Inv

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http://slidepdf.com/reader/full/inv55cf865c550346484b96e738 1/71

1

Dickson K.W. ChiuPhD, SMIEEE

Text: Ballou - Business Logistics Management, 5/E (Chapter 9-10)

Inentor! an" Procure#ent

http://vig.prenhall.com/catalog/academic/product/0,1144,0130661848-IS,00.html


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Dickson Chiu 2006 Inventory-2

$earnin% &'ecties

o un"erstan" so#e 'asic concepts o*inentor!

o anticipate t!pica+ pro'+e#s ino+e" in

supp+! sche"u+in% "ecisions o un"erstan" so#e 'asic concepts o*

purchasin%

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c.1 Inentor! un"a#enta+s

Business Logistics Management, 5/E (Chapter 9)



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What are Inentories/

inishe" pro"uct he+" *or sa+e oo"s in arehouses Work in process

oo"s in transit Sta2 hire" to #eet serice nee"s 3n! one" or 4nancia++! contro++e" ra

#ateria+, ork in process, an"5or 4nishe"

%oo" or serice he+" in anticipation o* asa+e 'ut not !et so+"

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What are Inentories/

Materialsources

Inboundtransportation

Production Outboundtransportation

Finished goodswarehousing

Customers

Inventorylocations

Finished goods S h i p p i n g

Inventoriesin-process

R e c e i v i n g

Productionmaterials

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6easons *or Inentories

I#proe custo#er serice Proi"es i##e"iac! in pro"uct aai+a'i+it!

Encoura%e pro"uction, purchase, an" transportationecono#ies 3++os *or +on% pro"uction runs akes a"anta%e o* price-7uantit! "iscounts 3++os *or transport econo#ies *ro# +ar%er ship#ent si8es

3ct as a he"%e a%ainst price chan%es 3++os purchasin% to take p+ace un"er #ost *aora'+e price

ter#s Protect a%ainst uncertainties in "e#an" an" +ea" ti#es

Proi"es a #easure o* sa*et! to keep operations runnin% hen"e#an" +ee+s an" +ea" ti#es cannot 'e knon *or sure

3ct as a he"%e a%ainst contin%encies u2ers a%ainst such eents as strikes, 4res, an" "isruptions in

supp+!

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http://slidepdf.com/reader/full/inv55cf865c550346484b96e738 7/71 Dickson Chiu 2006 Inventory-7

6easons 3%ainst Inentories

he! consu#e capita+ resources that #i%ht 'eput to 'etter use e+sehere in the 4r#

he! too o*ten #ask 7ua+it! pro'+e#s thatou+" #ore i##e"iate+! 'e so+e" ithout

their presence he! "iert #ana%e#ent:s attention aa!

*ro# care*u+ p+annin% an" contro+ o* the supp+!an" "istri'ution channe+s '! pro#otin% an

insu+ar attitu"e a'out channe+ #ana%e#ent

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!pes o* Inentories

Pipe+ine Inentories in transit

Specu+atie oo"s purchase" in anticipation o* price increases

6e%u+ar5C!c+ica+5Seasona+ Inentories he+" to #eet nor#a+ operatin% nee"s

Sa*et! E;tra stocks he+" in anticipation o* "e#an" an" +ea"

ti#e uncertainties &'so+ete5Dea" Stock

Inentories that are o* +itt+e or no a+ue "ue to 'ein%out o* "ate, spoi+e", "a#a%e", etc.

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<ature o* De#an"

Perpetua+ "e#an" Continues e++ into the *oreseea'+e *uture

Seasona+ "e#an" =aries ith re%u+ar peaks an" a++e!s throu%hout the !ear

$u#p! "e#an" >i%h+! aria'+e (σ ≥ Mean)

6e%u+ar "e#an" <ot hi%h+! aria'+e (σ ? Mean)

er#inatin% "e#an" De#an" %oes to 0 in *oreseea'+e *uture

Derie" "e#an" De#an" is "eter#ine" *ro# the "e#an" o* another ite#

o* hich it is a part

Accurately forecastingdemand is singly the

most important factor

in good inventory

management

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Pu++ s. Push Inentor!Phi+osophies

Plant

Warehouse #1

Warehouse #2

Warehouse #3

A1

A2

A3

A Allocation !uantity to each "arehouse Re!uested replenishment !uantity $y each "arehouse

