OMSAN LOJİSTİK

Purchase Order Management Procurement and Supplier Relationship Management Latin America Logistics Center Logistics Management Series

Procurement Provides the Best Opportunity to Control Costs … For Each $1 in sales, companies spend between 50 y 55 cents. in purchased materials Costs reductions in Procurement Costs transalte dollar by dollar into Revenues

Supply Chain Management

Supply Management Procurement is the Process of Purchasing raw materials or finished goods to satisfy Inventory needs Decisions Include: –Decisions of use of suppliers –Negotiation of Contracts –Supply Process Definition

Procurement * Select and Certify Suppliers * Ranking of Suppliers Performance * Negotiation of Contracts * Evaluation of Price, Quality and Service * Supply Products and Services * Procurement Sequence Planning * Negotiate Procurement Conditions * Evaluate Value Received * Assess Quality * Forecast Prices * Specify Delivery Terms Associate Activities to Procurement:

Supply is a long process that consumes several resources in most organizations Source: Aberdeen Group Seek and Identify the Right Suppliers Manage and Communicate the List of Preferred Suppliers Develop the RFQ Reception and Reply of RFQ Review Proposals Negotiate Contract Average Cycle = 3.3 to 4.2 months

Costs are the Major Concern in Today’s Economy “Which is the most CRITICAL concer in yout industry today? Source: AT Kearney CHEMICALS Costs Competence 89% Customer Relationships 89% Change Management 63% Market Changes 55% FINANCIAL INSTITUTIONS Customer Relationships 82% Effective IT Use 77% Costs Competence 63% Change Mgmt 55% CAR INDUSTRY Costs Competence 78% Customer Relationships 76% Suppliers Relat. 63% Effective IT 55% COMMUNICATIONS/ELECTRONICS Costs Competence 79% Effective IT Use 73% Change Mgmt 60% Customer Relationships 79%

Activities Controlled by the Purchasing Department Purchasing & Supply Management, Dobler & Burt, 6th Edition

Algorithm of the Purchasing Fuction Minimise:Total Purchasing Costs Number of Suppliers Subject to:Inventory Fill Rate Product Quality

ActualSales + 25% Price +5% Labour Costs -25% Overhead -33% Puchasing -8 ½ % Sales Purchasing of Goods & Services Labor and Salaries Overhead Profit $10,000,000 6,000,000 2,000,000 1,500,000 $500,000 $12,500,000 7,500,000 2,500,000 1,500,000 $1,000,000 $10,500,000 6,000,000 2,000,000 1,500,000 $1,000,000 $10,000,000 6,000,000 1,500,000 $1,000,000 $10,000,000 6,000,000 2,000,000 1,000,000 $1,000,000 $10,000,000 5,500,000 2,000,000 1,500,000 $1,000,000 Puchashing Impact in Doubling Profits!

ROA 10% ($9.25 millon) ($ 750,000) ($ 1.9 million) ($4.9 millon) (2.04 veces) (7.5%) (15.3%) 1 Purchase is 50% of SAles 2 Inventory is 40% de Total Assets Benefits $500,000 Sales $10 millon Dividido por Profit Margin 5% Invest. Turn 2 times Multiplicado por Inventory 2 $2 millon Sales $10 millon Cost Total 1 $9.5 millon Menos Total Assets $5 millon Sales $10 millon Dividido por Return on Assets before and after 5 % Discount in the Purchasing Price

Purchase Order Management Steps Identification Requisition Purchase Order Placement Reception

Steps in the Purchase Order Identifying and Evaluating Supply Needs Supplier Selection (Certified) Approval / Authorization of the PO Placement of the PO Tracking of the PO Reception and Evaluation of the PO Ex-Post Management of the PO

Evaluation of Needs Purchase Requisition Requisition 004 Items Description Quantity Quality Lead Time Required

Price Fixing Methods Market Price/Value Price Variance day-by-day by Product

Price Fixing Methods Fixed Price Supply Channel, Mandatory or Optional

Fixed Incoming Cycle, Coordinate and United Source: VanBodegraven

Fixed Incoming Cycle, Coordinate and United – Truckload Assignment Source: VanBodegraven

Supply Control rVerify the Product rAssist Suppliers and subcontractors; technical advice, tools, etc. rCheck Product Quality rUpdate supplier/subcontractor data after orders are completed

Supply Control rSelect Subcontractors and Qualified Suppliers rAttach Specifications, Draws, Schemes, to the purchase order rProcedures to deliver to suppliers/subcontractors in relation to requisitions rQuotes Analysis rClarify with the supplier quality assurance and control and requirements

Time Indicators in Supply 1. Total Purchase Order Cycle = Total Hours

Lead Time Variance Short Lead Times is Good, Consistent Lead Times is Better!

The Perfect Purchase Order  Calculated with the right EOQ and Adjusted to Efficient Management Quantities  Communicated in Real Time to the Supplier  The Supplier has the Product Available  Reception is made in the requested time and within the assigned time windows  The shipment arrives with the right quantities of the right products  The products fulfils requested Quality  The shipment arrives with the right documentation  The suppliers invoice is paid within the agreed time 99% 85% 95% 98% 99% 90% 97% = 66%

PO Placement Individual Orders –Costly –Time consuming Process –Multiple Communications –Casual Products Orders by Contract Blanket Orders Continuos Replenishment Prices? –Market Price/Value –Fixed Price –Agreed Formulas by Product- Period –Fixed time Contracts with Fixed Prices and Discount

Electronic Order Entry Heineken - USA

Tracking of the PO Where? When? What and How Much? Destination? Time? Contents? Status? Exception Reports ?

Tracking of the PO

Tracking of the Supplier’s Delivers