2. Make vs Buy Decision D0394 Perancangan Sistem Manufaktur Pertemuan IX - X

3. Average Manufacturing Costs On average, manufacturing firms generate approximately 10% profit from operations. Typical breakdown of total costs: z Labor (8%) z Materials (50%)* z Overhead costs (32%) * On average, manufacturing firms spend about 50% of their sales dollar in raw material, component, and supply purchases.

4. 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

5. 7 Purchasing No longer just order takers…. Purchasing needs to know – material – performance – availability – suppliers

6. Purchasing Functions: Determine purchasing specifications (correct quality, quantity, and delivery requirements) Select the right source Negotiate terms and conditions Issuing and monitoring of purchase orders

7. Purchasing Cycle: 1.Receive and analyze purchase requisition 2.Select suppliers 3.Determine the right price 4.Issue purchase orders (POs) 5.Monitor POs 6.Receiving and accepting goods 7.Approving suppliers invoice for payment

8. Purchasing Cycle Step 1: Receive and analyze purchase requisition Minimum Required Information: Identity of requestor, approval, and charge number/account Specification Quantity and unit of measure Required delivery date and place Additional supplemental information

9. 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

10. 3 Supply Chain Management Apply a total systems approach to managing the entire flow of – information – materials – and services Raw material suppliers Factories & warehouses End customer

11. 9 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.

12. 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 philosophy)

13. Purchasing Cycle Step 4 & 5: Issue POs and Follow-up zPOs are legal offers to purchase zPurchasing must follow-up on open POs Monitor past due POs and critical need components zWork with suppliers zTake corrective action Expediting components, alternative supply sources, reschedule production, etc.

14. Purchasing Cycle Step 6 & 7: Receiving and Paying Suppliers zReconcile POs and receivers zCorrect damages, variance or discrepancies zVerify information for payment PO number Receiving report Invoice

15. 4 Outsourcing Purchased items account for 60 to 70% of the cost of goods sold. Outsourcing allows firms to focus on their core competencies. – Organizations outsource when they decide to purchase something they had been making in-house. Typically handled by materials management function.

16. 5 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?

17. Purchasing Inputs Marketing Engineering Manufacturing

18. 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

19. Good Specifications Are not to tight or loose Allow for multiple sources Assign responsibility

20. Supplier Selection Types of Sourcing –Sole Source –Multiple Source –Single Source Select based on: Technical Ability Mfg. Capability Reliability After sale service Location Price

21. Four Categories of Product Commodities Standard Products Items of small value Make to order items

22. Purchasing Anatomy Purchasing Procurement Specifications Supplier Selection Price Determination Negotiation Schedule and Follow up Order Release Schedule Delivery Follow up

23. 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

24. 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