1

2

3

%emand&orecast

%emand&orecast

%emand&orecast

PULL - Replenish inventory "ithorder si'es $ased on speci&ic needs

o& each "arehouse

PUSH - Allocate supply to each"arehouse $ased on the &orecast

&or each "arehouse

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Inentor! Mana%e#entPhi+osophies

Pull Dras inentor! into the stockin% +ocation Each stockin% +ocation is consi"ere" in"epen"ent Ma;i#i8es +oca+ contro+ o* inentories

Push 3++ocates pro"uction to stockin% +ocations 'ase" on oera++ "e#an"

Encoura%es econo#ies o* sca+e in pro"uction Just-in-time

3tte#pts to s!nchroni8e stock @os so as to ust #eet "e#an" as itoccurs

Mini#i8es the nee" *or inentor! Supply-Driven

Supp+! 7uantities an" ti#in% are unknon 3++ supp+! #ust 'e accepte" an" processe" Inentories are contro++e" throu%h "e#an"

Aggregate Control - C+assi4cation o* ite#s roups ite#s accor"in% to their sa+es +ee+ 'ase" on the A0-B0 princip+e 3++os "i2erent contro+ po+icies *or or #ore 'roa" pro"uct %roups

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Costs 6e+eant to Inentor!Mana%e#ent

Carr!in% costs Procure#ent costs

&ut-o*-stock costs

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Procure#ent costs

Price o* the %oo"s Cost o* preparin% the or"er

Cost o* or"er trans#ission

Cost o* pro"uction setup i* appropriate Cost o* #ateria+s han"+in% or processin%

at the receiin% "ock

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Carr!in% Costs

Cost *or ho+"in% the inentor! oer ti#e he pri#ar! cost is the cost o* #one!

tie" up in inentor!, 'ut a+so inc+u"eso'so+escence, insurance, persona+propert! ta;es, an" stora%e costs

!pica++!, costs ran%e *ro# the cost o*short ter# capita+ to a'out 05!ear.

he aera%e is a'out B5!ear o* theite# a+ue in inentor!.

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&ut-o*-stock costs

$ost sa+es cost Pro4t i##e"iate+! *ore%one

uture pro4ts *ore%one throu%h +oss o*%oo"i++

ackor"er cost Costs o* e;tra or"er han"+in%

3""itiona+ transportation an" han"+in% costs

Possi'+! a""itiona+ setup costs

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Inentor! Mana%e#ent&'ecties oo" inentor! #ana%e#ent is a care*u+

'a+ancin% act 'eteen stock aai+a'i+it! an"the cost o* ho+"in% inentor!.

Serice o'ecties Settin% stockin% +ee+s so that there is on+! a

speci4e" pro'a'i+it! o* runnin% out o* stock

Cost o'ecties a+ancin% con@ictin% costs to 4n" the #ost

econo#ica+ rep+enish#ent 7uantities an" ti#in%

Customer Service( i)e)( Stoc* Availa$ility Inventory Holding costs

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!pica+ Inentor! Con@ictin% CostPatterns

+ o s t

Replenishment !uantity

Stoc*out cost

Procurement cost

+ a r r y i n g c

o s t

,otal cost Minimum cost

reorder uantity

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Pu++ - Sin%+e &r"er Purchasin%

Make a one-ti#e purchase o* an ite#.>o #uch to or"er/

Procedure: a+ance incre#enta+ pro4t a%ainst incre#enta+ +oss.

Esti#ate" these e;pecte" a+ues

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Si#p+e o-in Pu++ Metho" Dee+op a si#p+e contro+ s!ste# '! 4n"in% the

rep+enish#ent 7uantit! (Q) an" the reor"er point(ROP). 3pp+ica'i+it!F no uncertaint! in "e#an" or +ea" ti#eF

#ana%e re%u+ar (c!c+e) stock on+!

,ime.ead time

.ead time

/rder

Placed

/rder

Placed

/rder

Received

/rder

Received

Inventory.evel

Reorder

point( R

Q

uantity on-hand plus on-order

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6eor"er Point Contro+ *or a Sin%+eIte#

ROP

# u a n t i t y o n h a n d

Q

Q

!eceive

order

Placeorder

Stoc*out

LT

,ime

LT

%emand%uring.,

P

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6eor"er Point Contro+ *or a Sin%+eIte# (B)

R/P

I n v e n t o

r y l e v e l

., .,,ime

Sa&ety stoc*

Actualon hand

uantity on hand

0on order−$ac*orders

uantity &or

control

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6eor"er Point Contro+ *or a Sin%+eIte# ()

Wee*ly demand is normally distri$uted"ith a mean o& d 1 and a standard

deviation o& sd 1.ead time is 3 "ee*s

Finding the reorder point re!uires an understanding o&the demand-during-lead-time distri$ution

sd

1

d 1

sd

1

d 1

sd

1

d 1

0 0

Wee* 3Wee* 2Wee* 1

z

P

%%.,

X 3 ROP

1)331

3123

===

==×=

LT ss

LT d X

d

'

S

4

1)3

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Pu++ Metho"s

Non-instantaneous re-suppl - 3t ti#es, pro"uction orsupp+! continues hi+e "e#an" is "ep+etin%inentories.

