1 hoetomo lembito puchasing in logistics an introduction concept jakarta, 26 march 2011 prepared by...

1 Hoetomo Lembito

PUCHASING IN LOGISTICSAn Introduction Concept

JAKARTA, 26 MARCH 2011

Prepared by

HOETOMO LEMBITO

2 Hoetomo Lembito

Sasaran Perkuliahan

• Memberikan pemahaman kepada para mahasiswa tentang esensi konsep purchasing in SCM

• Memberikan pengertian dan pemahaman konsepsi akan hubungan supplier dan buyer (supplier – buyer relationships)

1

3

Bab 1

World Class Supply Management

2

4 Hoetomo Lembito

Supply Chain Management Requires Many Different Functions

3

5 Hoetomo Lembito

Integrated Logistics

Order Processing

Order Processing

TransportationTransportationWarehousingWarehousing

InventoryInventoryPurchasing/ProcurementPurchasing/Procurement

Topik diskusi Perkuliahan ini adalah

4

6 Hoetomo Lembito

Key Concepts

• World Class Supply ManagementSM

» Implementing World Class Supply ManagementSM

• Supply Chains and Networks

• The Extended Enterprise

• Supply Management and the Bottom Line» Increased Sales

» Faster to Market or Time-Based Competition

• Supply Management and Return on Investment5

7 Hoetomo Lembito

• The Four Phases of Supply Management» Generation of Requirements

» Sourcing

» Pricing

» Post Award Activities

• Supply Management Systems

• B2B E-Commerce, the Internet and Supply Management

• Strategic Supply Management Activities

Key Concepts

6

8 Hoetomo Lembito


• WCSM is the philosophy of continuously improving…

• …the process of design, development, and management…

• …of an organization’s supply system,…

• …with the objective of improving the bottom line.

7

9 Hoetomo Lembito


• Recognizes the global environment• Is a philosophy• Is proactive• Spans functional boundaries• Spans company borders• Focuses on optimization of the supply chain• Requires change from upper management• Requires continuous improvement• Requires development of institutional trust

8

10 Hoetomo Lembito

Implementing WCSM

• Senior management must recognize supply management's critical nature and support the required transformation

• Firms must know where they are in relation to where they want to be

• Benchmarking best-in-class practices and developing metrics enable WCSM

• Appropriate action plans and metrics focus their vision and continuously improve their contribution to the bottom line

9

11 Hoetomo Lembito

The Progression to WCSM

Supply management a core competence

Strategic sourcingMonitor supply environmentDevelop and implement

commodity strategiesSupply base by designDevelop and manage

alliances and networksTime based competitionVirtually defect free materials

and servicesLeverage supplier technologyIntegrated supply strategyManage riskEmphasis: total cost

relationshipsRelationships: transactional,

collaborative and allianceBottom line impact: increase

shareholder valueReporting: member, executive

groupData: facilitates strategic

planningUnderstand key supply

industriesE-Commerce II

Coordinate procurement systemDevelop suppliersLong-term contractsInvolved in development of

requirementsPlan for recurring requirementsProcurement adds valueActive in source selectionNear defect free materials and

