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 Evaluation
Service level agreements (SLA’s)
Importance of purchasing:
•
•
•
•
•
Competition
Material cost
Lead time
Customer Demand
Quality
Logistics
“The process of planning, implementing and
controlling the
efficient, effective flow and storage of goods,
services and
related information from point of origin to point of
consumption
for the purpose of customer Satisfaction”
(council of logistics management)
Basic modes of transport
 By Air

By Road
◦ By Train

By Sea
Considerations in Transportation
 Cost / Rates
 Reliability
 Safety / Damages
 Insurance
 Speed / Time
 Mode of Transportation
 Routes / sectors
 Vehicles type
 Urgency / Priority
 In-house / Outsource
3rd Party Logistic Service providers
“Third-party Logistics is simply the use of an
outside company to perform all or part of
the firm’s materials management and
product distribution function.”
-- Simchi-Levi (2000)

Advantages
• Cost reduction
• Focus on core competency
• Improved efficiency, service and flexibility

Disadvantages
• Loss of control
• Impact on in-house workforce
Current use of 3PL by industry

Industry

Percentage of 3PL use in different industries
Computer
82.2
Consumer
75.9
Retail
Chemical
Medical
Auto
71.1
61.4
56.2
53.8
Source "What's ahead for 3PLs“ Modern
Materials Handling, April, 2000
Warehousing
Warehousing Functionality
 Consolidation and Break-Bulk
 Assortment (Cross Docking, Mixing)
 Postponement (Packaging, Labelling)
 Stockpiling (Seasonal, Bulk-Buy)
 Reverse Logistics
CROSS-DOCK
=
No storage(?)
Cross-dock (from multiple suppliers):
●
goods sorted as they arrive,
●
goods moved across dock and loaded onto trailers,
●
benefits - optimal vehicle use and low handling
costs,
●
requires sophisticated planning techniques.
Warehouse Planning:
 Site selection
 Design
 Product mix
 Future expansion
Safety and Maintenance



Health and safety
Incidents
Environment
Manufacturing
Manufacturing is all about converting raw
material into consumer or industrial products.

A firms manufacturing competency is based
on Brand power, Volume, Variety and Lead
time.

JIT and Lean Manufacturing
“A philosophy of manufacturing based on
planned elimination of waste and continuous
improvement of productivity ……”
Lean Manufacturing
“A philosophy of production that emphasizes the
minimization of the amount of all the resources
(including time) used in the various activities of the
enterprise. It involves:
◦ … identifying and eliminating non-value-adding
activities,
◦ … employing teams of multi-skilled workers,
◦ … using highly flexible, automated machines” (APICS)

American Production and Inventory Control Society
(APICS) is an organization for professionals working in
the field of Operations Management
Elements of JIT Manufacturing








Eliminating waste
Enforced problem solving and continuous
improvement
People make JIT work
Total Quality Management (TQM)
Parallel processing
Kanban production control
JIT purchasing
Reducing inventories
Benefits of JIT

Inventory levels are drastically reduced:
◦ frees up working capital for other projects
◦ less space is needed
◦ customer responsiveness increases




Total product cycle time drops
Product quality is improved
Scrap and rework costs go down
Forces managers to fix problems and
eliminate waste .... or it won’t work!
Production Planning
Production Planning
 What to produce
 When to produce
 How to produce
Overview of Operational
Planning Activities

Long-Range Planning
◦ Focuses on strategic issues relation to capacity,
products, processes and plant location.

Intermediate-Range Planning
◦ Focuses on tactical issues pertaining to
aggregate workforce and material requirements
for the coming year (Aggregate Planning).

Short-Range Planning
◦ Addresses day-to-day issues of scheduling
workers on jobs at assigned work stations.