Reor!er point control "it# !eman! an! lea! timeuncertainties he co#'ine" e2ect o* these to uncertainties is particu+ar+!

har" to esti#ate accurate+!. It is the stan"ar" "eiation o* the "e#an"-"urin%-+ea"-ti#e

"istri'ution that is the pro'+e#, especia++! i* the +ee+ o*"e#an" an" the +en%th o* the +ea" ti#e are re+ate" to eachother.

I"ea++!, e ou+" si#p+! o'sere the actua+ "e#an" occurrin%oer each +ea" ti#e perio".

I* the "e#an" an" +ea" ti#e are in"epen"ent o* each otheran" each are represente" '! separate "istri'utions, e #a!esti#ate the stan"ar" "eiation (s′) *ro# 2225

LT d sd sLT s +=

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Perio"ic reie contro+ ith "e#an"uncertaint!

he inentor! is reiee" at the ti#eintera+ (T ) to "eter#ine the 7uantit! onhan". he rep+enish#ent 7uantit! (Q) to'e or"ere" is the "i2erence 'eteen a

tar%et +ee+ ca++e" M$% an" the 7uantit!on han".

oo" #etho" *or pro"uctsF &* +o a+ue hat are purchase" *ro# the sa#e en"or >ain% econo#ies o* sca+e in pro"uction,

purchasin%, an" transportation

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Perio"ic reie contro+ ith "e#an"uncertaint! (B)

1

Stoc"

level

reviewed

T T LT LT

Order

received

2

M

q

# u a

n t i t y o n h a n d

,ime M ma6imum levelM - q replenishment !uantity LT lead time

T revie" interval q !uantity on hand

Qi order !uantity

7

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Goint or"erin%

Perpetua+ inentor! contro+ *or #ost 4r#s isthe pro'+e# o* #ana%in% ite#s oint+! ratherthan sin%+!.

his occurs since #ore than one ite# is

t!pica++! purchase" *ro# the sa#e en"or. he approach to oint or"erin% is to 4n" a

co##on or"er reie intera+ (T ) an" then toset separate tar%et +ee+s (M$% ) 'ase" onspeci4c ite# costs an" serice +ee+s.

3 co##on reie ti#e #a! 'e speci4e", or it#a! 'e co#pute" 'ase" on appropriateecono#ics.

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he Min-Ma; ariantH 'asica++! a reor"er point s!ste#, 'ut the or"er 7uantit!

is incre#ente" '! the a#ount o* the "i2erence 'eteenthe reor"er point 7uantit! an" the 7uantit! on han" 7uantit! on or"er − 'ackor"ers.

H takes into account that "e#an" "oes not "ecre#entinentor! +ee+s een+!. here*ore, inentor! +ee+s #a!*a++ 'e+o the reor"er point at the ti#e that it is reache".

7Q1 Q2Q8

ROP q

LT LT ,ime

# u a n

t i t y o n h a n d

M

Add increment ROP − q to order si'e

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he , 6, M ariant a co#'ination o* the #in-#a; an" the perio"ic reie s!ste#s.

stock +ee+s are reiee" perio"ica++!, 'ut contro+ the re+ease o* therep+enish#ent or"er '! hether the reor"er point is reache". use*u+ here "e#an" is +o, such that s#a++ 7uantities #i%ht 'e

re+ease" un"er a perio"ic reie #etho".

