first lecture_Supply chain

Supply Chain Management

Introduction


Session Agenda1) Introduction to module2) Assessments3) Source of informationText BooksOn-line sourcesDigital Library


Text BooksLysons, K. Farrington, B. Purchasing and

Supply Chain Management. FT Prentice Hall. 7th Edition 2006

Slack, N et al. Operations Management. FT Prentice Hall. 4th Edition 2004

Donald J. Bowersox, David J. Closs, M. Bixby Cooper, Supply Chain Logistics Management, McGraw-Hill, First Edition.

Simchi-Levi, D and E and Kaminsky, P. (2003), Designing and Managing the Supply Chain, McGraw-Hill, Second Edition


Definition: Supply Chain Management“The management of the flow of goods or services

betweenentities in the chain to realize the delivery of end

productsor services, satisfying customers at minimum cost”

Definition 2: Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandise is produced and distributed in the right quantities, to the right locations at the right time in order to minimize system wide costs while satisfying service level requirements.

Supply Chain ManagementMore Realistic Supply Chain


Purchasing:

The acquisition of goods and services needed to support the various activities of an organization, at the best possible cost and from reliable suppliers.


Purchasing professional's goal to a company

should be to provide:

The best pricing Communication Research in finding sources Supplier performance EvaluationService level agreements (SLA’s)


EXTERNAL SUPPLIER

INFORMATION

PAYMENT £££

GOODS/SERVICES

A BUSINESS

EXTERNAL CUSTOMER

GOODS/SERVICES

INFORMATION

PAYMENT £££


Purchasing Topics to Cover:• Importance of Purchasing Today• Purchasing Processes• Letter of Credit• Import Documentation• Negotiation Skills• Make – or – Buy Analysis• Ethics in Buying


Importance of purchasing:• Competition • Material cost• Lead time• Customer Demand• Quality


Cost of manufacturing company, 1979 Cost of same manufacturing company, 1999

The bigger the percentage of total spend is allocated to purchasing, the bigger the

potential saving to the organisation by cutting the purchasing costs. (Lysons (2000), pp3-4)

Labour

45%

Other costs

17%

Bought-out materials, components, etc.

38%

Labour

22%

Other costs

18%


60%

Cost of a manufacturing company, 1979 Costs of the same manufacturing company, 1979

Labour

45%

Other costs

17%


38%

Labour

45%

Other costs

17%


38%

Labour

22%

Other costs

18%


60%

Labour

22%

Other costs

18%


60%

Cost of a manufacturing company, 1979 Costs of the same manufacturing company, 1979


Single SourcingAdvantages Potentially better quality because

more SQA possibilities. Strong relationships Greater dependency encourages

more commitment and effort. Better communication. Easier to cooperate on new

product/service development. More scale economies. Higher confidentiality.Disadvantages More vulnerable to disruption if a

failure to supply occurs. Individual supplier more affected

by volume fluctuations. Supplier might exert upward

pressure on prices if no alternative supplier is available.

Multi-sourcingAdvantages Purchaser can drive price down by

competitive tendering. Can switch sources in case of

supply failure. Wide sources of knowledge and

expertise to tap.

Disadvantages Difficult to encourage commitment

by supplier. Less easy to develop effective

SQA. More effort needed to

communicate. Suppliers less likely to invest in

new processes. More difficult to obtain scale

economies.


Purchasing Process

• Recognize, describe and define the need• Transmit the need (requisitions)• Determine sources, investigate, and select

supplier/analyze • bids• Prepare and issue the PO• Follow-up the order (including expediting and de-• expediting) • Receive and inspect the material • Clearance of the invoice and payment to supplier


The purchasing function brings together the operation and its suppliers

(Slack. 2001. p417)

Suppliers The internal operationPurchasing Function

Requestsfor productsand services

Preparerequests forquotations

Selectthe preferred

supplier

Preparepurchase order

Producegoods/services

Receivegoods/services

Suppliersprepare quotations of

specifications price delivery etc.

