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Managing Procurement For Manufacturing Best Practices Through e-Procurement

Managing Procurement For Manufacturing Best Practices Through e-Procurement. Agenda. Overview of procurement Challenges with traditional systems Marketplaces & Suppliers Best practices solutions. Why Focus on Procurement?.

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Managing Procurement For Manufacturing Best Practices Through e-Procurement

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  1. Managing Procurement For Manufacturing Best Practices Through e-Procurement

  2. Agenda • Overview of procurement • Challenges with traditional systems • Marketplaces & Suppliers • Best practices solutions

  3. Why Focus on Procurement? • Strategic relationships with suppliers result in lower prices and faster delivery of items • Maverick purchases translate into higher prices and unnecessary purchases • The purchasing activity itself is very expensive • • Labor intensive • • Non-value-added activities • • The cost to process an indirect purchase order (PO) is between $75 and $175 dollars

  4. Types of Purchases for Manufacturing • Direct Materials • Largest component of procurement in a typical manufacturer • Optimized through ERP so the number of purchase orders is small compared to expenditure • Generators of demand • • Material and subcontracting based on MRP runs • • Replenishment of low value ("C") commodity items best tracked by reorder point • • Specialized purchases for custom or rush orders

  5. Types of Purchases for Manufacturing • Demand-Driven MRO • Maintenance and repair items • Tooling (not part of the BOM) • Generators of demand • • MRO stock replenishment based on reorder point • • Non-stock items for preventive or corrective maintenance work orders • • Non-stock items for capital projects • • Subcontract services for maintenance or project activities

  6. Types of Purchases for Manufacturing • Ad Hoc MRO • Primarily operational items not kept in inventory or consumed in either the ERP or EAM system • • Non-recurring office supplies • • Computer equipment • Generators of demand • • Employee requests • • Outside of ERP or EAM system

  7. Analysis of Purchasing Activities • Typical Purchase Order Volumes • % of total Purchase orders • Direct materials 12% • Demand-driven MRO 83% • Ad hoc MRO 5% • Based on research with joint MLS and MFG/PRO customers

  8. The most advantage is gained by ensuring the right two quadrants are handled effectively: • Equipment (Capital) • Services (Capital) • Utilities • Seminars • Publications • One-off items • Direct Material • Direct Subcontracting • Direct Purchasing for resale • Maintenance, Repair and Operations (MRO) • General & Administrative • Other Services • $ • Number of P.O.s Analysis of Purchasing Activities

  9. Buying Activities • Strategic Buying • Creation of long-term contracts for • • Direct materials and subcontracting services • • Repetitive MRO parts & supplies and services

  10. Buying Activities • Transaction Buying • Creation and management of purchase orders and supplier schedules • Demand-driven Purchasing • • Direct materials and subcontracting • • MRO inventory items • • MRO maintenance and project items • Ad hoc Purchasing • • Repetitive and unscheduled MRO items

  11. Buying Activities • Spot Buying Creation and management of requisitions and purchase orders • • Short-term commodity purchases • • Non-repetitive MRO items

  12. Challenges with Traditional Systems • Traditional Purchasing Process • ERP • Type • DIRECT • MATERIALS • Activities • MRP • CommodityReplenishment • Special items • P.O. • FAX • 1st Class Mail • E-Mail • EDI • Suppliers • EAM • Type • DEMAND • DRIVEN • MRO • Activities • Inventoryreplenishment • Capital project • Maintenancework order • P.O. • FAX • 1st Class Mail • E-Mail • Suppliers • Type • OFFICESUPPLIES • COMPUTERS • P.O. • Manual order • Suppliers

  13. Challenges with Traditional Systems • Submission • • Requisition tracking is typically manual • • Most POs submitted to suppliers by mail and fax • Validity • • Is the PO correct (vendor items number, description and price)? • Has the PO been authorized? • Capability • • Does the supplier have the items in stock? • • When can the buyer expect delivery?

  14. Challenges with Traditional Systems • These Problems are Expensive • Costly processing • Delayed delivery • Overstocking • Downtime • And even employee turnover

  15. Purchasing Evolution • e-Marketplace Vendors • Integrated into extensive network of suppliers • Utilize Internet technologies • Enable buyers to streamline the purchasing process

  16. Marketplaces • Components • Buyers • Electronic requisition and purchasing system • Access to Marketplace’s extensive supplier catalog • Receive items against PO

  17. Marketplaces • Components • Buyers • Suppliers • Suppliers publish and maintain their catalogs, prices, availability, etc. • Purchase orders are transmitted to suppliers • Suppliers post status on open purchase orders

  18. Marketplaces • Components • Buyers • Marketplace • Suppliers • Suppliers post their catalogs and customer specific discount schedules • Buyers compare products features and prices sold by different suppliers • Parts availability and expected delivery times

  19. Marketplaces • Strengths • Single point connectivity to the buyer’s suppliers • Access to multiple suppliers using the same connection • Access to new customers with minimum investment

  20. Marketplaces • Challenges in a Manufacturing Environment • Marketplaces are not intended to replace Enterprise systems, such as ERP or EAM • The purchasing function must be integrated in the the following areas: • • Direct materials • • MRO inventories • • Capital projects • • Plant maintenance work orders • • General ledger • • Accounts payable

  21. Marketplaces • The Solution • Integrate the ERP and EAM systems with the e-Marketplaces or directly to suppliers • • Utilize the company’s current investment • - Avoid costly re-implementation and training • - Maintain single integrated system • • Leverage the ERP and EAM strengths of managing workflow within the organization • • Access financial integration already in place • Take advantage of the e-Marketplace and supplier sites strengths • • Extensive supplier network and on-line catalogs

  22. Best Practices • Supplier • ERP • Type • DIRECT • MATERIALS • Activities • MRP • CommodityReplenishment • Special items • Supplier • DirectSubmittal& Punch-out • Supplier • Communication Portal • Supplier • EAM • Type • DEMAND-DRIVEN • MRO • & • Office Supplies • Activities • Inventoryreplenishment • Capital project • Maintenancework order • Supplier • DirectSubmittal& Punch-out • Marketplace • Supplier

  23. Summary • e-Marketplaces promise many benefits • • Make sure you understand the cost to savings ratio • • What integration is required to match your existing capabilities • Investigate your suppliers’ capabilities • • Can your suppliers provide the same benefits at a lower cost? • Not all types of e-purchasing is possible today • • Inventory replenishment (Future) • • Spot buying (Available today)

  24. Questions Contact Information: Bo Hagler FBO Systems, Inc. (770) 723-1011 bhagler@fbos.com

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