Professional Documents
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Teaching Staff
Email: VeeraRaghavan.Ramanathan@uts.edu.au
Location: CB08.04.011
Subject description
This subject focuses on the management of procurement of goods and services from a strategic
perspective. Topics include procurement as a strategic function; key procurement issues such as
outsourcing, sourcing strategies and relationships, total cost of ownership, inventory management and
negotiations; and applications of procurement such as procurement of commodities, international and
global sourcing, capital procurement, efficient consumer response, services procurement and corporate
social responsibility and e-procurement and contract management.
Subject objectives
Upon successful completion of this subject students should be able to:
1. Demonstrate awareness of the strategic nature of the procurement function in organisations
2. Discuss the broad range of influences acting on the design and management of the procurement
function in a local and global context
3. Develop understanding of technologies and techniques related to the procurement function
4. Develop skills in designing and managing efficient and effective procurement systems
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-----------------------------------------------------------------------------------------------------------------------------------Assessment Task 1 30%
Case Assignment (Individual) - Due date 1st of May 2015
Objectives: This addresses subject Learning Objectives 2 and 4.
Case study from text or case study on procurement in your firm*
*This will be discussed in class by the lecturer
Assessment item 2: Project Presentation and Report (Group) 25% Objective(s): This addresses Subject Learning Objectives 14.
Weighting: The three questions are worth 5 marks each; group presentation 5 marks
Total 20%
Task: The group assignment assesses the students' analytical capability, the ability to conduct
research on a given topic and their understanding of important issues related to the subject. The group
assignment consists of an analytical procurement planning case study (comprising both quantitative
and qualitative components). This will also include a 10 minute class presentation on the topic of ethical
sourcing, environmental & social responsibility. The combined word count for answering the three
questions is a maximum of 3000 words.
----------------------------------------------------------------------------------------------------------------1. Procurement planning Case Problem (10 Marks) - Procurement Planning at Firebird
Electric, US
Purchasing at Firebird
Purchasing for Firebird Electric is decentralised. The purchasing department at Firebird consists of nine
full-time associates. The purchasing manager assists in decision making and controls administrative
duties. Six buyers are responsible for obtaining materials to meet production requirements. One buyer
supplies the HB department and one is solely responsible for MRO purchases. The other four buyers
are responsible for specific vendors. Each buyer oversees all products purchased from 8 to 10 different
suppliers. The two other purchasing associates are specifically assigned to supplier evaluation and
incoming quality conformance. This report focuses on the procedures and decisions involved in
supplying the housing used in OEM lighting production for the 2005 model of two-door B-car.
Housing definition
Housings are fabricated through die injection moulding. A resin is melted, injected and stamped into the
die mould. The housings function is to attach to the body of the vehicle, protect internal components
(cords, bulbs, etc.), and hold components in place so that the light functions as designed. Each
make/model has unique housing specifications with regard to size, durability, holes, and necessary
attachments to perform these duties. As stated earlier, Firebird has the ability to produce housing in the
moulding division; however, of the approximately 240 parts presently moulded in Manufacturing IV, only
11 are housings. Firebird also outsources production of housing to four South Carolina moulding firms:
FPE, The South Carolina Plastics Company (TOPCO), Central South California Plastics (COPCO), and
Charleston Custom Plastics (WCP).
Requirements for New Product Development
The customer, internal departments, and potential suppliers contribute to designing quality into
moulded parts. Due to Road-Masters strict quality requirements and just-in-time inventory systems,
non-conformance results in high costs, hinders customer relations, and endangers prospective
contracts. Departments included in the product definition and development stages include product
design, purchasing, quality assurance, sales, die moulding, engineering, manufacturing, plant
management, quality control, production control, and materials management.
The first stage in new housing development is gathering model information from the customer via the
sales department. Based on this information, the first drawings of the housing are completed and
evaluated. Firebird considers the application of new technology, alternative manufacturing processes,
and new inputs to production for all new model components. Project leaders and project members,
representing the aforementioned departments, are selected for the development team. Quality
assurance reviews the initial drawings. The review encompasses simplifying fabrication by eliminating
components and processes, and searching for alternative methods of tooling and production. The
design review is then sent to manufacturing departments, die mould, purchasing, quality assurance,
and quality control. A follow-up meeting is conducted involving representative from all departments
Development conferences with manufacturing personal are held to inform team members of schedule
updates, quality targets, costs, and responsibilities. The periodic meetings are held as needed to
ensure that members are aware of revisions to plans. A constant flow of information is emphasised to
continuously improve processes. After product development is completed, Firebird defines the
specifications for the fixture (die mould) measurements. The fixture is designed for accuracy, ease of
use, and cost efficiency. A rough sketch of the fixture and the required materials is drawn. Purchasing
and engineering personnel from Firebird and Road-Master must approve the concept. Upon approval,
the fixture manufacturer submits a design drawing to quality assurance. Firebird purchases and retains
ownership of the die mould fixture regardless of the outcome of the make-or-buy decision. The initial
trial run of the product, always performed in-house, is done to verify that the fixture is capable of
meeting drawing specifications and minimising the rejection rate. Statistical process control charts are
kept for resin input and output quality. If the process is deemed out of control, a modification schedule
for a new trial run is scheduled. An evaluation meeting is held to inform all departments about potential
problems. Cause-and-effect judgments are made and reconciled via modification request sheets.
