ISQA 439 Purchasing & Supply Management

1. ISQA 439Purchasing & Supply Management Lee Buddress, Ph.D., C.P.M. Robert G. Gleason Professor and Director, SLM Program Portland State University

2. Class Rules • Questions • Yes/No • Donuts • Questionnaire

3. Supply and Logistics Management • Purchasing and Supply Management (ISQA 439) • Transportation and Logistics, Warehousing and Inventory Management (ISQA 429) • Production Planning and Control (ISQA 459) • Integrated Supply Chain Management (ISQA 479) • Managing Material Flows Throughout the Supply Chain

4. SLM Electives • ISQA 410 Supply Chain Strategy and Sustain • ISQA 410 Japanese Management • ISQA 430 Industrial Transportation • ISQA 431 Transportation Regulation • ISQA 440 Governmental Procurement • ISQA 449 Process Control and Improvement • ISQA 450 Project Management • ISQA 451 Forecasting • ISQA 454 Negotiation • ISQA 458 Food Industry SLM • ISQA 459 Production Planning

5. History of Purchasing • 1832 Charles Babbage On the Economy of Machinery and Manufactures • 1870 Magazine Articles • 1887 Marshall Kirkman The Handling of Railway Supplies - Their Purchase and Disposition (Maybe first Purchasing book) • 1890’s Railroad Gazette • 1905 The Book on Buying • 1915 Three Purchasing Books • 1920’s Five Purchasing Books

6. Importance of Purchasing to the Firm • As % of Product Value • Savings • Continuity • Competitive Advantage

7. Importance to the Economy, cont. • Input Output Model of the U. S.. Economy • Origin • Uses • Industry Interaction • Economic Drivers

8. Issues From Recent Conferences • Phoenix Conference • Manufacturing Excellence • North American Purchasing Research Symposium • Michigan Purchasing Conference • San Diego Supply Chain Conference • Berkeley NHWA Conference

9. Industrial Purchasing • The function responsible for acquiring all raw materials, components and services required for a firm’s continuing operations. • This department: • Finds, • Qualifies, • Selects Suppliers • Negotiates Contract and Business Terms • Manages Relationship and Performance • Differences With Resale/Retail Buying

10. Generation of Need Communication of Need Supplier Qualification Supplier Selection Order/Contract Award Contract Administration, Expediting Receiving and Inspection Quality Control Inspection Storage/Inventory Control Issuance and Use Accounts Payable Supplier Performance Evaluation Transaction Analysis The Purchase Cycle

11. Production Materials Raw Materials Parts and Components Capital Equipment Machinery Vehicles Capital Projects Construction MRO Supplies Operating Supplies Spare Parts Services Repair Services Buildings and Grounds Professional Services Types of Purchases

12. Why Have a Purchasing Department? • Assure Continuity of Supply • Uniformity of Practice • Policies and Procedures • Ethical Practices • Commercial Transaction Expertise • Contracts, Uniform Commercial Code • Negotiation Skills • Maximize Leverage • Develop and Employ Purchasing Strategies

13. Basic Purchasing Objectives • Maintain Continuity of Supply • Least Total Cost of Ownership • Develop Purchasing as Strategic Asset • Create Competitive Advantage

14. Basic Purchasing Activities • Sourcing • Finding Potential Suppliers • Qualifying Suppliers • Selecting the Supplier • Selecting Transaction Type • Developing Supplier Relationships • Contract Administration • Tracking Progress, Expediting • Progress Payments • Managing Buyer/Supplier Relationships

15. Organizational Structure • Centralized • Decentralized • Matrix • Supply Chain Organization • SLM and Organizational Relationships • Supportive of Organizational Strategy

16. Fundamental Supply System Issues • Importance and Impact • Legal and Ethical Issues • Forecasting • Standardization and Simplification • Supplier Qualification and Selection • Supply Base Reduction • Supplier Contract Types • Logistics (Transportation and Inventory) • Negotiation

17. Fundamental Supply System Issues • Inventory Management • Inventory Carrying Costs • EOQ • Consignments • VMI • Logistical Issues • Receiving • FOB Point/INCO Terms • Freight Rates • Intermediaries

18. Supply System Objectives • Minimize Administrative Costs • Minimize Inventories • Reduce Cycle Times • Increase Supplier Performance • Increase Forecast Accuracy • Maximize Use of Technology • Communication • Productivity • Support Organizational Strategy

19. Game Changers:Why Tomorrow Won’t Be the Same

20. Economic Reports • ISM – National • JP Morgan – Global • U of O - Oregon

21. ISM Report on Business • Change Indices • Derivation • ISM Report on Business • Accuracy • Timeliness • Leading Indicator