,(R(9 variant

LT LT

T T

,ime

R q

I n v e n t o r y l e v e l

T revie" time

R reorder pointM – Q replenishment !uantity

Q1 Q2

Inventory not $elo"R ( so don4t place

an order

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Stock to "e#an" - a perio"ic reie#etho"

his is an i#portant perio"ic reie #etho",not so #uch 'ecause o* its accurac! 'ut'ecause o* its popu+arit! in practice.

he #etho" is s!nchroni8e" ith the perio" o*

the *orecast. he tar%et 7uantit! (M$% ) is"ee+ope" as *o++os. Set the perio" o* the *orecast, sa! eeks

3"" ti#e *or +ea" ti#e, sa! 1 eek

3"" an incre#ent o* ti#e *or sa*et! stock, sa! 1 eek

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Mu+tip+e ite#, #u+tip+e-+ocationcontro+

he theor! that has 'een "iscusse" preious+! is use*u+ hen "esi%nin%

inentor! contro+ s!ste#s *or the practica+ pro'+e# o* contro++in% #an!ite#s at #an! +ocations. Consi"er ho a specia+t! che#ica+ co#pan! "esi%ne" such a practica+

s!ste#. T$&O is the ti#e to accu#u+ate a stock or"er (truck+oa") *or all ite#s in

arehouse.

Q1

Stoc"order

TASO TASOLT

Order

received

LT

Q2

M

# u a n t i t y o n h a n d

,ime

M ma6imum levelTASO time to accumulate stoc* order

Qi order !uantity

LT lead time

TASO #

#

Q3

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Custo#er Serice $ee+ he serice +ee+ (stock aai+a'i+it!) actually

achieved '! inentor! contro+ #etho"s is not 'estrepresente" '! the pro'a'i+it! (P) o* a stockout"urin% the +ea" ti#e.

his actua+ +ee+ is hi%her that as use" to set the

inentor! +ee+. he reason is that there are perio"s o* ti#e hen

the stock +ee+ is a'oe the reor"er point an" thereis no risk o* 'ein% out o* stock.

Metho"s *or "e4nin% stock aai+a'i+it! inc+u"eF Pro'a'i+it! o* 4++in% a++ ite# "e#an"

Pro'a'i+it! o* 4++in% an or"er co#p+ete+!

Pro'a'i+it! o* 4++in% a percent o* a++ ite# "e#an"

Wei%hte" aera%e o* ite#s 4++e" on an or"er (4++ rate)

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Mu+ti-Eche+on Inentories

Contro+ the entire channe+ inentor! +ee+s, not usta sin%+e eche+on.

E n d

c u s t o m e r d e m n d! 1

! 2

! 3

1"1 d sd

2"2 d sd

3"3 d sd

#

!eti$er

#rehouse

%

%u&&$ier

#rehouse

$ed-time" LT w

#rehouse

eche$on

:o" much stoc* here "henretailers also carry stoc*;

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3%%re%ate Inentor! Contro+

Pro"uct ite#s can 'e %roupe" accor"in% to A0-B0 cure, each ith "i2erent stockin% po+icies

$

%$

&$'$

($

)$

*$

+$

,$

-$

%$$

$ &$ ($ *$ ,$ %$$.otal items /01

. o t a l s a l e s / 0 1

A items B items C items

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Inentor! Conso+i"ation(J6isk Poo+in%)

here is a re!uction in the aera%einentor! +ee+ o* an ite# as thenu#'er o* stockin% points in the supp+!channe+ is !ecrease!.

oth re%u+ar stock an" sa*et! stock"ec+ine.

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=irtua+ Inentories

Stockouts are 4++e" *ro# other stockin%+ocations in the "istri'ution netork

Custo#ers assi%ne" to a pri#ar! stockin%+ocation

ackup +ocations are usua++! "eter#ine" '!J8onin% ru+es E;pectation is that +oer s!ste#-i"e

inentories can 'e achiee" hi+e #aintainin%

or i#proin% stock aai+a'i+it! +ee+s ota+ "istri'ution costs shou+" 'e +oer tosupport the cross 4++in% o* custo#er "e#an"

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Cross i++in% =irtua+ Inentor! Suppose that an ite# is stocke" at a 4++ rate o*

A0 in stockin% +ocations. I* cross 4++in% is use",hat is the e2ectie 4++ rate *or the custo#er/

i++ rate L 1 N (.B0)(.B0)(.B0)(.B0)O ; 100 L 99.A Custo#er serice +ee+s can 'e 7uite hi%h een i*

the ite# 4++ rate is +o

Stoc*location A

Stoc*location B

%emand 1 %emand 2

P

r i m a r y

a s s

i g n m e n t

P

r i m a r y

a s s

i g n m e n t

Secondaryassignment

Stoc*location A

Stoc*location B

%emand 1 %emand 2

P

r i m a r y

a s s

i g n m e n t

P

r i m a r y

a s s

i g n m e n t

Secondaryassignment

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Sa*et! Stock 6e"uction "ue to Crossi++in%