Target finish dates also are established at this meeting.
Question 1
As can be seen, new-product development is an involved process. Recently, more and more of Firebird
productions are outsourced. Using the assumptions given below, analyse the make-or-buy decision.
Please write a detailed report recommending and justifying either the make or buy decision.
Assumptions:
Internal production costs were obtained from manufacturing and cost accounting. Information on the
cost to buy was gathered from journals, historical pricing, supplier information, and engineering
estimates.
General assumptions:
Difference in quality levels of in-house and procured parts in negligible. OEM demand is estimated at
1,000 units /day, 250 working days/ year.
Production assumptions:
The production output is 1,000 units per day for 250 working days per year. The resin usage per unit is
about 500 grams. The resign costs about $2/kg. For the required precision, the moulding unit costs a
one-off $285,000 per year. A 7% interest rate should be considered to calculate the time value of
money for the invested capital in the moulding unit. Two labours are required to work on one moulder at
any time. Labour wages are set at $18 per hour for the average 2,083 working hours per year.
Allocated overhead costs are equal to 15% of the labour wages. Plant opportunity cost is estimated to
be $80,000 per year (if the plant is used for other purposes instead of production of the concerned
items).
Purchasing assumptions:
The purchase price is estimated at $3 per unit. The number of order release per year is 100 with the
order lot size of 2500 units. Cost of order processing is $50 per order. The annual inspection cost is
$35,000.
Question 2
What are the costs to society when well-established firms like Firebird outsource when they clearly
have the capability to produce the good or service?
Question 3
How should the suppliers be selected if the buy option is chosen by Firebird? Please give a
Step-by-step approach to the selection and evaluation process
Assessment Task 3 Formal in-class Examination (short-answer and case questions) (Individual)
Weight: 45 % - June 5
Objectives - This addresses Subject Learning Objectives 14.
The exam duration is 2 hours plus 10 minutes reading time
The in-class exam is designed to assess the students' understanding of theory and its application
across the subject. The exam will cover all the topics delivered in this subject. The questions include
multiple choice questions, short answer questions and problem solving questions. Students will be
informed about the exact date and time of the exam after the mid-semester break
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PROGRAM
Week/Session
Dates
Description
Introduction to the subject
27th of
February
The scope of purchasing; The purchasing cycle concept; Purchasing and supply as
a service activity; To highlight the evolution of concepts relating to purchasing
development; To identify key practices encountered in developing strategic
purchasing. Demonstrating how the role of purchasing has changed from merely
placing orders to investigating the supplier's technical and process capabilities.
Group formation
6th of March
April 3rd
10th of April
17th of April
24th of April
8th of May 8
How purchasing in the health care field is carried out; various supply management
methods in the health care field; how inventory control is accomplished in the health
care field; about group purchasing organizations; current trends in health care
purchasing; the capital equipment acquisition process; how various health care
15th of May
22nd of May
13
29th of May
Group presentations
14
5th of June
Final Exam
Purchasing
and Supply
Chain
Management
The McGraw-Hill/Irwin
Series in Operations and
Decision)Hardcover
June 7, 2013
by W.C. Benton(Author)
Notes:
References
Lysons K., Farrington B. (2012), Purchasing and Supply Chain Management, 8th Edition,
Pearson
Baily, P., Farmer, D., Crocker, B., Jessop, D. and Jones. D. (2008). "Procurement principles
and management", 10th Edition. Prentice Hall.
Russell R.S. and Taylor B. W. (2011), Operations Management: Creating Value along the
Supply Chain, 7th Edition, John Wiley & Sons Inc.
Fleisher, C.S. and Bensoussan, B.E.(2015) Business and Competitive Analysis; effective
application of new and classic methods 2nd Edition Pearson Education Inc. FT Press Upper
Saddle River New Jersey NY. USA.