Warehousing and Purchasing

7/29/2019 Warehousing and Purchasing

1/49

Warehousing and DistributionLecture Series


2/49

Warehousing

WAREHOUSING provides a very strategic chainservice that enables firms to store their purchases,

work-in-progress and finished goods, as well as

perform breakbulk and assembly activities, while

allowing faster and more frequent deliveries of finishedproducts to customers, which turns results in better

customer service when the system is designed and

managed correctly.


3/49

Warehousing

Warehouses arent used to store things, but rather to

receive bulk shipments, break them down, repackage

various items into outgoing orders and then distribute

these orders to a manufacturing location or retail

center.

These activities are collectively referred to as

crossdocking.

Distribution Center


4/49

Importance of Warehousing

Used to supportpurchasing, production, anddistribution activities.

In retail setting, the warehouse might be regionally

located, with the retailer receiving bulk orders from

many suppliers, breaking these down and reassembling

outgoing orders for delivery to each retail location, and

then using private fleet of trucks or for-hire

transportation providers to move orders to the retail

locations.


5/49

Importance of Warehousing

Firms may operate to collect large numbers of LTL

shipments from nearby regional sources supply where

these are then consolidated and transported in TL

quantities to a manufacturing or user facility located at

some distance from the consolidation center.

Consolidation Warehouses


6/49

Types of Warehouses

Refer to warehouses that are owned by the firm storing the

goods.

Private Warehouses

1. Reduce the costs in the long-term.

2. Level of control.

3. Better utilize its workforce and expertise in terms of

transportation, warehousing and distribution center activities.

4. Can generate income and tax advantages through leasing of

excess capacity and/or asset depreciation.

Benefits


7/49

Types of Warehouses

1. Represent a significant financial risk and loss of flexibility to the

firm.

2. Bind firms to locations that may not prove optimal as timepasses.

3. Warehouse size or capacity is also somewhat inflexible, at least

in the short time.

4. Insurance.

Disadvantages of Private Warehouses


8/49

Types of Warehouses

For-profit organizations that contract or lease a wide range of light

manufacturing, warehousing and distribution services to other

companies.

Provide a number of specialized services that firms can use tocreate customized services for various shipments and goods.

Public Warehouses


9/49

Types of Warehouses

1. Breakbulk large-quantity shipments are broken down so that items

can be combined into specific customer orders and then shipped out.

2. Repacking after breakbulk, items are repackaged for specific

customer orders.3. Assembly some public warehouses provide final assembly operations

to satisfy customer requests and to create customized final products.

4. Quality inspections warehouse personnel can perform incoming and

outgoing inspections.

5. Material handling, equipment maintenance and documentation

services.

6. Short- and long-term storage.

Types of Services for Public Warehouses


10/49

Types of Warehouses

1. Provide the short-term flexibility and investment cost savings.

2. Allows firms to test market areas and withdraw quickly if

demand does not materialize as expected.3. Cost for firms can be very small if the capacity requirements are

minimal.

Benefits of Public Warehouses


11/49

Types of Warehouses

1. Lack of control provided to the goods owners.

2. Communication problems with warehouse personnel.

3. Lack of specialized services or capacity at the desired locations.

4. Lack of care and security that might be given to products.

Disadvantages of Public Warehouses


12/49

Types of Warehouses

1. Refrigerated warehouses

2. Customs clearance

3. Reverse logistics

4. Freight consolidation

5. Claims processing

6. Real-time information control

7. Direct-store deliveries

Value-added Specialied Services of Public Warehouses


13/49

Risk Pooling and Warehouse Location

1. Number of warehouse needed

2. Required capacities

3. System inventory levels

4. Customer service levels

5. Warehousing system costs

Warehouse Location Decision Affects the following:


14/49

Risk Pooling and Warehouse Location

Describes the relationship between the number of warehouses, system

inventories and customer service.

When market demand is random, risk pooling assumes that demand at

the markets served by a warehouse system is negatively correlated(higher-than-average demand in one market area tends to be offset by

lower-than-average demand in another market area).

In smaller market areas, warehouses would then require higher levels of

safety stocks. This is why smaller number ofcentralized warehouses

serving larger market areas require lower overall system inventories,compared to a larger number ofdecentralized warehouses serving the

same markets.

Risk Pooling


15/49

Differences Between Centralized andDecentralized Warehousing Systems

As the firm moves toward fewer warehouses and a more

centralized warehousing system, safety stocks and thus

average inventory levels across the system are decreased.

The magnitude of the reduction depends on the demand

correlations in the various market areas.

Safety Stock and Average System Inventory


16/49


As warehouse centralization increases, delivery lead times

increase, increasing the risk of late deliveries to customers

and reducing the ability of the organization to respondquickly to changes in demand.

Customer service levels may thus decrease, because of

issues such as traffic problems and weather delays.

Responsiveness


17/49


As centralization increases, customer service levels

provided by the warehouses supplier is likely to increase,

reducing the likelihood of stockouts for a given level ofaverage system warehouse inventory.