$

)

%$

%)

&$

&)

$ ) %) &) ') () )) *) +) ,) -) %$$

One warehouse2s demand as a percent of

the system3wide demand

P e r c e n t r e d u c t i o n FR <

FR =<

>o cross-

&illing$

)

%$

%)

&$

&)

$ ) %) &) ') () )) *) +) ,) -) %$$

One warehouse2s demand as a percent of

the system3wide demand

P e r c e n t r e d u c t i o n FR <

FR =<

>o cross-

&illing

.o"er sa&etystoc*s &rom

lo"er &ill rates

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Per*or#ance Metrics - urnoer6atio

inventory Averagesales Annualratio,urnover =

? are at cost

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9

c.B Supp+! Sche"u+in% Decision




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3 !pica+ Sche"u+in% Dia%ra#

Forecast /rders@uildschedule

Inventory Shortages

Purchaseorder

releases

,o vendorsProductionrelease

@ill o&materials

Th point! Supplyis to inventory orto requirements

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Supp+! to 6e7uire#ents

Met#o!s o' sc#e!uling Gust-in-ti#e concept

Materia+ re7uire#ents p+annin% (M6P)

K3<3<

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Gust-in-ti#e Phi+osoph!

A philosophy o* sche"u+in% here the entiresupp+! channe+ is s!nchroni8e" to respon", in asshort a ti#e as possi'+e, to the re7uire#ents o*operations

C+ose re+ationship ith a *e supp+iers an"

transport carriers In*or#ation is share" 'eteen 'u!ers an" supp+iers

re7uent pro"uction5purchase an" transport o*%oo"s in s#a++ 7uantities

Mini#u# inentor! +ee+s Qncertainties are to 'e e+i#inate" hereer

possi'+e throu%hout the supp+! channe+

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6e7uire#ents p+annin%

3 *or#a+, #echanica+ #etho" o*sche"u+in% here'! the ti#in% o*purchases or supp+ies is "eter#ine" '!o2settin% the re7uire#ents in the #asterpro"uction sche"u+e.

Wh! re7uire#ents 'eco#e +u#p! *or the#ateria+s #ana%er

Settin% the #aster sche"u+e

throu%h "erie" "e#an" patterns an" 'i++ o*#ateria+s e;p+osion *orecastin% or"ers on han"

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Wh! "e#an" 'eco#es +u#p!

,ime

,ime

/rderpoint

/rderpoint

. e v e l

. e v e l

Production orderrelease

/rderplacement

a Field inventory Finished product in "arehouse

$ Factory inventory Finished product at plant

,ime

/rder

point

. e v e l

Purchase orderrelease

c +omponent inventory Supply stoc*s at plant

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M6P Sche"u+in%

he #echanics o* +ot-*or-+ot sche"u+in% %ien certainre7uire#ents an" +ea" ti#es Purchase or"ers are #atche" on a one-*or-one 'asis ith

re7uire#ents. Deter#inin% +ot si8es

ra"in% purchase price *or inentor! carr!in% cost =en"ors can set or"er #ini#u# 7uantities to aoi" the hi%hcost o* han"+in% s#a++ or"ers.

his i++ usua++! *orce so#e inentor! into the s!ste#. he econo#ica++! 'est or"er 7uantities can 'e set '!

'a+ancin% the cost o* processin% an or"er ith the cost o*

carr!in% the inentor! associate" ith or"erin% #ore thanhat is i##e"iate+! nee"e". >an"+in% uncertainties in the #aster sche"u+e

Mini#u# inentor! +ee+s Part-perio" cost 'a+ancin%

>an"+in% +ea" ti#e uncertainties

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($NB$N o!ota:s #etho" o* sche"u+in% usin% the or"er point

inentor! contro+ proce"ure, 'ut ith er! +o setup costsan" er! short +ea"-ti#es

Mo"e+s are repeate" *re7uent+! in the #aster sche"u+e. 3 t!pica+ #aster sche"u+e *or econo#ies o* sca+e #i%ht +ook +ike

333333333333

'ut a K3<3< sche"u+e ou+" approach 333333333333

$ea"-ti#es are pre"icta'+e 'ecause the! are short an"'ecause supp+iers are +ocate" near the site o* operations

&r"er 7uantities are s#a++ 'ecause setup or procure#ent

costs are kept +o e en"ors are use" ith hi%h e;pectations o* en"ors an"hi%h +ee+ o* cooperation ith the#

