Purchasing Decisions to include Inventory Planning Dr K M Madrecha Projects & Quality Manager The Kanoo Group For Supply Chain & Logistics Group ( )

SUPPLY CHAIN MANAGEMENT SUPPLY – Provide goods as needed CHAIN – Link from supplier to customer SUPPLY CHAIN = LOGISTICS NETWORK (MANUFACTURER TO DISTRIBUTOR/ RETAILER/CUSTOMER/CONSUMER) MANAGEMENT – Management of Supply Chain (Potential to become a Board Room function)

KEY PARTNERS: SUPPLY CHAIN/LOGISTICS CUSTOMER SUPPLIER EMPLOYEE TRANSPORTER MANUFACTURER DISTRIBUTOR WHOLESALER RETAILER

KEY PERFORMANCE INDICATORS THROUGHPUT TIME TRANSPORTATION COST MATERIAL COST INVENTORY COST SPACE COST MANPOWER COST HANDLING LOSSES

Supply Chain and Business Excellence Criteria 4 (Partnerships) of EFQM/DQA/SKEA Managing Partnerships Managing Finances Managing Processes & Continuous Improvement Leadership Policy & Strategy

Matching Organization Structure – To include SCM Policy & Strategy Purchasing Incoming Transportation Warehousing/Stores Inventory Control Fleet & Distribution Customer Service Benchmarking/Reporting to Senior Mgmt

INVENTORY CONTROL INVENTORY CARRYING COST(Cc) ORDERING COST(Co) UNIT COST (Cu) ECONOMIC ORDER QUANTITY(Q*)

Scientific Inventory Mgmt EOQ=sq. root[ (2*Annual Consumption*Ordering Cost)/(Unit Cost*Carrying Cost)] TC=[(A/Q)*Co]+[0.5*QCuCc]

Economic Order Quantity Example: EOQ=Sq. Root(2*1200*100/10*0.15) =160,000 Example: EOQ=Sq. Root(2*120*50/10*0.15) =8,000

8 RIGHTS OF PURHASING Right Material Right Specification/Quality Right Quantity Right Supplier Right Packaging Right Mode of transportation Right Time Right Documentation

Stakeholders in purchase function Company Purchase Dept Supplier Transporter Company Finance Dept Company Quality Dept(for inspection) Bank (for LCs etc.)

Possible economies in purchase Save due to Bulk Discount Reduce cost of materials by locating a cheaper Supplier Save on Freight Save on obsolescence costs Save on return of defective goods Save on penalties due to delayed deliveries.

MAXIMIZE PROFIT INCREASE SALES INCREASE INCOME REDUCE CONTROLLABLE EXPENSES, eg. Material costs(40- 60%), Freight(5 to 10%), Insurance & Inventory Carrying Costs(5 to 10%)

INCREASE SALES FASTER THROUGHPUT SATISFYING CUSTOMERS IMPROVING REFERRAL SALES ABLE TO INCREASE SELLING PRICE FOR TIME SAVING OF CUSTOMERS

Effect on Bottom Line ParameterExistingProposed Sales (5% up) Income (Sales- Material costs) 4042 (5% up) Controllable Expenses 2018 (10% down) Other Expenses15 Profit59 (80% up)

Profit Increase from costs/price Save buying price by better negotiation Save storage cost by saving space Save material obsolescence cost Save interest cost of inventory Save freight cost by optimum transport method (air/sea/road and routing) Increase sales quantity or unit selling price by better customer service

Bring SCM to Board Level Link to income, expense & profit/Finance/Strategic Planning Link to KPIs/HR Link to customer satisfaction/Marketing Link to employee satisfaction/HR Link to company image

Becoming world class Global Purchasing Global Manufacturing Global Warehousing Global Distribution Use of world class technology Use of world class systems, eg. SAP, JD Edwards, Baans, MfgPro, etc.

Thank You Questions, Comments & What can we do to improve in our companies