materials management bus 3 – 141 information systems and technology week of apr 2, 2007

Materials Management

BUS 3 – 141

Information Systems and Technology

Week of Apr 2, 2007

2

Agenda

– “Deal of the Break”

– Case due Wednesday

– Overview

– Technology and the 9 Elements of the Supply Mgmt Process

– Supply Management Applications

– EDI

– Online Auctions

– Summary

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Case 2: Deere Coat Management, p251, 9-1

1. FACTS OF THE CASE (Approx. 20% of Total Effort / Grade)

Quantitative data (Revenue, Inventory, Costs, Employees, Divisions, etc….)

2. BUSINESS ISSUES IDENTIFIED (Approx. 20% of Total Effort / Grade)

Customers, Suppliers, Internal Measurement Systems, Organization, Competitors, Supply Shortages, Price Increases, Cash Flow, etc…)

3. CONCLUSIONS (Approx. 25% of Total Effort / Grade)

What has been going well?

What needs improvement?

4. RECOMMENDATIONS (Approx. 35% of Total Effort / Grade)

What improvements should be made?

What (if any?) activities should be stopped?

How can the improvements be implemented?

Background and Overview

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Technology in the Materials Management Process

Identify WHATItems areRequired

CalculateHOW MUCHis Required

ScheduleWHEN they

are Received& FROM WHOM

At the LOWEST Total COST of Ownership

With the Highest QUALITY and Reliability

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Four Basic Information Flows in Supply Management

Statement of Need

– MRP– Requisitions– Reorder points

Requests for information within the organization

– Pricing– Availability– Approved Suppliers

Information from Suppliers and the marketplace

– Pricing and Availability– New laws and regulations

Information to Suppliers

– Additional requirements– Specification changes

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Simplified Flowchart of an Automated Purchasing System

* From Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

8

MRP is extremely dependent on accurate DATA

OpenPurchase

Orders

InReceiving

OpenWork

Orders In a higherAssemblies

In theStockroom

InFinishedGoods

Shipped

In a WIPLocation

In WIP

EVERY time inventory is moved, a TRANSACTION must be executed

The system MUST see ALL inventory in ALL of these categoriesat ALL times

Technology in the 9 Elements of the Supply Management Process

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The 9 Elements of the Supply Management Process

SupplyMgmt

ProductionCustomerService

Shipping

IdentifyRequirements

EstablishSpecifications

AssessSuppliers

SelectSupplier(s)

IssuePurchase

Order

Follow-Up& Expedite

Receive &Verify

ProcessPayment

MaintainRecords

CustomerDemand

ProductionSchedule

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1. Identify Requirements



IdentifySuppliers

SelectSupplier(s)

IssuePurchase

Order

Follow-Up& Expedite

Receive &Verify

ProcessPayment

MaintainRecords

– Direct and Indirect

– Material Requisitions

– MRP Output

– Impact of Lead Time

– Other items to consider As availability becomes scarce, Purchasing alerts users Recommending subassemblies instead of components Proposing substitute items, where appropriate

• MRP• Reorder Point• System generated

Requisitions• Periodic Buys

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2. Establish Specifications



IdentifySuppliers

SelectSupplier(s)

IssuePurchase

Order

Follow-Up& Expedite

Receive &Verify

ProcessPayment

MaintainRecords

– Engineering Drawings and Specifications

– Samples

– Requisition Details (electronic or paper) Date originated, Document Number, Dept, Account Number,

Signature(s) Complete description of material or service required Quantity and date required Shipping / delivery instructions

– Authorization to Buy

– Impact of Lead Time

– Other items to consider Understanding ultimate purpose (Are they asking for a Mercedes

or just a car?) Catalogues and standard items Supplier Input

• Part Numbers• Engineering Docs• Contract Info• Service Agreements

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3. Identify Suppliers

IdentifySuppliers



SelectSupplier(s)

IssuePurchase

Order

Follow-Up& Expedite

Receive &Verify

ProcessPayment

MaintainRecords

– History and Geography

– Request for Quotation

– Request for Proposal

– Request for Bid

– Other items to consider Input from Technical Staff Other

• Qualified Suppliers• e-RFQ• e-RFP

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4. Select Suppliers

SelectSupplier(s)



IdentifySuppliers

IssuePurchase

Order

Follow-Up& Expedite

Receive &Verify

ProcessPayment

MaintainRecords

– Supply Capability Quality Capacity Reliability

– Many other factors to be covered later in semester

• Pricing History• Online catalogs• PO agreements• Reverse Auctions

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5. Issue Purchase Order

IssuePurchase

Order



IdentifySuppliers

SelectSupplier(s)

