omsan lojİstİk purchase order management procurement and supplier relationship management latin...

OMSAN LOJİSTİK

Purchase Order Management

Procurement and Supplier Relationship Management

Latin America Logistics Center

Logistics Management Series

Procurement Provides the Best Opportunity to Control

Costs …

$6,2$6,8

$3,0

$4,0

$0,0

$1,0

$2,0

$3,0

$4,0

$5,0

$6,0

$7,0

Directo Indirect

Corporate Expenses $ Trillions

U.S.

R.O.W.

• For Each $1 in sales, companies spend between 50 y 55 cents. in purchased materials

• Costs reductions in Procurement Costs transalte dollar by dollar into Revenues

Supply Chain Management

Supply Management

• Procurement is the Process of Purchasing raw materials or finished goods to satisfy Inventory needs

• Decisions Include:– Decisions of use of suppliers – Negotiation of Contracts– Supply Process Definition

ProcurementProcurement

* Select and Certify Suppliers

* Ranking of Suppliers Performance

* Negotiation of Contracts

* Evaluation of Price, Quality and Service

* Supply Products and Services

* Procurement Sequence Planning

* Negotiate Procurement Conditions

* Evaluate Value Received

* Assess Quality

* Forecast Prices

* Specify Delivery Terms

Associate Activities to Procurement:

Supply is a long process that consumes several resources in most organizations

Source: Aberdeen Group

Seek and Identify the Right Suppliers

Manage and Communicate the List of Preferred Suppliers

Develop the RFQ

Reception and Reply of RFQ

Review Proposals

Negotiate Contract

Average Cycle = 3.3 to 4.2 months

Costs are the Major Concern in Today’s Economy

“Which is the most CRITICAL concer in yout industry today?

Source: AT Kearney

CHEMICALS

Costs Competence 89%

Customer Relationships 89%

Change Management 63%

Market Changes 55%

FINANCIAL INSTITUTIONS

Customer Relationships 82%

Effective IT Use 77%

Costs Competence 63%

Change Mgmt 55%

CAR INDUSTRY

Costs Competence 78%

Customer Relationships 76%

Suppliers Relat. 63%

Effective IT 55%

COMMUNICATIONS/ELECTRONICS

Costs Competence 79%

Effective IT Use 73%

Change Mgmt 60%

Customer Relationships 79%

Activities Controlled by the Purchasing

Department

100

75

70

57

41

37

34

26

0 20 40 60 80 100 120

Purchasing Activities

Materials Studies

Market Studies

Investment Recoveries

Traffic

Inventory Control

Stores & Warehousing

Reception

Purchasing & Supply Management, Dobler & Burt, 6th Edition

Algorithm of the Purchasing Fuction

• Minimise: Total Purchasing CostsNumber of Suppliers

• Subject to: Inventory Fill Rate

Product Quality

Actual Sales+ 25%

Price+5%

LabourCosts-25%

Overhead

-33%

Puchasing-8 ½ %

Sales

Purchasing ofGoods & Services

Labor and Salaries

Overhead

Profit

$10,000,000

6,000,000

2,000,000

1,500,000

$500,000

$12,500,000

7,500,000

2,500,000

1,500,000

$1,000,000

$10,500,000

6,000,000

2,000,000

1,500,000

$1,000,000

$10,000,000

6,000,000

1,500,000

1,500,000

$1,000,000

$10,000,000

6,000,000

2,000,000

1,000,000

$1,000,000

$10,000,000

5,500,000

2,000,000

1,500,000

$1,000,000

Puchashing Impact in Doubling Profits!

ROA

10%

($9.25 millon)

($ 750,000)

($ 1.9 million) ($4.9 millon)

(2.04 veces)

(7.5%)

(15.3%)

1 Purchase is 50% of SAles

2 Inventory is 40% de Total Assets

Benefits

$500,000

Sales

$10 millon

Dividido

por

Profit Margin

5%

Invest. Turn

2 times

Multiplicado por

Inventory 2

$2 millon

Sales

$10 millon

Cost Total1

$9.5 millon

Menos

Total Assets

$5 millon

Sales

$10 millon

Dividido por

Return on Assets before and after 5 % Discount in the Purchasing Price

Purchase Order ManagementSteps

Identification

Requisition

Purchase Order

Placement

Reception

Steps in the Purchase Order

• Identifying and Evaluating Supply Needs

• Supplier Selection (Certified)

• Approval / Authorization of the PO

• Placement of the PO

• Tracking of the PO

• Reception and Evaluation of the PO

• Ex-Post Management of the PO

Evaluation of Needs

• Purchase Requisition

Requisition 004

•Items Description

•Quantity•Quality•Lead Time

Required

Price Fixing MethodsMarket Price/Value

0

10

20

30

40

50

60

70

80

90

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Product AProduct BProduct C

Price Variance day-by-day by Product

Price Fixing Methods Fixed Price

20,4 20,4 20,4 20,4

30,6 30,6 30,6 30,6

45,9 45,9 45,9 45,9

05

101520253035404550

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Channel AOptional ChannelChannel B

Supply Channel, Mandatory or Optional

Fixed Incoming Cycle, Coordinate and United

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

SKU

Wee

ks

Ship Weeks

Receive Weeks

Source: VanBodegraven

Fixed Incoming Cycle, Coordinate and United – Truckload

Assignment

1 1 1 1 1

2 2 2 2 2 2 2

3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4 4 4

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

25 29 6 3 2 28 23 18 20 1 4 9 30 15 17 16 14 11 13 5 26 19 21 22 24 7 12 27 10 8

SKU

% o

f Ful

l Tru

cklo

ad

0

1

2

3

4

Truc

kloa

d A

ssig

nmen

t

Source: VanBodegraven

Supply Control

Verify the Product Assist Suppliers and

subcontractors; technical advice, tools, etc.

Check Product Quality Update

supplier/subcontractor data after orders are completed

Supply Control

Select Subcontractors and Qualified Suppliers

Attach Specifications, Draws, Schemes, to the purchase order

Procedures to deliver to suppliers/subcontractors in relation to requisitions

Quotes Analysis Clarify with the supplier

quality assurance and control and requirements

Time Indicators in Supply

90

28 2 1

PO Entry

PO Procesing

Supplier Lead Time

Transit Time

Reception in DC

1. Total Purchase Order Cycle = Total Hours

Lead Time VarianceShort Lead Times is Good, Consistent Lead Times is Better!

LeadtimeLeadtimeLeadtime

LEAD TIME DEMAND

SAFETY STOCK

Time

Inve

ntor

y

ReorderPoint

(ROP)

Lead TimeVariability

The Perfect Purchase Order

Calculated with the right EOQ and Adjusted to Efficient Management Quantities

Communicated in Real Time to the Supplier

The Supplier has the Product Available

Reception is made in the requested time and within the assigned time windows

The shipment arrives with the right quantities of the right products

The products fulfils requested Quality

The shipment arrives with the right documentation The suppliers invoice is paid within the agreed time

99%

85%

95%

98%

98%

99%

90%

97%

= 66%

PO Placement

• Individual Orders– Costly– Time consuming

Process– Multiple

Communications– Casual Products

• Orders by Contract• Blanket Orders• Continuos

Replenishment

• Prices?– Market Price/Value– Fixed Price– Agreed Formulas by Product-

Period– Fixed time Contracts with

Fixed Prices and Discount

Electronic Order EntryHeineken - USA

Tracking of the PO

• Where?• When?• What and How Much?• Destination?• Time?• Contents?• Status?• Exception Reports ?

Tracking of the PO

Tracking of the Supplier’s Delivers