Aggregate production planning is done in
an organization to match the demand with
the supply on a period by period basis in a
cost effective manner
Aggregate Planning Strategies
 Pure
 Mix
Pure strategies are as follows
 Building and utilizing inventory through
constant work force
 Varying the size of work force
 Overtime utilization
 Subcontracting
Steps for Developing the Aggregate Plan




Step
Step
Step
Step
1234-
Choose strategy: level, chase or hybrid
Determine the aggregate production rate
Calculate the size of the workforce
Test the plan as follows:
 Calculate Inventory, expected hiring/firing, overtime needs
 Calculate total cost of plan

Step 5- Evaluate performance: cost, service, human
resources, and operations
Aggregate plan for services firms
Service organizations also use aggregate planning,
some in exactly the same way with a manufacturing
firm.
 How many accounts we need to open
 How many membership we need to sale
 How many patient we need to serve
Master Production Schedule
(MPS)
Master Production Schedule (MPS)
 MPS is product wise plan for manufacturing
products Which product will produce at
what time till what time
MPS specifies
 The sizing and timing of production orders
for specific items
 The sequencing of individual jobs
 The short term allocation of resources to
individual activities and operations
Inventory Management
Two Fundamental Inventory Decisions


How much to order of each material when
orders are placed with either outside
suppliers or production departments within
organizations
When to place the orders
Independent Demand Inventory Systems



Demand for an item carried in inventory is
independent of the demand for any other item in
inventory
Finished goods inventory is an example
Demands are estimated from forecasts and/or
customer orders
Dependent Demand Inventory Systems



Items whose demand depends on the demands for
other items
For example, the demand for raw materials and
components can be calculated from the demand for
finished goods
The systems used to manage these inventories are
different from those used to manage independent
demand items
Inventory Costs



Costs associated with ordering too much
(represented by carrying costs)
Costs associated with ordering too little
(represented by ordering costs)
These costs are opposing costs, i.e., as one
increases the other decreases
Economic Order Quantities (EOQ)
Economic Order Quantities
 Typical assumptions made
◦ annual demand (D), carrying cost (C) and
ordering cost (S) can be estimated
◦ average inventory level is the fixed order quantity
(Q) divided by 2 which implies




no safety stock
orders are received all at once
demand occurs at a uniform rate
no inventory when an order arrives
EOQ = 2DS / C
Example of EOQ
Zartex Co. produces fertilizer to sell to wholesalers.
One raw material – calcium nitrate – is purchased
from a nearby supplier at $22.50 per ton. Zartex
estimates it will need 5,750,000 tons of calcium
nitrate next year.
The annual carrying cost for this material is
40% of the acquisition cost, and the ordering cost
is $595.
a) What is the most economical order quantity?
b) How many orders will be placed per year?
ABC Classification of Inventory


Typical observations
◦ A small percentage of the items (Class A) make up a
large percentage of the inventory value
◦ A large percentage of the items (Class C) make up a
small percentage of the inventory value
These classifications determine how much
attention should be given to controlling the
inventory of different items
Manufacturing Operation
Scheduling
Scheduling:

Allocation of jobs to scarce resources
OR

Scheduling is the process of rank ordering the jobs
in front of each resource to maximize some chosen
performance measure
Need and Basis for Scheduling



Availability of additional information (new or
cancelled orders)
Occurrence of random events (absents,
breakdowns)
Micro Resources (workers, machines)
Shop Floor Planning and Control



A system for controlling the manufacturing process
from raw material to shipping
Shop Floor Control Systems involve collaboration of
every aspect of manufacturing to optimize
productivity
Basic focus of all approaches - WIP control
Common shop floor activities





Assigns priority to order
Issues dispatch list
Collect information
Track WIP and keep system updated
Control input-output between work centers
measure efficiency, utilization and productivity of
shop
Order sequencing rules

First come first served(FCFS)

Shortest processing time

Earliest due date
Order Sequencing Rules

First-Come First-Served (FCFS)
Next job to process is the one that arrived first among
the waiting jobs

Shortest Processing Time (SPT)
Next job to process is the one with the shortest
processing time among the waiting jobs

Earliest Due Date (EDD)
Next job to process is the one with the earliest due
(promised finished) date among the waiting jobs
End of Topic