C+assic reor"er point inentor! contro+ is use" to "eter#inereor"er 7uantities an" ti#in% o* purchases

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K3<3< s. Supp+! to Inentor! Factors KANBAN/JIT scheduling Supply to Inventory

Set Ups 'ke them insi(ni)icnt* +hisre,uires either etreme$y r&id

chn(eover to minimi.e the

im&ct on o&ertions" or the

vi$/i$ity o) etr mchines

$redy set u&* st chn(eover

&ermits sm$$ $ot si.es to /e &rctic$" nd $$os ide

vriety o) &rts to /e mde

)re,uent$y*

o &riority* 'imum out&ut is the usu$(o$* !re$y does simi$r thou(ht nd e))ort

(o into chievin( ,uick chn(eover*

Queues E$iminte them* #hen

&ro/$ems occur" identi)y the

cuses nd correct them* +hecorrection &rocess is ided

hen ,ueues re sm$$* I) the

,ueues re sm$$" it sur)ces the

need to identi)y nd )i the

cuse*

ecessry investment* ueues &ermit

succeedin( o&ertions to continue in the

event o) &ro/$em ith the )eedin(o&ertion* $so" /y &rovidin( se$ection o)

o/s" the )ctory mn(ement hs (reter

o&&ortunity to mtch u& vryin( o&ertor

ski$$s nd mchine c&/i$ities" com/ine set-

u&s nd thus contri/ute to the e))iciency o)

the o&ertion*

+

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K3<3< s. Supp+! to Inentor!(B)

Factors KANBAN/JIT Scheduling Supply to Inventory

Vendors Co-orkers* +heyre &rt o) the tem*'u$ti&$e de$iveries )or $$ ctive items

re e&ected di$y* +he vendor tkes

cre o) the needs o) the customer" nd

the customer trets the vendor s n

etension o) his )ctory*

dversries* 'u$ti&$e sourcesre the ru$e" nd its ty&ic$ to

&$y them (inst ech other*

Quality ero de)ects* I) ,u$ity is not 100"

&roduction is in eo&rdy*

+o$erte some scr&* %cr& is

trcked nd )ormu$s re

deve$o&ed )or &redictin( it*

Equipment

mainten-

ance

Constnt nd e))ective* 'chine

/rekdons must /e minim$*

s re,uired* :ut not critic$

/ecuse o) ,ueues vi$/$e*

Lead times ;ee& them short* +his sim&$i)ies the

o/ o) mrketin(" &urchsin(" nd

mnu)cturin( s it reduces the need

+he $on(er the /etter* 'ost

)oremen nd &urchsin( (ents

nt more $ed time" not $ess*

S +

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K3<3< s. Supp+! to Inentor!()

Factors KANBAN/JIT Scheduling Supply to Inventory

Workers 'n(ement /y consensus* Chn(es

re not mde unti$ consensus isreched" hether or not /it o) rm

tistin( is invo$ved* +he vit$

in(redient o) <onershi&< is chieved*

'n(ement /y edict* e

systems re inst$$ed in s&ite o) the orkers* +he concentrtion

is on mesurements to determine

hether or not theyre doin( it*

S + Ch i D i J ++ hi

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Supp+! Chain D!na#ics Ju++hipE2ect

,ime

Suppl" ch#nnl +ustomer +ustomer

Firm A

Firm @

Firm +

Firm +

Firm A % e m a n d

%emand on upstream &irms variesgreatly "ith small changes indo"nstream demand

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u++hip E2ect

)nternal reasons 'or t#ee*ect De#an" shi*ts

Pro"uct5serice chan%es

$ate "e+ieries

Inco#p+ete ship#ents External reasons 'or t#e

e*ect Supp+! shorta%es

En%ineerin% chan%es

<e pro"uct5sericeintro"uctions

Pro"uct5serice pro#otions

In*or#ation errors

Reme!ies Centra+i8e "e#an"

*orecastin%

I#proe *orecastin%accurac!

