Professionals Purchasing’s Growing Importance

Supply Chain Management

The Internet and Business-to-Business Selling

Just- in- time Inventory SystemAdvantage and Disadvantage

Material Requirements Planning (MRP) system

Automatic Replenishment (AR)

Supplier Relationship Management

Supply Chain Management

Supply Chain Management

Set of programs undertaken to increase the efficiency of the distribution channel that moves products form producer’s facilities to the end user.

Just-in-time Systems

used by a producer to minimize its inventory by having frequent deliveries, sometimes daily, just in time for assembly into the final product.

The ultimate goal is to eliminate all inventory except products in production and transit. Inventory is waste.

Rely on one supplier.

Final Product…

Inventory is Waste…

Advantages of JIT SystemFunds that were tied up in inventories can be

used elsewhere.

Areas previously used, to store inventories can be used for other more productive uses.

Throughput time is reduced, resulting in greater potential output and quicker response to customers.

Defect rates are reduced, resulting in less waste and greater customer satisfaction.

PCs Just In Time Management:

Del Computer Corporation has finally tuned its Just-in-Time system, Dell's low cost production system allows it to under price its rivals by 10% to 15%. How does the company's just in time system deliver lower costs? "While machines from Compaq and IBM can languish on dealer shelves for two months Dell does not start ordering components and assembling computers until an order is booked.

That may sound like no biggie, but the price of PC parts can fall rapidly in just a few months. By ordering right before assembly, Dell figures its

parts, on average,

are 60 days newer than

those in an IBM or Compaq

machine sold at the same time.

That can translate into a 6% profit advantage in components alone."

Disadvantage of JIT System JIT manufacturing also opens businesses to

a number of risks, notably those associated with your supply chain. With no stocks to fall back on, a minor disruption in supplies to your business from just one supplier could force production to cease at very short notice.

Toyota the Developer of JIT System

Just-in-time manufacturing system has many advantages, but they are vulnerable to unexpected disruptions in supply. A production line can quickly come to a halt if essential parts are unavailable. Toyota, the developer of JIT, found this out the hard way. One Saturday, a fire at Aisin seiki Company's plant in Aichi Prefecture stopped the delivery of all break parts to Toyota. By Tuesday,

Toyota had to close down all of its Japanese assembly line. By the time the supply of break parts had been restored, Toyota had lost an estimated $15 billion in sales.

Material Requirement Planning System these systems are used to forecast sales,

develop a production schedule, and then order parts and raw materials with delivery dates that minimize the amount of inventory needed, thereby reducing costs.

           Week 1 2 3 4 5 6 7 8

Gross Requirements

Scheduled Receipts

Projected on hand I

Planned Receipts

Planned order releases                

Automatic Replenishment A form of Just-in-time where the supplier

manages inventory levels of the customer. The materials are provided on consignment,

meaning the buyer doesn’t pay for them until they are actually used. (industrial settings)

Electronic Data Interchange Computer-to-computer linkages between

suppliers and buyers sharing information about sales, production and shipment and receipts of products.

Quote Order

Acknowledge

Shipping Notice

Invoice

Promotion Schedule

BUYER SUPPLIER

CARRIER

Sales Forecasts

Promotion Schedule

Request For Quote

Change Order

Material Release

Shipm

ent s

tatu

sPic

k up

ord

erPick up order

Shipment Status

Advanced shipping

noticeBill of Landing

Supplier Relationship Management is a strategy by which organizational buyers

evaluate the relative importance of suppliers and use that information to determine with whom they want to develop partnerships.

Supplier Relationship Management

Step 1:Annual Spend

Step 2:Vendor Analysis

Step 3:Overall score is developed.

Annual Spend

Is the amount that is spent with each vendor (supplier) and for what products.

Vendor Analysis

The buyer rates the supplier and its product on a number of criteria such as; Price Quality Performance On- time Delivery

Note:

The ratings of suppliers can be affected by perceptions and personal needs of the buyers.

Overall score is developed

The ratings are weighted by importance of the characteristics.

The Internet and Business-to- Business Selling Electronic ordering

through EDI (Electronic Data Interchange) has been common practice in business for more than 10 years.

The Internet and Business-to- Business Selling EDI activity, nowadays, was transacted

over private networks that required buyers and sellers to use specialized software to communicate with each other.

Special secure Internet-based networks connecting buyers and suppliers are called extranets.

Benefit of Extranet

Reduced costs by making manuals and technical documentation available online to trading partners and customers

more effective collaboration between business partners - perhaps members of a project team - by enabling them to work online on common documentation

improved business relationships with key trading partners because of the close collaborative working that extranets support

improving the security of communications between you and your business partners, since exchanges can take place under a controlled and secure environment