servicesEmphasis: cost, quality and

timelinessRelationships: transactional and

collaborativeBottom line impact: profit

contributorReporting: upper managementData: facilitates sourcing and

pricingFulfill social responsibilitiesE-Commerce

Transactional focus

React to requisitions

Not involved in key source selections

Emphasis: purchase price

Relationships: transactional and adversarial

Bottom line impact: revenue neutral

Reporting: low level

Data: used to expedite

Computers process paperwork

Process Paperwork

Confirm actions of others

Emphasis: convenience

Relationships: personal

Bottom line impact: overhead

Reporting: very low level

Data: not available

Clerical

World Class

Proactive

Mechanical

1 2 3 4 5 6 7 8 9 10

Figure 1-1Figure 1-1

10

12 Hoetomo Lembito

Clerical Stage• Process Paperwork

• Confirm actions of others

• Emphasis: convenience

• Relationships: personal

• Bottom line impact: overhead

• Reporting: very low level

• Data: not available

11

13 Hoetomo Lembito

• Transactional focus

• React to requisitions

• Not involved in key source selections

• Emphasis: purchase price

• Relationships: transactional and adversarial

• Bottom line impact: revenue neutral

• Reporting: low level

• Data: used to expedite

Mechanical Stage

12

14 Hoetomo Lembito

• Coordinate procurement system

• Develop suppliers

• Long-term contracts

• Involved in development of requirements

• Plan for recurring requirements

• Procurement adds value

• Active in source selection

Proactive Stage

13

15 Hoetomo Lembito

• Near defect free materials and services

• Emphasis: cost, quality and timeliness

• Relationships: transactional and collaborative

• Bottom line impact: profit contributor

• Reporting: upper management

• Data: facilitates sourcing and pricing

• Fulfill social responsibilities

• Engage in electronic commerce

Proactive Stage

14

16 Hoetomo Lembito

World Class Supply Management Stage

• Supply management a core competence

• Strategic sourcing

• Monitor supply environment

• Develop and implement commodity strategies

• Supply base by design

• Develop and manage alliances and networks

• Time based competition

• Virtually defect free materials and services

• Leverage supplier technology

• Integrated supply strategy15

17 Hoetomo Lembito

Supply Chains and Networks

• The supply chain extends from the ultimate customer back to Mother Earth

• The chain is viewed as a whole, a single entity rather than fragmented groups

• Money enters the supply chain only when the ultimate customer buys a product or service

• Supply systems play a key role in supply chains

• Supply chains are relatively easy to describe and visualize, but the term supply network is emerging as a more accurate description

16

18 Hoetomo Lembito

World Class Supply Management Stage

• Manage risk• Emphasis: total cost relationships• Relationships: transactional, collaborative and alliance• Bottom line impact: increase shareholder value• Reporting: member, executive group• Data: facilitates strategic planning• Understand key supply industries• E-Commerce II

17

19 Hoetomo Lembito

A Definition of Supply Chain Management

• Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores,…

• …so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time,…

• …in order to minimize system wide costs

• …while satisfying service level requirements.

Source: Simchi-Levi, Kaminsky, and Simchi-Levi, Designing and Managing the Supply Chain,

Irwin, McGraw-Hill, 2000.18

20 Hoetomo Lembito

The Value Chain

MotherEarth

OriginalEquipmentManufacturers(OEM)

ExtractorsMinersHarvesters

Converters(suppliers)

Distributors

End Customer(the sourceof funds)

The Supply Chain The Distribution Chain


19

21 Hoetomo Lembito

Supply Networks

DistributorsMotherEarth

Extractors Converters Converters OEMs Customers


20

22 Hoetomo Lembito

The Extended Enterprise

• When a group or network of firms collaborate in partnership (alliance) fashion, this is sometimes referred to as a strategic network, virtual corporation, or extended enterprise

• When the group of firms view each other as partners and collaborate effectively for the good of the larger group, then they leave established an extended enterprise characterized by virtual integration

21

23 Hoetomo Lembito

Supply Management and the Bottom Line

• Purchased items account for a large percentage of the cost of goods sold.

• Outsourcing allows firms to focus on their core competencies.» Organizations outsource when they decide to

purchase something they had been making in-house.

• A dollar saved in materials cost is usually considered a dollar increase in profit

22

24 Hoetomo Lembito

Supply Management’s Impact on Net Income and the Bottom Line

Increased Sales:• Faster to Market• Improved Quality• Pricing Flexibility• Innovation

Lower Total Cost:• Acquisition Cost• Processing Cost• Quality Cost• Downtime Cost• Risk Cost• Cycle Time Cost• Conversion Cost• Non-value Added Cost• Supply Chain Cost• Post Ownership Cost


23

25 Hoetomo Lembito

Return onInvestments

10.0%

Total assets$4,000,000

Sales$5,000,000

Divided by

Profitmargin

8%

Asset turnoverrate1.25

Multiply

Cash$300,000

Accountreceivable$300,000

Inventories$500,000

Ass

ets

Labor$700,000

Materials$2,300,000

Overhead$800,000O

pe

ratin

g c

ost

ele

me

nts

($515,000)

($3,685,000)($2,185,000)(10.3%)

(1.26)

($3,975,000)

($1,075,000)

($475,000)

(13.0%)

What if wedecreasematerials costby 5%?(or $115,000)

Sales$5,000,000

Net income$400,000

Divided by

Fixed assets$2,900,000

Current assets$1,100,000

Plus

Other costs$800,000

Sales$5,000,000

Cost ofGoods Sold$3,800,000

Minus

Plus

Supply Management and Return on Investment


26 Hoetomo Lembito

The Impact on ROI of Reducing Materials Costs vs. Increasing Sales

• If the same profit increase were to be generated by increasing sales, what sales increase would be required?

