Supplier Selection Justification Purchasing - PowerPoint

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					  Make vs Buy Decision

D0394 Perancangan Sistem Manufaktur
          Pertemuan IX - X
      Average 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:

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
• No longer just order takers….

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

       Purchasing Functions:
• Determine purchasing specifications
  (correct quality, quantity, and delivery
• Select the right source
• Negotiate terms and conditions
• Issuing and monitoring of purchase orders
           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:
Receive and analyze purchase requisition
Minimum Required Information:
•   Identity of requestor, approval, and charge
•   Specification
•   Quantity and unit of measure
•   Required delivery date and place
•   Additional supplemental information
             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
          Supply Chain Management
• Apply a total systems approach to managing the
  entire flow of
  –    information
  –    materials
  –    and services

                      Factories &          End
                      warehouses         customer

       Partnership 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:
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
       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:

Receiving and Paying Suppliers
 Reconcile PO’s and receivers
 Correct damages, variance or discrepancies
 Verify information for payment
     PO number
     Receiving report
     Invoice
• Purchased items account for 60 to 70% of the
  cost of goods sold.
• Outsourcing allows firms to focus on their core
  –   Organizations outsource when they decide to purchase
      something they had been making in-house.
• Typically handled by materials management

               Make 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 Inputs
• Marketing

• Engineering

• Manufacturing
      Functional 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 Specifications
• Are not to tight or loose

• Allow for multiple sources

• Assign responsibility
            Supplier Selection
 • Types of Sourcing
    – Sole Source
    – Multiple Source
    – Single Source
 • Select based on:
• Technical Ability     • After sale service
• Mfg. Capability       • Location
• Reliability           • Price
    Four Categories of Product
• Commodities

• Standard Products

• Items of small value

• Make to order items
             Purchasing Anatomy
                               • Specifications
                               • Supplier Selection
                 Procurement   • Price Determination
                               • Negotiation

                               • Order Release
                               • Schedule Delivery
                               • Follow up
                 Follow up
          Price 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 Example
Q: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

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