Business Logistics & Transportation: Exam 1 (Chp 1-4)

purchasing

was historically perceived as just a buying function for manufacturing, repair materials, and supplies

purchased goods and services

among the largest cost elements for most firms, accounting for 55 cents of every sales dollar

procurement

an organizational capability that ensures the firm is positioned to implement strategies with support from its supply base

goes well beyond transactional activities

focuses on building relationships with suppliers

Total Cost of Ownership (TCO)

the sum of all the costs associated with every activity in the supply stream of a product line

=Q+S+D+P

aquisition cost is a very small portion of this

four elements of cost

QSDP - quality, service, delivery, price

discounts associated with purchase price

Related to the price quote, is normally a schedule of one or more possible discounts that the buyer may receive.

1. Quantity Discounts

2. Cash Discounts

quantity discounts

may be offered as an inducement to encourage buyers to purchase larger quantities

cash discounts

may be offered for prompt payment of invoices

service prices and debundling

Sellers typically offer a number of standard services that must be considered in procurement. Additionally, a wide variety of value-added services may also be offered and must be evaluated to find the lowest TCO

debundled

purchase price of an item must be __________ from the price of services under consideration; each service should be priced separately so that appropriate analysis can be made.

life cycle costs

involves the adminsitrative expense associated with the procurement activity itself

Expenses related to screening potential suppliers, negotiation, order preparation, and order transmission are just a few.

Receiving, inspecting, and payment are also important.

The costs related to defective finished goods, scrap, and rework, which are associated with poor supplier quality, must also be considered, as well as related warranty administration and repair of items that have been purchased

outsourcing

Buying materials and components from suppliers instead of making them in-house

strategic decision

What kind of decision is make versus buy?

insource vs. outsource

Insource core competencies - even if outsourcing would provide a lower cost, in order to reduce risks and maintain control.

Outsource non-core competencies - even if outsourcing might cost a little more, in order to reallocate internal resources to core competency areas.

Make/Buy Strategic decisions

backward vertical integration

forward vertical integration

backward vertical integration

Refers to a company acquiring one or more of their suppliers

forward vertical integration

Refers to a company acquiring one or more of their customers

user buy

Allow users in the organization to do the routine buying of items considered to be too insignificant to warrant further consideration

volume consolidation

Increasing procurement leverage by reducing the total number of suppliers while continuing to minimize risk

operational integration

to cut waste, reduce , and develop a relationship with a supplier . that allows both buyer and seller to achieve mutual improvements

value management

Extends beyond buyer-seller operations

Value engineering

Reducing complexity

Involving the supplier early in product design

pareto principle

a small percentage of items account for a large percentage of the dollars spent

procurement strategy portfolio segmentation

segmented approach is used to prioritize resources for purchasing

spend analysis (by value)

identifies how much is being spent on each type of product or service across all locations in the firm

procurement strategy portfolio (by type)

Routine purchases, commodity purchases, bottleneck purchases, leverage purcahses

routine purchases

items that involve a low percentage of the firms' total spend and involve very little supply risk

user buy

bottleneck purchases

unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers.

operational integration

leverage purchases

commodity items where many alternatives of supply exist and supply risk is low. Spend is high and there are potential procurement savings

volume consolidation

critical purchases

strategic items and services that involve a high level of expenditure and are vital to the firm's success

value management

supplier audit programs

this program attempts to develop a detailed understanding of a supplier's organization and capabilities

supplier developement

A buyer's activities to improve a supplier's performance and/or capabilities

tools for supplier development

supplier scorecard

supplier recognition programs

supplier certification

supplier evaluation

supplier evaluation

process to identify the best and most reliable suppliers

supplier certification

an organization's process for evaluating the quality systems of key suppliers in an effort to eliminate incoming inspections

leads to a reduction in the number of suppliers needed by a company as certified suppliers are more reliable and consistent- risk is lower and the need for more suppliers is reduced

International Organization for Standardization (ISO)

An independent, non-governmental membership organization and the world's largest developer of voluntary International Standards. Made up of 162 member countries, with a Central Secretariat based in Geneva, Switzerland

ISO 9000

A series of quality standards that provide basic definitions for quality assurance and quality management

ISO 14000

A series of standards for environmental management measuring a firm's environmental impact.

The benefits include reduced energy consumption, environmental liability, reduced waste & pollution, and improved community goodwill.

electronic data interchange (EDI)

is the electronic transmission of data between a firm and its suppliers.

just in time (JIT) purchasing

to time-phase activities so that purchased materials and components arrive at the manufacturing or assembly point just at the time they are required for the transformation process

Raw material and work-in-process inventories are minimized as a result of reducing or eliminating reserve stocks

JIT purchasing characteristics

quality- buyer imposes minimum specification

transportation- The buyer schedules and controls

as much of the transportation activity as possible

suppliers- the fewest number of suppliers possible should be used; the suppliers should be in close proximity to the buyer whenever possible

quantities- Frequent, steady delivery of small lots in exact quantities that demand reduced supplier production lot sizes

JIT 2

beyond JIT and involves the integration of the suppliers personnel into the buyer's purchasing or manufacturing processes

procurement of logistical services

Was traditionally considered an "Indirect Spend" and not given strategic importance.

With the increase in outsourcing, procurement of logistical services has grown substantially and is now being integrated into the firm's strategic procurement plans.

