Purchasing & Storage Management Summery & Questions

Q: What do we mean by business-to- business in e-commerce (B2B EC)? Transactions between businesses conducted electronically over the Internet, extranets, intranets, or private networks; also known as eB2B (electronic B2B) or just B2B 2

3  Q: E-commerce that focuses on a single company’s buying needs (many-to-one, or buy- side) or selling needs (one-to- many, or sell-side)  (True)

Q: What do we mean by private e- marketplaces? Markets in which the individual sell-side or buy-side company has complete control over participation in the selling or buying transaction 4

5 Q: Many-to-many e-marketplaces, usually owned and run by a third party or a consortium, in which many buyers and many sellers meet electronically to trade with each other; also called trading communities or trading exchanges. (True)

Q: What are the Benefits of B2B? (any five will be ok) 1.Creates new sales (purchase) opportunities 2.Eliminates paper and reduces administrative costs 3.Expedites processing and reduces cycle time 4.Lowers search costs and time for buyers to find products and vendors 5.Increases productivity of employees dealing with buying and/or selling 6.Reduces errors and improves quality of services 6

Q: What are the Benefits of B2B? (any five will be ok) 7.Reduces marketing and sales costs (for sellers) 8.Reduces inventory levels and costs 9.Enables customized online catalogs with different prices for different customers 10.Increases production flexibility, permitting just-in-time delivery 7

Q: What are the Benefits of B2B? (any five will be ok) 11.Reduces procurement costs (for buyers) 12.Facilitates mass customization 13.Provides for efficient customer service 14.Increases opportunities for collaboration 8

Q: The following are Goals of E- Procurement, except: Select one answer 1.Increasing the productivity of purchasing agents 2.Increasing purchase prices through product standardization, reverse auctions, volume discounts, and consolidation of purchases 3.Improving information flow and management 4.Minimizing the purchases made from noncontract vendors 5.Improving the payment process and saving due to expedited payments (for sellers) 9

Q: The following are Goals of E-Procurement, except: Select one answer 1.Lowering the productivity of purchasing agents 2.Increasing purchase prices through product standardization, reverse auctions, volume discounts, and consolidation of purchases 3.Improving information flow and management 4.Minimizing the purchases made from noncontract vendors 5.Improving the payment process and saving due to expedited payments (for sellers) 10

11 Q: e-sourcing means the process and tools that manually enable any activity in the sourcing process, such as quotation/tender submit and response, e-auctions. (False)

Q: What does Economic Order Quantity (EOQ) mean? The Optimal order quantity that will minimize total inventory costs. 12

13  Q: The following information has been taken from Stars Co. for the Item A of inventory:  Cost of placing order$50,Annual demand Pcs.,Annual per-unit carrying cost %10,Daily usage of A = 100 Pcs.Unit price $20,  Calculate the following: 1.Economic Order Quantity (EOQ)? 2.The value of EOQ? 3.Safety or security stock, when the order of new quantity needs 2days managing in the company, and 5days in supplying and manufacturing co., and 10days transportation? 4.Reorder point when the company's management added 3days more for closing the boards?

14 Q: Calculate Reorder Point, When: Demand = 10,000 yards/year Store open 311 days/year R = dL where d = demand rate per period, L = lead time Daily demand = 10,000 / 311 = yards/day Lead time = L = 10 days R = dL = (32.154)(10) = yards

15 1.Q: Safety stock: buffer added to on hand inventory during lead time 2.Q: Stock out: an inventory shortage 3.Q: Service level: probability that the inventory available during lead time will meet demand 4.Q: Reorder Point: Level of inventory at which a new order is placed

Q: What are the main elements of the TQM system? 1.Teamwork 2.Commitment 3.Communication 4.Organization 5.Control and monitoring 16

Q: What are the benefits of TQM system? 1.Focuses individuals’ roles on customers and constant improvement. 2.Develops teamwork and commitment and innovation as vehicles for employee ownership of improvement process. 3.Identifies and eliminates waste of resources and costs. 4.Provides a basis for management development and training focused on company values and the shift from policing to enable style. 17

