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
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Procurement - Key Skills?
1. Business awareness and strategic procurement
2. Developing & managing procurement systems
3. Purchasing techniques and methods
4. Supplier evaluation and selection
5. Risk and value management
6. Contract management Legal aspects of procurement (contracts)
7. Purchasing negotiations
8. Quality management
9. Service level agreements
10. Ethical behaviours in procurement
11. Relationship management (client-server)
12. Performance evaluation of suppliers & self
13. Change management
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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
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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
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Planning, logistics & zero working capital
A R
Strategic Sales Order
c e
Forecast
c c
Demand
o e
Pull Pull u i
Supplier
n v
owned & Point of Use MTO Distributor/Customer
t a
managed s b
Point of Use ContractTO Distributor/Customer
l
strategic e
Point of Use MTS Distributor/Customer
inventory
Optimize Flow Manufacturing
• Capacity Min/Max Replenishment Common Inventory
• Daily Through-put
Accounts
• J.I.T. for Common JIT JIT Payable BANK
Parts
Supplier
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Information sharing, dataflows & feedback
Supplier
Rules configuration Real time available
Management
to promise
Delivery on
At Point of
Demand
Use
J.I.T.
Correct
Distributor Supplier Configuration
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Integrating SCM Applications
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Supply/Procurement Issues
Resource Usage
Performance objectives
Market competitiveness
Quality make or buy (contract out)
Speed market-based purchasing?
Reliabiity supply partnerships?
Flexibility
Supply network
Cost relationships
Capacity
Process technologies
Decisions buyers market
sellers market
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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?
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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)
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Flows of products, services & information
Supply side Demand side
Company A
2nd-tier 1st-tier 1st-tier 2nd-tier
suppliers suppliers customers customers
Company B
Down stream
Up stream
Company C X
X
X X For Company A
Internal supply network
Immediate supply network
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Total supply network
Analysis of supply relationships
Long term
virtual
Vertical
operation
integration
Close - few
Market relationship
Partnership
suppliers
Type of inter- firm contact
supply relationship
Traditional
Transactional - many
market supply
Virtual
spot trading
suppliers
Resource scope
Do nothing Do everything
Character of internal operations activity
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Bill of Inventory
materials MRP1
data
Control Stock
Reports movements
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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.
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SC Partnership - Shared information
Stock Turnover
= Cost of goods sold/Average aggregate inventory value
= £160/£35
= 4.57
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Strategic alliances
Part Qty Description Supplier
Number
Doc-00341 1 Assembly and use Salleramics
instructions for valve kit
Chas-00798 1 Mechanical valve parts Flor plan Ltd
Sen-00332 2 Sensor specification Florplan Ltd
Con-00544 1 control module with Florplan Ltd
interface kit
Pack-00456 1 Packaging specification Salleramics
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Outsourcing?
moving a firm’s internal activities (production & service delivery)
to outside providers. Why do it? Drivers
Brunei
Australia
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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 !!!!
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Segregation of Duties & Fraud
No one individual can influence purchasing outcomes to own advantage or has responsibility
for more than one of
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
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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
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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
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Supply Chain Dynamics for
Facial Tissue
Package supplier’s
weekly orders to
9,000 – cardboard supplier
Manufacturer’s
weekly orders
to package
7,000 – Retailers’ supplier
Order Quantity
daily orders to
manufacturer
Consumers’
5,000 – daily
demand
3,000 –
0–
Time 40
Materials Management
FG storage
Transformation
process and WIP
storage
Purchasing
domain of
responsibility
Chocolate Maintenance
Egg Sugar Flour
chips services
supplier supplier supplier
supplier supplier
RM storage
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Materials Management
FG storage
Production domain
of responsibility
Transformation
process and
WIP storage
Purchasing
domain of
RM storage responsibility
Chocolate Maintenance
Egg Sugar Flour
chips services
supplier supplier supplier
supplier supplier
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Materials Management
FG storage
Transformation
Production domain
process and
of responsibility
WIP storage
Purchasing
domain of
RM storage responsibility
Chocolate Maintenance
Egg Sugar Flour
chips services
supplier supplier supplier
supplier supplier
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Materials Management
Supermarket A Supermarket B
distribution center distribution center
Distribution FG storage
domain of Transportation
responsibility services supplier
Transformation
Production domain
process and
of responsibility
WIP storage
Purchasing
domain of
RM storage responsibility
Chocolate Maintenance
Egg Sugar Flour
chips services
supplier supplier supplier
supplier supplier
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Materials Management
Supermarket A Supermarket B
distribution center distribution center
Distribution
Transportation
domain of
services supplier
responsibility
FG storage
Transformation
Production domain
process and
of responsibility
WIP storage
Purchasing
domain of
RM storage responsibility
Chocolate Maintenance
Egg Sugar Flour
chips services
supplier supplier supplier
supplier supplier
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Inventory Measures
Average inventory = £2 million
Cost of goods sold = £10 million
52 business weeks per year
£2 million
Weeks of supply = = 10.4 weeks
(£10 million)/(52 weeks)
£10 million
Inventory turns = = 5 turns/year
£2 million
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Inventory Measures
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Supply-Chain Process Measures
SUPPLY–CHAIN PROCESS MEASURES
Customer Order Supplier
Relationship Fulfillment Relationship
% of orders taken % of incomplete orders % of suppliers’
accurately shipped deliveries on time
Time to complete % of orders shipped on Suppliers’ lead
order placement time times
process Time to fulfill order % defects in
Customer % of botched services services &
satisfaction with or returned items purchased
order placement Cost to produce materials
process service or item Cost of services &
Customer satisfaction purchased
with order fulfillment materials
process
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Supply-Chain Design
DESIGN FEATURES FOR EFFICIENT &
RESPONSIVE SUPPLY CHAINS
Ross
1998
D, Competing Thru. Supply Chain Management, Kluwer,
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