supply chain ch 4

Raw Materials

Extracted materials that go into the creation of a product

Work In Process

Time and energy that u invest in ur raw materials to transform them into the finished product.

Black Hole

During work in process, if material is still recorded in inventory even though you are already using it

Finished Goods

Same as independent items/finished goods. Final testing has been completed, product is sent to customer

Maintenance Repair and Operating (MRO)

U have everything you need to support raw materials, work in process, and outputting finished goods.

Service Industry

Utilizes a lot of finished goods to help facilitate their service. Like a hospital using medicine.

Cycle Stock

Inventory that is used to satisfy immediate demand. Bottom of stock level

Safety Stock

Extra inventory to protect against modulations in demand

Strategic Stock

Buying stuff when you know it’ll be cheap or when itll be beneficial to you

Pipeline Inventory

Inventory which does not exist in your company’s control

Obsolete Inventory

Inventory that has gone bad. U can donate it to places and get a tax write off.

Maintenance Repair and Operating Supplies

Materials that you need to support running the business and is not going into the finished product

Direct Cost

Costs that directly go into the product

Indirect Cost

Costs that dont go directly into product

Variable Cost

Cost dependent on the amount of material used

Fixed Cost

A constant cost regardless of use

Hidden Cost of Inventory

Problems that come with having too much/too little inventory

Too much Inventory

Money tied up in inventory. Underlying problems can lead to more costs.

Periodic Review System

Reviewing inventory periodically across a certain time period. Less expensive, reduces time spent analyzing

Inventory Turnovers

High amount is good. Means that your inventory is changing hands often

Continuous Review System

Keeps track of every change in inventory live.

High Inventory

Not good. Means tons of money spent for very little end benefit.

Reorder Point

Tells u when to buy more inventory. Demand / Lead TIme

Fixed Time Period System

Periodically check inventory based on certain time period. Set a level stock goal for how much u want for that period. if u off, get more shi

Fixed Order Quantity System

Always buy the same amount of items for each time period

Economic Order Quantity

How much should u buy based on the costs for ordering stuff and also the cost for holding that material

Order Costs

Everytime an order is placed.

• Order preperation costs

• Order transportation costs

• Order receipt processing costs

• Material handling costs

Carrying Costs

Costs for actually carrying inventory

• Costs of capital. Specified by senior management

• Taxes on inventory held in warehouse

Individual Item Purchase Price Discounts

Discounts for ordering large quantities of items.

Multiple Item Purchase Price Discounts

BUying a combination of items means u get a discount on shi

Transportion Freight Rate Discounts

Ordering a large quantity and taking advantage of transportation of freight rate discounts. Embedding multple shis into one flat rate.

Limited Capital effect on EOQ

Order quantity which is at a price the company cant afford

Storage Capacity effect on EOQ

Cant hold the shi in the warehouse too much stuff in inventory

Transportation effect on EOQ

Items that require specialized or dedicated transport. Also based on quantity of order

Obsolescence effect on EOQ

Materials may go bad during transport

ABC Classification

Classifying inventory based on degree of importance. A is the highest priority.

A item

20% of inventory, 80% of cost

B and C item

80% of inventory, 20% of cost

Bin System

Organizing materials in bins. If material is taken out of that bin, refill it

Base Stock Level System

Issues an order for inventory whenever inventory is used

“single period” model

Inventory is ordered once per period. IE: Seasonal products

Linear Barcodes

Way to track inventory. U can put more information

2D Barcodes

Another way to tack inventory. Even more information.

RFID

Way to track inventory. Doesn’t involve scanning / direct line of sight. Small little atenna that tracks where that product goes. Works like a telephone

fufillment

the supplier preforms service. EX: amazon delivering product

Payment

Return the investment on supplier. Usually done within an agreed time period, 30 days. Sometimes u have time to pay back to generate revenue

Close out Purchase Order

Once you get the thing, confirm you recieve it and get rid of the open requirement

Post game Analyis

Measurement of the efficency and fufillment of the whole purchasing process

Mot purchasing processing steps

are automized

e-procurement

Automating non strategic and transactional activities in suplly chain that would otherwise take up a lot of the buyer’s time. Housing for transitional and on boarding info for new hires

Profit Leverage Effect

Decrease in purchasing stuff increases ur profits before tax. Dollar to dollar

Return on Assets (ROA) Effect

Managerial prowess in generating profits with lower spending. Buying assets for a return on profit through use

Inventory Turnover Effect

Optimal use of space and inventory levels. More sales, avoids inventory going bad. Capital tied up. More inventory u turn over = the better. Cost of goods / Average Inventory

