Materials Management BUS 3 – 141 Mr. Jess Marino Spring, 2011

1. Materials ManagementBUS 3 – 141Mr. Jess MarinoSpring, 2011

2. Agenda • Introduction • Additional comments on the course • Initial Lecture

3. Student Information Sheet • NAME • MAJOR (and Emphasis) • BUS 3 – 140, 141, 142, 143, 144, 145, 146, 147 • CURRENT JOB (Company Optional) • PREVIOUS SUPPLY CHAIN JOBS / EXPEIRIENCE • OTHER

4. Course Overview and Objectives • Understanding how an organization determines its materials requirements, including what needs to be purchased, in what quantities, and at what delivery schedule … What do you need? …. What do you have? …. What do you have to get? • Understanding the significance of cost management and price negotiation, including design, quality, and transportation and logistics considerations • Understanding the critical relationship between an organization and its suppliers

5. Student Learning Objectives for the Course • Understand how to calculate requirements • Understand the materials management process and how it fits within the overall Supply Chain process • Understand the interaction and leverage between the organization and its suppliers • Develop an interest in pursuing a career in Materials Management; enhance capabilities of those already in the field

6. Key Assignments • Three (3) Exams • One (1) Homework assignment • Two (2) Case Studies • Group Project

7. Additional Notes on the Course • Buying at work vs. Buying at home • Pay the least for the most • Sometimes it’s Safeway, sometimes Costco, sometimes 7-11 • Focus more time and attention on expensive or critical items • 5% of Grade based on Participation • Issues and observations from students work experience • The positions of Buyer and Material Planner • Careers in Supply Chain Management • Classroom expectations

8. Course Introduction

9. Highest Level Supply Chain Objective Revenue Utilization of Assets (People, Plant, Equip) Cash Inventory BALANCING keeping Customers completely satisfied and Resources optimally utilized ……. against spending the least amount of Cash and carrying the least amount of Inventory

10. Highest Level Materials Management Process Calculate HOW MUCH is Required Identify WHAT Items are Required Schedule WHEN they are Received & FROM WHOM At the LOWEST Total COST of Ownership With the Highest QUALITY and Reliability

11. Ensure CONTINUOUS SUPPLY • Manage critical FINANCIAL levers • Balance Sheet by optimizing Cash and Inventory • Income Statement by minimizing Cost of ownership How this Course supports Supply Chain Objective & Process The Right PRICE The Right SERVICE paying The Right SUPPLIER and The Right PLACE with the The Right TIME at the The Right QUANTITY at the The Right QUALITY with the

12. Supply Strategy Interpreted in Organizational Strategy * Supply Objectives Organizational Objectives Supply Strategy Organizational Strategy * Adapted from Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

13. Tactical Elements of theSupply Management Process

14. The 9 Elements of the Supply Management Process Supply Mgmt Customer Service Production Customer Demand Shipping Production Schedule Maintain Records Process Payment Receive & Verify Follow-Up & Expedite Issue Purchase Order Select Supplier(s) Assess Suppliers Establish Specifications Identify Requirements

15. 1. Identify Requirements Identify Requirements Maintain Records Process Payment Follow-Up & Expedite Receive & Verify Issue Purchase Order Select Supplier(s) Identify Suppliers Establish Specifications • Direct and Indirect • Material Requisitions • MRP Output • Impact of Lead Time • Other items to consider • As availability becomes scarce, Purchasing alerts users • Recommending subassemblies instead of components • Proposing substitute items, where appropriate

16. 2. Establish Specifications Establish Specifications Maintain Records Process Payment Follow-Up & Expedite Receive & Verify Issue Purchase Order Identify Requirements Select Supplier(s) Identify Suppliers • Engineering Drawings and Specifications • Samples • Requisition Details (electronic or paper) • Date originated, Document Number, Dept, Account Number, Signature(s) • Complete description of material or service required • Quantity and date required • Shipping / delivery instructions • Authorization to Buy • Impact of Lead Time • Other items to consider • Understanding ultimate purpose (Are they asking for a Mercedes or just a car?) • Catalogues and standard items • Supplier Input

