Solved Question Papers- Mona

8/14/2019 Solved Question Papers- Mona

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T.Y B.Sc(IT) Semester VI Total Supply ChainManagement

2008-2009Batch

Q1. Explain Supply Chain Management (SCM) and explain the benefits of

SCM to organization?(8)

OR

Discuss the importance of Supply Chain Management with respect to

Customer Relationship

Management.(5)

Answer:

Asupply chain is a network of facilities and distribution options that performs the functions ofprocurement of materials, transformation of these materials into intermediate and finished

products, and the distribution of these finished products to customers. Supply chains exist in both

service and manufacturing organizations, although the complexity of the chain may vary greatly

from industry to industry and firm to firm.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations

along the supply chain operated independently. These organizations have their own objectives

and these are often conflicting. Marketing's objective of high customer service and maximumsales dollars conflict with manufacturing and distribution goals. Many manufacturing operations

are designed to maximize throughput and lower costs with little consideration for the impact on

inventory levels and distribution capabilities. Purchasing contracts are often negotiated with verylittle information beyond historical buying patterns. The result of these factors is that there is not

a single, integrated plan for the organization---there were as many plans as businesses. Clearly,

there is a need for a mechanism through which these different functions can be integratedtogether. Supply chain management is a strategy through which such an integration can be

achieved.

By Prof Mona MarwahaEmail id : [email protected] Page 1


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Meaning Of Supply Chain Management :

Supply chain management is a set of approaches used to efficiently integrate suppliers, manufacturers,

warehouses, and customers 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.

The following diagram depicts how the Supply Chain activities are carried out :

Diagram 1:

Definition :

CSCMPs Definition of Supply Chain Management

Supply chain management encompasses the planning and management of all activities

involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it

also includes coordination and collaboration with channel partners, which can be suppliers,



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intermediaries, third party service providers, and customers. In essence, supply chain management

integrates supply and demand management within and across companies.

Supply chain management (SCM) is the combination of art and science that goes into

improving the way your company finds the raw components it needs to make a product or service and

deliver it to customers.

The following are five basic components of SCM.

1. PlanThis is the strategic portion of SCM. Companies need a strategy for managing all the resources

that go toward meeting customer demand for their product or service. A big piece of SCM planning isdeveloping a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high

quality and value to customers.

2. SourceNext, companies must choose suppliers to deliver the goods and services they need to

create their product. Therefore, supply chain managers must develop a set of pricing, delivery and

payment processes with suppliers and create metrics for monitoring and improving the relationships. And

then, SCM managers can put together processes for managing their goods and services inventory,

including receiving and verifying shipments, transferring them to the manufacturing facilities and

authorizing supplier payments.

3. MakeThis is the manufacturing step. Supply chain managers schedule the activities necessary for

production, testing, packaging and preparation for delivery. This is the most metric-intensive portion of the

supply chainone where companies are able to measure quality levels, production output and worker

productivity.

4. DeliverThis is the part that many SCM insiders refer to as logistics, where companies coordinate the

receipt of orders from customers, develop a network of warehouses, pick carriers to get products to

customers and set up an invoicing system to receive payments.

5. ReturnThis can be a problematic part of the supply chain for many companies. Supply chain

planners have to create a responsive and flexible network for receiving defective and excess products

back from their customers and supporting customers who have problems with delivered products..



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THE SUPPLYCHAIN

MANAGEMENT

MODEL

Benefits Of Supply Chain Management

1. Make informed decisions

2. Increase effectiveness of sales, marketing and customer management

3. Retain customers4. Integrate demand planning with sales, manufacturing and logistics planners by working together with

marketing

5. Improve security and compliance with safe cargo requirements and other regulations

6. Drive cost and performance gains in nearly every part of your organization

7. Position your company with a low cost structure and high speed to drive profitable growth on a globallevel.

Get the benefits of true end-to-end visibility across suppliers, partners and customers



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Benefits to the Customers

The benefits to the customers will get by dealing with a well managed vendor due to an effective

Supply Chain Organization are as follows :

Natural benefits will come due to consideration of the problems of the supplier and effective

management.

Improved customer service through fewer shortages.

Improved product cost.

Quick response due to change in demand.

Better delivery performance.

Optimal purchase cost due to possibility of long term purchase contracts.

Note : The following diagrams can be used for effective presentation for reference to the above

question :



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Diagram 2:

Management of flow of materials, information, and funds across the entire supply chain.



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Ques : Write short note on Value Chain Concept .(5 marks)

Answer :

A value chain is a chain of activities. Products pass through all activities of the chain in orderand at each activity the product gains some value. The chain of activities gives the products more

added value than the sum of added values of all activities. It is important not to mix the concept

of the value chain with the costs occurring throughout the activities. A diamond cutter can beused as an example of the difference. The cutting activity may have a low cost, but the activity

adds much of the value to the end product, since a rough diamond is significantly less valuable

than a cut diamond.

The value chain categorizes the genericvalue-adding activities of an organization. The "primaryactivities" include: inbound logistics, operations (production), outboundlogistics, marketing and

sales (demand), and services (maintenance). The "support activities" include: administrative

infrastructure management, human resource management, information technology, andprocurement. The costs and value drivers are identified for each value activity. The value chain

framework quickly made its way to the forefront of management thought as a powerful analysis

tool forstrategic planning. The simpler concept ofvalue streams, a cross-functional process

which was developed over the next decade,[1] had some success in the early 1990s[2].

http://en.wikipedia.org/wiki/Value_theoryhttp://en.wikipedia.org/wiki/Value_theoryhttp://en.wikipedia.org/wiki/Logisticshttp://en.wikipedia.org/wiki/Logisticshttp://en.wikipedia.org/wiki/Logisticshttp://en.wikipedia.org/wiki/Logisticshttp://en.wikipedia.org/wiki/Procurementhttp://en.wikipedia.org/wiki/Strategic_planninghttp://en.wikipedia.org/wiki/Strategic_planninghttp://en.wikipedia.org/w/index.php?title=Value_stream&action=edit&redlink=1http://en.wikipedia.org/wiki/Value_chain#cite_note-0http://en.wikipedia.org/wiki/Value_chain#cite_note-1http://en.wikipedia.org/wiki/Value_theoryhttp://en.wikipedia.org/wiki/Logisticshttp://en.wikipedia.org/wiki/Logisticshttp://en.wikipedia.org/wiki/Procurementhttp://en.wikipedia.org/wiki/Strategic_planninghttp://en.wikipedia.org/w/index.php?title=Value_stream&action=edit&redlink=1http://en.wikipedia.org/wiki/Value_chain#cite_note-0http://en.wikipedia.org/wiki/Value_chain#cite_note-1


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The value-chain concept has been extended beyond individual organizations. It can apply to

wholesupply chains anddistribution networks. The delivery of a mix ofproducts andservices tothe end customer will mobilize different economic factors, each managing its own value chain.

