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Chapter 4:
Materials Management
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LEARNING OBJECTIVES
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MATERIALS MANAGEMENT
1. Pipeline inventories
2. Cycle inventories
3. Buffer stock
4. Seasonal
5. Decoupling
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• These five basic functions of inventory are fundamental to
1. Achieving smooth flow
2. Reasonable equipment utilization and materials
handling costs.
3. Maintenance of good customer services
• Periodically, an inventory audit of the five functions must
be performed to compare the “should have” and the actual
investment (units) for each function.
• Inventory is treated as a current asset for accounting purposes.
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MATERIALS REQUIREMENTS PLANNING AND
CAPACITY REQUIREMENTS
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ORDER CYCLE
• Characteristics
• Length :The distance between supplier and customer
• Modes :Method by which information is sent and material moved
• The Trade-off
• Speed, reliability, inventory, and cost
The shorter the order cycle, the quicker the customer is served and the less
inventory the customer needs. If you have a reliable supplier who can
supply you every day, you would order just enough to satisfy your daily
requirement.
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ORDER CYCLE
Order Cycle as a Set of Activities
• Activities
• Order preparation by Customer
• Order transmission by Customer
• Order processing by Supplier
• Order transportation by Supplier
• Order receipt by Customer
Tasks:
1. Physical receipt
2. Unloading
3. Inspection
4. Storage location decision
5. Move to storage
6. Documentation
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LEAD TIME
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CUSTOMER SATISFACTION
•
Purchasing Management and Logistics Chapter
8
“Supplier Selection and
Evaluation”
Instructor: Arafat
ALjebrini
1
Current Global Trends
4
▪ The Process:
1. Determine what product or service is under
consideration.
2. Consider the in-house capability.
Benefits of Outsourcing
▪ Vertical integration
▪ Expanding into areas that are at different points on the same
production path
▪ More control vs. Greater competence requirement in each of the areas
▪ Outsourcing
▪ A delegation of production capabilities
▪ Concentrate on true core capabilities vs. loss of control and non-
core capabilities
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Outsourcing and Supplier Selection
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The 4Pure Supply Management Relationships
1. Counter-productive relationships
▪ Lose-Lose
2. Transactional or competitive relationships
▪ Win-Lose
3. Cooperative or Collaborative relationships
▪ Win-Win
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Key Suppliers Evaluation Criteria
• There are two main categories of supplier evaluations: process-based evaluations and
performance-based evaluations.
12
Advantages of Multiple Sourcing
▪ The main arguments for multiple sourcing are competition and assured supply.
▪ Multiple sources also can guarantee an undisrupted supply of parts. – If
something should go wrong with one supplier, such as a strike or a
major breakdown or natural disaster, the other supplier (s) can pick up the slack
to deliver all the needed parts without a disruption.
▪ Improve market intelligence and improved supplier evaluation
effectiveness.
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Advantages of Single Sourcing
16
The End,,,
PURCHASING MANAGEMENT
CHAPTER 5
INVENTORY
MANAGEMENT
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reserved.
LEARNING OBJECTIVES
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Importance of Inventory Control
■ Storing resources.
■ Seasonal products may be stored to satisfy
off-season demand.
■ Materials can be stored as raw materials,
work-in-process, or finished goods.
■ Labor can be stored as a component of
partially completed subassemblies.
■ Compensate for irregular supply and
demand.
■ Demand and supply may not be constant over
time.
■ Inventory can be used to buffer the variability.
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6-5
Importance of Inventory Control
Table 6.1
Copyright © 2012 Pearson Education
6-8
Inventory Cost Factors
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Summary of ABC Analysis
INVENTOR
Y GROUP DOLLAR INVENTOR ARE QUANTITATIVE CONTROL
USAGE (%) Y ITEMS TECHNIQUES USED?