Follow-Up& Expedite

Receive &Verify

ProcessPayment

MaintainRecords

– Relationship to Material Requisition The Requisition provides the information that populates several

Purchase Order data fields (see Requisition Details)

– Ensure Risk Management

– Acknowledgement

– Internal Controls Budgets Approvals

– Recurring Purchase Order Releases Pre-negotiated contracts

– Other items to consider ALWAYS ensure that the terms and conditions are in WRITING. A

Purchase Order is a CONTRACT

Continued on next Slide

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5. Issue Purchase Order, continued

IssuePurchase

Order



IdentifySuppliers

SelectSupplier(s)

Follow-Up& Expedite

Receive &Verify

ProcessPayment

MaintainRecords

– Discrete Orders

– Pre-negotiated Blanket

– Pre-negotiated Vendor-Managed

– MRO

– Bid and Auction

– Corporate Purchase Card (pCard)

• System generated PO• e-forms• Link to open

contracts• Transmit via EDI• e-Procurement apps

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6. Follow-Up and Expedite

Follow-Up& Expedite



IdentifySuppliers

SelectSupplier(s)

IssuePurchase

Order

Receive &Verify

ProcessPayment

MaintainRecords

– ERP Applications assume that scheduled dates will be received on time

– A Scheduled delivery date needs to be monitored and managed

– Possible missed dates must be identified in advance and avoided If delays are inevitable, recovery plans must be developed and

managed

– Other items to consider An understanding of the Supplier’s production process, capacity,

and constraints is critical to collaborative problem solving Expediting should be on an exception basis. If it is determined that

a particular supplier is consistently being expedited, corrective action should be initiated

• Past Due orders• Reschedule messages• Orders due in next “X”

days / weeks• Delivery performance

data

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7. Receive and Verify

Receiveand Verify



IdentifySuppliers

SelectSupplier(s)

IssuePurchase

Order

Follow-Up& Expedite

ProcessPayment

MaintainRecords

– Relationship to Material Requisition and Purchase Order Key data elements travel throughout

– Key objectives Confirm receipt of goods Ensure proper physical condition, quantity, documentation Quality parameters met

– Cross functional activity among Purchasing, Receiving, Materials, and Finance

– Other items to consider Receiving is technically a “non-value-added” activity. It is designed

to ensure that something that should have been done properly actually was. The goal is to ensure quality throughout, and eliminate the need for inspection

• Bar Codes• Online

Documentation• Exception reports

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8. Process Payment

ProcessPayment



IdentifySuppliers

SelectSupplier(s)

IssuePurchase

Order

Follow-Up& Expedite

Receive& Verify

MaintainRecords

Key Document Flow

RequisitionPurchase

OrderPacking Slip(Receiving)

Invoice Payment

– Match the data in the Purchase Order, Packing Slip, and Invoice Discrepancies must be reconciled before payment is issued Some level of discrepancies can be ignored (e.g. if +/- 5% or +/-

$25) Audits of all

– Discounts for early payment are often available and should be taken whenever possible

– Other items to consider Chronic discrepancies from a single Supplier could lead to a

change

• Automated check runs• Exception messages• Electronic Funds

Transfer (EFT)• Electronic Bill

Presentment & Payment (EBPP)

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9. Maintain Records

MaintainRecords



IdentifySuppliers

SelectSupplier(s)

IssuePurchase

Order

Follow-Up& Expedite

Receive& Verify

ProcessPayments

– Purchase Orders should be archived for up to 7 years

– Key Records to be Maintained (from p.77) Purchase Order Log of all PO’s Copies of Purchase Orders Commodity file Supplier history file Outstanding Contracts against which PO’s are placed

– Other items to consider Can be electronic or paper Paper can be managed by a third party

• Online data bases

Supply Management Applications

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Enterprise Resource Planning (ERP)

SAP Oracle J.D. Edwards

From PC MagazineAn integrated information system that serves all departments within an enterprise. An ERP system can include software for manufacturing, order entry, accounts receivable and payable, general ledger, purchasing, warehousing, transportation and human resources

From What is.comAn industry term for the broad set of activities supported by multi-module application software that helps a manufacturer or other business manage the important parts of its business, including product planning, parts purchasing, maintaining inventories, interacting with suppliers, providing customer service, and tracking orders. ERP can also include application modules for the finance and human resources aspects of a business. Typically, an ERP system uses or is integrated with a relational database system. The deployment of an ERP system can involve considerable business process analysis, employee retraining, and new work procedures