Customer Service to the Warehouse


18/49


As centralization increases, outbound transportation costs

increase, as LTL shipments must travel farther to reach

customers.

Inbound transportation costs decrease, since manufacturers

and other suppliers are able to ship larger quantities at TL

rates to fewer warehouse locations.

Overall impact on transportation costs thus depends on thespecific warehouse locations, the goods stored, the

locations of suppliers and the modes of transportation used.

Trasportation Costs


19/49


As centralization increases, warehouse capital and

operating costs decrease because there are fewer

warehouses, fewer employees, less equipment and lessmaintenance costs.

Warehouse System Capital and Operating Costs


20/49

Three Types ofWarehouse Location Strategies

Locates warehouses close to customers, to maximize

customer service levels.

Recommended when high levels of distribution flexibility andcustomer service.

Market Positioned Strategy

Th T f


21/49


Locates warehouses close to the sources of supply to

enable the firm to collect various goods while minimizing

inbound transportation costs. Works well when there are large numbers of goods

purchased from many sources of supply and assortments of

goods ordered by customers.

Product Positioned Strategy

Th T f


22/49


Places warehouses midway between the sources of supply

and the customers.

Recommends when distribution service requirements arerelatively high and customers order product assortments

purchased from many suppliers.

Intermediately Positioned Strategy


23/49

Lean Warehousing

As firms develop their supply chain managementcapabilities, items will be moving more quickly through

inbound and outbound warehouses and distribution centers.

These warehouses and distribution centers will thus have to

develop leaner capabilities.


24/49

Lean Warehousing

Inbound and/or outbound shipping quantities are likely to be

smaller and more frequent, containing mixed quantities of

goods, and thus requiring more handling.

Greater emphasis on crossdocking

Warehouse employees must receive shipments and mix

these quickly into outgoing shipments.

Reduced lot sizes and shipping quantities


25/49

Lean Warehousing

To improve handling speed and reliability, more warehouse

activities will become automated, from scanner/barcode

computer tracing systems, to warehouse management

software applications, to automated storage and retrieval

systems.

A commitment to customers service quality

Warehouse employees must perform warehouse activities

so as to meet the requirements of their inbound and

outbound supplier and customers.

Increased automation


26/49

Lean Warehousing

Increased assembly operations

As more firms implement lean systems and mass

customization, warehouses will be called upon to perform

final assembly operations to meet specific customer

requirements.


27/49

PurchasingLecture Series


28/49

Purchasing

A key business function that is responsible foracquisition of the required materials, services and

equipment.

The act of obtaining merchandise; capital equipment;

raw materials; service; or maintenance, repair andoperating (MRO) supplies in exchange for money or its

equivalent.


29/49

Purchasing

Categories

Merchant buyers - purchase their merchandise in volume to

take advantage of quantity discounts and other incentives

such as transportation economy and storage efficiently.

Includes the wholesalers and retailers, who primarilypurchase for resale purposes.

Industrial buyers purchase raw materials for conversion

purposes. Typically, these are the manufacturers.


30/49

Purchasing Process

Manual Purchasing System

Slow and prone to errors due to duplications of data entries

during various stages of the purchasing process.

Electronic Procurement System (e-Procurement)

Electronic Data Interchange (EDI) proprietary nature

requires a high start-up cost, making it inaccessible to small

firms with limited budgets.


31/49

Electronic Purchasing System

Advantages of the e-Procurement System

Time savings

Cost savings

Accuracy

Real time

Mobility

Trackability

Management

Benefits to the suppliers

S i D i i Th M k B D i i


32/49

Sourcing Decision: The Make-or-Buy Decision

Outsourcing referred to buying materials or components that

were previously made-in-house which is now commonlyused to refer to buying materials or components from

suppliers instead of making them in-house.

Current sourcing trend is to buy equipment, materials and

services unless self-manufacture provides a major benefitsuch as protecting proprietary technologies, achieving

superior characteristics, or ensuring adequate supplies.

S i D i i Th M k B D i i


33/49

Sourcing Decision: The Make-or-Buy Decision

Cost advantage

Insufficient capacity

Lack of expertise

Quality

Protect proprietary technology

No competent supplier

Better quality control

Use existing idle capacity

Control of lead-time ,

transportation, and

warehousing cost

Lower cost

Reasons for Buying or

Oursourcing

Reason for Making


34/49

Make-or-Buy Break-even Analysis

Break-even Analysis

A handy tool for computing the cost-effectiveness of

sourcing decisions when cost is the most important

criterion.

All costs involved can be classified under either fixed or variable

cost.

Fixed cost remains the same within the range of analysis.

Linear variable cost relationship exists

Fixed cost of the make option is higher because of initial capital

investment in equipment.

Variable cost of the buy option is higher because of supplier

profits.