The industry wide synchronized interactions of those local value chains create an extended value

chain, sometimes global in extent. Porter terms this larger interconnected system of value chainsthe "value system." A value system includes the value chains of a firm's supplier (and their

suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers

(and presumably extended to the buyers of their products, and so on).

Capturing the value generated along the chain is the new approach taken by many management

strategists. For example, a manufacturer might require its parts suppliers to be located nearby its

assembly plant to minimize the cost of transportation. By exploiting the upstream anddownstream information flowing along the value chain, the firms may try to bypass the

intermediaries creating newbusiness models, or in other ways create improvements in its value

system.

http://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Customer_servicehttp://en.wikipedia.org/wiki/Customer_servicehttp://en.wikipedia.org/wiki/Business_modelhttp://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Customer_servicehttp://en.wikipedia.org/wiki/Business_model


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Ques : Explain what you mean by Integrated Supply Chain.

(10 marks)

Answer:

The supply chain is a network of suppliers, factories, warehouses, distribution centres and retail-

ers through which raw materials are acquired, transformed and delivered to the customer. Supplychain management is the strategic, tactical and operational level decision making that optimises



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supply chain performance. The strategic level defines the supply chain network, i.e., selection of

suppliers, transportation routes, manufacturing facilities, production levels, warehouses, etc. Thetactical level plans and schedules the supply chain to meet actual demand. The operational level

executes plans. Tactical and operational level decision making functions are distributed across

the supply chain.

In order to optimise performance, supply chain functions must operate in an integrated manner.But the dynamics of the enterprise and the market make this difficult; materials do not arrive

ontime, production facilities fail, workers are ill, customers change or cancel orders, etc. causing

deviations from plan. In some cases, these events may be dealt with locally, i.e., they lie withinthe scope of a function. In other cases, the problem cannot be "locally contained"; modifications

across many functions are required. Consequently, the supply chain management system must

coordinate the revision of plans/schedules across supply chain functions.

The Integrated Supply Chain Management (ISCM) project addresses coordination problems at

the tactical and operational levels. It is composed of a set of cooperating, intelligent agents, eachper-forming one or more supply chain functions, and coodinating their decisions with other

agents -this is called a Logistical Execution System (LES).

Ques: Write a short note on Distribution Requirement Planning.(DRP) (5 marks)

Answer :

DRP provides the basis for integrating supply chain inventory information and physical

distribution activities with the Manufacturing Planning and Control system.



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Managing the flow of materials between firms, warehouses, distribution centers.

DRP helps manage these material flows. Just like MRP did in Manufacturing.

Links firms in the supply chain by providing planning records that carry demandinformation from receiving points to supply points and vice versa.

Purpose of DRP

DRP enables the firm to capture data, including local demand conditions, for modifying

the forecast and to report current inventory positions.

DRP provides data for managing the distribution facility and the database for consistent

communications with the customers and the rest of the company.

DQues : Write a short note on Inventory Carrying Cost.(5 marks)

OR

Explain Inventory Carrying cost in detail.(8 marks)

OR



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Explain Inventory Carrying Cost and Ordering Costs.(8 marks)

Answer:

RELEVANT INVENTORY COSTS

Relevant Inventory Costs

Item Costs

Holding

Costs

Ordering

Costs

Shortage

Costs

Direct cost for

getting an item.

Purchase cost

for outside

orders,

manufacturing

cost for internal

orders.

Costs associated

with carrying

items in

inventory.

Storage and

other related

costs.

Fixed costs

associated with

placing an order

(either a

purchase cost

for outside

orders, or a

setu cost for

Costs associated

with not having

enough

inventory to

meet demand.

Ordering costs:

Any time inventory items are ordered, there is a fixed cost

associated with placing that order. When items are ordered from an outside source

of supply, that cost reflects the cost of the clerical work to prepare, release,

monitor, and receive the order. This cost is considered to be constant regardless of

the size of the order. When items are to be manufactured internally, the order cost

reflects the setup costs necessary to prepare the equipment for the manufacture of

that order. Once again, this cost is constant regardless of how many items are

eventually manufactured in the batch. If one

Increases, the size of the orders for a particular inventory item, fewer of those

orders will have to be placed during the course of the year, hence the total annual

cost of placing orders will decline.



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Holding costs (also called carrying costs):

Any items that are held in inventory will incur a cost for

their storage. This cost will be comprised of a variety of components. One obvious

cost would be the cost of the storage facility (warehouse space charges and utility

charges, cost of material handlers and material handling equipment in the

warehouse). In addition to that, there are some other, more subtle expenses that

add to the holding cost. These include such things as insurance on the held

inventory; taxes on the held inventory; damage to, theft of, deterioration of, or

obsolescence of the held items. The order size decision impacts the average level of

inventory that must be carried. If smaller quantities are ordered, on average there

will be fewer units being held in inventory, resulting in lower annual inventory

holding costs. If larger quantities are ordered, on average there will be more units

being held in inventory, resulting in higher annual inventory holding costs.



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Ques : Explain Economic Order Quantity (EOQ) with Diagram.(6

marks)

OR

Explain the Mathematical formula for EOQ stating its

Limitations.(8 marks)

OR

Derive a Mathematical expression for EOQ (Economic Order

Quantity) for production

rate model.(8 marks)

Answer:

The EOQ model is a technique for determining the best answers to the how much

and when questions. It is based on the premise that there is an optimal order size

that will yield the lowest possible value of the total inventory cost. There are several

assumptions regarding the behavior of the inventory item that are central to the

development of the model

EOQ assumptions:

1. Demand for the item is known and constant.2. Lead time is known and constant. (Lead time is the amount of time that

elapses between when the order is placed and when it is received.)3. The cost of all units ordered is the same, regardless of the quantity ordered

(no quantity discounts).4. Ordering costs are known and constant (the cost to place an order is always

the same, regardless of the quantity ordered).5. When an order is received, all the items ordered arrive at once

(instantaneous replenishment).6. Since there is certainty with respect to the demand rate and the lead time,

orders can be timed to arrive just when we would have run out. Consequentlythe model assumes that there will be no shortages.

Based on the above assumptions, there are only two costs that will vary with

changes in the order quantity, (1) the total annual ordering cost and (2) the total



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annual holding cost. Shortage cost can be ignored because of assumption 6.

Furthermore, since the cost per unit of all items ordered is the same, the total

annual item cost will be a constant and will not be affected by the order quantity.

EOQ symbols:

D = annual demand (units per year)

S = cost per order (dollars per order)

H = holding cost per unit per year (dollars to carry one unit in inventory for one

year)

Q = order quantity

We saw on the previous page that the only costs that need to be considered for the

EOQ model are the total annual ordering costs and the total annual holding costs.

