PURCHASING,

WAREHOUSING AND
DISTRIBUTION

Doç. Dr. Bülent Sezen

Suppose you are a car manufacturer..

You would buy materials, manage inventories and

distribute the final product.
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PURCHASING AND MATERIALS
MANAGEMENT
 A widely used organizational approach to purchasing
management involves a concept known as materials
management.

 This concept recognizes purchasing as one of

several activities dealing with the planning for,
acquisition of, and utilization of materials.

 In this approach, organization is structured so that all

activities bringing materials into and through the plant
are combined under one person known as the
materials manager.
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PURCHASING AND MATERIALS
MANAGEMENT
 The basic rationale for this type of organization is
that, taken alone, the functions of purchasing have
conflicting objectives.

 For example, purchasing’s concern that supply be

continuous may conflict with inventory control' s
emphasis on minimizing inventory levels, or with
traffic's objective of shipping in full loads.

 The expanded use of computers has made it possible

for the materials manager to coordinate this
increased level of operations.

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Physical Distribution
 Physical distribution takes the output-finished goods-
from the end of the firm's production process to the
customer.

 This transaction may involve

 packaging,
 finished goods warehousing,
 outbound transportation,
 delivery to customers,
 customer complaints, and
 accounting for all product costs since the product left
the production line.

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Delivery to customers

Do we carry only the final products?

What if our final product is a sub-material for another 6
product?
Logistics
 Logistics contributes to both the materials
management and the physical distribution
functions.

 Logistics function manages the shipment of

all incoming goods from suppliers and all
outgoing goods to customers.

 The firm's traffic manager typically carries out

these activities.
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Purchasing Objectives
 Purchasing’s responsibility is to buy materials of the
right quality, in the right quantity, at the right time, at
the right price, from the right source, with delivery at
the right place.

 In most concerns continuity of operations is of critical

importance.

 The purchasing function must not allow production to

be disrupted by a lack of needed materials.

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Purchasing Objectives…
 Furthermore, this objective must be achieved with a
minimum investment in inventories.

 Achieving this objective of security with a minimum

investment demands a fine balancing of various
factors: risk of shutdown, the cost inherent in forward
buying, and the economies of quantity purchases.

 Weighing these factors calls for experience and a

high order of professional judgment.

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Purchasing Objectives…
 Another objective is the maintenance of
adequate quality.

 Quality refers primarily to the suitability of an

item for its intended purpose.

 The objective is to procure the goods that are

best suited rather than those of highest
absolute quality.
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Purchasing Objectives…
 In addition to product quality, the services
offered by the suppliers must be evaluated in
the light of the organization's own needs.

 An initial low cost quoted by one supplier may

legitimately be rejected in favor of a supplier
with a higher initial cost balanced by valuable
service factors.

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Purchasing Objectives…
 A further objective of purchasing is to avoid
duplication, waste, and obsolescence of the various
items purchased.

 The purchasing department can do much to eliminate

these risks by considering each purchase in relation
to long-range operating plans as well as the short-
range considerations of the immediate purchase.

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What are we going to learn?

Purchasing Topics:

 Purchasing Strategy & Forecasting

 Purchasing Procedures and Techniques
 Supplier Selection & Evaluation
 International Purchasing
 Currency Issues in International Purchasing

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What are we going to learn?...

Warehousing and Distribution Topics

 Inventory Management
 Warehouse Management
 Material Handling
 Transportation Management
 Management of Distribution Channels

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Purchasing Strategy & Forecasting

 How to make a make-or-buy decision.

 What is vertical integration?

 How many suppliers do you need?

 Which suppliers should be selected?

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Purchasing Strategy & Forecasting..

 How do we forecast the quantity to be

purchased?

 What kind of forecasting methods should be

used?

 What is time series forecasting?

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Purchasing Procedures and Techniques

 What are the basic steps of purchasing?

 Purchasing documentation and forms.

 What is a blanket order?

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Purchasing Procedures and Techniques…

 Some recent trends in procurement:

 Electronic Ordering
 Stockless Purchasing
 Standardization, and
 Just in Time Purchasing.

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Supplier Selection & Evaluation

 How do we find the suppliers?

 What are the differences between local,

national and foreign suppliers?

 What are the advantages of buying direct and

buying from distributor?

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Supplier Selection & Evaluation..

 What are the issues when buying from a

developing country?

 Single vs. Multiple sourcing

 What are the supplier evaluation factors?

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Supplier Selection & Evaluation..

 Supplier evaluation methods:

 Categorical Method
 Weighted Point Method
 Cost-Ratio Method

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International Purchasing

 How does the buyer locate the best sources

internationally?

 Differences in currency, language and

culture.

 What is culture?

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International Purchasing…

 What are the cultural characteristics of

countries?

 What is the effect of these cultural issues in

purchasing?

 What are the differences in legal systems?

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International Purchasing…

 What is Case law and Code law?

 What are the types of agreements?

 What are the ways of protection in

international purchasing?

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Currency Issues in International
Purchasing

Why do we have
so many different
currencies?

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Currency Issues in International
Purchasing…

 What is the currency problem in purchasing?

 What is Bretton Woods Agreement?

 What is exchange risk?

 Why do we take this risk?

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Currency Issues in International
Purchasing…

 Floating vs. Pegged Currencies

 What are the guidelines in selecting a

currency?

 What is hedging?

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Currency Issues in International
Purchasing…

 Three methods to reduce the risk of buying in

a foreign currency :

 Forward contracts
 Futures contracts
 Currency options

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Inventory Management

Why do we have
inventories?

Why this army stocks

these tires?

What is ABC Analysis?

What is Just-in-Time Inventory?

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Inventory Management…

 What are the inventory related costs?

 What to answer?
 a) When to place an order for an item, and
 b) How much of an item to order.

 What is Economic Order Quantity and how do

we calculate it?
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Inventory Management…

 Basic Inventory Models:

 Economic Order Quantity Model

 Production Order Quantity Model

 Backorder Inventory Model

 Quantity Discount Model

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Warehouse Management

Is it only a storage facility?

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Warehouse Management…

 What are the benefits of warehousing?

 How do we design a warehouse?

 What are the design factors that should be

considered?

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Warehouse Management…
 What are the alternative warehouse
strategies?

 Warehouse alternatives include:

(1) Private warehouses,
(2) Public warehouses, and
(3) Contract warehouses.

 What are the differences between and

advantages of these strategies?
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Warehouse Management…

 What are the issues in planning a

warehouse?

 Site Selection
 Product-Mix Considerations
 Expansion
 Selection of Material-Handling System
 Warehouse Layout

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Warehouse Management…

 What are the issues related to the security

of warehouses?

 Pilferage Protection

 Product Deterioration

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Material Handling

 What are the handling activities?

 Receiving
 In-storage handling
 Shipping

 What are the special considerations in

designing a material handling system?

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Material Handling…

 What kinds of equipment are used in material

handling systems?

 What are the considerations in equipment

selection?

 What are the advantages and disadvantages

of each type of material handling equipment?
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Material Handling…

 New developments in material handling:

 Semi-automated material handling

 Automated material handling

 Information directed systems

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Packaging

 Consumer packaging vs. industrial packaging

 Damage protection in packaging

 Increasing the efficiency in packaging through

unitization

 Alternative materials used for packaging

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Transportation Management

 Choosing from Transportation Alternatives

 Transportation Rate Determination

 Factors Affecting the Freight Rates

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Transportation Management…

 Quantity discounts in transportation

 Evaluating the carrier alternatives

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Management of Distribution
Channels

 Relationship management with channel

members

 Trust, dependence and commitment

 Learning from successful relationships

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