Requests

QuotationsDiscuss with the

Operation

Order Liaise with the Operation

Deliver Goods /Services

Inform Purchasing

Function

Input to the Operation




Selectthe preferred

supplier






Requests


Operation



Inform Purchasing

Function

Input to the Operation




Selectthe preferred

supplier









Selectthe preferred

supplier






Requests


Operation



Inform Purchasing

Function

Input to the Operation(Slack, 2001, p417)


Letter of Credit (L/C)• Written commitment to pay from buyer bank to

seller bank.

Types of L/C:• Revocable• Irrevocable


Import Documents:• Bill of Lading• Commercial Invoice• Packing List• Weight Memo• Certificate of Inspection• Certificate of Origin• Insurance Policy• Sales Contract


Negotiation


Negotiation Definition and Comments: “The process whereby two or more parties decide what each will give and take in

anExchange between them.” (Lysons & Farrinton)

“Negotiation is the process by which we search for terms to obtain what we want from

somebody who wants something from us.” (Total Success Training) “Negotiating is a trading game. There is only one way to play the game; that is to

trade whatwe want from somebody else for what they want from us. The best way of being

able to do this is to know what we want and what we are prepared to give to get it.” (Total

success Training) “Negotiation is discussing or bargaining in order to reach agreement.”

(Owen)


Negotiation (What it isn’t): • Negotiation is not selling.• Negotiation is not ‘giving in’ or conceding.

(Owen)


Types of negotiation:

Adversarial and Collaborative Adversarial Negotiation (distributive or win-losenegotiation)Is an approach in which the focus is on ‘positions’

staked out by the participants and the assumption is that every time one party wins, the other loses, so, as a result the other party is regarded as an adversary (opponent).

(Lysons & Farrington)


Collaborative Negotiation (integrative or win-win negotiation)

Is an approach in which the assumption is that, by means of creative problem solving, one or both parties can gain without the other having to lose and, as the other party is regarded as a collaborator rather than an adversary, the participants may be more willing to share concerns, ideas and expectations than would otherwise be the case.

(Lysons & Farrington)


Makeor

Buy?


Why would we buy something(items, components, services)

when we could provide it ourselves?


Reasons to buy:-The unit cost is cheaper,-We don't use it enough,-We don't have space,-We don't understand the technology,-We don't have the skill,-It's not our core business/expertise,-It's expensive to set up the process,


Reasons to provide in-house:- The unit cost is cheaper,- It's critical to the business,- Retain specialist knowledge/skills,-We have control over the supply,- Quality issues are critical,- No suitable supplier,- It's part of our core business/expertise,

HBL Sacks over 2,000 employees

An announcement of HBL said on Friday that the bank had abolished the entire cadres of manual workers with immediate effect under a retrenchment order of March 10.

The order further said that it had been decided to concentrate on core banking activities and retrench all non-clerical cadres including guards, messengers, godown guards, drivers, maintenance staff and other categories of manual workers.

The bank has also decided to outsource services with service providers for providing quality and efficient services at competitive market rate.

Currently, there are over 2,300 employees working in the HBL dedicated to non-core activities including security, transport and othermanual work.

The announcement said the administration and management of these activities like business development and customer services.

All Manual (I.e. Non-Clerical) Workmen in Habib Bank Ltd. Retrenchment (cutback)

In order to focus on core banking activities and rationalize our staff strength,

HBL had introduced Voluntary Separation Schemes in the past.

Currently there are over 2300 employees working in HBL dedicated to non-core activities including Security, Driver and other manual work.

The administration and management of these activities is causing a severelack of focus on core activities like business development and customerservice etc. the market practices amongst progressive Bank dictates an

urgent need for outsourcing such services.


Ethics in Buying:

• Child Labor• Environment• Green Supply Chain• Fair Trade


End of Topic

first lecture_Supply chain

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