Q: TQM is an approach aimed at the following except: Select one answer 1.Improving the effectiveness. 2.Flexibility of business as a whole. 3.Elimination of wasted effort. 4.Elimination of physical waste. 5.Results are achieved in more time and at less cost. 6.All of above. 18

19 Q: The TQM system needs a more anticipative style of control. (True) Q: The TQM system needs a less anticipative style of control. (False)

20 Q: Poor communication can result in organizational problems, information being lost and gaps occurring in the system. (True) Q: A Weak flow of accurate information, instructions and feedback is vital in maintaining the cohesion needed by the system. (False)

21 Q: Middle management have an important role to play in not only grasping the concepts themselves but also explaining them to the people for whom they are responsible. (True) Q: Middle management have an important role to play only grasping the concepts themselves and will not explaining them to the people for whom they are responsible. (False)

What is the Objective? To ensure credibility of the lab and generate confidence in lab results 22

Q: Objectives of quality system are the following except: Select one answer 1.To prevent risks 2.To detect deviations 3.To correct errors 4.To Resources 5.To improve efficiency 6.To reduce costs 23

Afifi, Purchase, 2nd Semester 2009/ Q: How does good equipment management affect Quality assurance? 1.Ensures reliable test results and customer satisfaction thus credibility of the lab. 2.Reduces interruption of services and delays in reporting due to breakdowns.

Afifi, Purchase, 2nd Semester 2009/ Q: What are the quality assurance equipment criteria? 1.Selection 2.Purchase / Acquisition 3.Installation 4.Calibration /Validation 5.Maintenance - Service and repair 6.Replacement

Afifi, Purchase, 2nd Semester 2009/ Q: What are Benefits of a Maintenance Program? 1.Greater confidence in the results 2.Safety 3.Fewer interruptions of work 4.Lower repair costs 5.Elimination of premature replacement 6.Reduction of variation in test results

Supply Chain Logistics Management How Much to Order Economic Order Quantity (EOQ) EOQ = Economic Order Quantity C o = Cost per Order (Ordering Cost) C i = Annual Inventory Carrying Cost % D = Annual Product Sales (in units) U = Cost per Product EOQ = 2C o D CiCi U

Supply Chain Logistics Management How Much to Order Economic Order Quantity (EOQ) EOQ = Economic Order Quantity C o = $19.00 (ordering cost) C i = 20% (annual carrying cost %) D = 2400 (annual number of products sold U = $5.00 (cost of each product) EOQ = 2 * $19.00 * % * $5.00

Supply Chain Logistics Management How Much to Order Economic Order Quantity (EOQ) EOQ = Economic Order Quantity C o = $19.00 (ordering cost) C i = 20% (annual carrying cost %) D = 2400 (annual number of products sold) U = $5.00 (cost of each product) 302 rounded to 300 = 2 * $19.00 * % * $5.00

How Much to Order Considering Transportation Rates Order Quantity = 300 products per order Number of orders placed per year = 2400/300 or 8 Ordering Cost per year = 8 orders * $19.00 = $ Average Inventory carrying = 300/2 = 150 Inventory Carrying Costs per year = 150 * $5.00 * 20% = $ Transportation Costs (per year) for Small Shipments: $1.00 (per product) * 2400 (products purchased per year) = $ TOTAL COSTS = $ $ $ = $

Supply Chain Logistics Management How Much to Order Considering Transportation Rates Order Quantity = 480 products per order Number of orders placed per year = 2400/480 or 5 Ordering Cost per year = 5 orders * $19.00 = $95.00 Average Inventory carrying = 480/2 = 240 Inventory Carrying Costs per year = 240 * $5.00 * 20% = $ Transportation Costs (per year) for Large Shipments: $0.75 (per product) * 2400 (products purchased per year) = $ TOTAL COSTS = $ $ $ = $

Supply Chain Logistics Management How Much to Order Considering Transportation Rates TOTAL COSTS (480 product order size) $ $ $ = $ TOTAL COSTS (300 product order size) $ $ $ = $