From erpfans.comSoftware solution that addresses the enterprise needs, taking the process view of an organization to meet the organizational goals, tightly integrating all functions of an enterprise

Definitions

Popular ERP Application Providers

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e-Procurement Applications

Ariba i2 FreeMarkets

Popular e-Procurement Application Providers

Key Functions of Procurement Applications

– Spend Analysis

– Supplier Performance Assessment

– Supplier Sourcing

– Contract life-cycle management

– Procurement

– Order Tracking

– Invoicing

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Adoption Rate of Internet-Based Procurement

To identify new suppliers: 80.7%

Purchasing indirect materials: 70.9%

As part of RFP 48.8%

On-line collaboration with suppliers: 42.8%


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Implementing e-Procurement Systems for Indirect Materials

– Select a solutions-provider and determining the type of relationship

– Determine how many suppliers and which suppliers to keep in its supply base for indirect purchases

– Negotiate terms and conditions with the chosen suppliers, including deeply discounted prices in return for volume

– Load digitized versions of the suppliers’ catalogs alongside the e-procurement application

Planning and Set-Up

Using the System

– Employees use computer browsers to search the catalogs of designated suppliers, selected items for purchase, and create requisitions and a P.O. is generated

– The P.O. is streamed directly into the supplier’s inventory application and the order is processed, and the goods shipped

– Invoicing and/or payment is made; sometimes through and electronic bill presentment and payment process

Electronic Data Interchange (EDI), Online Collaboration, and Auctions

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Electronic Data Interchange (EDI)

– Purchase Orders

– Shipping notifications

– Shipping schedules

– Invoices

Computer-to-computer data exchange between two organizations.Uses standards to determine how the data will be structured and transmitted

Key uses of EDI

While EDI remains very common, many organizations are moving towardInternet data exchange. This is less costly to implement and provides

greater flexibility in structuring and standardizing data

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EDI Benefits

EDIBenefits

EFT paperlesspurchasing

purchasingprofessionalism

increasedproductivity

inventory andlead time reductionbuilding enhanced

communicationwith suppliers

internalsystemsimpact

increaseddata accuracy

support forbar coding

fosters JITrelationship


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Uses of the Internet in Supply Management

– Significantly reduced time throughout every step of the procurement process

– Significantly reduced errors throughout every step of the procurement process

– Identifying suppliers throughout the world

– Searching electronic catalogs

– Accessing government sources

– Supporting global sourcing

– Exploiting on-line auctions where appropriate

– Exchanging emails

– Automatic shipment and receipt acknowledgement

– Near-real-time delivery tracking

– Near-real-time inventory status tracking

– Near-real-time pricing information

– Enabling the controlled purchase of C items outside Procurement organizations

Best suited for executing routine, repetitive transactions and communicatingstandard information status. Also very helpful in planning strategic buys

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On-line collaboration in Supply Management

– Internal network for authorized employees to share information

– Based on internet technologies

– Secure environment that enables the use of e-procurement applications

Intranets

Extranets

– Intranets extended to Suppliers (and others) outside the organization

– Established with Key suppliers only

– Can be designed to facilitate communication between Individuals at the Buying and Selling organizations Systems at the Buying and Selling organizations

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Online Auctions

Auction

On-line Reverse Auction

Definitions in the Textbook

A seller with goods to sell invites multiple buyers to bid against each other at a set time and place to purchase the goods

A buyer wishes to purchase to purchase goods or services and invites multiple sellers to bid against one another in a declining price auction using the Internet


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When to Use Online Auctions

The good or service has the characteristics of a commodity

There is a clear and unambiguous specification

There are multiple suppliers available and willing to compete for business

The organization has access to the technology necessary to run the auction


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Three Types of e-Auctions

Open offer negotiations

Sellers list items for sale

Suppliers select items for bid and enter offers until closing

Names not disclosed to other bidders

Buyers provide a list that includes target price and quantity

Suppliers select item(s) and offer prices

Status levels: accepted; closed; BAFO; open

Buyer posts price and first supplier that meets price is accepted

Private offer negotiations

Posted price


Summary

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Seven Benefits of Information Technology for Supply

– Efficiency

– Quick access to data

– Quick communication with Suppliers

– Greater focus on “A” items

– Fewer errors than manual systems

– Better integration across functions

– Increased control and reduced maverick buying

materials management bus 3 – 141 information systems and technology week of apr 2, 2007

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