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

Page 2 2 Agenda –Introduction –Additional comments on the course –Initial Lecture

Page 3 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

Page 4 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

Page 5 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

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

Page 7 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

Course Introduction

Page 9 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

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

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

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

Tactical Elements of the Supply Management Process

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

Page Identify Requirements Identify Requirements Establish Specifications Identify Suppliers Select Supplier(s) Issue Purchase Order Follow-Up & Expedite Receive & Verify Process Payment Maintain Records –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

Page Establish Specifications Establish Specifications Identify Requirements Identify Suppliers Select Supplier(s) Issue Purchase Order Follow-Up & Expedite Receive & Verify Process Payment Maintain Records –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

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

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

Page Issue Purchase Order Issue Purchase Order Identify Requirements Establish Specifications Identify Suppliers Select Supplier(s) Follow-Up & Expedite Receive & Verify Process Payment Maintain Records –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

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

Page Follow-Up and Expedite Follow-Up & Expedite Identify Requirements Establish Specifications Identify Suppliers Select Supplier(s) Issue Purchase Order Receive & Verify Process Payment Maintain Records –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

Page Receive and Verify Receive and Verify Identify Requirements Establish Specifications Identify Suppliers Select Supplier(s) Issue Purchase Order Follow-Up & Expedite Process Payment Maintain Records –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

Page Process Payment Process Payment Identify Requirements Establish Specifications Identify Suppliers Select Supplier(s) Issue Purchase Order Follow-Up & Expedite Receive & Verify Maintain Records Key Document Flow Requisition Purchase Order Packing Slip (Receiving) Invoice Payment –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

Page Maintain Records Maintain Records Identify Requirements Establish Specifications Identify Suppliers Select Supplier(s) Issue Purchase Order Follow-Up & Expedite Receive & Verify Process Payments –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