6e"uce +ea"-ti#euncertaintiesthrou%hout the channe+

S#ooth response tochan%e

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=en"or Mana%e" Inentor!

he supp+ier usua++! ons the inentor!at the custo#er:s +ocation

he supp+ier #ana%es the inentor! '!an! #eans appropriate an" p+ans

ship#ent si8es an" "e+ier! *re7uenc! he 'u!er proi"es point o* sa+e

in*or#ation to the supp+ier he 'u!er pa!s *or the #erchan"ise at

the ti#e o* sa+e he 'u!er "ictates the +ee+ o* stock

aai+a'i+it! re7uire"

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c. Purchasin%




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What is Purchasin%/

Pri#ari+! a 'u!in% actiit! 3 "ecision area to 'e inte%rate" ith oera++

#ateria+s #ana%e#ent an" +o%istics 3t ti#es, an area to 'e use" to the 4r#:s

strate%ic a"anta%e Mission: Securin% the pro"ucts, ra #ateria+s,

an" serices nee"e" '! pro"uction,"istri'ution, an" serice or%ani8ations at therig#t time, the rig#t price, the rig#t place, the

rig#t +ualit , an" in the rig#t +uantit . I#portance

Decisions i#pact on 0 to R0 o* sa+es "o++ar Decisions are hi%h+! +eera%e"

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What is purchase"/

Price Cost o* %oo"s er#s o* sa+e Discounts

ua+it! Meetin% speci4cations Con*or#ance to 7ua+it! stan"ar"s

Serice &n-ti#e an" "a#a%e-*ree "e+ier!, or"er-

4++in% accurac!, pro"uct aai+a'i+it! Pro"uct support

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3ctiities o* purchasin%

Se+ects an" 7ua+i4essupp+iers

6ates supp+ierper*or#ance

<e%otiates contracts Co#pares price,

7ua+it!, an" serice

Sources %oo"s

i#es purchases

Sets ter#s o* sa+e

Ea+uates the a+uereceie"

Measures in'oun" 7ua+it!i* not a responsi'i+it! o*

7ua+it! contro+ Pre"icts price, serice,

an" so#eti#es "e#an"chan%es

Speci4es *or# in hich%oo"s are to 'e receie"

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Criteria *or se+ectin% supp+iers

Past or anticipate" re+ations >onest!

inancia+ ia'i+it!

6eciprocit!

Measure" per*or#ance Price 6esponsieness to chan%e or

re7uests

&n-ti#e "e+ier!

Pro"uct or serice 'ackup

Meetin% 7ua+it! %oa+s

Wei%hte" aera%e o* ratin%s

&perationa+co#pati'i+it! In*or#ationa+

co#pati'i+it!

Ph!sica+ co#pati'i+it!

Ethica+ an" #ora+issues Minorit! en"ors $oest price 'i""in%

Patriotic purchasin% &pen 'i""in% 'ut a pre-

se+ecte" en"or

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Sin%+e s Mu+tip+e =en"ors

&ingle en!ors 3++os *or econo#ies

o* sca+e

Consistent ith the

ust-in-ti#ephi+osoph!

ui+"s +o!a+t! an"trust

Ma! 'e on+! source*or uni7ue pro"uct orserice

Multiple en!ors Encoura%es price

co#petition

Di2uses risk

Ma! "istur' supp+ierre+ations, re"uce+o!a+t!, re"uceresponsieness, an"

cause ariations inpro"uct 7ua+it! an"serice

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in"in% Supp+iers

Persona+ contacts ra"e pu'+ications

We' sites, cata+o%s, an" "irectories

3"ertise#ents an" so+icitations

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ua+i*!in% supp+iers

Preious e;periences an" *or#a+ ratin%sche#es

Wor" o* #outh

Sa#p+es o* pro"uct

6eputation

Site isits an" "e#onstrations

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3++ocation to Supp+iers

Co#pan! po+ic! consi"erin% risk, *airness,ethics, etc.

De4nitie #etho"s

Is 'u!in% 'ase" on +oest price a %oo"

strate%! N consi"er other costs too 3++ocate usin% +inear pro%ra##in%

3skin% Jhat i* 7uestions can proi"e insi%htinto %oo" a++ocation p+ans

eak supp+ier - perhaps so#e price concessions can'e ne%otiate"

a+ua'+e supp+ier an" #ore capacit! shou+" 'esou%ht

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i#in% o* Purchases

hrou%h ust-in-ti#e p+annin% Materia+ re7uire#ents p+annin% *or continuous

ork antt charts an" CPM5PE6 *or proect ork

hrou%h inentor! #ana%e#ent Push #etho"s

Pu++ #etho"s

3ccor"in% to #arket con"itions Specu+atie 'u!in% orar" 'u!in%

>an"-to-#outh 'u!in%, or 'u!in% to currentre7uire#ents

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Specu+atie 'u!in%

u!in% #ore than the *oreseea'+ere7uire#ents at current prices in the hope o*rese++in% +ater at hi%her prices.