May even be considered a "Leverage" or "Critical Purchase

performance-based logistics

A process whereby the firm tells the logistics provider what the desired outcome is and lets the logistics provider determine the best way to meet those requirements.

who is the customer? total supply chain

End user of the product in a consumer market

Company is the customer in a business market

who is the customer? specific firm

Intermediate customer organizations exist between the firm and end users

Who is the customer? logistics manager

Any delivery location. For example, consumer home's, retail / wholesale businesses, receiving docks of manufacturing plants and warehouses

transactional marketing

A traditional strategy with a focus on creating successful individual transactions between the company and its customers

relationship marketing

A new strategy with a focus on the development of long-term relations with key supply chain participants in an effort to develop and retain long-term preference and loyalty

micromarketing or one-to-one marketing

recognizes that each individual customer may have unique requirements

four discrepancies in the basic exchange of goods and services

space, time, quantity, assortment

discrepancy of space

refers to the fact that the location of production activities and the location of consumption are seldom the same [transportation challenge]

discrepancy of time

refers to the difference in timing between production and consumption [inventory & warehousing challenges]

discrepancy in quantity and assortment

refers to the mismatch between customer demand and manufacturing supply

Customers seek small quantities and wide assortment

Firms seek large quantities of a limited assortment

four supply chain service outputs

spatial convenience, lot size, waiting time, product variety and assortment

spatial convenience

the amount of shopping around time and effort will be required on the part of the customer [increased outlets and channels]

lot size

the number of units to be purchased in each transaction [choice/variety of lot sizes]

waiting time

the amount of time the customer must wait between placing an order and receiving the product [expedited convenience -vs- price]

three levels of customer accommodation

1. customer service

2. customer satisfaction

3. customer success

Customer Service elements

availability, operational performance, service reliability

availability

fill rates, stockout frequency, order shipped completed

the capacity to have inventory when desired by a customer

fill rates

measures the magnitude or impact of stockouts over time

stockout

occurs when a firm has no product available to fulfill customer demand

orders shipped complete

requires shipping everything that a customer orders to count as a complete shipment

operational performance

Deals with the time required to deliver a customer's order

speed, consistency, flexibility, malfunction recovery

speed

is the elapsed time from when a customer established a need to order until the product is delivered

consistency

is measured by the number of times that actual cycles meet the time planned for completion

flexibility

a firm's ability to accommodate special situations and unusual or unexpected customer requests

malfunction recovery

a firm's ability to quickly implement contingency plans when a failure occurs in the supply chain

service reliability

involves a combination of logistics attributes beyond simply availability and operational performance

damage free

error free invoices

shipment matches order

shipped to correct location

the perfect order

Delivered complete

Delivered on time

Delivered at the right location

Delivered in perfect condition

Delivered with complete and accurate documentation

This requires the total order cycle performance to be executed with zero defects

the basic service platform

availability, operational performance, service reliability

Many firms establish their basic service platforms using two factors

competitor or industry acceptable practice

the firms overall marketing strategy

customer satisfaction

a customer's expectations of a supplier's performance are met or exceeded, the customer will be satisfied

If Perceived Performance ≥ Expectations, then Satisfaction

gaps managers must fill to help satisfy their customers

Knowledge

Performance

Standars

Communications

Perception

Satisfaction/Quality

knowledge

Gap - Reflects management's lack of knowledge or understanding of customers

standards

Gap - Exists when internal performance standards do not adequately reflect customer expectations

performance

Gap- The difference between standard and actual performance

communications

Gap - Over commitment or promising higher levels of performance than can actually be provided

perception

Gap - Customers sometimes perceive performance to be higher or lower than actually achieved

satisfaction

Gap - When one or more gap exists customer perception is that performance does not meet expectations

value-added services

refers to unique or specific activities that firms can jointly develop to enhance their efficiency, effectiveness and relevancy for a customer(s)

customer relationship management

is a process for improving the overall performance of a business by better understanding and anticipating the wants and needs of customers

logistics

that part of supply chain management that plans, implements, and controls the flow and storage of goods, from point of origin to point of consumption

logistics includes the integration and management of the following activities:

Location Analysis

Customer Order Processing

Inventory Management

Warehousing

Material Handling

Packaging

Transportation

Customer Service

logistics planning at three different levels

strategic, tactical, operational

strategic level planning

planning is long-range where the time horizon is longer than one year

tactical planning

Planning involves an intermediate time horizon, usually less than a year

operational planning

Planning is short-range, with decision frequently made on an hourly or daily basis

logistical value proposition

consists of a commitment to key customer expectations and requirements at a minimum cost

Logistical Value Proposition

service benefits, cost minimization

Service Benefits include

Availability

Operational performance

Service reliability

availability

having inventory to consistently meet customer material or product requirements

Operational Performance

The key performance indicator is the time required to deliver a customer's order

Key metrics for this area involve delivery speed and consistency

Flexibility - to handle unexpected customer demand/requests

Malfunction and recovery time - logistical failures and corrections

service reliability

quality attributes of logistics

logistics models- cost minimization

traditional cost model vs. total cost model

traditional cost model

Focused on achieving the lowest possible cost for each individual function of logistics

cheapest way

total cost model

Focused on achieving the lowest total cost across all functions of logistics overall

major logistical functions:

Order Processing

Inventory Strategy

Transportation

Warehousing

Materials Handling

Packing

value-added logistics

procurement, manufacturing support, market distribution

procurement

concerned with purchasing and arranging Inbound movement of materials, parts, and/or finished inventory from suppliers into manufacturing or assembly plants, warehouses or retail stores.