(%)
A 70 10 Yes
B 20 20 In some cases
C 10 70 No
Table 6.8
Copyri
ght ©
2012
Pearso
n
Educat
ion
6-12
INDEPENDENT DEMAND
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Economic Order Quantity
Solving for Q
Summary of equations:
6. Instantaneous replenishment
7. No shortages allowed
8. No demand uncertainty
=d×
Copyright © 2012 Pearson Education L
6-23
Procomp’s Computer Chips
where
D = annual demand in units
Co = ordering cost of each order
C = cost per unit
Ch = holding or carrying cost per unit per
year
Copyright © 2012 Pearson Education
6-25
Quantity Discount Models
■Quantity discounts
Because are
unitcommonly
cost is nowavailable.
variable,
■ The basic EOQ model is adjusted by adding in the
Holdingcost.
purchase or materials cost = Ch =
IC
I = holding co s t as a percentage of the unit cost (C)
Total cost = Material cost + Ordering cost + Holding
cost
where
D = annual demand in units
Co = ordering cost of each order
C = cost per unit
Ch = holding or carrying cost per unit per
year
Copyright © 2012 Pearson Education
6-26
Quantity Discount Models
DISCOUNT NUMBER
DISCOUNT QUANTITY DISCOUNT COST ($)
DISCOUNT (%)
1 0 to 999 0
5.00
2 1,000 to 1,999 4
4.80
3 2,000 and over 5
4.75
Table 6.3
Q1 = 700
Q2 = 1,000
Q3 = 2,000
CHAPTER 6
JUST- IN-TIME (LEAN)
PURCHASING
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CUSTOMER SATISFACTION
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COSTS OF CUSTOMER SATISFACTION
OF “GOOD QUALITY”
1. Reducing prevention costs.
2. Reducing inspection costs.
3. Minimizing rework or renewal costs.
4. Building supplier’s reputation.
5. Gaining of a customer’s capacity.
6. The customer vows ﯾﺤﻠﻒ و ﯾﻘﺴﻢagain to buy the product.
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THE COSTS OF CUSTOMER
DISSATISFACTION OF “POOR QUALITY”
1. Increasing prevention costs.
2. Increasing inspection costs.
3. Maximizing rework or renewal costs.
4. damaging supplier’s reputation.
5. Loosing of a customer’s capacity.
6. The customer vows ﯾﺤﻠﻒ و ﯾﻘﺴﻢnever again to buy the
product.
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QUALITY
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FACTORS CONTRIBUTE TO A
CUSTOMER’S PERCEPTION OF QUALITY
1. The reputation of the supplier is important.
2. Advertising.
3. Customers often believe that high-priced materials are
also high in quality.
Classification of products:
• Best buy
• Acceptable
• Not acceptable.
“Best buy” implies a product with high value. Value, in turn, is
the ratio of quality and price.
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asing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.
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Value=(Quality/price)×100
Suppose we have comparable products of three
manufacturers. The quality ratings and prices of the three
products are shown below:
*Best buy
Quality is a value in the range 1to 10 with 10 being the highest
possible rating.
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SPECIFYING MATERIALS
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• Purchased Parts– which include semifinished items that
will be further processed and finished materials that will
become components of finished end items.
• The usual way of specifying purchased parts in
a made-to-order environment is with a graphic
description-engineering drawings.
• In a make-to-stock environment the purchased parts are
specified by an industry or independent test
organization
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MRO MATERIALS AND
SPECIFICATION
• Maintenance Materials
• Periodical expected replacement in a piece of equipment
• Resupply by original equipment manufacturer
• Specified by manufactured part number and the
model number of the unit
• Repair Materials
• Unexpected replacement
• Usually not carried as inventory
• Specified by various ways such as drawings
and photographs
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MRO MATERIALS AND SPECIFICATION
(CONT.)
• Operating Supplies
• Essential parts of the end item
• Unit value or size is too small to plan or
control usage unit by unit
• Standard items
• Specified by manufacturer or industry codes
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The End,,,,
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