Supply Chain Logistics Management How Much to Order Considering Transportation Rates & Price/Quantity Discounts Order Quantity = 300 products per order Number of orders placed per year = 2400/300 or 8 Ordering Cost per year = 8 orders * $19.00 = $ Average Inventory carrying = 300/2 = 150 Inventory Carrying Costs per year = 150 * $4.00 * 20% = $ Transportation Costs (per year) for Small Shipments: $1.00 (per product) * 2400 (products purchased per year) = $ Product Cost per year = 2400 * $4.00 = $ TOTAL COSTS = $ $ $ $ = $12,272.00

Supply Chain Logistics Management Order Quantity = 480 products per order Number of orders placed per year = 2400/480 or 5 Ordering Cost per year = 5 orders * $19.00 = $95.00 Average Inventory carrying = 480/2 = 240 Inventory Carrying Costs per year = 240 * $3.00 * 20% = $ Transportation Costs (per year) for Large Shipments: $0.75 (per product) * 2400 (products purchased per year) = $ Product Cost per year = 2400 * $3.00 = $ TOTAL COSTS = $ $ $ $ = $ How Much to Order Considering Transportation Rates & Price/Quantity Discounts

Q: What is the economic-order- quantity? Video store sells packages of blank video tapes Video purchases packages of video tapes from Oaks, Inc., at $15/package. Annual demand is 12,844 packages, at the rate of 247 packages per week. Video requires a 15% annual return on investment. 35

Relevant ordering cost per purchase order: $209 Relevant carrying costs per package per year: Required annual ROI (15% × $15) $

Economic-Order-Quantity Decision Model Assumptions 1. The same quantity is ordered at each reorder point. 2. Demand, ordering costs, carrying costs, and purchase-order lead time are known with certainty. 3. Purchasing costs per unit are unaffected by the quantity ordered.

Economic-Order-Quantity Decision Model Assumptions 4. No stockouts occur. 5. Quality costs are considered only to the extent that these costs affect ordering costs or carrying costs.

Economic-Order-Quantity Decision Model Assumptions The EOQ minimizes the relevant ordering costs and carrying costs. Video store sells packages of blank video tapes. Video purchases packages of video tapes from Oaks, Inc., at $15/package.

Economic-Order-Quantity Decision Model Assumptions Annual demand is 12,844 packages, at the rate of 247 packages per week. Video requires a 15% annual return on investment. The purchase-order lead time is two weeks. What is the economic-order-quantity?

Economic-Order-Quantity Decision Model Assumptions Relevant ordering cost per purchase order: $209 Relevant carrying costs per package per year: Required annual ROI (15% × $15)$2.25 Relevant other costs 3.25 Total$5.50

Economic-Order-Quantity Decision Model Example EOQ = D = Demand in units for a specified time period P = Relevant ordering costs per purchase order C = Relevant carrying costs of one unit in stock for the time period used for D

Economic-Order-Quantity Decision Model Example = 988 packages EOQ =

Economic-Order-Quantity Decision Model Example What are the relevant total costs (RTC)? RTC = Annual relevant ordering costs + Annual relevant carrying costs RTC = Q can be any order quantity, not just the EOQ. DQDQ ×P+ Q2Q2 C× DP Q + QC 2 or

Supply Chain Logistics Management Reorder Point Formula R = D X T R = Reorder Point in Units (of product) D = Average Daily Demand in Units (of product) T =Average Performance Cycle in Days (i.e., order cycle time, or the number of days between placing an order and receiving the order) When to Order When There is No Demand Uncertainty

Supply Chain Logistics Management Reorder Point Formula R = D X T D = 20 products/day T = 10 days (time between placing order and receiving order) R = 20 X 10 Reorder Point = 200 products That is, an order is initiated whenever there are 200 products left in inventory When to Order When There is No Demand Uncertainty

Supply Chain Logistics Management R = D X T + SS D = 20 products/day T = 10 days (time between placing order and receiving order) SS = 100 products R = 20 X Reorder Point = 300 products That is, an order is initiated whenever there are 300 products left in inventory When to Order When Demand is Uncertain