1. Purchasing and Supply Management

2. A Formal Supplier Selection Process
1. Questionnaire
Production capability
Emphasis on quality
2. Financial analysis
Long-term reliability
3. Buyer tour of supplier's plant
4. Suppliers tour the firm's plant 21

3. Why study PSM?
Purchasing and supply management is a powerful tool for improving profitability McKinsey’s Quarterly, 1997
19% point gap in a survey of electronic companies

4. Why study PSM
40%-70% of COGS accounted for by the cost of purchased goods and services
10% cost reduction in COGS = 10% improvement in profit
10% improvement in sales (with a profit margin of 10%) translates to only 1% improvement in profit

5. Why Study PSM Strategic role: Globalization Buyer/Planner concept
Quality at the source
Collaborative role of supplier

6. Purchasing and Supply Management - Introduction
A company’s procurement organization is tasked with securing a reliable supply of quality products to meet the demand of both internal and external customers, at the lowest total cost, by sourcing from strategic suppliers and maximizing corporate buying power.

7. Objectives of PSM 1. Uninterrupted flow of Materials
2. Manage inventory
3. Improve Quality
4. Develop Suppliers
5. Standardize
6. Achieve lowest total cost
7. Improve competitive position
8. Develop cross functional relationships
9. Reduce Administrative costs

8. Uninterrupted flow of materials
Interrupted flow leads to lost production, escalation of operating costs, and inability to satisfy delivery promises – strikes, earthquakes, Sept. 11 etc.
Hedging strategy - Volkswagen operates plants in the United States, Brazil, Mexico and Germany.
Flexible Strategy - multiple suppliers in different countries, excess manufacturing capacity in factories
Collaboration and Outsourcing - share in the downside risk

9. Improve Quality
The cost to correct a substandard-quality material input can be huge
Specification, quality audit etc.

10. Develop Suppliers Reduction of supplier base (normally by 50%)
Select appropriate suppliers and work with the suppliers to attain continuous improvement

11. Standardize
Reducing the number of parts or the number of variants or models of a product can save significantly on material costs and thus increase profitability
Most complexity of product comes from design, not customer

12. Achieve total lowest cost
Strive to obtain needed items or services at the lowest possible total cost, assuming that quality, delivery and service requirement are satisfied.

13. Improve competitive position
PSM does not begin and end with one-off cost reduction
Properly managed, PSM can give companies a network of suppliers capable of delivering the technology, knowledge, products, or service quality that will beat competitors, at the same time as securing ongoing cost reductions.

14. Develop cross-functional relationships
Achieve harmonious, productive working relationship with other functional areas within the organization
Production and Control: provide info on material requirement in timely fashion
Production and Engineering: must be willing to consider substitute materials and different suppliers
QC – interface between QC and supplier
Accounting – timely payment to take advantage of quantity discount etc.

15. Reduce Administrative Costs
Streamline purchasing procedures
eMart in SAF
Purchasing Card Program by VISA
B2B exchanges

16. Supply Organization Centralized Purchasing Decentralized Purchasing
Pros and Cons?
Decentralized Purchasing

17. The 5 stages of purchasing
Serve the factory – keep the factory running. Focus on clerical, logistical duties.
Lowest Unit Cost – Cost analysis, competitive bidding, and negotiation become key skills
Coordinated Purchasing – Cooperative purchasing across sites and profit centers. Eg. lead buyers, buying committees, centralization of purchasing etc.
Cross functional Purchasing – Recognition that design, specification, and supplier development can have far more impact on cost than does negotiation
World Class Supply Management - Strategic supplier selection, long-term relationship design, supplier network management, supplier collaboration on new technologies etc.

18. JUST IN TIME:
Only what is needed, nothing more...   To have only the right materials, parts and products in the right place at the right time.  

21. THE SEVEN WASTES. from Shigeo Shingo in Robert W. Halls book
THE SEVEN WASTES from Shigeo Shingo in Robert W. Halls book Attaining Manufacturing Excellence, 1987
Waste of over production
Waste of waiting
Waste of transportation  
Waste of processing itself
Waste of stocks
Waste of motion
Waste of making defective products

22. Toyota: seven sources of waste in manufacturing
The process: if the wrong type or size of machinees are used, if the process is not operated correctly of if the wrong tools and fixtures are used
Methods: of methods in performing tasks by operators cause wasted movement, time,or effort
Movement: Poorly planned layouts cause unnecessary movements.
Product defects;defects interrupt the smooth flow of of work

23. Waiting time: two kinds of waiting time that of the operator and that of material.
Overproduction: raw materials and labor are consumed for parts not needed resulting in unnecessary inventories.
Inventories:excess inventories adds extra cost to the product

24. Misunderstandings about JIT:
thinking of JIT as a physical system to be implemented rather than a management philosophy to be adopted
thinking of JIT as simply an inventory control system
thinking of JIT as strictly a manufacturing oriented management approach

27. What happens with JIT…
Eliminate non-value added activities  less time spent and less money spent...
Involve your suppliers and customers eliminate duplications, non value addded activ.
Shorter Set-up time and less WIP 
Faster through-put, less time, higher quality

28. JIT Action Areas…
Develop people - increase skills,productivity, morale
Eliminate waste in all areas
Optimize materials handling and production flow
Control Tooling
Increase quality
Improve continuously!

30. 1. Production flexibility at every stage of supply
Smaller and more frequent shipments of products
Flexibility to produce quantities of intermediate products as needed

31. 2. Schedule stability and discipline
Replace large batch sizes with continuous flow of smaller quantities
Reduction of storage, movement from place to place or inspection
Minimizes extra inventory extra with changes in demand
Quick delivery of products to respond to changes in demand

32. 3. Comprehensive quality assurance
Defective-free, high quality products and processes avoids costs.
Eliminates wastes of:
- Time - Material
- Product - Energy
- Money - Information

33. 4. Teams of competent, empowered employees
Supervisor becomes a teacher, facilitator and a leader rather than an enforcer
Employees are empowered to take appropriate actions

34. 5. A signaling system to pull production
Every system has a signal that triggers production
Kanban
Push production system
Pull production system
Modifications in the signaling system
Areas of Kanban applications

35. 6. A logistics system to support JIT delivery
JIT requires fast and regular supply
Cost, reliability, quality, and flexibility are key factors in vendor selection
Vendors preferred with small lot sizes, frequent deliveries
Few to single suppliers
Vendor Managed Inventory (VMI)

36. Barriers to Successful Implementation of JIT
Cultural resistance to change
Lack of resources
Frequently top management lack understanding or commitment
Lack of or difficulty establishing performance measures

37. JIT Purchasing
Just in Time purchasing requires frequent releases of orders and frequent deliveries of products. For this to work, purchasers and suppliers must develop long-term relationships rather than use the multiple sourcing