• At the existing 8% profit margin, the following calculation provides the answer…

• Profit increase = new sales X .08

• $115,000 = new sales X .08

• new sales = $1,437,50025

27 Hoetomo Lembito

The Impact on ROI of Reducing Materials

Costs vs. Increasing Sales

therefore…..

• ($1,437,500 / $5,000,000) X 100 = 28.8%

• or a sales increase of 28.8% is required to match the profit increase generated by a 5% reduction in materials cost

28

28 Hoetomo Lembito

The Four Phases of Supply Management

• Generation of Requirements

• Sourcing

• Pricing

• Post Award Activities

27

29 Hoetomo Lembito

Supply Management Systems

• Virtually all firms have supply management systems

• A cross-functional approach enables the lowest total cost

» Example: Maintenance is a function that should be considered early in the acquisition of equipment to avoid difficult to maintain machines and downtime

• Carefully selected suppliers should also join in-house cross-functional teams

28

30 Hoetomo Lembito

B2B, E-Commerce, the Internet and Supply Management

• The 21st century corporation must adapt itself to management via the Web

• The Internet and B2B e-commerce are accelerating supply management to a core competency

» Reverse auctions, exchanges, real-time electronic transmissions, etc. only increase the importance of supply management

• The Internet is an enabler, not the manager of improved supply chain management

29

31 Hoetomo Lembito

Strategic Supply Management Activities

1. Environment Monitoring

2. Integrated Supply Strategy

3. Commodity Strategies

4. Data Management

5. Corporate Strategic Plans

6. Strategic Sourcing

7. Strategic Supply Alliances

8. Supply Chain / Supply Networks

9. Social Responsibilities

10. Understand Key Supply Industries30

32 Hoetomo Lembito

Concluding Remarks• Supply management must be a core competency based on its

impact on the bottom line

• WCSM requires change, driven by upper management

• Decision-making processes toward optimization of the supply chain

• World-class supply managers proactively improve supply processes

• Traditionally, purchasing was considered as a clerical function, and did not contribute significantly to a firm’s overall business strategy

• Today, the purchasing function has evolved into an integral of SCM and adds significant value for a firm’s overall performance

31

33

Bab 2

Buyer – Supplier Relationships

32

34 Hoetomo Lembito

• A Transformation in Relationships• Three Types of Buyer-Supplier Relationships

» Transactional Relationships» Collaborative and Alliance Relationships» Collaborative Relationships» Supply Alliances» Which Relationship is Appropriate?

• The Supplier's Perspective• Developing and Managing Collaborative and

Alliance Relationships

Key Concepts

33

35 Hoetomo Lembito

• Situations Wherein Alliances may not be Appropriate

• The Role of Power

• A Portfolio Approach

• New Skills and Attitudes Required

• E-Commerce and the “Right” Type of Relationship

• Relationships of the Future

• Institutional Trust

Key Concepts

34

36 Hoetomo Lembito

Evolving to WCSM Through Alliances

• Systematically selected supply alliances…

• …built on institutional trust...

• …help organizations complete their evolution to World Class Supply ManagementSM.

35

37 Hoetomo Lembito

A Transformation in Relationships

• The transformation from reactive and mechanical purchasing to proactive procurement and on to WCSM parallels a similar transformation in relationships between buyers and suppliers

• Prior to the 1980s most purchasing relationships were reactive

• Interaction between vendor and purchasing resulted in outcomes where one’s gain would be the other’s loss

36

38 Hoetomo Lembito

Problems with the Term Partner

• During the late 1980’s and early 1990’s, “partnerships” became popular» Implications of the term “partner” were not well

understood

» Legal problems and concerns inevitably arose

• While the term “partnership” is still relatively common, we avoid use of the term preferring the terms “collaborative relationship” and “strategic alliance.”

