Purchasing

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Purchasing Logistics
BA 339 Mellie Pullman
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Major Components of Supply Chain Management

• SCM is primarily concerned with the efficient
  integration of suppliers, factories, warehouses
  and stores so that merchandise is produced and
  distributed in the right quantities, to the right
  locations and at the right time.
• Goal
• minimize total system cost subject to satisfying
  service requirements.
  
• Notice
• Everyone is involved
• Systems approach to reducing costs
• Integration is the key

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Supply Chain Configuration
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Supply Chain The Magnitude

• American companies spend a trillion in
  supply-related activities (or 11 of Gross
  Domestic Product).
  
• Transportation 58
• Inventory 38
• Management 4
• Third party logistics services growing by 15 per
  year
  

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Supply Chain The Magnitude

• It is estimated that the grocery industry could
  save 30 billion (10 of operating cost) by using
  effective logistics strategies.
  
• A typical box of cereal spends more than three
  months getting from factory to supermarket.
  
• A typical new car spends 15 days traveling from
  the factory to the dealership, although actual
  travel time is 5 days.
  
• Cost of this pipeline inventory?

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ISSUES Purchasing

• What to Purchase
• - In-house production Vs. external suppliers
• Where to purchase
• - Domestic Vs. international
• From whom to purchase
• - Cost
• - Reliability quality and on time delivery
• - Availability and flexibility

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ISSUES Purchasing

• Centralized Vs. Decentralized
• Number of suppliersSingle sourcing Vs. Multiple
  sourcing
  
• Supply contracts
• Company values such as sustainability or
  corporate social responsibility
  

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Local CompaniesPurchasing Issues

• Hot Lips Pizza

• Speedy Moto

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LogisticsStoring Moving Strategies

• Warehousing types
• Transportation (planes, trains, ships, etc.)
• Direct Shipping
• No Distribution Center needed
• Lead times reduced
• smaller trucks
• Example Cuneo Cellars Amazon

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Matching Product Environment to Supply Chain
Design

• Functional Products
• Staples that people buy everywhere from 7-11 to
  Wal-Mart
  
• Dont change much over time
• Stable predictable demand

• Innovative Products
• Rapidly changing
• Very short life-cycle products
• Great variety
• Very unpredictable demand

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Supply Chain Types

• Efficient
• Whole Supply Chain and processes are designed to
  minimize cost

• Responsive
• Respond Quickly to Market Demand
• Minimize lead time
• Need to have a variety of products available for
  customers when they want to buy

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Logistics Strategies

• Sport Obermeyer or Columbia Sportswear
• From design to customers hand
• Organic Lettuce
• From picked to customers hand

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Consolidation Warehouse-best place to locate?
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Cross-Docking
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Cross Docking

• In 1979, Kmart was the king of the retail
  industry with 1891 stores and average revenues
  per store of 7.25 million
  
• At that time Wal-Mart was a small niche retailer
  in the South with only 229 stores and average
  revenues about half of those Kmart stores.
  
• Ten years later, Wal-Mart transformed itself it
  has the highest sales per square foot, inventory
  turnover and operating profit of any discount
  retailer. Today Wal-Mart is the largest and
  highest profit retailer in the world.

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Characteristics of Cross-Docking

• Goods spend at most 48 hours in the warehouse,
• Avoids inventory and handling costs,
• Wal-Mart delivers about 85 of its goods through
  its warehouse system, compared to about 50 for
  Kmart,
  
• Stores trigger orders for products.

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System Characteristics

• Need a fast and responsive transportation
  system
  
• Wal-Mart has a dedicated fleet of 2000 truck that
  serve their 19 warehouses
  
• This allows them to
• ship goods from warehouses to stores in less than
  48 hours
  
• replenish stores twice a week on average.

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Methods of Location Planning

• Political
• Systematic
• Factor Rating System- Good for general planning
  but weak for specific cost analysis
  
• Center of Gravity- good for dealing with
  companies with multiple existing sites, shipping
  or transporting between sites
  
• Others

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Competitive Imperatives Impacting Location

• The need to produce close to the customer due to
  time-based competition, trade agreements, and
  shipping costs.
  
• Examples?
• The need to locate near the appropriate labor
  pool to take advantage of low wage costs and/or
  high technical skills.
  
• Examples?

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Issues in Facility Location

• Infrastructure
• Quality of Labor
• Suppliers
• Other Facilities
• Free Trade Zones
• Political Risk

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Issues in Facility Location

• Government Barriers
• Trading Blocs
• Environmental Regulation
• Host Community
• Competitive Advantage

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Managing Global Supply Chains

• Other Languages
• Different Norms and Customs
• Work-Force Management
• Unfamiliar Laws and Regulations
• Unexpected Cost Mix

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Location Decisions - Manufacturing

• Favorable Labor Climate
• Proximity to Markets
• Proximity to Suppliers
• Proximity to Parent Company
• Utilities, Taxes, and Real Estate Costs

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Location Decisions - Services

• Proximity to Customers
• Transportation Costs and Proximity to Markets
• Location of Competitors
• Size-specific Factors

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Factor Rating

• A tool for comparing various locations based on
  multiple factors (key issues for company)
  
• First generate the major factors
• Prioritize the factors by given them weight
  points (i.e., allocate 300 points among the
  factors)
  
• For each factor, look at each city and give it
  points based on a 1 to 10 scale.
  
• For each city, multiply out the weight points by
  your 1-10 scale points and sum

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Possible New Location for Sport Obermeyer
(outdoor clothing designer)

• 10 Major Factors considered by Management
• Weight for each factor
• Key employees determine 10 factors
• Company hands out survey and gets peoples ranking
  of factor importance to get average weight for
  each one.
  

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Places to get info on cities

• www.bestplaces.net

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Factor Rating Weakness

• Does not account for wide range of costs that
  occur within each factor
  
• Transportation
• Education
• Overhead
• Not great for companies where transportation and
  overhead costs dominate their competitiveness
  
• Sometimes the boss just wants to go to some
  particular place" golf, skiing, pre-retirement)
  and overrides all else.
  

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Center of gravity method

• Example
• Several automobile showrooms are located
  according to the following grid which represents
  coordinate locations for each showroom.

Determine the best location for a Z-Mobile
warehouse/temporary storage facility considering
only distances and quantities sold per month
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Determining the Coordinates
Cx X coordinate of center of gravity
Cy Y coordinate of center of gravity dix
X coordinate of the ith location
diy Y coordinate of the ith location Vi v
olume of goods moved to or from ith
location
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Determining the Coordinates
New Warehouse