These can be quantified as follows:

Annual Ordering Cost

The annual cost of ordering is simply the number of orders placed per year times

the cost of placing an order. The number of orders placed per year is a function of

the order size. Bigger orders means fewer orders per year, while smaller orders

means more orders per year. In general, the number of orders placed per year will

be the total annual demand divided by the size of the orders. In short,

Total Annual Ordering Cost = (D/Q)S

Annual Holding Cost



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The annual cost of holding inventory is a bit trickier. If there was a constant level of

inventory in the warehouse throughout the year, we could simply multiply that

constant inventory level by the cost to carry a unit in inventory for a year.

Unfortunately the inventory level is not constant throughout the year, but is instead

constantly changing. It is at its maximum value (which is the order quantity, Q)when a new batch arrives, then steadily declines to zero. Just when that inventory is

depleted, a new order is received, thereby immediately sending the inventory level

back to its maximum value (Q). This pattern continues throughout, with the

inventory level fluctuating between Q and zero. To get a handle on the holding cost

we are incurring, we can use the average inventory level throughout the year

(which is Q/2). The cost of carrying those fluctuating inventory levels is equivalent

to the cost that would be incurred if we had maintained that average inventory level

continuously and steadily throughout the year. That cost would have been equal to

the average inventory level times the cost to carry a unit in inventory for a year. In

short,

Total Annual Holding Cost = (Q/2)H

Total Annual Cost

The total annual relevant inventory cost would be the sum of the annual ordering

cost and annual holding cost, or

TC = (D/Q)S + (Q/2)H

This is the annual inventory cost associated with any order size, Q.

At this point we are not interested in any old Q value. We want to find the optimal Q(the EOQ, which is the order size that results in the lowest annual cost). This can be

found using a little calculus (take a derivative of the total cost equation with respect

to Q, set this equal to zero, then solve for Q). For those whose calculus is a little

rusty, there is another option. The unique characteristics of the ordering cost line

and the holding cost line on a graph are such that the optimal order size will occur

where the annual ordering cost is equal to the annual holding cost.



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EOQ occurs when:

(D/Q)S = (Q/2)H

a little algebra clean-up on this equation yields the following:

Q2 = (2DS)/H

and finally

Q = 2DS/H

(this optimal value for Q is what we call the EOQ)



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EOQ ILLUSTRATION

Annual demand (D) = 10,000 units per year

Ordering cost (S) = $75 per order

Holding cost (H) = $6 per unit per year

Lead time = 5 days

The company operates 250 days per year (hence, daily demand = 10,000/250 = 40

units per day)

Results of computations:

EOQ = 500 units

Number of orders placed per year = 20

Average inventory level = 250 units

Annual ordering cost = $1500

Annual holding cost = $1500



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Total annual inventory cost = $3000

Time between the placement of orders = 12.5 days



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Ques : Write on Importance of Safety Stock / Buffer Stock.(4 marks)

OR

What is the importance of Safety Stock / Buffer Stock.(6

marks)

OR

What is safety stock / buffer stock? Why is it necessary?( 4

marks)

OR

What is the importance of Safety Stock / Buffer

Stock.Establish its relationship

with Consumption Rate and Reorder Level.(6 marks)

Answer:

Safety stock is a term used to describe a level of stock that is maintained below the

cycle stock to buffer against stock outs. Safety Stock or Buffer Stock exists to counter

uncertainties in supply and demand. Safety stock is defined as extra units of inventory carried asprotection against possible stock outs. By having an adequate amount of safety stock on hand, acompany can meet a salesdemand which exceeds their sales forecast without altering their

production plan. It is held when an organization cannot accurately predict demand and/orlead

time for the product. For example, if a manufacturing company were to continually run out ofinventory, they would need to keep some extra inventory on hand so they could attempt to meet

demand while they were producing more inventories.

Safety stock can be utilized as a tool for a new company to judge how accurate their forecast is

in the first few years, especially when used strategically with a materials requirements planningworksheet. With a material requirements planning (MRP) worksheet a company can judge how

much they will need to produce to meet their forecasted sales demand without relying on safetystock. However, a common strategy is to try and reduce the level of safety stock to help keepinventory costs low. This can be extremely important for companies with a smaller financial

cushion or those trying to run on lean manufacturing, which is aimed towards eliminating wastes

throughout the production process.

http://en.wikipedia.org/wiki/Demandhttp://en.wikipedia.org/wiki/Demandhttp://en.wikipedia.org/wiki/Lead_timehttp://en.wikipedia.org/wiki/Lead_timehttp://en.wikipedia.org/w/index.php?title=Materials_requirements_planning&action=edit&redlink=1http://en.wikipedia.org/wiki/Material_requirements_planninghttp://en.wikipedia.org/wiki/Lean_manufacturinghttp://en.wikipedia.org/wiki/Demandhttp://en.wikipedia.org/wiki/Lead_timehttp://en.wikipedia.org/wiki/Lead_timehttp://en.wikipedia.org/w/index.php?title=Materials_requirements_planning&action=edit&redlink=1http://en.wikipedia.org/wiki/Material_requirements_planninghttp://en.wikipedia.org/wiki/Lean_manufacturing


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The amount of safety stock an organization chooses to keep on hand can dramatically affect their

business. Too much safety stock can result in high holding costs of inventory. In addition,products which are stored for too long a time can spoil, expire, or break during the warehousing

process. Too little safety stock can result in lost sales and, thus, a higher rate of customer

turnover. As a result, finding the right balance between too much and too little safety stock isessential.

Reasons to have Safety Stock

Safety Stocks enable organizations to satisfy customer demand in the event of these

possibilities:

Supplier may deliver their product late or not at all The warehouse may be on strike

A number of items at the warehouse may be of poor quality and replacements are still on

order

A competitor may be sold out on a product, which is increasing the demand for your

products

Random demand (in reality, random events occur)

Machinery Breakdown

Unexpected increase in demand



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Ques :Write a short note on Types of Inventory.(6 marks)

Answer:

TYPES OF INVENTORY

Raw materials:The purchased items or extracted materials that are transformed

into components or products.

Components: Parts or subassemblies used in building the final product.

Work-in-process (WIP): Any item that is in some stage of completion in the

manufacturing process.

Finished goods: Completed products that will be delivered to customers.

Distribution inventory: Finished goods and spare parts that are at various points

in the distribution system.

Maintenance, repair, and operational (MRO) inventory (often called

supplies): Items that are used in manufacturing but do not become part of the

finished product.

INDEPENDENT VS. DEPENDENT DEMAND INVENTORY

Some inventory items can be classified as independent demand items, and some

can be classified as dependent demand items. While we need to make the timing

and sizing decisions for all inventory items, we must be careful in the manner in

which we make those decisions for these two types of items.

Independent demand inventory item: Inventory item whose demand is not

related to (or dependent upon) some higher level item. Demand for such items is

usually thought of as forecasted demand. Independent demand inventory items are

usually thought of as finished products.