37

39 Hoetomo Lembito

Three Types of Buyer Supplier Relationships

• Transactional

• Collaborative

• Alliance

38

40 Hoetomo Lembito

Continuum of Buyer-Seller Relationships


CommunicationCompetitive Adv.ConnectednessContinuous Impr.Contributions to NPDDifficulty of ExitDurationExpeditingFocusLevel of Integration

High pot. for problems Systematic approachLow HighIndependence InterdependenceLittle A focusFew Many – ESILow Difficult – high impactShort LongReactive ProactivePrice Total costLittle or none High or total

Activity/Attribute Transactional Collaborative Alliance

39

41 Hoetomo Lembito

Continuum of Buyer-Seller Relationships

Number of SuppliersOpen BooksQualityRelationsResourcesServiceShared ForecastsSupply DisruptionsTechnology InflowsType of Interaction

Many One or fewNo YesIncoming inspection Design quality in systemInward looking Concern w/well beingFew – low skill level ProfessionalMinimal Greatly improvedNo YesPossible UnlikelyNo YesTactical Strategic synergy

Activity/Attribute Transactional Collaborative Alliance

Figure 3-1 ContinuedFigure 3-1 Continued

40

42 Hoetomo Lembito

Transactional Relationships Characteristics

• An absence of concern

• One of a series of independent deals

• Costs, data and forecasts are not shared

• Price is the focus of the relationship

• A minimum of purchasing time and energy is required to establish prices

• Transactional purchases lend themselves to e-procurement

41

43 Hoetomo Lembito

Advantages of Transactional Relationships

• Relatively less purchasing time and effort are required to establish price

• Lower skill levels of procurement personnel are required

42

44 Hoetomo Lembito

Disadvantages of Transactional Relationships

• Potential for communication difficulties

• Expediting and monitoring of incoming quality

• Inflexible when flexibility may be required

• Tend to result in more delivery problems

• Quality will be only as good as required

• Suppliers provide the minimum service required

• Less effective performance by suppliers

• Customers are subject to more supply disruptions

• Supplier is not motivated to invest time and energy development of buyer’s products

43

45 Hoetomo Lembito

Collaborative and Alliance Relationships

• "Collaboration is the new imperative," declares Michael Dell

• Collaborative and alliance relationships tend to result in lower total costs and improve performance of the supply chain

44

46 Hoetomo Lembito

Three Success Factors

• Researchers Stanley and Pearson found that the three most important factors in a successful buyer-supplier relationship are:» (1) two-way communication,

» (2) the supplier's responsiveness to supply management's needs, and

» (3) clear product specifications

45

47 Hoetomo Lembito

Collaborative Relationships

• Typically used for the procurement of non-commodity items and services

• A collaborative relationship frequently is an appropriate first step on the road to a strategic alliance

46

48 Hoetomo Lembito

Collaborative Relationships

• Collaborative relationships tend to foster….» Longer term contracts» Reduction of risk for suppliers» Reducing total costs » Improvement of processes» Improvement of products» Increased investment in R & D» Increased investment in training» Increased investment in equipment » Better focus on customer needs

47

49 Hoetomo Lembito

Supply Alliances

• The fundamental difference between collaborative relationships and supply alliances is the presence of institutional trust in alliances

• The failure to develop and manage institutional trust is the principle reason that so many supply alliances fail

48

50 Hoetomo Lembito

Benefits of Supply Alliances

• Lower total costs.

• Reduced time to market

• Improved quality

• Improved technology flow from suppliers

• Improved continuity of supply

49

51 Hoetomo Lembito

Alliance Attributes

• Continuous improvement

• Interdependence and commitment.

• Atmosphere of cooperation

• Informal interpersonal connections

• Internal infrastructures to enhance learning

• Openness in all areas of the relationship

• A living system

50

52 Hoetomo Lembito

Alliance Attributes Continued

• A shared vision of the future

• Ethics take precedence over expediency

• Adaptable in the face of change

• Design of experiments and supplier certification

• Win-Win negotiations

• Executive level commitment

51

53 Hoetomo Lembito

Which Relationship is Appropriate?

• What are the “Strategic Elements of a Relationship?”

• Are there many relatively undifferentiated suppliers providing what amounts to inter-changeable commodities?

• Does the potential supplier possess economic power which it is willing to employ over its customers?

• If there is recognition by both parties of the potential benefits of an alliance, but adequate qualified human resources are not available at one or both firms?

52

54 Hoetomo Lembito

Strategic Elements of a Relationship

• Is one supplier head and shoulders above the rest in terms of the value it provides; including price, innovation, ability to adapt to changing situations, capacity to work with your team, task joint risks, etc?

