5

В.Г. Орехівський. Logistics. Lesson 5

Lesson 5. Purchasing Logistics (логістика запасів)

1. Functions and goals in purchasing logistics

2. Determination of need for materials

3. Choosing the right supplier

4. Logistic cycle and modern purchasing methods

1. Functions and goals in purchasing logistics

Overall logistic goal – complex administration of material flow. The supply sphere – initial point. It organizes an “entrance” of material flow into logistic system. In literature – different interpretations.

Purchasing (закупки)– describe the process of buying: determination of need, searching and selecting the supplier, price negotiations, and other terms.

Acquirement, Acquisition (приобретение) – incl. purchasing, storage, movement, posting (оприходование), internal control, etc.

Purchasing logistics: Provision an enterprise with input resources by managing the corresponding material flows.

Management of material (resource) base: planning and control of need for materials, actual purchasing, controlling and receiving inventories, quality controlling, internal resources movement and placement, managing the remaining etc.

The algorithm:

1. Identification of need for resources;

2. Description of need – classifications and quantities to be defined

3. Selection and analysis of possible supply resources

4. Determination of price and terms

5. Development and placement the supply order

6. Control of supply process

7. Receiving and posting the materials

8. Controls of materials as current assets.

The goal: optimal and complete satisfaction of production needs for materials by controlling the material flows, their coordination and creation of communications network.

Calculations of the parameters of production activities should be performed in reverse direction. Then supply logistics – derivative (производная) of prod-n logstcs.

Calculations of resource need – reverse to prod-n process, from the final products to raw materials. Information flow – opposite direction.

Purchasing determines the competitive position of the firms products. In-time prod-n orders, costs reducing, quality assurance, formation of assortment etc. Its an information resource about the supply market.

Purchasing&Supply logistics consists of 2 parts:

1. Inventory management (управление запасами)

2. Supply management (упр. поставками)ю Questioned. Belongs to Supply (storage) logistic.

Functions : would depend on 1. level of production development 2. economy branch the company belongs to 3. competitiveness.

The main functions (activities):

Identification evaluation of need for resources; determination of customer needs; decision on “make-or-buy”(MOB); research of suppliers market; identification of suppliers; evaluation and selection of the suppliers; transportation of material resources; controlling.

MOB: maximization of profit, the main criteria. Practical calculations might be complex. Vertical integration or separate production. Separate purchase if: big variety of suppliers; absence of experience; absence of prod-n capacities; not a big need for the resource. Own prod-n if: big need for the resource; possible prod-n; closed prod-n process; absence of suppliers.

2. Determination of need

The manager should be aware which materials and how many each sub-unit needs.

First – check own available resources, or might be from other departments.

Second – purchasing. Orders (special forms) from sales department, research units, processing entities, etc.

Goal- to forecast needs, avoid the excessive amount of “urgent” orders. Since the purchasing department is market aware, it might place orders in time (beforehand, in advance), thus reducing risks and price fluctuations.

Cooperation with marketing department.

Irregularities of supplies (disturbances) might be difficult to avoid – “urgent” orders possible.

Unjustified (неоправданный) urgent order possible because:

1. mistakes in inventory controlling 2.non-effective production planning and budgeting 3. failures of in-time deliveries 4. placing “urgent” stamp when unnecessary. Costs aspect.

Methods:

MRP/ MRPII in purchasing. Determination of resource needs for each production cycle, by computer and technological schemes. JIT approaches.

“Small orders”: Pareto Law (ABC analysis): Most of the orders are subject to Pareto law, that is 70% of orders amount for 10% of total orders costs. All the object are divided into 2 parts (80/20). ABC – into 3 parts. Some orders might be not numerical, but amount for the majority of costs. Other – not significant costs of management, and so on. Supply (storage) logistics.

“Economic Order Quantity” (EOQ).

To ensure the minimum of: transportation-supplying costs and storage costs, as well as costs of filling the purchase orders.

Order size: the bigger deliveries, the less orders costs; however, bigger storage costs etc. The goal – to find an optimal order size taking into account annual costs for storage and preparing orders.

In practice – other additional factors to be taken into account.

1. Price discounts, depending on volumes of deliveries

2. Transportation tariffs (if buyer pays) and volumes of deliveries

3. Volumes of production – production needs to be considered

4. Capital restrictions (priority to certain types of purchasing)

5. Usage of own transportation. Tr. Costs should be fixed – usage by maximum capacity

Transportation tariffs: the bigger consignments, the less costs per unit. Therefore – orders volume depend on transportation savings. The volumes (orders) might exceed EOQ (Wilson formula). Therefore the calculation of summarized costs should be performed and compared.