PROCUREMENT AND SUPPLY MANAGEMENT CHAPTER 5. MATERIAL MANAGEMENT Materials management is the...
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Transcript of PROCUREMENT AND SUPPLY MANAGEMENT CHAPTER 5. MATERIAL MANAGEMENT Materials management is the...
MATERIAL MANAGEMENT
Materials management is the planning and control of the flow of materials that are part of the inbound logistics system.
Materials Management Activities Procurement Importance of Item and Service Purchased The Special Case of Procurement Price Other Materials Management Activities
Materials Management:Procurement Importance
Contributes to the competitive advantage of the firm
Significant portion of the logistics costs
Definition of Procurement Activities Identify or reevaluate needs Define and evaluate user requirements Decide whether to make or buy Identify the type of purchase Conduct a market analysis Identify all possible suppliers Prescreen all possible source Evaluate the remaining supplier base Choose a supplier Receive delivery of the product or service Make a post purchase performance evaluation
Materials Management: Importanceof Item and Service Purchased Products and services purchased by a
company are not all the same. Some are more important than others
and require greater procurement attention.
The quadrant technique enables the supply chain manager to assess the relative importance of each item based on the degree of perceived value and risk.
There are four possible combinations in the quadrant techniques model: Generics --- low risk, low value Commodities --- low risk, high value Distinctives --- high risk, low value Criticals --- high risk, high value
Figure 4-3 illustrates the relationships in the quadrant technique model.
Materials Management: Managingthe Procurement Process in 4 Steps1. Determine the type of purchase
New Straight rebuy Modified rebuy
2. Identify the type of purchase Determine the necessary levels of
investment of time and information. The more complex the purchase, the more
time needs to be spent and more information needs to be gathered to get it right the first time.
3. Perform the procurement process Do those activities that are necessary to
effectively make a purchase and satisfy the user’s requirements.
4. Evaluate the effectiveness of the procurement process Were the user’s needs satisfied? Was the investment necessary?
Materials Management: Managing
the Procurement Process Supplier/Vendor Evaluation and
Relationships Maintaining a healthy vendor relationship is
a critical part of a successful supply chain. Developing a true partnership relationship
with a firm’s vendors grows more important as the number of vendors shrinks and/or the vendors are being sought by other competing supply chains.
TQM begins with the vendors.
Vendor Selection Criteria Quality Reliability Capability Financial Miscellaneous Other Qualities Vendor Location Factor Importance Will Vary
Materials Management: TheSpecial Case of Procurement
Price Sources of Price
Commodity markets Price lists Price quotations Negotiation
Types of Costs Traditional basic input costs – primary
product price Direct transaction costs - all other related
costs of detecting and transmitting information to suppliers (e.g., EDI)
Supply relational costs - costs of maintaining relationships with suppliers
Other types of Costs Landed costs - actual transport costs +
sales terms Quality costs/factors - do the goods
conform to standard?
Other types of Costs Operations/logistics costs Receiving and make-ready costs Lot size costs Production costs Other logistics costs affected by product’s
size, weight, density and shape
Materials Management: OtherMaterials Management
Activities
Warehousing Type of facilities
required Production
Planning and Control Coordinating
product supply with product demand
Transportation Vendor control Modal choice Rush shipments Inspection Damage claims
Quality Control Quality standards
did customer receive what was ordered? Quality implications
GIGO concept Sample inspection
statistical QC from vendor to assure 100% quality
Salvage and Scrap Disposal Value of scrap may be income to the firm. Disposal must adhere to environmental
regulations.
Electronic Procurement
Common uses of E-commerce Research vendor and product information Electronic check of available stock Price negotiation Order products or services Check on the status of an order Issue invoice and receive payment
Disadvantages Security of electronic messages Lack of face-to-face contact Other technological concerns
Standard protocols System reliability
Four Basic Types of E-commerce
Models Sell-side system
Administered by the seller Usually free to the buyer
Electronic marketplace Administered by a third party Collection of electronic catalogs One-stop sourcing for buyers