Materials Management BUS 3

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Materials ManagementBUS 3 141 Physical
Inventory - Logistics, Transportation,
DisposalOct 4, 2011
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Agenda

• Exam Review
• Transportation Modes and Carriers
• Shipping Terms and Conditions
• Third Party providers
• Pricing and Supplier Management
• Material Salvage and Disposal
• Introduction to Supplier Management

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Case
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Case 1 Sedgman Steel, p227, 8-1
1. FACTS OF THE CASE (Approx. 20 of Total Effort
/ Grade) Quantitative data (Revenue, Inventory,
Costs, Employees, Divisions, etc.) 2.
BUSINESS ISSUES IDENTIFIED (Approx. 20 of Total
Effort / Grade) Customers, Suppliers, Internal
Measurement Systems, Organization, Competitors,
Supply Shortages, Price Increases, Cash Flow,
etc) 3. CONCLUSIONS (Approx. 25 of Total
Effort / Grade) What has been going well? What
needs improvement? 4. RECOMMENDATIONS (Approx.
35 of Total Effort / Grade) What improvements
should be made? What (if any?) activities should
be stopped? How can the improvements be
implemented?
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Term Project
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Term Project

• Group Research Study Project
• Learning will be enhanced by observing or
  studying how actual organizations manage and
  leverage their Supply organizations.
• Students will research a local company and submit
  a written and classroom presentation. The scope
  of the presentation is to include
• How the Supply Management function is organized
• How requirements are established
• How suppliers are selected and prices are
  negotiated
• Supply interaction with other functional groups
  in the organization
• How the transportation and logistics process is
  organized and executed
• Use of Technology
• Other
• Included in the 9 Elements of the Supply
  Management Process

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Transportation Modesand Carriers
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Definitions
Logistics from the Textbook
The management of inventory at motion and at rest
Logistics from the Council of Logistics
Management (CLM)
That part of the supply chain that plans,
implements, and controls the efficient, effective
flow and storage of goods, services, and related
information from the point of origin to the point
of consumption in order to meet customers
requirements
Transportation
The movement of goods from the point of origin to
the point of consumption a subset of the overall
Logistics process
Leenders, Johnson, Flynn, and Fearon,
Purchasing and Supply Management, Thirteenth
Edition, McGraw Hill Irwin
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Transportation Modes Planes, Trains, and
Automobiles
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3 Major Types of Carriers
Type
Characteristics
Common



Service to all shippers



Standard, published Rates



Examples are UPS and FedEx



Most large organizations negotiate discounted
rates based
on volumes


Contract



Specific arrangement for exclusive service for a
limited
number of shippers



Usually lower rates because of more predictable
schedules
and routes



Examples are Curriers for medical offices, bus
companies to
transport students to school


Private



In
-
sourced transportation Dedicated equipment and
facilities that are either owned or leased by the
company



Example is Sysco Foods has its own fleet of
refrigerated
trucks



Becoming more and more rare



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Factors to consider when choosing mode and carrier

• Required deliver time
• Cost
• Type of Item being shipped
• Shipment size
• Distance to destination

How Big? How Far? How Fast?
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Pricing Supplier Management
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Rates and Pricing
Transportation Costs are a function of
Speed

• Distance
• Quantity and size
• Speed

Quantity Size
Distance
Dont pay for more than you need. Use overnight
services for urgent needs ONLY dont get in the
habit of automatically overnighting
If you spent the premiums for expedited shipping,
dont let the items SIT in receiving, or
somewhere else, inside your business
For lowest cost, make every reasonable effort for
full containers Full pallet loads, Full trucks,
Full Ocean Containers, Full Planes, etc..
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Consolidating and Forwarding
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Shipping Terms Conditions
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Transportation Terms F.O.B. Free On Board
Origin
Destination
Transportation
(Seller)
(Buyer)
The FOB decision addresses several issues
involving the COST and RESPONSIBILITIES of
delivering goods between seller and buyer

• Who pays the freight costs?
• When does title pass?
• Who makes the claims when something goes wrong?
• Who routes the freight?

There are several options between seller and
buyer when choosing shipping terms. There is no
one size fits all that fits every company or
every transaction
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F.O.B. Origin
F.O.B. Origin, Freight Collect
Title passes to buyer
Freight charges paid by buyer
Buyer - Pays freight charges Buyer - Bears
freight charges Buyer - Owns goods in
transit Buyer - Files claims (if any)
Seller
Buyer
F.O.B. Origin, Freight Prepaid
Title passes to buyer
Seller - Pays freight charges Seller - Bears
freight charges Buyer - Owns goods in
transit Buyer - Files claims (if any)
Seller
Buyer
Freight charges paid by seller
F.O.B. Origin, Freight Prepaid and Charged Back
Title passes to buyer
Seller
Buyer
Seller - Pays freight charges Buyer - Bears
freight charges Buyer - Owns goods in
transit Buyer - Files claims (if any)
Freight charges paid by seller
then collected from buyer by adding amount to
invoice
Adapted from Leenders, Johnson, Flynn, and
Fearon, Purchasing and Supply Management,
Thirteenth Edition, McGraw Hill Irwin
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F.O.B. Destination
F.O.B. Destination, Freight Collect
Title passes to buyer
Buyer - Pays freight charges Buyer - Bears
freight charges Seller - Owns goods in
transit Seller - Files claims (if any)
Seller
Buyer
Freight charges paid by buyer
F.O.B. Destination, Freight Prepaid
Title passes to buyer
Freight charges paid by Seller
Seller - Pays freight charges Seller - Bears
freight charges Seller - Owns goods in
transit Seller - Files claims (if any)
Seller
Buyer
F.O.B. Destination, Freight Collect and Allowed
Buyer - Pays freight charges Seller - Bears
freight charges Seller - Owns goods in
transit Seller - Files claims (if any)
Title passes to buyer
Seller
Buyer
then charged to seller by deducting amount from
invoice
Freight charges paid by buyer
Adapted from Leenders, Johnson, Flynn, and
Fearon, Purchasing and Supply Management,
Thirteenth Edition, McGraw Hill Irwin
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Third Party Logistics Providers
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Services provided by Third Party Logistics
providers (3PL)