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Dependent demand inventory item: Inventory item whose demand is related to

(or dependent upon) some higher level item. Demand for such items is usually

thought of as derived demand. Dependent demand inventory items are usuallythought of as the materials, parts, components, and assemblies that make up the

finished product.

Ques : Explain Briefly types of warehouses?(4 marks)

Or

State and explain the purpose of Warehousing .Give an account of different types ofwarehouses.(8 marks)

Or

Explain the types of warehouses.(10 marks)

Answer:

1.1 What is Public warehousing?

Warehouse is owned and operated by a third party

Charges in particular for type of services used Mainly for short-term usage

1.2 What is Private warehousing?

Also known as proprietarywarehousing Operated as a division within a company On-site* and off-site** warehousing Substantial corporate fixed investment in land, building, and equipment

1.3 What is Contract warehousing?

A variation of public warehousing A long-term contract and/or services Warehouse is owned and operated by a third party Customized services/space over a long term



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A trade-off between location flexibility for assured space over thecontract period and a lower price that is usually lower than warehousing rates

Contact for either an entire building or for a defined, fixed portion ofsquare-foot or cubic-foot space

*On-site can be either at a central location or dispersed throughout manufacturing

facilities

**Off-site warehouses are satellite facilities located close to marketing areas to

store excess on-site inventory and to serve as distribution centre for finished goods.

2. Advantages and Disadvantages of Public

Warehousing

2.1 The advantages are:

a) Zero capital investment in Warehousing:

A major advantage is there is no capital investment (eg. Leasing of bldg, material

handling equipment and startup cost of operations hiring and training personnel)

from the user to do ones own warehousing. The cost of public warehousing is a

variable cost component.

b) Provides Capability to Expand Market:

For companies that are expanding, public warehousing provides economical and

practical means to reach out to new markets.

c) Adjusts for seasonality:



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If firms operations has seasonality, then having public w/h allows the user to rent

as much of w/h space during peak season, since there is no commitment of $$ as

compared to public w/h. Moreover, there is this distinct advantage of allowing

storage costs to vary directly with volume.

d) Reduced Risk (Low opportunity cost):

Since there is no commitment of funds in public w/h, the user firm can switch to

another facility in a short period of time, often within 30 days. Moreover, if there is

another attractive location, which may have a lower rent, the user firm can easily

switch warehouse.

e) Permit freight to move at lower rates:

This is a major advantage to justify perhaps half of all public warehousing today. It

is possible since they handle the requirements of a number of firms; their volume

allows them to pay consolidated freight rates but not the much higher freight costs

that result from shipping small quantities at premium rates.

f) Gain Access to Special Features and Services:

Most can offer specialized services (eg. Broken-case handling, packaging services

for manufacturer products for shipping, breakbulk services, freight consolidation

services). They are resulted from the consolidation of small shipments with those of

noncompetitors who use the same public warehouse. Most public warehouses have

special features, which makes them unique.



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It can range from design, when the warehouse first sets up for business, or it can

evolve into the specialty. Some examples of special features are:

Temperature-controlled, cool and cold storage

Crane capabilities

Ultraclean segregated area

Guard service around the clock

Attractive facilities and amenities

Dedicated docking areas for special customers

Special staff functions like customer service, inventory ordering, etc

Office space to rent for customers sales, accounting, etc

g) Greater flexibility:

Owing a long-term lease on a warehouse is a huge liability and there is a huge

opportunity cost on changing the warehouse if business conditions make it

necessary for the change. Thus, public w/h is better since there is only a short-term

contract, and thus, short-term commitments.

h) Tax advantages:

Since it doesnt own property, it is not subjected to taxes, which is quite substantial.

i) Specific knowledge of costs for storage and handling:

When a company uses a public w/h, it knows how much exactly is spent on storage

and handling costs since the monthly bill displays all necessary information. This

allows the user to forecast costs for each different levels of activity. On the other

hand, firms that operate their facilities often find it difficult to determine the fixed

and variable cost exactly.



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2.2 Its Disadvantages to the user can be:

a) Communication problem: There is a potential problem of incompatible

computer terminals and systems. They may not have another terminal just to suitthe needs of just one customer. Thus, the lack of standardization in contractual

agreements makes communication regarding contractual obligations difficult.

b) Lack of specialized services: Spaces or specialized services needed may not

always be available in a specific location. Most public warehouse facilities provide

local services which may not be useful for the big MNC who requires more

specialized services.

c) Space may not be available: Public warehousing space may not be available

when ans where a firms wants it. Shortage of space can happen in some places

especially during peak season, and this may affect the firm adversely.

3. Advantages and Disadvantages of Private Warehousing

3.1 The advantages are:

a) Degree of control:

From inventory control, optimum space utilization, maintenance and equipment,

internal material flow, handling routines, supervision, and associated cost control,the firm has a direct control and clear visibility for the product until the customer

takes possession or delivery. Thus, this will allow the firm to integrate the

warehousing function more easily into its total logistics system.



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b) Flexibility:

With more control, there is greater flexibility of designing and operating the w/h to

suit the needs of its customers and the characteristics of the products. This meansthat companies who have specialized handling for its products will not find public

warehousing viable. In addition, the w/h can also be modified through expansion or

renovation to facilitate product changes, which is not possible on a public

warehouse.

c) Less costly in the Long term:

Operating cost can be 15 to 25% lower if the company achieves sufficient

throughout or utilization. This is possible if the firm achieves at least 75% utilization,

if not, it would be best to use public warehousing.

d) Better use of Human resources:

There is greater care in handling and storage when the firms own workforce

operate the warehouse. This means that the company can utilize the expertise of its

technical specialists.

e) Tax benefits:

There are depreciation allowances on buildings and equipment reduce tax payable.

f) Intangible benefits:

When a firm distributes its products through a private w/h, it gives the customer a

sense of permanence and continuity of business operations. The customer

perceives the company as a stable, dependable, and lasting supplier of products.



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3.2 Its Disadvantages to the user are:

a) Lack of flexibility:

The major drawback is it is too costly, because of its fixed size and costs. This

means that in the short run, the private facility cannot expand or contract to meet

increases or decreases in demand. Thus, when demand is low, the firm still

assumed the fixed costs as well as the lower productivity linked to unused

warehouse space. However, the disadvantages can be minimized if the firm is able

to rent out part of its space. Moreover, it loses flexibility in its strategic location

options. They cant change quickly to rapid changes in market size, location andpreferences, and this may mean that they will lose an excellent business

opportunity.

b) High opportunity cost (high risk)

ROI on other investments may be greater if funds are channeled into other profit-

generating opportunities. Besides, there is also a potential probability of not being

able to sell the w/h in the later period due to its customized design.

c) Low Rate of return:

Since the rate of return is about the same as the firms other investments, most

companies find it advantageous to use a combination of public and private

warehousing. It is best to use private warehousing to handle the basic inventory

levels required for the least cost logistics in markets where the volume justifies



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4. Comparison of the 3 warehousing modes

To select the type of warehousing for your company, it is important to understand

the cost structure. The following table offers an excellent comparison on thewarehousing modes.

