Inter company relations and purchasing policy Purchasing and Supply Chain Management Inter company relations and purchasing policy (Logistics and supply chains)

Logistics and Supply Chains What is Logistics The total management of the key operational functions in the supply chain – procurement, production and distribution. Procurement includes purchasing and product development. The production function includes manufacturing and assembling, while the distribution function involves warehousing, inventory, transport and delivery.

Logistics and Supply Chains

Logistics and Supply Chains Materials Management is the planning, organisation and control of all aspects of inventory embracing procurement, warehousing, work in progress and distribution of finished goods. Reverse Logistics is the process of planning, implementation and controlling the efficient, cost effective flow of raw materials, in process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.

Logistics and Supply Chains A Supply Chain is that network of organisations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer or consumer. Types of Supply Chain Can be classified according to: Customer/supplier characteristics – concentrated, batch, retail and distribution Virtuality - information Scope – international, regional, Service Complexity – direct, extended, ultimate Products – end product (build to forecast, build to order) Purpose and value

Supply Chain Management Logistics and Supply Chains Customer relationship management Quality of products and services Reverse logistics Returns management Customer service management Product development & commercialisation Demand management Supply Chain Management – Eight Processes Balancing requirements with capabilities.... active influencing demand Supplier relationship management Order fulfillment Manufacturing flow management Operations management, Quick response manufacturing Company interaction with suppliers, short-term, long-term - intensity

Five Categories of Supply Chain Risk! Internal risks/external risks Logistics and Supply Chains Environ – economic, political, social Related with supply chain Supply Chain Vulnerability Five Categories of Supply Chain Risk! Internal risks/external risks Lack of Ownership Decision Risks Inertia Risks Chaos Risks J.I.T Relationship Risks Routine Little capacity or stock reserves No boundaries between buyer and supplier, complicated networks Information

Ten ways of Managing Supply Chain Risk Logistics and Supply Chains Ten ways of Managing Supply Chain Risk Diversification – multiple sourcing 1 Stockpiling – inventory as a buffer 2 Redundancy – maintaining excess production, storage... 3 Insurance – against losses 4 Supplier selection – more careful assessment of suppliers 5 Supplier development – working closely with suppliers 6 Contractual obligation – imposing legal obligations 7 Collaborative initiatives – spreading risks 8 Rationalisation of the product range 9 Localised sourcing – shortening transport distances 10

Logistics and Supply Chains Porter’s Value Chain Model Five Primary Activities Inbound logistics Operations Outbound logistics Marketing and sales Service Four Support Activities Firm infrastructure Human resources Technology development Procurement

Ten Major Cost Drivers – Value Chains Logistics and Supply Chains Ten Major Cost Drivers – Value Chains Economic or diseconomies of scale (large requirements – inelastic supply) 1 Learning and spillovers (from one industry to another via suppliers) 2 Capacity utilisation (relative stable costs) 3 Linkages among activities (influence on performance) 4 Inter-relationships 5 Degree of vertical integration (f.e. own transport vehicles) 6 Timing of market entry (being the first on market) 7 Firms policy of cost or differentiation 8 Geographic location 9 Institutional factors (government regulations, taxation) 10

Strategic Cost Analysis Logistics and Supply Chains Test the cost reduction strategy for sustainability Main Steps in Strategic Cost Analysis Ensure cost reduction efforts do not differentiate Develop a strategy lower relative cost position Identify competitor value chains Diagnose the cost drivers of each activity Identify value chain & assign costs & assets to it

Range of expenditures as percentage of the sales Logistics and Supply Chains Range of expenditures as percentage of the sales Purchasing 55 – 65 % Transport 3,5 – 7 % Labor 2,5 – 6 % Inventory 3 – 9 % System and administration 1,5 – 3 % Facilities 0,7 – 2 %

Delay in supply of goods or services results in a slower cycle time and adversely impacts on cash flow

Some perceptions of ‘lead time’

Eight types of lead time

Component parts of lead times

Component parts of lead times (Continued)