22. 2010 Oregon Economic Forum • During the Great Recession, the Average Family Lost 21% of its Net Worth. • Stocks Decline (IRA, Other Retirement) • Property Values Decline • Consumers Not Likely to Spend at Pre-Recession Levels Until Net Worth Restored • Consumer Confidence Levels Indicate Caution

23. Economic Concerns • Industry Consolidation • Privatization • Unemployment • Budget Deficit • Balance of Trade Deficit

24. Economic Concerns • Labor Availability • Retirements • Stability in Numbers of Women Entering Workforce • Economic Condition of States

25. Game Changer # 1 • Fundamental Change to Smaller • Cars • Houses • Consumer Spending • Capital Investment • Debt Financing • Personal • Business • Labor Availability

26. Global Population Forecast

27. Global Sustainability Changes • Population • 7 Billion (October) • Over 5.5 Billion in Less Developed Countries • Africa: Growth So High Population Will Triple • 1 Bil Now, 3.6 Bil Forecast by 2100 • Yemen:25 to 100 Million • Nigeria 162 to 730 Million • U.S. Faster Than Most Developed Countries • Immigration and High Hispanic Birthrate (311M – 478M) • All of This Assumes Food & Water Available Source: UN Forecasts

28. The Global Example • UN Forecast • World Population 2011: 7.0 Billion • World Population 2050: 9.3 Billion • Today: Half of Population in Urban Areas • 2050: 70% in Urban Areas • 2050: 27 Mega-Cities of Over 10 Million • 2050: 97% of Growth from LDCs • How Will Infrastructure Support Growing Population?

29. Game Changer #2 • Global Population Changes Will Drive Shortages in Basics of Life • Water • Food • Unrest Results

30. Population and Congestion • U.S. Population 400 Million by 2043 • Population Increase in Next 15 Years • Washington +23% • Oregon +25% • Port of Portland Forecast • Cost of Congestion Study • Trucks Between Seattle and Portland • Chronic Underfunding of Infrastructure

31. Aviation D+ Bridges C Dams D Drinking Water D- Energy D Haz Waste D Parks And Rec C - Rail C- Roads D Schools D Security I Solid Waste C+ Transit D+ Wastewater D- Waterways D- Need $1.6 Trillion American Society of Civil Engineers 2005 Infrastructure Report Card

32. Aviation D Bridges C Dams D Drinking Water D- Energy D+ Haz Waste D Inland W ways D- Levees D- Parks And Rec C - Rail C- Roads D- Schools D Security I Solid Waste C+ Transit D Wastewater D- OVERALL D Need $2.2 Trillion American Society of Civil Engineers 2009 Infrastructure Report Card

33. U of Texas Infrastructure Study: Portland • Time Congested: 65 % • Excess Fuel Consumption: 34 Mil Gal • Total Delay (Person Hours): 40 Mil • Truck Congestion Cost: $265 Mil • Cost Per Peak Auto Commuter: $ 830 2009 Data (latest available)

34. The Net Results Infrastructure Deteriorating Faster than Repair Congestion at All Levels Difficulty Locating Logistical Capacity Increased Lead Times Increased Inventories Increased Costs Increased Supply Chain Uncertainty and Risk We Are Falling Behind Other Countries

35. Global Competitiveness • World Economic Forum Annual Report • 2008: U.S. #1 • 2010: U.S. #4 • 2011: U.S. #5 • 2012: U.S. # 7 • 2012 Top 10: Switzerland, Singapore, Sweden, Finland, U.S., Germany, Netherlands, Denmark, Japan, UK Criteria: Legal and Admin Framework, Mgmt of Public Finance, Bureaucracy, Corruption, Transparency

36. Game Changer #3 • Infrastructure Deficiencies Are Decreasing Our Competitiveness • China and Other Developing Nations Invest Massively in Infrastructure • We Have Political Gridlock

37. Rethinking Popular Supply Chain Strategies • Outsourcing • Single Sourcing • Lean Philosophies • Sustainability is Sourcing Criterion • ISO 14000 • Supplier Sustainability Practices • Supply Chain Risk Analysis is Key

38. Game Changer #4 • Recent Supply Chain Strategies Shifting

39. Where Are We Going • New Technologies are Key Focus • Sustainability • Risk Management • Inflation • Speculation • Privatization • Education

40. A Look Forward: More Game Changers • China Industry Domination Strategy • BRIC Growth • Particle Deposition Technology • Quick Charge Batteries • $140/bbl Oil • Natural Disasters and SC Interruptions • Sustainability • Emma Maersk and Infrastructure

47. Shanghai Deep Water Port

48. Shanghai Deep Water Port

49. Shanghai Deep Water Port

50. Supply and Logistics Education • Increasingly Complex Processes • Increasing Dependence on Systems and Information Technology • Mega-Facilities and Equipment • Chronic Underfunding of Infrastructure • Increasing Globalization • Pace of Change Increasing • Increase in Emphasis on Education