Make vs Buy Decision D0394 Perancangan Sistem Manufaktur Pertemuan IX - X.

Make vs Buy Decision

D0394 Perancangan Sistem Manufaktur

Pertemuan IX - X

Average Manufacturing CostsAverage Manufacturing Costs

On average, manufacturing firms generate approximately 10% profit from operations.

Typical breakdown of total costs:

Labor (8%)

Materials (50%)*

Overhead costs (32%)

* On average, manufacturing firms spend about 50% of their sales dollar in raw material, component, and supply purchases.

Purchasing Objectives:Purchasing Objectives:

Four Major Objectives of Purchasing:1. Obtain the required quantity and quality of

goods and services

2. Obtain the lowest cost

3. Ensure top notch service and timely delivery

4. Maintain good supplier relationships and Develop potential suppliers

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PurchasingPurchasing

• No longer just order takers….

• Purchasing needs to know– material– performance– availability– suppliers

Purchasing Functions:Purchasing Functions:

• Determine purchasing specifications

(correct quality, quantity, and delivery

requirements)

• Select the right source

• Negotiate terms and conditions

• Issuing and monitoring of purchase orders

Purchasing Cycle:Purchasing Cycle:

1. Receive and analyze purchase requisition

2. Select suppliers

3. Determine the right price

4. Issue purchase orders (PO’s)

5. Monitor PO’s

6. Receiving and accepting goods

7. Approving supplier’s invoice for payment

Purchasing Cycle Step 1:Purchasing Cycle Step 1:

Receive and analyze purchase requisitionMinimum Required Information:

• Identity of requestor, approval, and charge number/account

• Specification

• Quantity and unit of measure

• Required delivery date and place

• Additional supplemental information

Purchasing Cycle Step 2:Purchasing Cycle Step 2:

Select Suppliers• Routine items typically have preferred suppliers

• New/unusual items may require vendor search and RFQ for comparison

Some companies require multiple source solutions (McDonnell-Douglas preferred 3, single source required justification documentation)

• Many firms today are opting for fewer suppliers

• Use of supply chain management is growing

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Supply Chain ManagementSupply Chain Management• Apply a total systems approach to managing the

entire flow of– information– materials– and services

Rawmaterialsuppliers

Factories &warehouses

Endcustomer

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Partnership RelationshipPartnership Relationship

• Continuing relationship involving

– a commitment over an extended time period,

– an exchange of information, and

– an acknowledgement of the risks & rewards of the relationship.

Purchasing Cycle Step 3:Purchasing Cycle Step 3:

Determine the Right Price• Tied directly to supplier selection

• Price negotiation- Focuses on quantity (net and gross)

Frequency of orders

• Total usage “Refunds” are becoming popular

• Supplier maintained inventory (pay as you use

philosophy)

Purchasing Cycle Step 4 & 5:Purchasing Cycle Step 4 & 5:

Issue PO’s and Follow-up POs are legal offers to purchase

Purchasing must follow-up on open PO’s Monitor past due PO’s and critical need

components

Work with suppliers

Take corrective action Expediting components, alternative supply

sources, reschedule production, etc.

Purchasing Cycle Step 6 & 7:Purchasing Cycle Step 6 & 7:

Receiving and Paying Suppliers Reconcile PO’s and receivers

Correct damages, variance or discrepancies

Verify information for payment PO number

Receiving report

Invoice

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OutsourcingOutsourcing• Purchased items account for 60 to 70% of the

cost of goods sold.

• Outsourcing allows firms to focus on their core competencies.– Organizations outsource when they decide to purchase

something they had been making in-house.

• Typically handled by materials management function.

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Make or BuyMake or Buy

• Current trend favors outsourcing all activities that do not directly represent or support core competencies.

• Are there any dangers associated with aggressive outsourcing? What are the implications for JIT production?

Purchasing InputsPurchasing Inputs

• Marketing

• Engineering

• Manufacturing

Functional SpecificationsFunctional Specifications

• By Brand

• By Specification– Physical and Chemical Characteristics– Materials & Methods of Manufacture– Performance

• By Engineering Design

• Miscellaneous– “Gimme one just like the last one”

Good SpecificationsGood Specifications

• Are not to tight or loose

• Allow for multiple sources

• Assign responsibility

Supplier SelectionSupplier Selection

• Types of Sourcing– Sole Source– Multiple Source– Single Source

• Select based on:• Technical Ability• Mfg. Capability• Reliability

• After sale service

• Location

• Price

Four Categories of ProductFour Categories of Product

• Commodities

• Standard Products

• Items of small value

• Make to order items

Purchasing AnatomyPurchasing Anatomy

Purchasing

Procurement

• Specifications• Supplier Selection• Price Determination• Negotiation

Scheduleand

Follow up

• Order Release • Schedule Delivery• Follow up

Price DeterminationPrice Determination

“you get what you paid for”• Fair Price- One that is competitive, gives the

seller and buyer an opportunity for profit• Fixed Costs- Costs incurred without respect to

sales volume• Variable Costs- Costs directly associated

with sales volume (labor, material, etc.)• Breakeven Point- The convergence of profit

and loss. . . financial equilibrium

Break-Even ExampleBreak-Even ExampleQ:To make a particular component requires an overhead (fixed)

cost of $5000 and a variable unit cost of $6.50/unit. What is the total cost and the average cost of producing a lot of 1000? If the selling price is $15/unit, what is the break-even point?

A: Total cost = fixed cost + (variable cost/unit)(# of units) = $5000 + ($6.5 x 1000) = $11,500 Average cost = Total cost / # of units = $11,500 / 1000 = $11.50/unit Break-even point: Let X = # of units sold $15X = $5000 + $6.5X $8.5X = $5000 X = $5000 / $8.5 = 588.2 units