Cost

Component

Private (Company)

Warehouse

Public Warehouse

Pure Public

Warehouse

Contract

Warehouse

Capital Cost Building cost

(depn)

Facilities &

eqm

Matl-handling

eqm

(Un)loading

docks/rails

Not applicable Based on contracted

responsibilities for

land, buildings, and

facilities

Expenses Safety eqm

Insurance,

taxes,

Maintenance/

repairs

Utilities

Salaries/wages

Employee

benefits

Per unit cost based

on the type of

services used

As stated in the

contract

Rates/ Fees Not applicable Time based: Storage

charges

Transaction-based:

Time and/or

transaction based, as

stated in the contract



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Handling charges;

in/out special

handling fees,

documentation,special services, etc

Risks The company

assumed all risks

Defined and bear in

accordance with the

standard terms and

conditions of the

warehouse

agreement

Risks are assigned

and assumed as

stated in the lease

and/or contract

Table showing a Comparison of warehousing modes (capital cost, expenses, risks)



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Ques : Explain the 3 Cs of Competitive advantage.(10 marks) (5 marks)

Answer :

3Cs-CUSTOMER, COMPETITION, CHANGE:

3 Cs are the new matters, which is driving the organization. These are the

Customer, Competition and Change. The organizations keeping these on their cards

are going to decide their future.

In 21st century, the companies having flexibility to attain these factors will come up

and sustain. We loot at these factors one by one.

Customer

Before the period from 1960 to 1970, the manufacturers were in position to sell anything, which they produced. After 1980 in all the fields the picture has changed. The

customer, consumer or the industries decide the demand.

What they want? When they want? At what place they want the delivery? And also

when he will pay? He has become wiser and decides the configuration of the matter

that he will purchase.

The organizations are picking need~ of the customers. If an organization looses a

customer for any reason, they have to get ready to loose yet another.



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The customers have their choice. They do not behave alike. Customer, consumers,

companies demand products and services designed for their unique and particular

needs.

There is no such notion as the customer to whom the seller is dealing at a

movement and who has the capacity to instruct their personal taste. The mass

market has broken down into small and single customer. Customers expect that

they be treated individually. They expect products that are made to their needs,

delivery schedules and the place, at their payment terms, which are convenient to

them.

Such expectations have increased to a great extent after the effect of globalization

and entry of Japanese companies, who entered the markets with lower prices as

well as products with higher quality standards. Further they came with higher levels

of service standards.

Customer is aware that he can demand and get more. Technology of higher

sophistication, easily available database allows service providers to display their

basic information easily available on the net services to increase competitiveness.

When in a company consumer call for service the call is automatically routed to the

same service representative with whom consumer spoke last time. This creates

sense of personal relationship and intimacy.

Incredible consolidation of customers in the same market like automobile business

has greatly changed the terms of seller-customer relationships in the similar way of

restaurants. What holds true for industrial customers is also true for normal

consumer. When the industrial customer gets services in better way, the normal

consumer expects and gets in the similar style.

This is happening because customers now have easy access to enormously big

data. The information rich world made possible by new communications

technologies does not even required the consumer to have computer at home. Daily

newspapers around the country spread the data electronically and pass it on to the



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readers with greater amount of analysis. Often the buyer has more information than

the supplier's marketing person. This makes the negotiations tougher. A customer

lost today can lead to lose yet another tomorrow this is not a picture of success for

the supplier.

Competition:

The second 'C' stands for competition. In the - sellers market before 1980 it was

easy for manufacturer to get an order on his table and provide the product at his

will and wish.

Now the scene has changed.

Few buyers have many suppliers of good quality products. This competitive base

has not only reduced the prices of the product but improve the quality, and service

levels. When the Japanese, Germans, French, Taiwanese have entered in the

globalized market, they are free to compete with each other. Only the best will

survive with a highest quality, lowest price and the best service. There after these

factors become the standard for all competitors. Adequate is not good enough.

If a company cannot stand shoulder to shoulder with the world's best it has to be

out of scene soon.

Newly started company coming up with better products with higher-level service

can beat the regular companies. The brand may not be considered by the new

generation of consumer. The competition can put the regular companies away when

a new comer's products give good results.

Technology changes the nature of competition in ways companies don't expect. The

logistics management gives upper hand to the sellers to get better edge over the

competitors by providing products as per the needs of consumer.



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Change:

We saw that customers and competition have changed. The change has become

both pervasive and persistent in the business environment. Only constant ischange.

The pace of change has accelerated with the globalization of economy.

The rapidity of technological change promotes innovation products have got now

the short life.

For example Premier Automobile started the company in 1945 with a model (Fiat

Car), which lived for about 50 years and died down with the same model. It was ok

that time. In today's atmosphere in India itself we see number of automobile

companies come up with new models of car every two to three years of better

quality standards.

Today companies must move fast, or they won't be moving at all. Moreover they

have to be looking in many directions at a time. They must not only provide

products to the market but constantly collect data regarding future needs of

customers, their likings, the entry of new competitors etc. the changes that will put

a company out of business are, those that happen outside the light of its current

expectations, and that is the source of most change in today's business

environment. These three C's have created a new world for business and it is

becoming increasingly clear that organizations designed to operate in one

environment can not be fixed to work well in another.



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Ques : Explain' Competitive advantage = product excellence x process excellence'.

Answer :

COMPETITIVE ADVANTAGE

A central theme of this book is that effective logistics management can provide a

major source of competitive advantage; in other words, a position of enduring

superiority over competitors in terms of customer preference may be achieved

through logistics.

Competitive Advantage and the Three Cs


Customers

Needs seeking

benefits at


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The bases for success in the marketplace are numerous, but a simple model is

based around the triangular linkage of the company, formed by its customers and

its competitors-the "Three Cs." The Three Cs in question are the customer, the

competition, and the company.

Figure illustrates the three-way relationship.

The source of competitive advantage is initially found in the ability of the

organization to differentiate itself, in the eyes of the customer, from its competition

and also by operating at a lower cost and, hence, at greater profit.

Seeking a sustainable and defensible competitive advantage has become the

concern of every manager who is alert to the realities of the marketplace.[ns no

longer acceptable to assume that good products will sell themselves; neither is it

advisable to imagine that success today will carry forward into tomorrow.

Let us consider the basis of success in any competitive context. At its most

elemental, commercial success derives either from a cost advantage or a value

advantage or, ideally, both. It is as simple as that-the most profitable competitor in

any industry sector tends to be the lowest cost producer or the supplier providing a


Company Competitor

Assets and Assets and

Valu Valu

Cost


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product with the greatest perceived differentiated values. To be successful in the

automobile industry, for example, you either have to be a Nissan (i.e., a cost

advantage) or a BMW (i.e., a value advantage).

