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It Is Not Always Economical For The Companies To Make All The Materials Used In Manufacturing. Some Items Are Procured From Others, And Some Are Produced In The Company.
Some Reasons For Making: Lower Production Cost Unreliable Or Unsuitable Suppliers Assure Adequate Supply (Quantity) Utilize Surplus Labor Capacity Obtain Desired Quality Protect Special Design Or Quality
Some Reasons For Buying: Lower Acquisition Cost Inadequate Capacity Reduce Inventory Costs Ensure Alternative Sources Of Supply Item Is Protected By A Patent Or Trade License
By Vertical Integration, We Mean Developing The Ability To Produce Goods Or Services that are Previously Purchased. It Can Take The Form Of Forward Or Backward Integration:
Because Purchased Items Represent A Large Part Of The Costs, Many Organizations Find Interest In Vertical Integration. For example, Murat Ticaret Originally Produces Cable. Then It Started Producing Cable Cords For Automobiles (Otosan, Dodge, Otoyol, Etc.)
Vertical Integration Is Adventageous When The Organization Has Large Market Share. Backward Integration May Be Dangerous For Firms In Industries Undergoing Rapid Technological Changes.
Materials Management
Purpose Of Materials Management Is To Obtain Efficiency Of Operations Through Integration Of 1) Material Acquisition, 2) Material Movement, and 3) Material Storage.
Materials Management
Materials Management
Some Basic Functions Of Materials Management: Shipping Purchasing Warehousing (Raw Material, Wip, End Material) Order Processing Production And Inventory Control
Materials Management
One of the major issues that materials managers might encounter is the method of Procurement.
Materials Management
Procurement method is the way of ordering material. Some of the new developments in this area include: 1) Electronic Ordering 2) Stockless Purchasing 3) Standardization, and 4) Just in Time Purchasing.
Electronic Ordering
Electronic Ordering Reduce Paper Transactions. Paper Transactions Include Purchase Order, Receiving Document, Authorization To Pay, Etc. Transactions Between Firms Are Increasingly Done Via Electronic Data Interchange (EDI). EDI Is A Standardized Data Transmittal Format For Computerized Communications Between Organizations.
Electronic Ordering
It Provides Data Transfer For Any Business Application, Including Purchasing. For Example, Data For A Purchase Order (Such As Order Date, Due Date, Quantity, Part Number, Order Number, Address, Etc.) Are Fitted Into Standard EDI Format.
Electronic Ordering
The Data Are Then Sent From One Computer To Another By Phone Line (Internet) A Computer Program Is Used To Read Those Data Into The Receiving Companys Files. Electronic Ordering Also Speeds Up The Traditionally Long Procurement Time.
Stockless Purchasing
This Means That The Supplier Maintains The Inventory For The Purchaser. Here, The Cost Of Stocking Inventory Has Been Temporarily Transferred From The Purchaser To The Supplier.
Stockless Purchasing
Consignment Inventories (Konsinye, To Be Discussed Later) Are A Related Option. If The Supplier Can Maintain The Stocks For A Variety Of Customers Who Use Same Products, Then There May Be Net Savings In This Option. Otherwise, Purchasing Costs May Go Up.
Standardization
Rather Than Obtaining A Variety Of Components Similar In Labeling, Coloring, Packaging, Etc. The Purchasing Agent Should Try To Have Those Components Standardized. For Every Component That Is Standardized, There Is One Less Invoice, One Less Item To Be Inventoried, Etc.
Just In Time (Jit) Purchasing Is Directed Toward The Reduction Of Waste (That Is Present At Incoming Inspection, Excess Inventory and Poor Quality) And Delay.
This Waste And Delay is Present In All Production Processes. (Not Only In Purchasing) Therefore, JIT Approach Can Be Applied To All Areas Of Production. ** The Basic JIT Approach: Every Moment Material Should Add Value.
Another Way To Reduce In-Transit Inventory Is To Have Inventory On Consignment. Under A Consignment Arrangement The Supplier Maintains Title To The Inventory. But, It Locates Its Warehouse Where The User Has Its Stockroom.
Today, many manufacturer companies utilize Multi-Echelon inventory systems. In multi-echelon inventory systems, Products are stored at different points, before reaching to the customer.
After manufacturing the Products, the Manufacturer stores them in its own warehouse. From there, they are Transported to regional warehouses. These regional warehouses serve as a distribution point for retail stores.
When the retail stores require products, They will request them from their local warehouse. The function of the Regional Warehouse is to provide an Intermediate Stage in the distribution system SO THAT manufacturer Does Not have to deal with every single customer. This also means that, Customers DO NOT have to Reach to the manufacturers plant.
Distribution system:
Transportation
Physical distribution managers must ALSO decide on which mode of transport is Best to distribute Products to the Customers.
Modes of Transportation
Available modes of transport are: -Road transport (cars, trucks), -Railway transport, -Water transport (ships), -Air transport, and -Pipelines (oil, natural gas).
Modes of Transportation
Air transport is very expensive and limited in Space availability. Therefore, It is usually preferred for small-quantity, high-value products, which require fast delivery (e.g., highly fragile electronic parts).
Modes of Transportation
On the contrary, Water or Railway transportation is slower BUT cheaper. Therefore, they are used for carrying Large Quantities of raw materials (e.g., coal and iron).
Modes of Transportation
Limitation of Transportation
There may be some limitations on these modes of transport, as well. For example, only Gas and Liquids can be conveniently transported by Pipelines. Similarly, very large products (such as building sections) would not fit in most Aircrafts.
Transportation
However, the mode of transport is usually Chosen with reference to the Relative Importance of the following factors: Delivery speed Delivery dependability (reliability) Quality deterioration Transportation cost, and Route flexibility.
Transportation
The following table gives a ranking of each mode of transport based on these factors: (1 = Best Performance; 5 = Worst Performance)
Transportation
Transportation
The selection of the transportation mode will also affect other decisions related to the management of operations. For example, firms may choose to locate their facilities near to ports or airports, or railway sidings, or close to motorways depending on the selected mode of transport.
Logisticians have devoted little attention to managing the chain of supply up to the purchasing function. And similarly, materials managers have ignored the management of the flow of products down to the customers through distribution channels.
On the contrary Supply Chain Management views the entire chain as a system to be managed. It can be defined as managing the entire chain of raw material supply, manufacture, assembly and distribution to the end customer.
In long supply chains, it is not easy to co-ordinate the whole chain. This is especially true when part of the supply chain serves two sets of end cutomers.
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