PURCHASING AND INVENTORY MANAGEMENT

Objectives:

1. Know what to keep in mind when purchasing for the first time.
2. Understand the factors to consider when selecting a vendor. 3. Identify when quality may be more important than price. 4. Discuss the costs associated with managing your inventory. 5. Calculate how often stock will need to be reordered. 6. Evaluate what systems will work best to keep track of your inventory

Purchasing Management
1. 2. 3. 4. Select the right quality level. Buy the right quantity. Timing your purchases. Choose the right vendor. a. Reliability. b. Distance. c. Service. 5. Getting the right price. 6. Payment methods . 7. Receiving and following up on purchases .

INVENTORY MANAGEMENT
Financing costs Opportunity costs Storage costs Insurance costs

Shrinkage costs
Obsolescence costs

Material Requirements Planning (MRP)

1. MRP Computations. 2. The Level of an Item. 3. An Outline of the MRP Process. 4. Computing Direct and Indirect Requirements. 5. Expediting and Deferring Scheduled Receipts. 6. Lot Sizing Rules. 7. Dealing with Uncertainty in MRP. 8. Shortcomings of MRP.

JUST IN TIME

Vendor Managed Inventory (VMI)

It is a streamlined approach to inventory and order fulfillment. With it ,the supplier and not the retailer, is responsible for managing and replenishing inventory using an integral part of VMI, i.e. EDI ,by electronic transfer of data over a network.

VMI BUSINESS MODEL

Store inventory level
Sales history

Retail Store

Product

Rank SUK Base on Product activityEDI 852 sales

(excess Prdt) Retailer Warehouse (excess Prdt)

Vendors Update stock plan Forecasting Review suggested order /agreed upon inventory quantities Store/DC order notification Pick and ship product

Retailer received-edi 861 Payment advise-edi 820

PO ackn-EDI 855 ANS-EDI 856 Invoice-EDI 810 Po edi 850

Marketing buyers at Corporate offices

Benefits of VMI
Dual Benefits Supplier Benefits Manufacturer Benefits

Supplier Benefits
Reduced Inventory Reduced Stock outs. Reduced forecasting and purchasing activities. Increase in sales. Decreased in planning and ordering cost. Improved overall service level. Purchasing Speeds transactions. Streamlines communication between customer and supplier. Eliminates paper to computer data entry, improves data accuracy.

 Inventory management Delivery as needed cuts storage. Helps reduce inventory levels. Reduces inventory obsolescence. Improves inventory turns. Receiving Advance ship notice speeds up receiving. Bar coding cuts warehousing costs. Error Reduction Data entry mistakes are avoided. Information flow is continuous.

Manufacturers Benefits
Improved visibility. Reduces PO errors and potential returns. Improvement in service level agreements. Encourages supply chain cooperation. Reduction in distributor ordering errors.

Challenges and limitations

Manufacturing to stock without leveraging customer specific data. Reserved inventory results in shortages to other customers. High expectations from retailers. Resistance from sales force-losing control, affecting sales based incentive programs .

Overcoming the limitations

Redefine incentive programs Build strong partnerships Organize training sessions before launching VMI program. Establish agreements on service levels and process to handle exceptions.

Introduction
Something for which the customer is willing to pay. Value is created in the marketplace and is determined by the customers. It is acknowledged that the real demand for a product or services essentially represents the customers expectation and desires. Real demand may enable a firm to provide value in the most efficient way.

The dimensions of customer value

Customer value the way the customer perceives the entire companys offerings (products, services) Customer perception can be broken into several dimensions: Conformance to requirements Product selection Price and brand Value-added services Relationships and experiences
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The dimensions of customer value conformance to requirements

The ability to offer what the customer wants and needs is a basic requirement to which SCM contributes by creating availability and selection
the differences between supply and demand will lead to the costs associated with the market

Supply > demand inventory cost Demand > supply lost sales and possibly market share Customer access
the ability to easily find and purchase a product
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The dimensions of customer value product selection

Three successful business trends Specializing in offering one type of product : Starbucks, Subway Megastores that allow one-stop shopping for a large variety of products :Wal-Mart Megastores that specialize in one product area : Home Depot Several ways to control the inventory problem of a large variety of configuration or products Build-to-order model : Dell Larger inventories at major distribution centers: vehicles A fixed set of options that cover most customer requirements

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The dimensions of customer value price and brand

Price of products and the level of service are essential parts of customer value
The price may not be the only factor a customer considers, there may be a narrow price range that is acceptable for certain products.

Brand an important factor affecting the price

The internet and its impact on consumer behavior have increased the importance of brand names, because a brand name is guarantee of quality in the buyers mind. Mercedes cars, Rolex watches

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The dimensions of customer value value-added services

Value-added offering can differentiate some companies from their competitors and provide them with more profitable pricing structures
Especially technical products : after sales services

Other reasons why many companies are adding more services around their products:
The commoditization of products The need to get closer to the customer The increase in information technology capabilities

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The dimensions of customer value relationships and experiences

An increased connection between the firm and its customers makes it more difficult for customers to switch to another provider The learning relationship
Companies build specific user profiles and utilize this information to enhance sales as well as retain customers

Beyond relationship, some companies are also designing, promoting, and selling unique experiences to their customers.
Disneys theme parks
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Strategic pricing
Many companies use price as a tool to influence customer demand and apply the principles of revenue management techniques to their respective industries. Smart pricing Customized pricing The objective is to distinguish between customers according to their price sensitivity Dynamic pricing Dynamic pricing, or changing price over time without necessarily distinguish between different types of customers has traditionally been used only for sales or promotions

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