Make vs Buy Decision D 0394 Perancangan Sistem

Make vs Buy Decision D 0394 Perancangan Sistem Manufaktur Pertemuan IX - X

Average Manufacturing Costs On average, manufacturing firms generate approximately 10% profit from operations. Typical breakdown of total costs: z Labor (8%) z Materials (50%)* z Overhead costs (32%) * On average, manufacturing firms spend about 50% of their sales dollar in raw material, component, and supply purchases.

Purchasing Objectives: Four Major Objectives of Purchasing: 1. Obtain the required quantity and quality of goods and services 2. Obtain the lowest cost 3. Ensure top notch service and timely delivery 4. Maintain good supplier relationships and Develop potential suppliers

Purchasing • No longer just order takers…. • Purchasing needs to know – – material performance availability suppliers 7

Purchasing Functions: • Determine purchasing specifications (correct quality, quantity, and delivery requirements) • Select the right source • Negotiate terms and conditions • Issuing and monitoring of purchase orders

Purchasing Cycle: 1. Receive and analyze purchase requisition 2. Select suppliers 3. Determine the right price 4. Issue purchase orders (PO’s) 5. Monitor PO’s 6. Receiving and accepting goods 7. Approving supplier’s invoice for

Purchasing Cycle Step 1: Receive and analyze purchase requisition Minimum Required Information: • Identity of requestor, approval, and charge number/account • Specification • Quantity and unit of measure • Required delivery date and place • Additional supplemental information

Purchasing Cycle Step 2: Select Suppliers • Routine items typically have preferred suppliers • New/unusual items may require vendor search and RFQ for comparison § Some companies require multiple source solutions (Mc. Donnell-Douglas preferred 3, single source required justification documentation) • Many firms today are opting for fewer suppliers • Use of supply chain management is growing

Supply Chain Management • Apply a total systems approach to managing the entire flow of – – – information materials and services Raw material suppliers Factories & warehouses End customer 3

Partnership Relationship • Continuing relationship involving – a commitment over an extended time period, – an exchange of information, and – an acknowledgement of the risks & rewards of the relationship. 9

Purchasing Cycle Step 3: Determine the Right Price • Tied directly to supplier selection • Price negotiation§ Focuses on quantity (net and gross) § Frequency of orders • Total usage “Refunds” are becoming popular • Supplier maintained inventory (pay as you use philosophy)

Purchasing Cycle Step 4 & 5: Issue PO’s and Follow-up z POs are legal offers to purchase z Purchasing must follow-up on open PO’s § Monitor past due PO’s and critical need components z Work with suppliers z Take corrective action § Expediting components, alternative supply sources, reschedule production, etc.

Purchasing Cycle Step 6 & 7: Receiving and Paying Suppliers z Reconcile PO’s and receivers z Correct damages, variance or discrepancies z Verify information for payment § PO number § Receiving report § Invoice

Outsourcing • Purchased items account for 60 to 70% of the cost of goods sold. • Outsourcing allows firms to focus on their core competencies. – Organizations outsource when they decide to purchase something they had been making in-house. • Typically handled by materials management function. 4

Make or Buy • Current trend favors outsourcing all activities that do not directly represent or support core competencies. • Are there any dangers associated with aggressive outsourcing? What are the implications for JIT production? 5

Purchasing Inputs • Marketing • Engineering • Manufacturing

Functional Specifications • By Brand • By Specification – Physical and Chemical Characteristics – Materials & Methods of Manufacture – Performance • By Engineering Design • Miscellaneous – “Gimme one just like the last one”

Good Specifications • Are not to tight or loose • Allow for multiple sources • Assign responsibility

Supplier Selection • Types of Sourcing – Sole Source – Multiple Source – Single Source • Select based on: • Technical Ability • Mfg. Capability • Reliability • After sale service • Location • Price

Four Categories of Product • Commodities • Standard Products • Items of small value • Make to order items

Purchasing Anatomy Procurement • Specifications • Supplier Selection • Price Determination • Negotiation Purchasing Schedule and Follow up • Order Release • Schedule Delivery • Follow up

Price Determination “you get what you paid for” • Fair Price- One that is competitive, gives the seller and buyer an opportunity for profit • Fixed Costs- Costs incurred without respect to sales volume • Variable Costs- Costs directly associated with sales volume (labor, material, etc. ) • Breakeven Point- The convergence of profit and loss. . . financial equilibrium

Break-Even Example Q: To make a particular component requires an overhead (fixed) cost of $5000 and a variable unit cost of $6. 50/unit. What is the total cost and the average cost of producing a lot of 1000? If the selling price is $15/unit, what is the break-even point? A: Total cost = fixed cost + (variable cost/unit)(# of units) = $5000 + ($6. 5 x 1000) = $11, 500 Average cost = Total cost / # of units = $11, 500 / 1000 = $11. 50/unit Break-even point: Let X = # of units sold $15 X = $5000 + $6. 5 X $8. 5 X = $5000 / $8. 5 = 588. 2 units