Amity Business School
Supply Chain Management Management
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Introduction •
Materials - any commodities used directly or indirectly in producing a product or service. ser vice. –
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Raw materials, component parts, assemblies, finished goods, and supplies
Supply chain - the way materials flow through through different organizations from the raw material supplier to the finished goods consumer.
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Supply Chain for Steel in an Automobile Door MINING COMPANY Mines iron ore
Iron ore
STEEL MILL Forms steel ingot
Steel ingots
STEEL COMPANY Forms sheet metal
Sheet metal AUTOMOTIVE SUPPLIER Makes door
Car door
AUTOMOBILE MANUFACTURER
Car
Makes automobile
Does preparation Prepared car
FINAL CONSUMER Drives automobile
CAR DEALERSHIP
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Supply Chain Management •
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Refers to all the 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. Two alternative names: –
Materials management
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Logistics management
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Supply Chain Management in a Manufacturing Plant s r Receiving e i l p and p u S Inspection
Raw Materials, Parts, and In-process WareHousing
Production
Finished Goods Warehousing
Inspection, Packaging, And Shipping
Materials Management
Purchasing
Production Control
Physical materials flow Information flow
Warehousing and Inventory Control
Shipping and Traffic
s r e m o t s u C
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Purchasing Factors increasing the importance of purchasing today: •
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Tremendous impact of material costs on profit (60-70% of each sales dollar is paid to material suppliers) Popularity of just-in-time manufacturing (supply deliveries must be exact in timing, quantity, and quality) Increasing global competition (growing competition for scarce resources, and a geographically “stretched-out” supply chain)
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Mission of Purchasing •
Develop purchasing plans for each major product or service that are consistent with operations strategies: –
Low production costs
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Fast and on-time deliveries
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High quality products and services
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Flexibility
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Purchasing Management •
Maintain data base of available, qualified suppliers
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Select suppliers to supply each material
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Negotiate contracts with suppliers
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Act as interface between company and suppliers Provide training to suppliers on latest technologies
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Advantages of Centralized Purchasing • •
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Buying in large quantities - better prices More clout with suppliers - greater supply continuity Larger purchasing department - buyer specialization Combining small orders - less order cost duplication Combining shipments - lower transportation costs Better overall control
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Purchasing Process Material Requisition
From any department, to purchasing
Request for Quotations
From purchasing, to potential suppliers
Select Best Supplier Purchase Order Receive and Inspect Goods
Based on quality, price, lead time, dependability From purchasing, to selected supplier From supplier, to receiving, quality control, warehouse
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Buyers’ Duties •
Know the market for their commodities
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Understand the laws.... tax, contract, patent..…
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Process purchase requisitions and quotation requests
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Make supplier selections
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Negotiate prices and conditions of sale
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Place and follow-up on purchase orders
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Maintain ethical behavior
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Make-or-Buy Analysis Considerations in make-or-buy decisions: •
Lower cost - purchasing or production?
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Better quality - supplier or in-house?
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More-reliable deliveries - supplier or in-house?
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What degree of vertical integration is desirable?
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Should distinctive competencies be outsourced?
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Logistics •
Logistics usually refers to management of: –
the movement of materials within the factory
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the shipment of incoming materials from suppliers
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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
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Shipments To and From Factories •
Traffic –
Traffic departments routinely examine shipping schedules and select: • • •
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shipping methods time tables ways of expediting deliveries
Traffic management is a specialized field requiring technical training in Department of Transportation (DOT) and Interstate Commerce Commission (ICC) regulations and rates.
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Shipments To and From Factories •
Distribution –
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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 –
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DRP is the planning for the replenishment of regional warehouse inventories. DRP uses MRP-type logic to translate regional warehouse requirements into central distributioncenter requirements, which are then translated into gross requirements in the MPS at the factory.
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Shipments To and From Factories
Distribution Resource Planning
Distribution resource planning extends DRP so that the key resources of warehouse space, workers, cash, and vehicles are provided in the correct quantities at the correct times.
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Analyzing Shipping Decisions •
The “Transportation Problem” –
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Problem involves shipping a product from several sources (ex. factories) with limited supply to several destinations (ex. warehouses) with demand to be satisfied Per-unit cost of shipping from each source to each destination is specified Optimal solution minimizes total shipping cost and specifies the quantity of product to be shipped from each source to each destination
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Innovations in Logistics •
New developments affecting logistics include: –
All-freight airports
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Inter-modal shipping
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In-transit rates
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Consolidated shipments
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Air-freight and trucking deregulation
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Advanced logistics software
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Warehousing •
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Warehousing is the management of materials while they are in storage. Warehousing activities include: –
Storing
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Dispersing
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Ordering
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Accounting
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Warehousing •
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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
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Receipts and expected receipts
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Disbursements, promises, and allocations
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Measuring the Performance Materials Managers •
Level and value of in-house inventories
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Percentage of orders delivered on time
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Number of stockouts
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Annual cost of materials
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Annual cost of transportation
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Annual cost of warehouse
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Number of customer complaints
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Other factors
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Wrap-Up: World-Class Practice •
See materials management as key element in capturing global market share
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Form partnerships with suppliers
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Use computers extensively to manage logistics