2.3.2 the role of procurement (2) - logistics

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2.3Makingoperationaldecisions

2.3.2Theroleofprocurement– logisticsandsupplydecisions

Theroleofprocurement

Keyelementstothistopic

Logisticsandsupplydecisions

Areminder:Theroleofprocurement

Procurementisthewholeprocessofmanagingtheorderingandreceiptofthegoodsorservicesinthe

business.

Inpairsdiscuss:Whatarethekeypartsofprocurement?

• Decidingwhatisneeded• Selectingsuppliers• Termsofpayment• Negotiatingcontractsbetweenthebusinessanditssuppliers

• Managinghowgoodsareorderedandreceived

• Managinglogistics

Logistics

Aprocesswhichplans,implementsandcontrolsthedistributionandstorageofgoodsandservicesfromwhentheyarereceivedfromthe

suppliertowhentheyaredeliveredtothecustomer.

Logistics isoftenseenasthetransportation ofrawmaterialsandfinishedgoods,butaswithprocurementitisaprocessnotjustasingleactivity.

Logistics

Casestudy

Amazonhasinvestedheavilyintechnologytoimproveitslogisticsoperation.

Amazonbelievethatthiswillgiveitacompetitiveadvantageandensurethefuturesuccessofthebusiness.

Doyouagree?Givereasonsforyouranswer

Watchtheclip

Whatisthesupplychain?

Thenetworkoforganisationsthatgetproductstocustomers.

Suppliersofrawmaterials Manufacturers Wholesalers/Retailers Customers

Supplychainmanagementandsupplydecisions

Ensuresthattherightquantityofgoodsareintherightplaceattherighttimeandtheseareprovidedattherightqualityandataprice thatrepresentsvalueformoney.

Thisshouldcreatevalueforthecustomerandprofitforthebusinesseswithinthe

supplychain.

Justaminute

Youhave60secondstolistthebenefitstoAmazonofeffectivesupplychain

decisions

Benefitsofeffectivesupplychainmanagementandsupplydecisions

Improvedreputation:ifdeliveriesarriveontime,exactlywhentheyareneeded,thebusinesswillgainastrongreputationforreliabilityandahighqualityserviceandislikelytoreceiverepeatorders

Increasedefficiency:forexample, ifproductioncanbecompletedmorequicklyorordertodespatchtimesarereduced

Lowerunitcosts:pricescanbenegotiatedwithsupplierstoensurethatabusinessreceivesvalueformoney;anycostsavingscanbepassedontocustomersintheformoflowerprices;alternativelythebusinesscanenjoyincreasedprofitmarginswhichcouldleadtofutureimprovementsinefficiency

Customersatisfaction:thiscanresultwhentherightproducts,attherightquality(whichreflectsthepricepaid)aredeliveredwhentheyareexpected;thiswillencouragepositivefeedbackandbrandloyalty.Withtheincreasinguseofdigitaltechnology,customershavemoreinformationregardingdeliverytimesandthestatusofanyorders.

Effectivesupplychainmanagement

Planning Procurement Communication Removalofwaste

Changingtransportation

Tobeeffective,systemsneedtobereviewedregularlytomaximiseefficiency

Ensuresalesforecastsareaccuratetoensuretherightquantityofgoodsandservicesare

available

Gettingthebestsupplierswillresultingoodvalueandreliablesuppliesoftheright

quality

Co-ordinationandcommunicationwithsuppliersandlogisticswillensuregoodsarriveontimeanddonotdelayproductionprocesses

Removalofwastecanresultinastreamlinedprocesswhichisfaster,haslowercosts,improvedqualityandbetterreliability.Inmanufacturingbusinesses,

methodssuchasqualityassuranceandjustintimecanhelp

Logisticsneedtobeconstantlyreviewed,asnewtransportoptionsbecomeavailableanddifferentdistributionroutesarerequired

Workingwithsuppliers

Quickquestionsfordiscussion

1. Whatismeantbythetermlogistics?2. Whatisasupplychain?3. Givetwo typesofsuppliesforTesco4. Explainhoweffectivedecision-makinginrelation

tothesupplychaincaninfluenceTesco’s:a)Costsb)Reputationc)Customersatisfaction

Whenthingsgowrong

Let’sconsidersomeexamples

Workingingroupsof3,studythearticle,identifytheproblemseachbusinessfacedandhoweachresolvedtheseproblems

Whenthingsgowrong

Problem:unexpecteddemandandthreatofstrikeactionfromusualdeliveryfirmSolution:Noalternative,butforstafftodelivertheproductsthemselvestoavoidstockwastage;nowreviewedsystemsandhasowndistributionfleetwhichisusedduringpeaktimes

Problem:newbusinessstart-up;failedtoplanthelevelofdemandforitsproducts;hadnotarrangedcollectionofparcelsfromthebusinessSolution:Hadtotravelto10differentpostofficestoensuresuccessfuldistributionofproductsonthefirstday;arrangedforRoyalMailcollectionfromitsofficeswhichstartedtheverynextday

Problem:supplierissuesmeantthatthebusinesswaswithoutthecorrectstock;whenitwasdeliveredtherewereerrorsleadingtocustomercomplaints;theseproblemsreoccurredwiththenextsupplierSolution: nowusesanumberofsupplierstospreadtherisk

LESSONLEARNT:Planning/checkingisthekeytopreventingmistakesfromoccurring!

Issuestoconsiderwhenmakingsupplydecisions

Qualitycansufferifcostsaredrivendowntoolowe.g.suppliersmaynotbededicatediftheyarenotpaidafairprice

SophisticatedITsystemstomonitorthesupplychaincanbeexpensivetoimplement

Relianceonothermembersofthesupplychainmeansabusinessdoesnothavefullcontroloveritsoperations

Supplychainsinaction“FromcowtoKitKat”

Conceptlinks

Effectivesupplydecisions

Logistics

Reducedwaste

Costs

Canyoulinktheseconcepts?

Sentencestarter – OnebenefittoNestleofmakingeffectivesupplydecisionsis…

Conceptlinks

Effectivesupplydecisions

Logisticsthatjourneysareplannedwhichmeansunderfilledlorriesdonottravel.

Reducedwaste

Costs

Sentencestarter - OnebenefittoNestleofmakingeffectivesupplydecisionsis…

Asaresult,fuelisnotusedonpointlessjourneys.

ThiswillmeanNestlecankeepitsfuelcostsdown,whichthereforewillincreaseitsefficiency.