Put very simply, successful companies either have a productivity advantage or they

have a "value" advantage or a combination of the two: The productivity advantage

gives a lower cost profile, and the value advantage gives the product or offering a

differential "plus" over competitive offerings.

Let us briefly examine these two vectors of strategic direction

Productivity Advantage

In many industries there will typically be one competitor who will be the low cost

producer, and, more often than not, that competitor will have the greatest sales

volume in the sector. There is substantial evidence to suggest that "big is beautiful"

when it comes to cost advantage. This is partly due to economies of scale that

enable fixed costs to be spread over a greater volume but more particularly to the

impact of the" experience curve.

The experience curve is a phenomenon that has its roots in the earlier notion of the

learning curve. Researchers discovered during the last war that it was possible to

identify and predict improvements in the rate of output of workers as they became

more skilled in the processes and tasks on which they were working. Subsequent

work by Bruce Henderson, founder of the Boston Consulting Group, extended this

concept by demonstrating that all costs, not just production costs, would decline at

a given rate as volume increased. In fact to be precise, the relationship that the

experience curve describes IS between real unit costs and cumulative volume.

Further, it is generally recognized that this cost decline applies only to "value

added," that is, costs other than those used for supplies.

Traditionally, it has been suggested that the main route to cost reduction was by

gaining greater sales volume, and there can be no doubt about the close linkage

between relative market share and relative costs. However, it must also be

recognized that logistics management can provide a multitude of ways to increase



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efficiency and productivity and, hence, contribute significantly to reduced unit cost.

How this can be achieved will be one of the key themes of this note.

Value Advantage

It has long been an axiom in marketing that "customers don't buy products, they

buy benefits." Put another way, the product is purchased not for itself but for the

promise of what it will deliver. These benefits may be intangible; that is, they relate

not to specific product features but rather to such things as image or reputation.

Alternatively, the delivered offering may be seen to outperform its rivals in some

functional aspect.

Unless the product or service we offer can be distinguished in some way from its

competitors, there is a strong likelihood that the marketplace will view it as a

"commodity," and so the sale will tend to go to the cheapest supplier. Hence, the

importance of seeking to add additional values to our offering to mark it out from

the competition.

What are the means by which such value differentiation may be gained? Essentially,

the development of a strategy based on added values will normally require a more

segmented approach to the market. When a company scrutinizes markets closely itfrequently finds that there are distinct value segments. In other words, different

groups of customers within the total market attach different importance to different

benefits. The importance of such benefit segmentation lies in the fact that often

there are substantial opportunities for creating differentiated appeals for specific

segments.

For example, look at the automobile. A model such as the Ford Escort is not only

positioned in the middle range of American cars, but within that broad category

specific versions are aimed at defined segments. Thus, we find a basic, two-doormodel, and also four-door and station wagon models. Each of these models presents

a whole variety of options, all of which seek to satisfy the needs of quite different

benefit segments. Adding value through differentiation is a pO"Ye1rful means of

achieving a defensible advantage in the market.



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Equally powerful as a means of adding value is service. Increasingly we are finding

that markets are becoming more service sensitive, and this, of course, poses

particular challenges for logistics management. There is a trend in many markets

toward a decline in the strength of the "brand" and a consequent move toward"

commodity" market status. Quite simply, this means it is becoming progressivelymore difficult to compete purely on the basis of brand or corporate image.

Additionally, there is an increasing convergence of technology within product

categories, which means that it is no longer possible to compete effectively on the

basis of product differences. Thus, the need arises to seek differentiation through

means other than technology (A number of companies have responded to this by

focusing on service as a means of gaining a competitive edge. Service in this


High

HighLow

Low

Productivit

Value

advanta

Service

Leader

Cost &

Service

Leader

Commodit

y Market

Cost

Leader


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context relates to the process of developing relationships with customers through

the provision of an augmented offer.

This augmentation can take many forms including delivery service, after-sales

services, financial packages, technical support, and so forth.

In practice what we find is that the successful companies will often seek to achieve

a position based on both a productivity advantage and a value advantage. A useful

way of examining the available options is to present them as a simple matrix (see

Figure).

Let us consider these options in turn.

For companies who find themselves in the bottom left-hand comer of our matrix

(Figure 1-2), the world is an uncomfortable place. Their products are

indistinguishable from their competitors' offerings, and they have no cost

advantage. These are typical commodity market situations, and ultimately the only

strategy is either to move to the right on the matrix, that is, to cost leadership, or

upward into a "niche." Many times the cost leadership route is simply not available.

This is often the case in a mature market where substantial market share gains aredifficult to achieve. New technology may sometimes provide a window of

opportunity for cost reduction, but in such situations, the same technology is often

available to competitors.

Cost leadership, if it is to form the basis of a viable long-term marketing strategy,

should essentially be gained early in the market life cycle. This is why market share

is considered to be so important in many industries. The experience curve concept,

briefly described earlier, demonstrates the value of early market share gains-the

higher your share relative to your competitors, the lower your costs should be. Thiscost advantage can be used strategically to assume a position of price leader and, if

appropriate, to make it impossible for higher cost competitors to survive.

Alternatively, price may be maintained, enabling above-average profit to be earned

that is potentially available to further develop the position of the product in the

market.



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The other way out of the commodity quadrant of our matrix is to seek a niche or

segment where it is possible to meet the needs of the customers through offering

additional values. Sometimes it may not be through tangible product features thatthis value added is generated, but, as we have noted, opportunities may often exist

for adding value through service. For example, a steel stockholder who finds himself

in the commodity quadrant may seek to move up to the niche quadrant by offering

daily deliveries from stock, by providing additional finishing services for his basic

products, or by focusing on the provision of a range of special steels for specific

segments. What does seem to be an established rule is that there is no middle

ground between cost leadership and niche marketing. Being caught in the middle,

as neither a cost leader nor a niche-based provider of added values, is generally

undesirable.

Finally, perhaps the most defensible position in the matrix is the top right-hand

corner, Companies who occupy that position have products that are distinctive in

the values they offer and are also cost competitive. Many Japanese products,

particularly in consumer markets, arguably have achieved this position. Clearly it is

a position of some strength, occupying high ground That is extremely difficult for

competitors to attack. There is a clear strategic challenge to logistics: to seek out

strategies that will take the business away from the commodity end of the market

toward a securer position of strength based on differentiation and cost advantage.

Ques : How logistic information system can help achieve competitive advantage?(8

marks)

Answer :

GAINING COMPETITIVE ADVANTAGE THROUGH LOGISTICS



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in detail later in the book, suffice it to say that the opportunities for better capacity

utilization, inventory reduction, and closer integration with suppliers at a planning

level are considerable. Equally, the prospects for gaining a value advantage in the

marketplace through superior customer service should not be underestimated. It

will be argued later that the way we service the customer has become a vital meansof differentiation.