• Economies of Scale
• Professional focus and expertise
• Warehousing
• Outbound and Inbound transportation
• Freight bill auditing and payment
• Freight consolidation
• Distribution
• Order Fulfillment
• Cross-docking
• Packaging
• Returns

Major Carriers enable their customers to focus on
core competencies, while the carrier drives
efficiencies and increased services
in transportation and logistics
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Other logistics services

• Expedited shipments, including same day services
• Freight forwarding
• Reserving dedicated freight capacity
• Brokering between shipper and carriers
• Customshouse brokers for imports

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Factors to consider when establishing a
transportation partner

• Reliable On-Time Delivery
• Assured capacity
• Worldwide reach
• Low cost
• Security
• Carrier final situation
• Minimal damaged goods
• Invoicing and ease of doing business
• Tracking capability and other IT Information
• Experience with your product or industry

Negotiating transportation deals should be a
collaboration between the Purchasing and
Logistics groups
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Cycle Counting

• A physical count of items in inventory
• Cycle counting management
• How much accuracy is needed?
• When should cycle counting be performed?
• Who should do it?

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Triggers for Cycle Counting

• Out-Of-Stock report
• Zero balance
• Discrepancy
• ABC report

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Materials Salvage and Disposal
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Definitions
Salvage
The Recovery of some amount of the
original investment after materials have been
determined to be no longer usable in their
current form
Disposal
The Removal of some amount of the
original investment after materials have been
determined to be no longer usable in their
current form
The goal is to AVOID THE NEED to manage salvage
and disposal. Any chronic pattern of waste must
be identified, root causes understood, and
corrective action taken. However, some amount of
disposal and salvage are inevitable and should be
managed in a way that brings the least cost and
most revenue, while being environmentally
responsible
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The Reverse Flow of Materials
raw material processing
manufacturing
distribution
consumption
resell
recycle
remanufacture
reuse
Recovery
disposal
Waste Processing

• Reduce
• Reuse
• Recycle

less risk less complexity easier to
implement smaller environmental benefits
Adapted from Leenders, Johnson, Flynn, and
Fearon, Purchasing and Supply Management,
Thirteenth Edition, McGraw Hill Irwin
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Materials Recaptured from a Computer
Aluminum Cans, Foil
Precious Metals Jewelers, Dentists, Chip Makers
Plastic Pothole Filler
Steel Cars Construction Beams
Copper Wiring, Pipes, Computer Circuitry
Nonleaded Glass Usable Glass
Lead Car Batteries, Film
Leaded Glass Asphalt, Industrial Abrasives
Adapted from Leenders, Johnson, Flynn, and
Fearon, Purchasing and Supply Management,
Thirteenth Edition, McGraw Hill Irwin
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Ways to Salvage material and help the environment

• Reduce Scrap and waste
• Convert waste to byproducts that can be sold
• Carefully manage the storage and use of Hazardous
  Materials
• Recover precious metals

Most well-run global organizations follow the
strict United States environmental standards
throughout the world
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Business Reasons for carefully Managing Disposal

• Receive some amount revenue (even if deeply
  discounted from original cost)
• Avoid the risk of poor quality products delivered
  to customers
• Ensure that no issues emerge that could impact
  image and liability
• Protect Intellectual Property
• Many items have been taken from landfills and
  been reverse-engineered. Any item that might
  represent a competitive advantage must be removed
  or destroyed before disposal
• Comply with governmental regulations
• Reclaim some amount of the original material and
  protect the environment

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Six categories of Material for Disposal
Excess - Surplus Obsolete - No longer
required Rejected End Items Poor conformance
to specifications Scrap - Residual from a
production process rejected components. May be
converted to another use Waste Similar to
scrap, but unusable Hazardous (HazMat) Toxic,
flammable, corrosive
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Actions to take before disposal

• Carry excess materials for a reasonable time
  (Forecasts change frequently what appeared to
  have no demand may soon be required)
• Find a substitute use for the item
• Find another division or Business Unit (for large
  organizations) that may need the material
• Disassemble and sell the spare parts
• Have a fire sale and sell for less than
  standard price (similar to a garage sale for a
  business)
• Repair damaged goods and sell as refurbished

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Methods for Waste disposal

• Sell as-is to non-competing markets
• Public auctions
• Return excess to the original supplier (an
  acceptable instance for paying restocking
  charges)
• Consign to a broker
• Sell to a dealer
• Donate to charities and schools

The skills and contacts that exist in the
Purchasing organization are ideal for negotiating
disposal deals