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Chapter 12 Supply Chain Management Supply Chain N etwork of Suppliers warehouses, operations, warehouses, distribution centers, retail outlets, and customers. Overview Replenishment order Replenishment order Replenishment order Replenishment

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Chapter 12

Supply Chain

Management


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Supply Chain

Network of

Suppliers

warehouses,

operations,

warehouses,

distribution centers,

retail outlets,

and customers.


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Overview

Replenishment

order

Replenishment

order

Replenishment

order

Replenishment

order

Customer

order

Supplier

Factory

Wholesaler

Distributor

Retailer

Customer

Production

Delay

Shipping

Delay

Shipping

Delay

Shipping

Delay

Item Withdrawn

Manufacturer

Inventory

Retailer

Inventory

Distributor

Inventory

Wholesaler

Inventory

Different companies do not have identical supply chains.


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Closer Vendor Relationship

  • Price is now a secondary issue; frequent small deliveries of high quality goods,

  • also flexibility and quick response.

  • Cooperation between buyer and supplier is an integral part of Supply Chain

  • Management.

  • Narrow down the number of suppliers to a few, develop a long term

  • relationship.

  • Do not make suppliers against each others, develop a friendly environment.

  • Burden of ensuring quality shifts to the supplier. The ultimate goal of the buyer

  • is to certify a vendor as a producer of high quality goods.

  • Integration is easier when supplier is dedicated to only few buyers.

  • Tier approach to suppliers


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Purchasing

Production

Distribution

Purchasing

Receiving

Storage

Operations

Storage

Purchasing is responsible for obtaining the materials,

parts, and supplies needed to produce a product or

provide a service.

The importance of purchasing is more than just cost of

material purchased, but also quality and timing.


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Purchasing Interfaces

Legal

Operations

Accounting

Data

processing

Purchasing

Design

Receiving

Suppliers


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Purchasing Interfaces

Legal

Opera-

tions

Account-

ing

Data

process-

ing

Purchasing

Design

Receiv-ing

Sup-

pliers

Purchasing is the connecting link between the organization and its

suppliers.

Operating units are the main sources of request for purchase. Close

relationship between purchasing and operating units is required to

achieve proposed quality, quantity, and timing.

Changes in specifications, quantities and lead times should

be immediately communicated between operating units and purchasing.

Assistance of the legal department is required in

bid specifications and contract negotiations

Accounting is responsible for A/P, must be notified

when material are received.


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Purchasing Interfaces

Legal

Opera-

tions

Account-

ing

Data

process-

ing

Purchasing

Design

Receiv-ing

Sup-

pliers

Design and engineering prepare material specifications and should have

close communication with purchasing. Purchasing could also inform

design and engineering about new products and material improvements.

Design and purchasing work together to see whether changes

in design or specification can reduce the cost of purchased material.

Receiving checks incoming shipment for their quantity, quality and

timing. Information is sent from receiving to both purchasing and A/P.

Suppliers work closely with purchasing to learn

what material will be purchased and with what

specifications, quality, and timing.


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Purchasing Cycle

  • Requisition received

  • Supplier selected

  • Order is placed

  • Monitor orders

  • Receive orders


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Value Analysis vs Outsourcing

  • Value analysis

    • Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance

  • Outsourcing

    • Buying goods or services from outside sources rather than making or providing them in-house


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Outsourcing

  • Cost to make vs. cost to buy

  • Stability of demand

  • Quality from suppliers

  • Maintaining close control

  • Idle capacity available


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Determining Prices

  • Fixed or predetermined prices

    • for standards items that are bought frequently

  • Competitive bidding

    • for large orders of standard parts, e.g. government purchases of standard goods or services

  • Negotiating

    • for one or few customized purchases where specifications are vague


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Centralized Purchasing

  • Centralized purchasing; Purchasing is handled by one special department.

    • may be able to quantity discount due to higher volumes

    • may be able to obtain better service and attention

    • few items in high volume are purchased by specialists


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Decentralize Purchasing

  • Decentralized purchasing; Individual departments or locations handle their own purchasing requirements

    • better understanding of local needs

    • quick response

    • saving in transportation costs

  • Some companies have a combination


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Logistics

  • Movement material to-within-from facility

  • Material includes row material, components, finished goods, supplies, etc.

  • Logistics indeed is physical flow of material in supply chain


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Material Movement

Work center

Work

center

Work center

Storage

Work

center

Storage

Storage

RECEIVING

Shipping


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Shipping Alternatives

Determine which shipping alternative, 1 day or 3 days is preferred. Holding cost is 1000 per year, shipping cost is 40 $ for 1 day delivery, and for 3 days delivery is

a) 35 $

b) 30 $

Holding cost for two days is (1000/365)2 = 5.48

If 1 day delivery is 35, then 35-30 = 5 extra cost, while

saving is 5.48. We prefer 1 day delivery


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Shipping Alternatives

If 1 day delivery is 40, then 40-30 = 10 extra cost, while saving is 5.48. We prefer 3 days delivery


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Purchasing and SCM Facilitators

  • Bar Codes

  • Electronic Data Interchange


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Bar Coding

0

214800 232087768

Bar coding or universal product codes (UPC); patterns of black lines and white spaces that can be read by scanning devices, containing a variety of information.

Bar codes are used for recording prices and quantities, printing sales receipts, and updating inventory records.

Enable companies to keep track of items

in warehouses, throughout the production

and en route to customers


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Electronic Data Interchange (EDI)

  • EDI is the intra-organization transmission of transactions. Transactions such as purchase orders, shipping notices, debit or credit memos are transmitted from computer to computer between organizations.

  • EDI also serves as Kanban between down stream (customers) and upstream (suppliers) of manufacturing and service systems.

  • EDI allows manufacturers to have better understanding of their customer behavior and preferences.


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Electronic Data Interchange (EDI)

  • Wal-Mart has a satellite network for electronic data interchange that allows vendors to directly access point-of-sale data in real time. Enabling them to improve their forecasting and inventory management. The system is also used for issuing purchase order and receiving orders from vendors.


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Distribution Requirement Planning

  • A system for inventory management and distribution planning.

  • It connects demand points with a network of multi-echelon warehouses and factories in order to satisfy the demand and replenish the warehouses


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Class

PPTs and Lecture Notes

Book

The whole chapter supports the PPTs

Solved Problems

Problem 1 on page 711