To summarize, those organizations that will be the leaders in the markets of the

future will be those that have sought and achieved the twin peaks of excellence:

They have gained both cost leadership and service leadership.



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Ques : State objectives and explain activities of Material Handling system.(8 marks)

Answer :

Introduction:

The art and science of moving, packaging, and storing of substances in any

form.

A properly installed material handling system can reduce costs and labor,

increase safety, increase productivity, reduce waste, increase capacity, and

improve service.

Depending on the industry, material handling can account for 30 to 70 percent of

the cost of manufacturing, so inefficiencies should be eliminated.

Objectives Of Material Handling

The first is movement of product into, through, and out of warehouses,

efficient movement inside a facility helps control costs and improve customer

service.

Time is the second element parts and raw materials must be available when

needed at production stations, loading docks, and terminals.

The third element is quantity, goods must be moved in the right quantity

between the production stations as well as to the customer.

The last element is space, the material handeling system should effectively

use the available space in the warehouse, terminal, or plant.



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Ques Explain the different functions of Packaging.(6 marks)

Answer:

Packaging can not only help prevent theft and damage but also help promote

goods.

Packaging may also interest production, since production employees often

package the goods.

Packaging is not as costly as transportation, 10 percent of integrated logistics

cost can be attributed to packaging.

The size. Shape and type of packaging material influence the type and

amount of material handling equipment as well as how goods are stored in

warehouses.

The interface of packaging with integrated logistics is no more evident than

with transportation .packaging varies by mode of transportation.

Oceangoing package protection requires moisture proof containers that add to the

overall cost of the product.

Functions Of Packaging

1. Packaging should contain the goods to prevent shifting

2. It should protect the good from damage during handling, storing and

transporting.

3. Packaging should apportion goods. This refers to reducing production output

to a size and shape desired by the consumer.

4. Utilization, this allows packages to be consolidated into larger packages and

finally unitized into a single unit for shipping

5. Packaging should be convenient, allowing customers to use the product with

ease.



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6. Packaging should also communicate. Communication allows information to be

conveyed to the consumer.

Ques : Explain what are the different Channels of Distribution.(5 marks)

Answer:

The channel of distribution for integrated logistics is called logistics

channel, where the channel of distribution for marketing is calledthe transaction channel.

The marketing channel deals with the management of the people who

work in that channel.

It is primarily concerned with the transfer of ownership of the

product or service through the channel.

A formal definition of marketing distribution channel is :

A set of interdependent organizations

--middleman --involved in the process of making a product or

service available for consumption by the consumer.

The integrated logistics channel focuses on the physical flow of product

through the channel ; that is ,transportation ,inventory, facility stricture,

material handling , communication & information.

Each plays a role to ensure the seven Rs : right product in right quantity in right

condition at the right place at right time at right cost is available to right consumer.

Reasons to have Channels of Distribution

Why would producers of goods choose to use intermediaries in the

distribution of the product to the customer?



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By doing so ,the producer gives up control over activities associated with the

flow and sale of goods.

Channels of distribution develop primarily because intermediaries reduce the

number of channel transactions ,making the marketing process moreeffective and efficient.

In the above figure without a distributor the three manufactures with three

customers have nine transaction contacts

With the distributor the total contacts would be six .

Intermediaries offer contacts, expertise , specialization that may otherwise be

unavailable to the firm using them.

Efficient intermediaries can also reduce transportation , inventory order

processing & customer service costs.

Functions performed by Channels of Distribution



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Information :

Gather & disseminate research& other information about the individuals &

environment forces in the marketing & integrated logistics environment needed

to plan & aid change activites.

Promotion : Develop & spread communications about the offer.

Contact : Find & communicate with possible customers.

Matching : Shape & fit the offer to the customers needs . This needs can beproducing allocating , assembling & packing.

Negotiation : Reach agreement on price & other terms so that ownership can

be transferred .

Physical Distribution : Transport & warehouse goods.

Financing : acquire and use monies to pay for cost of channel work.

Risk Taking : Assumes risks of performing the channel work



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Ques : Explain ABC analysis and VED analysis for classifying inventory.(8 marks)

Answer :

ABC anaylysis is a system in inventory management to minimise the cost of

inventorries incorporated n which r stored for long time ,these are classified into

ABC groups whreas A stand for the most expensive inventories which are purchased

on customers demands so that it can b processed n thn given to them on priority

basis , these items are carefully selected

B is classified for those goods which are less expensive thn A items n which can b

stored for some time bfoe it is processed

c goes for those items which r cheap n also can b abuntenly used . these r itemswhere its loss wont cost much to the company

OR

Activity Based Costing analysis, it also is a way of dividing a Pareto Chart into three

regions (A, B and C) which contain 80%, 15% and 5%, respectively, of the problems

The Pareto Chart, at its simplest, is a Bar Chart in which the bars are sorted into size order,

with the highest bar on the left.



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Where there are many items with small values, they may be lumped together into an 'other'

category and put on the right.

Typically, the chart is used to highlight problems or things requiring work. The ideal chart is

'spiky', with a high left bar, as this clearly shows the best thing on which to work.

Note that the height of the bars implies priority. Usually the bars are a count of defects or

problems. They may be weighted, for example by cost, to improve the prioritization effect.

VED Analysis means....

Vital, Essential and Desirable Analysis...It is the Analysis for monitoring and control of stores and spares inventory by

classifying them into 3 categories viz., Vital, Essential and Desirable. The mechanics

of VED analysis are similar to those of ABC Analysis.

VED Classification

While in ABC, classification inventories are classified on the basis of their



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consumption value and in HML analysis the unit value is the basis, criticality of

inventories is the basis for vital, essential and desirable categorization.

The VED analysis is done to determine the criticality of an item and its effect on

production and other services. It is specially used for classification of spare parts. Ifa part is vital it is given V classification, if it is essential, then it is given E

classification and if it is not so essential, the part is given D classification. For V

items, a large stock of inventory is generally maintained, while for D items,

minimum stock is enough.

Ques : Explain the use of Computers in Purchasing and Material Management.(8

marks)

Answer:

USE OF COMPUTERS IN MATERIAL MGT

Computers are a part and parcel of everyday life of individuals , business ,government .

Computers with high speed , accuracy ,and reliability . Due to this advantageoffered by computers , they are ideally suitable for material mgt where hugeamount of data is required to be processed everyday .

Computers are efficiently use for the following functions related to material

mgt :-1. Material Pricing Research .

2. Forecasting .

3. Inventory & control .

4. Purchasing .

5. Value Analysis .

6. Cotification .

7. Standardization .

8. Stores Accounting .

9. Material Requirement & Budgeting .



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A management information system is suitable for material mgt functions thatexits data from Production , Design , Finance , Quality control , Maintenance ,Marketing and certain outside agencies like Vendors .

