1. PROCUREMENT AND SUPPLY MANAGEMENT
CHAPTER 5

2. MATERIAL MANAGEMENT
Materials management is the planning and control of the flow of materials that are part of the inbound logistics system.
Materials Management Activities
Procurement
Importance of Item and Service Purchased
The Special Case of Procurement Price
Other Materials Management Activities

3. Materials Management: Procurement
Importance
Contributes to the competitive advantage of the firm
Significant portion of the logistics costs

4. Definition of Procurement Activities
Identify or reevaluate needs
Define and evaluate user requirements
Decide whether to make or buy
Identify the type of purchase
Conduct a market analysis
Identify all possible suppliers
Prescreen all possible source
Evaluate the remaining supplier base
Choose a supplier
Receive delivery of the product or service
Make a post purchase performance
evaluation

5. PROCUREMENT PROCESS

6. Materials Management: Importance of Item and Service Purchased
Products and services purchased by a company are not all the same.
Some are more important than others and require greater procurement attention.
The quadrant technique enables the supply chain manager to assess the relative importance of each item based on the degree of perceived value and risk.

7. There are four possible combinations in the quadrant techniques model:
Generics --- low risk, low value
Commodities --- low risk, high value
Distinctives --- high risk, low value
Criticals --- high risk, high value
Figure 4-3 illustrates the relationships in the quadrant technique model.

8. Figure 4-3 Item Procurement Importance Matrix

9. Materials Management: Managing the Procurement Process in 4 Steps
1. Determine the type of purchase
New
Straight rebuy
Modified rebuy

10. 2. Identify the type of purchase
Determine the necessary levels of investment of time and information.
The more complex the purchase, the more time needs to be spent and more information needs to be gathered to get it right the first time.

11. 3. Perform the procurement process
Do those activities that are necessary to effectively make a purchase and satisfy the user’s requirements.
4. Evaluate the effectiveness of the procurement process
Were the user’s needs satisfied?
Was the investment necessary?

12. Materials Management: Managing the Procurement Process
Supplier/Vendor Evaluation and Relationships
Maintaining a healthy vendor relationship is a critical part of a successful supply chain.
Developing a true partnership relationship with a firm’s vendors grows more important as the number of vendors shrinks and/or the vendors are being sought by other competing supply chains.
TQM begins with the vendors.

13. Vendor Selection Criteria
Quality
Reliability
Capability
Financial
Miscellaneous Other Qualities
Vendor Location
Factor Importance Will Vary

14. Overview of Vendor Selection Criteria

15. Materials Management: The Special Case of Procurement Price
Sources of Price
Commodity markets
Price lists
Price quotations
Negotiation

16. Hierarchy of Price Measurement Approaches

17. Types of Costs Traditional basic input costs – primary product price
Direct transaction costs - all other related costs of detecting and transmitting information to suppliers (e.g., EDI)
Supply relational costs - costs of maintaining relationships with suppliers

18. Total Procurement Price

19. Other types of Costs
Landed costs - actual transport costs + sales terms
Quality costs/factors - do the goods conform to standard?

20. Overview of Production Planning and Control

21. Other types of Costs Operations/logistics costs
Receiving and make-ready costs
Lot size costs
Production costs
Other logistics costs affected by product’s size, weight, density and shape

22. Materials Management: Other Materials Management Activities
Warehousing
Type of facilities required
Production Planning and Control
Coordinating product supply with product demand
Transportation
Vendor control
Modal choice
Rush shipments
Inspection
Damage claims

23. Quality Control Quality standards Quality implications
did customer receive what was ordered?
Quality implications
GIGO concept
Sample inspection
statistical QC from vendor to assure 100% quality

24. Salvage and Scrap Disposal
Value of scrap may be income to the firm.
Disposal must adhere to environmental regulations.

25. Electronic Procurement
Common uses of E-commerce
Research vendor and product information
Electronic check of available stock
Price negotiation
Order products or services
Check on the status of an order
Issue invoice and receive payment

26. Advantages of Electronic Procurement

27. Disadvantages Security of electronic messages
Lack of face-to-face contact
Other technological concerns
Standard protocols
System reliability

28. Four Basic Types of E-commerce Models
Sell-side system
Administered by the seller
Usually free to the buyer
Electronic marketplace
Administered by a third party
Collection of electronic catalogs
One-stop sourcing for buyers

29. On-line trading community
Buy-side system
Administered by the buyer
Pre-approves vendor access
Expensive and usually the domain of large companies
On-line trading community
Maintained by a third party
Used by multiple buyers and sellers