Assumptions


35/49

Make-or-Buy Break-even Analysis

Example

Arriba Company has the option to make or buy a part. Its

annual requirement is 15,000 units. A supplier is able to

supply the part at Php 7 per unit. The firm estimates that it

costs Php500 to prepare the contract with the supplier. Tomake the part, the firm must invest Php25,000 in

equipment and the firm estimates that it costs Php5 per

unit to make the part. Will Arriba company Make or Buy

the part? Why?


36/49

Enterprise Resource PlanningLecture Series

ERP


37/49

ERP

Traditional or legacy systems continue to be used andmodified to include other functional areas of an organization,

the emergence and growth of supply chain management, e-

commerce and global operations have created the nee to

exchange information directly with supplier, customers, and

foreign branches of organization.

ERP is the concept of the manufacturing information system

thus evolved to directly connect all functional areas and

operations of an organization and, in some cases, its

suppliers and customers via a common software

infrastructure and database.

ERP


38/49

ERP

Typical ERP system is an umbrella system that ties togethera variety of specialized systems, such production and

inventory planning, purchasing, logistics and warehousing,

finance and accounting, human resource management,

customer relationship management and supplier relationship

management using a common, shared, centralized

database.

ERP is a broadly used industrial term to describe the multi-

module application softwarefor managing an enterprises

functional activities, suppliers and customers.

ERP


39/49

ERP

Integrates the internal operations of an enterprise with a

common software platform and centralized database

system.

Ties together supply chain member processes using he

same information system.

Provides the mechanism for supply chain members to share

information so that scarce resources can be fully utilized tomeet demand, while minimizing the bullwhip effect and

supply chain inventories.

Enterprise Resource Planning

ERP


40/49

ERP

1. Ordering

2. Availability

3. Manufacturing

4. Order Tracking

ERP Transaction Process

I l ti ERP S t


41/49

Implementing ERP Systems

ERP Transaction Process

ERP systems have continued to evolve, and integration of e-

commerce, customer relationship management (CRM) and

supplier relationship management (SRM) applications are

now considered ERP requirements by most organizations.

ERP Systems

1. Best-of breed

2. Single integrator

I l ti ERP S t


42/49


Best-of-Breed Solution Picks the best application or module for each individual

function in the supply chain.

The resulting system includes several different applications

that must be integrated to work as a single coordinated

system to achieve the global scope required of the ERP.

Disadvantage: Multiple software infrastructures and data

bases may have to be used to link the multiple applications

obtained from different vendors. This may severely affect

the ability of the system to update the databases rapidly and

efficiently.

I l ti ERP S t


43/49


Single Integrator Approach Picks all the desired applications from a single vendor for

the ERP system.

All of the applications should work well together, and getting

the system up and running should be easier.

As information technology continues to evolve and as

competition increases in the ERP software market, ERP

vendors are designing their products to be more compatible

with each other.

I l ti ERP S t


44/49


Reasons for ERP System Implementation Failure1. Lack of top management commitment.

2. Lack of adequate resources.

3. Lack of proper training.4. Lac of communication.

5. Incompatible system environment.

I l ti ERP S t


45/49


Advantages of ERP System Uses a single database and a common software

infrastructure to provide a broader scope and up-to-date

information, enabling management to make better

decisions that can benefit the entire supply chain.

Designed to take advantage of internet technology, thus,

users are able to access the system via a the Internet.

Helps organizations reduce supply chain inventories due to

the added visibility throughout the entire supply chain.

I l ti ERP S t


46/49


Advantages of ERP System Helps organizations to standardize manufacturing

processes.

Enables an organization, especially a multi-business-unit

enterprise, to efficiently track employees time and

performance and to communicate with them via a

standardized method.

Small to medium enterprises are frequently turning to the

use of subscription-based ERP systems owned by a third

party and provided over the Internet which are termed

cloud computing orsoftware-as-a-service (SaaS models).

I l ti ERP S t


47/49


Disadvantages of ERP System Costly and very complex and have proven difficult to

implement, particularly in large multi-business unit

organizations.

Designed around a specific business model based on

specific business processes.

Adopting firm must restructure its processes to be

compatible with the new ERP system.

Firms struggle to justify their investment and find ways to

better utilize the ERP systems.

ERP S ft A li ti


48/49

ERP Software Applications

Common Modules of ERP System Accounting and finance.

Customer relationship management

Human resource management

Manufacturing

Supplier relationship management

Supply chain management

ERP S ft P id


49/49

ERP Software Providers

SAP

Oracle

Peoplesoft purchased by Oracle in 2005

JD Edwards acquired by Peoplesoft in 2003

Baan sold to Invensys in 2000 and later acquired by SSA

Global Technologies in 2003 which was bought by Infor Global

Solutions in 2006

Microsoft purchased Great Plains in 2001 and Navision in

2002.

Microsoft Corporationis the worlds largest software company,

SAP is the largest ERP provider, followed by Oracle in terms of

market value.

Documents

Warehousing and Purchasing