So#e o* the purchase" 7uantities #a! 'e

use" in pro"uction an" so#e si#p+! reso+". enera++! a 4nancia+ actiit!, not a #ateria+s

#ana%e#ent one.

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>an"-to-#outh 'u!in%

u!in% to satis*! i##e"iate nee"s such asthose %enerate" throu%h M6P.

3"anta%eous hen prices are !ropping

Ma! i#proe cash @o '! te#porari+!re"ucin% e;penses o* carr!in% inentor!

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orar" 'u!in%

u!in% in 7uantities e;cee"in% current re7uire#ents,'ut not 'e!on" *oreseea'+e nee"s.

akes a"anta%e o* *aora'+e prices in an unsta'+e#arket, or takes a"anta%e o* o+u#e transportationrates

6e"uces risk o* ina"e7uate "e+ier!

ollar $eraging Spen" the sa#e a#ount on each purchase ith the i"ea o*

'u!in% #ore hen prices are +o an" +ess hen the! are hi%h.

his is a %oo" strate%! hen prices are e;pecte" to rise oerthe +on% ter# an" there is su'stantia+ uncertaint! as to theactua+ price +ee+.

ecause un"er-supp+! #a! occur, so#e +ee+ o* inentor! i++

nee" to 'e #aintaine".

E2ect o* uantit! Discounts

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E2ect o* uantit! Discounts NInc+usie Price reaks

P$ic %$#& cu$'s

?

/rder !uantity( Q2 1

+urve &or B

,otal cost

+urve &or ≥

Feasible curve

Quantity, Q i Price, P i

B Qi B Q1 P 1Qi ≥ Q1 P 2

E2ect o* uantit! Discounts N

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E2ect o* uantit! Discounts N<on-inc+usie Price reaks

+ost &or

+ost &or

Q1

-

, o t a l c o s t

Purchase !uantity(Qi

- 1< ≤Q Qi

Q Qi > 1

P$ic %$#& cu$'! non(inclusi' discounts

Price "iscount on+!app+ies to the ite#s'e!on" the price'reak 7uantit!.

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Dea+ u!in%

3 one-ti#e 'u!in% opportunit!. Deter#inin% the 7uantit! to purchase

re7uires 'a+ancin% the 'ene4ts o* aprice "iscount a%ainst e;tra inentor!

ho+"in% costs.

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R9

c. Su##ar!

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Su##ar! Inentories is a #aor use o* capita+ in the supp+!

channe+. Ke! tra"eo2F +ea" ti#e, "e#an", serice, cost Ke! "iTcu+tiesF "e#an" uncertaint! to%ether ith +ea" ti#e Push s pu++

Purchasin% an" sche"u+in% ino+e "ecisions that a2ect

the eTcient #oe#ent an" stora%e o* %oo"s. Gust-in-ti#e sche"u+in% proce"ures 'eco#e popu+ar o!ota:s K3<3< an" M6P sche"u+in%

Co#'inin% Distri'ution an" Materia+s 6e7uire#entsP+annin% (D6P an" M6P) a++os inte%ration o* the supp+!

chain *ro# supp+iers to custo#ers. Purchasin% is i#portant, accountin% *or 0-R0 o* "o++ar

sa+es t!pica++!. I#pact on the eTcienc! o* +o%istica+ actiities Ke! purchasin% "ecisionF 7uantities, ti#in%, an" sourcin%

( )

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Su##ar! (B) 3%ain #uch "o#ain kno+e"%e is re7uire". <ote the "ata 5 in*or#ation re7uire#ents an" ho I

he+ps to co++ect 5 inte%rate the "ata *or ca+cu+ationsan" "ecision #akin%.

Capture *orecastin% an" or"erin% si%na+s (either"eter#ine" '! a 'usiness ana+!st or auto#atica++!'! a su'-s!ste#) as eents 5 e;ceptions 5 a+erts an"*orar" the# to the appropriate s!ste# an"personne+ *or "ecision 5 action.

E2ectie co++a'oration ith retai+ers an" supp+iers

re7uires #uch ne I in the process an" in*or#ationinte%ration, as e++ as re+!in% on inte%ratin% ithe;istin% enterprise s!ste#s (e.%., M6P 5 D6P).

<ote the "iTcu+ties in inte%ratin% ith #u+tip+esupp+iers especia++! "!na#ic ones

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