• Are some suppliers “strategic” to your business?

• Would your company benefit greatly if the supplier were more “integrally connected” with your company?

• Do your customers require high degrees of flexibility and speed of responsiveness?

53

55 Hoetomo Lembito

The Supplier’s Perspective

• Supplier’s want good customers

• Several issues affect their assessment, among them are:» Cash Flow

» Openness and Approachability

» Availability

» Professionalism

54

56 Hoetomo Lembito

Questions to be Addressed Before Proceeding

• Is there a danger that the supplier may act in an opportunistic manner over time?

• Do electronic systems allow for optimum communication and sharing of information?

• Is the potential strategic alliance able to stay current in the industry?

• Are both the organizations willing to keep attention focused on the joint customer?

• Are there other suppliers worth investigating before committing to a strategic alliance?

• Has the supply manager been thoroughly trained?55

57 Hoetomo Lembito

• Is the organization proud to be aligned and associated with the supplier?

• Is the organization comfortable with the level of risk associated with reducing the supply base?

• Are both supplier and buyer aligned in what their ultimate customer considers to be valuable?

• If there is substantial risk for the supplier to develop new technologies, products, processes, or service support?

• Are both supplier and buyer aligned in their respective visions?

• Are there sufficient operational points of interaction?

Questions to be Addressed Before Proceeding

56

58 Hoetomo Lembito

Situations Wherein Alliances

may not be Appropriate• Stability

» Price Volatility» Demand Volatility» High Switching Likelihood with High Switching Costs

• Capability» No Partnership/Alliance-Capable Supplier for the

Item» No Partnership/Alliance-Capable Supplier in the

Geographic Area » Rapid Technological Change» Mismatch of Clock Speed

57

59 Hoetomo Lembito

Situations Wherein Alliances

may not be Appropriate• Competition

» Non-Competitive Market

» Supplier Dependency Creation

» Neglected Areas

» Suppliers Seeking to Reduce Competition

• Benefits» No leverage from Partnership

» No Hard Savings from Partnership

• Internal Buy-In» No Internal Customer Buy-In58

60 Hoetomo Lembito

The Role of Power

• Power is a topic that makes people uncomfortable

• Power is at the heart of all business relationships• Power plays a key role in two important

subclasses of buyer-supplier relationships: » Captive Buyer: buyer is held hostage by a supplier

free to switch to another customer» Captive Supplier: makes investments in order to

secure a portion of the buyer's business, with no assurance of sufficient business to recoup the investment

59

61 Hoetomo Lembito

The Portfolio Approach

• Successful supply chain management requires the effective and efficient management of a portfolio of relationships

• Three environmental factors to consider:» (1) the product exchanged and its technology,

» (2) the competitive conditions in the upstream market, and

» (3) the capabilities of the suppliers available

60

62 Hoetomo Lembito

New Skills and Attitudes Required

• Developing and managing collaborative and alliance relationships require supply professionals that possess the following skills and attitudes:» Recognize the benefits of collaboration

» Ability to identify, obtain and use data

» Able to work in chaos and uncertainty

» Agile, flexible, and highly adaptive

61

63 Hoetomo Lembito

E-Commerce and the“Right”

Type of Relationship

• "How does B2B eCommerce affect our selection of the 'right' type of relationship?“» Selection must be a function of the requirement, not

of the Internet!

» B2B eCommerce is an enabler

62

64 Hoetomo Lembito

E-Commerce Traps to Avoid

• Trap #1: Guilding the pig» Take an archaic, cumbersome procurement process and

“webbize” it

• Trap #2: The Magic pill» Looking for the one solution that can be used to solve

every procurement situation

• Trap #3: Supplier equality» Supplier relationships range from transactional

to alliances

63

65 Hoetomo Lembito

Concluding Remarks

• Establishing good relationships with current and potential SC members is essential to the success of any company’s competitive strategy

• Not all relationships are created equal – nor should they be.

• Customer, supplier, and service provider should be classified based on their strategic relevance and importance

• Direction of relationships maybe horizontal (same echelon), vertical (different echelon), and hybrid (expansion of capability occurs both vertically and horizontally)

64

66 Hoetomo Lembito

THANK YOU

Jakarta – 26 March 2011

1 hoetomo lembito puchasing in logistics an introduction concept jakarta, 26 march 2011 prepared by...

Documents