Total Cost of Ownership

Sum of all costs associtaated with each activity in supply chain

Four elements of Total Cost of Ownership

Quality, Service, Delivery, and Price. Sum of all cost elements in QSDP

Quantity Discount

Part of TCO beyond purchase price. More you buy mateiral, cheaper it is

Cash DIscount

Part of TCO beyond purchase price. If you give money back faster, you will get a slight discount

Value-added Services

Part of TCO beyond purchase price. Special delivery/packaging/promotional displays/subassembly operations in supplier’s plant

Admin Expenses

Part of TCO beyond purchase price. Screening potential suppliers, negotiation, order prep, order transmission

Poor Supply Quality

Part of TCO beyond purchase price. Costs related to defective finished goods. How much of product do u use in process of making product

Pre Transaction Costs

Before u start working with supplier, what do u do. Identify sources, qualify sources, certify sources, supplier database update, traning/education of supplier

Transaction Costs

Regular way of working with supplier. Price negotiation, delivery confirmation

Post Transaction Costs

After u make product, what other stuff gotta be done. Return from customer, replacement, repair parts and labor, maintenance, disposal of returned product

Make vs Buy Decision

Whether you can make an item in house or buy it from an outside supplier

Business Strategy

Pillar of Make Vs Buy. Do u even have the resources to make the thing. If no, get someone else to do it.

RIsk Of Quality

Pillar of Make Vs Buy. Multiple suppliers, quality of product could vary. Other suppliers could be putting your product on lower priority, could lead to more issues etc

Economic Factors

Pillar of Make Vs Buy. IMpact of outsourcing on captial expenditures, invested capital, return on assets. If u outsource other countries, trariffs etc

Qualitive Reasons for buying/Outsourcing

Non strategic item, not a major part of ur strategy.

Not enough capacity/seasonal capcity.

No one in house knows how to do the thing

Maybe the ohter guys stuff is better

Multi sourcing strategy with external supplier and internal source

take advantage of well known suppliers

Quant reasons to buy or outscoure

Can they make it cheaper than you. Also cost of holding inventory may be too much, make someone else hold it for u

Cost Factors for Buying Analysis

Unit Price + transport + purchasing + recieving and inspecting item + follow-on (expenses that come with getting the thing)

Risks of Outsourcing

U lose control of certain aspects of the business. Rely extra on suppliers + supplier management. THey can raise cost on u

Benefits of Outsourcing

Concentrate on ur strengths, reduce staff

Insourcing

Taking something that was outsourced and doing it again in house.

Cosourcing

Sharing process between internal staff and external producer.

Backward Vertical Integration

A company buying their suppliers. IE: A soda company buying the bottle maker

Forward Vertical Integration

Company acquiring the customers. IE: A medicine company buying a pharmacy company

Horizontal Integration

Buying a company’s entire supply chain. IE: A medicine company buying supply chain from another medicine company

Centralized Purchasing

Comapny drives all its buying through a centralized poiint. Buying on behalf of other departments

• Concentrated volume, purchase volume

• Fire employees with overlapping duties

• Specialization (PEople who buys specific stuff)

• 
  

Decentralized Purchasing

Individual local comapnies actually buy

• KNowledge of local requirements

• Local sourcing

• Less bureaucracy

Centralized/Decentralzied Purchasing

Centralized buying for products and services used in corop Decentralized for less important stuff

Global SOurcing

Improve to pricing and shi, tariffs. Better tech, business environment. Take advantage of reciprocal trade and countertrade shi

Tariffs

Taxes of imported goods. Adds extra bones to ur cost

Non-Tariff Barriers

Some products arent as widespread or allowed as others in foreign government.

Countertrade

Exchanging goods instead of moneys

Import Brokers

Agents who do buiness on behalf of importers in exchange for service fee

Import Merchants

Buying shi and reselling it

Trading Corps

Buy prods in one country and sells it to another

Gov buying

Mostly buys stuff int he same way. They gotta be more open about the stuff that they buy tho.

Bid Proposal

Proposition proposal which is from the buyer. U say what u want and how much u want and send that to the supplier

Competitive Bidding

Bids from competiting supplier for right to supply. Lets u get the best cost. Stimulating comp is real good

Open Competitive bidding

Sealed bids are open for everyone to view and participate in

Bid Bond

Amount of moeny u put in so that if u win you have to do the full purchase. If u dont fufill ur purchase, u fail

Performance Bond

How outcome is measured. GPA/time based metrics. Certain milestones are delivered as u secure contract

Payment Bond

Debt from bidder for providing protection against other external taxes not done by bidder. Third party makes sure u go through with contract and get monies

Benchmarking

Measuring business’s preformance. Look for points where to preform