With the up-to-date data , accurate and detailed information about the statusof each item , each production schedule , each purchase order & each vendor, modern techniques like Just-In-Time (JIT) etc. can be adapted .

The system helps in planning , co-ordination , follow-up and control aspect ofmaterial functioning .

Computers are very useful in application of operation research techniquessuch as Linear Programming , Transportation Assignment , DepressionAnalysis , Stimulation etc. dealing with aspect like Forecasting ,Warehousing , Inventory control etc .

MRP-I & MRP-II , ERP are the latest examples of computers in materialmgt .

ROLE OF COMPUTERS :-

It provides the item list with description and code no .

It co-relates between the purchase orders and the pending orders .

It provides with receipts recorded from delivery challan or invoice of thesupplier .

It provides with details like Rise , Sales Tax , Octroi , Transport Cost etc . It tells us about the minimum and maximum level re-order quantities .

It helps in classification of inventory .

Provides Verification Reports .

Provides list of Bills Due for Payment .

Calculate Performance Ratios .

LATEST TRENDS IN COMPUTER APPLICATION

1. LAN [ Local Area Network ] :-



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In this network , several computers are connected to each other at variouspoints and control mainframe computer , all the information which is storedat any point is available .

It is useful for operation within building or locality or city .

2 . WAN [ Wide Area Network ] :-

By this network operations can be carried out on all India basis .

The information which is necessary for inventory control and decision makingin other areas can be obtained in no time .

3. GLOBAL WAN :-

It is applicable for Global applications and suitable for Multi-Nationals .

4. E-MAIL :-

Very high speed correspondent medium eliminates paper work and helps infast decision making .

Ques : Explain Right Product,Right Place and Right Price.(8 marks)

Answer:

RIGHT PRICE

Price refered to the time ,effort and money a customer expends toget a product or services.

From point of selling firm price is the amount of money a firmreceives for its products and services .The price should cover fixedcosts ,variables cost and some margin of profit.

EG. Transportation charge may be embedded in the price ofproduct. when that is the case the seller lowers transportation costsper unit by moving more in each shipment.

RIGHT PRODUCT

Product is the sum of the attributes that the customer buys.



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Packaging protects product attributes meaning that the product isdelivered as it was manufactured.

Packaging can also be one of the attributes in a purchase decision.

Receiving the damage or incorrect order may annoy both industrialbuyer and consumer.

Therefore protective packaging is vital in transporting the productsto the customer.

RIGHT PLACE

Place or outbound logistics is final marketing interface.

This involves choosing a channel of distribution, choosing the typeand number of middleman , and deciding where to locatewarehouses to ensure availability of product.



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Ques : Explain the concept of JIT (8 marks )

Answer :

BENEFITS OF JIT PURCHASING

JIT PURCHASER BENEFTS

JIT PURCHASING works best when buyers have consistent,resonableproduction schedules, give larger orders to fewer suppliers,use longterm contracts,and select responsive suppliers that can meet thebuyers requirements.

Administrative efficiency is derived from fewer contracts, lowerexpediting expenditures, fewer suppliers, better and more accuratecommunication and more accurate accounting.

JIT SUPPLIER BENEFITS



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SUPPLIERS also benefits from JIT purchasing. Better training andmore predictable scheduling may lead to reduced labor turnover.

Capacity requirements and production schedules become moreconsistent. also reducing turnover.

Administrative efficiency improvements come from bettercommunication and steadier, more predictable outbound movementsof finished goods.

JIT PURCHASING RISKS

JIT purchasing also carries risks. A supplier may fail to meet contractterms, for example. Since JIT purchasing normally involves longterm contracts, the manufacturer may have difficulty finding a newsupplier.

Delivery failures lead to plant shutdowns, quality problems causethe manufacturer to make a substandard product, and findinganother supplier means paying higher prices for supplies.

Remember that the risk can never be entirely removed from anysystem.

JIT PURCHASING CONTRACTS

JIT PURCHASING involves two contracts they are as follows. VOLUME CONTRACT - It combines purchasing requirements over

time. SYSTEM CONTRACT - It arranges for a given volume over a

specifiedTime at a specified price.

Characteristics of JIT PURCHASING

QUALITY1. The purchaser imposes minimal product specification.2. The materials supplier is assisted by the purchaser to meet quality

requirements.



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3. The quality assurances departments of the seller and buyer workclosely together.

4. Process control charts, not sampling inspection, are advised.

1. TRANSPORTATION2. The purchasing manager schedules and controls as much

of the transportation activity as possible.

SUPPLIERS1. A few suppliers located as close as possible are used.2. Attempts are made to cluster remote suppliers.3. Repeat business with suppliers is preferred.4. There is consistent monitoring/evaluation of suppliers.5. Bidding of materials is minimized.6. Suppliers are encouraged to create JIT purchasing with their

suppliers.

QUANTITIES

1. Frequently, steady delivery of small lots in exact quantities thatdemands reduced supplier production lot sizes.

2. Long-term purchasing contracts are commonplace.3. Shortages and overages are discouraged.

Ques : Explain the Purchasing process in detail.(8 marks)

Answer :

Purchasing Process

Individual purchasing and item will appear to be done differently

Certain set of activities are followed which are general and common

while purchasing

There are total five steps to be followed



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Step 1 :

All departments needs to buy something or the other

A form called as purchase requisition is filled up by the requisition

department head and forwards to the purchasing dept.

The purchase requisition contains the

Name of requestor

The planned use of the item

The specification of the item

The purchase requisition and the purchase order may be through a

computer system by an electronic form or it may be through the EDI

between the purchasing department and th

Step 2 :

Important to purchase the raw material

Can be purchase through newspaper, advertising, word-of-mouth



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Suppliers are asked to send proposals and bidders are invited

Suppliers are requested to provide samples, demonstration and

customer references for further investigation

For critical items of purchasing, more than one suppliers are

evaluated and then shortlisted

Further orders are supplied to selected supplier only

Step 3 :

Once supplier is identified orders must be identified

Detailed order is being prepared with expected date of purchase

Contracts are signed

Purchasing department are then responsible to ensure that the

orders are filled completely and correctly, contracts terms are made

Goods meet the standards

Supply performs satisfactorily

Step 4 :

Purchasing department ensures the correct goods delivery

It is of correct quantity and at right place

They keep track of monitoring the supplier performance and the

overall quantity and service provided by the supplier

Step 5 :

Supplier performance is evaluated in 2 stages

The purchasing department may contact supplier to avoid future

problems



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In the second stage the origin summarize the accumulated

experience with the supplier through many transactions and many

purchases

The end of the evaluation period such as bringing the supplierstogether online to share more timely and accurate information

Applying the bar code technology in receiving the inbound

shipments and generating orders

Documents

Solved Question Papers- Mona