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Purchasing Decisions to include Inventory Planning

Purchasing Decisions to include Inventory Planning. Dr K M Madrecha Projects & Quality Manager The Kanoo Group For Supply Chain & Logistics Group (17-9-2004). SUPPLY CHAIN MANAGEMENT. SUPPLY – Provide goods as needed CHAIN – Link from supplier to customer

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Purchasing Decisions to include Inventory Planning

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  1. Purchasing Decisions to include Inventory Planning Dr K M Madrecha Projects & Quality Manager The Kanoo Group For Supply Chain & Logistics Group (17-9-2004)

  2. SUPPLY CHAIN MANAGEMENT • SUPPLY– Provide goods as needed • CHAIN – Link from supplier to customer • SUPPLY CHAIN = LOGISTICS NETWORK (MANUFACTURER TO DISTRIBUTOR/ RETAILER/CUSTOMER/CONSUMER) • MANAGEMENT – Management of Supply Chain (Potential to become a Board Room function)

  3. KEY PARTNERS: SUPPLY CHAIN/LOGISTICS • CUSTOMER • SUPPLIER • EMPLOYEE • TRANSPORTER • MANUFACTURER • DISTRIBUTOR • WHOLESALER • RETAILER

  4. KEY PERFORMANCE INDICATORS • THROUGHPUT TIME • TRANSPORTATION COST • MATERIAL COST • INVENTORY COST • SPACE COST • MANPOWER COST • HANDLING LOSSES

  5. Supply Chain and Business Excellence • Criteria 4 (Partnerships) of EFQM/DQA/SKEA • Managing Partnerships • Managing Finances • Managing Processes & Continuous Improvement • Leadership • Policy & Strategy

  6. Matching Organization Structure – To include • SCM Policy & Strategy • Purchasing • Incoming Transportation • Warehousing/Stores • Inventory Control • Fleet & Distribution • Customer Service • Benchmarking/Reporting to Senior Mgmt

  7. INVENTORY CONTROL • INVENTORY CARRYING COST(Cc) • ORDERING COST(Co) • UNIT COST (Cu) • ECONOMIC ORDER QUANTITY(Q*)

  8. Scientific Inventory Mgmt • EOQ=sq. root[ (2*Annual Consumption*Ordering Cost)/(Unit Cost*Carrying Cost)] • TC=[(A/Q)*Co]+[0.5*QCuCc]

  9. Economic Order Quantity • Example: EOQ=Sq. Root(2*1200*100/10*0.15) • =160,000 • Example: EOQ=Sq. Root(2*120*50/10*0.15) • =8,000

  10. 8 RIGHTS OF PURHASING • Right Material • Right Specification/Quality • Right Quantity • Right Supplier • Right Packaging • Right Mode of transportation • Right Time • Right Documentation

  11. Stakeholders in purchase function • Company Purchase Dept • Supplier • Transporter • Company Finance Dept • Company Quality Dept(for inspection) • Bank (for LCs etc.)

  12. Possible economies in purchase • Save due to Bulk Discount • Reduce cost of materials by locating a cheaper Supplier • Save on Freight • Save on obsolescence costs • Save on return of defective goods • Save on penalties due to delayed deliveries.

  13. MAXIMIZE PROFIT • INCREASE SALES • INCREASE INCOME • REDUCE CONTROLLABLE EXPENSES, eg. Material costs(40-60%), Freight(5 to 10%), Insurance & Inventory Carrying Costs(5 to 10%)

  14. INCREASE SALES • FASTER THROUGHPUT • SATISFYING CUSTOMERS • IMPROVING REFERRAL SALES • ABLE TO INCREASE SELLING PRICE FOR TIME SAVING OF CUSTOMERS

  15. Effect on Bottom Line

  16. Profit Increase from costs/price • Save buying price by better negotiation • Save storage cost by saving space • Save material obsolescence cost • Save interest cost of inventory • Save freight cost by optimum transport method (air/sea/road and routing) • Increase sales quantity or unit selling price by better customer service

  17. Bring SCM to Board Level • Link to income, expense & profit/Finance/Strategic Planning • Link to KPIs/HR • Link to customer satisfaction/Marketing • Link to employee satisfaction/HR • Link to company image

  18. Becoming world class • Global Purchasing • Global Manufacturing • Global Warehousing • Global Distribution • Use of world class technology • Use of world class systems, eg. SAP, JD Edwards, Baans, MfgPro, etc.

  19. Thank You Questions, Comments & What can we do to improve in our companies

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