17. 3. Identify Suppliers Identify Suppliers Process Payment Maintain Records Follow-Up & Expedite Receive & Verify Issue Purchase Order Establish Specifications Identify Requirements Select Supplier(s) • History and Geography • Request for Quotation • Request for Proposal • Request for Bid • Other items to consider • Input from Technical Staff • Other

18. 4. Select Suppliers Select Supplier(s) Maintain Records Process Payment Identify Suppliers Follow-Up & Expedite Receive & Verify Issue Purchase Order Establish Specifications Identify Requirements • Supply Capability • Quality • Capacity • Reliability • Many other factors to be covered later in semester

19. 5. Issue Purchase Order Issue Purchase Order Identify Suppliers Maintain Records Select Supplier(s) Follow-Up & Expedite Process Payment Establish Specifications Identify Requirements Receive & Verify • Relationship to Material Requisition • The Requisition provides the information that populates several Purchase Order data fields (see Requisition Details) • Ensure Risk Management • Acknowledgement • Internal Controls • Budgets • Approvals • Recurring Purchase Order Releases • Pre-negotiated contracts • Other items to consider • ALWAYS ensure that the terms and conditions are in WRITING. A Purchase Order is a CONTRACT Continued on next Slide

20. 5. Issue Purchase Order, continued Issue Purchase Order Identify Suppliers Maintain Records Select Supplier(s) Follow-Up & Expedite Process Payment Establish Specifications Identify Requirements Receive & Verify • Discrete Orders • Pre-negotiated Blanket • Pre-negotiated Vendor-Managed • Maintenance, Repair, and Operating Supplies (MRO) • Bid and Auction • Corporate Purchase Card (pCard)

21. 6. Follow-Up and Expedite Follow-Up & Expedite Process Payment Identify Suppliers Maintain Records Select Supplier(s) Issue Purchase Order Receive & Verify Establish Specifications Identify Requirements • ERP Applications assume that scheduled dates will be received on time • A Scheduled delivery date needs to be monitored and managed • Possible missed dates must be identified in advance and avoided • If delays are inevitable, recovery plans must be developed and managed • Other items to consider • An understanding of the Supplier’s production process, capacity, and constraints is critical to collaborative problem solving • Expediting should be on an exception basis. If it is determined that a particular supplier is consistently being expedited, corrective action should be initiated

22. 7. Receive and Verify Receive and Verify Process Payment Identify Suppliers Maintain Records Select Supplier(s) Issue Purchase Order Follow-Up & Expedite Establish Specifications Identify Requirements • Relationship to Material Requisition and Purchase Order • Key data elements travel throughout • Key objectives • Confirm receipt of goods • Ensure proper physical condition, quantity, documentation • Quality parameters met • Cross functional activity among Purchasing, Receiving, Materials, and Finance • Other items to consider • Receiving is technically a “non-value-added” activity. It is designed to ensure that something that should have been done properly actually was. The goal is to ensure quality throughout, and eliminate the need for inspection

23. 8. Process Payment Process Payment Receive & Verify Identify Suppliers Maintain Records Select Supplier(s) Issue Purchase Order Follow-Up & Expedite Establish Specifications Identify Requirements Key Document Flow Payment Requisition Purchase Order Packing Slip (Receiving) Invoice • Match the data in the Purchase Order, Packing Slip, and Invoice • Discrepancies must be reconciled before payment is issued • Some level of discrepancies can be ignored (e.g. if +/- 5% or +/- $25) • Audits of all • Discounts for early payment are often available and should be taken whenever possible • Other items to consider • Chronic discrepancies from a single Supplier could lead to a change

24. 9. Maintain Records Maintain Records Receive & Verify Identify Suppliers Process Payments Select Supplier(s) Issue Purchase Order Follow-Up & Expedite Establish Specifications Identify Requirements • Purchase Orders should be archived for up to 7 years • Key Records to be Maintained • Purchase Order Log of all PO’s • Copies of Purchase Orders • Commodity file • Supplier history file • Outstanding Contracts against which PO’s are placed • Other items to consider • Can be electronic or paper • Paper can be managed by a third party