APT 2053

DEVELOPMENT AND MANAGEMENT

OF NEW ENTERPRISE
OPERATION
-Supply Chain Management (SCM)
-Inventory
-Total Quality Management (TQM)
Process of coordinating the flow of information, materials, and
products, and the money through the supply chain.
 Overview of Supply Chain
• Also called as value chain or demand chain.
• Is the network of the involved companies,
through upstream and downstream linkages, in
the different processes and activities that
produce value in the form of products and
services in the hands of the ultimate customer.
Supply-Chain Management
The objective is to build a chain
of suppliers that focuses on
maximizing value to the ultimate
customer
Supply chain management is the
process of coordinating the flow of
information, materials and products
and the money through the supply
chain.
Many Suppliers
◆ Commonly used for commodity
products
◆ Purchasing is typically based on
price
◆ Suppliers compete with one
another
◆ Supplier is responsible for
technology, expertise,
forecasting, cost, quality, and
delivery
Few Suppliers
◆ Buyer forms longer term
relationships with fewer suppliers
◆ Create value through economies of
scale and learning curve
improvements
◆ Suppliers more willing to participate
in JIT programs and contribute
design and technological expertise
◆ Cost of changing suppliers is huge
Supply Chain Risk
◆ More reliance on supply chains means
more risk
◆ Fewer suppliers increase dependence
◆ Compounded by globalization and
logistical complexity
◆ Vendor reliability and quality risks
◆ Political and currency risks
 Materials
 Any commodities used directly or indirectly in producing a product such as
raw materials, component parts or assemblies.

 Two important things in materials

Needed material How much to buy

at the right time at one time
and at the lowest When to place
price. the order.
Material Requirement Planning
(MRP)
 Tool used to control the process of ordering and delivering the needed
material at the right time, right place and at the lowest cost.

What can MRP DO?

• Inventory levels
• Purchasing cost
• Manufacturing cost
• Lead time
Channels of Distribution
Logistics
 -to produce the appropriate goods or services in the right quality and
quantity
 -to distribute them to the right place at the right time
• Logistics encompasses – design, implementation, and management of
systems for efficient deployment of personnel, physical facilities, raw
materials, in-process inventories, finished goods and related information or
service.
• Logistics covers the whole supply chain, from the acquisition of raw
materials, through production to the point of consumption.
INVENTORY

 Tracking inventory on a regular basis helps you zero on the ideal

number of goods, parts and supplies to maintain.
 There must be a good system to record the inventory and
arrangements must be made for adequate, secure storage facilities
and effective requisition procedures.
 Inventory record must be kept up-to-date
 The inventory should be physically count at least once a year
depend on the value of the inventory involve.
Just - In - Time Inventory System

Delivers inventory in It is the result of the Advantage ->

the production demand-pull efforts reduce the cost of
process when it is of a firm to schedule maintaining
needed production. inventory

Only materials or The company will

goods needed in not have capital
the process will be tied up in storing
delivered at the and carrying
precise time inventory.
 Inventory Control and EOQ

The primary questions of inventory control are;

How much to order at any one time ?
When to reorder ?

EOQ is the number of units that a company should

add to inventory with each order to minimize the total
costs of inventory – such as holdings costs, order costs,
and shortage costs.
Carrying Cost

 Carrying cost are those cost associated with ordering material from
the ordering cost through receiving, inspection, and storage.
 This cost component consists of:
- Storage cost
- Maintenance
- Clerical task such as preparing and filing the requisition
- Insurance
- Obsolescence (the product become outdated)
-Taxes
The 2 components of inventory cost is ordering
cost and storage cost/holding cost. INVENTORY COST

ORDERING COST STORAGE COST

include shipping and include warehouse expenses,

employee cost associated in spoilage and cost of money
purchasing item for inventory items

Total Inventory Cost (TC) = PD + HQ/2 + SD/Q

P= Price
D = Total number of units purchased in year
H = Holding cost
Q = Quantity ordered
S = Fixed cost
EOQ Determination (Procurement Costs)
Annual
Cost (RM)

Procurement
Cost
Quantity Order
(unit)
Annual
Cost (RM)
Storage Cost
(RM)

A Procurement
Cost
Quantity Order
B (EOQ) (unit)
Economic Reorder Quantity(EOQ)
Determination
 To determine an optimum order quantity for inventory items

 To lower inventory ordering and procurement cost

 To calculate the optimal level of the inventory to keep on hand &

new order to generate

Economic Order Quantity (EOQ) = √2DS

H
D = Total number of units purchased in year
H = Holding cost
S = Fixed cost
 (Storage cost)

An upward sloping, linear relationship between the re-order quantity and total
annual holding costs.

As the order quantity increases, there is a fall in the number of orders required,
which reduces the total ordering cost.
The fixed nature of the cost results in a downward sloping, curved relationship.
Balance between storage costs and ordering costs
 Because we are trying to balance these two costs
 One which increases as re-order quantity increases and one which
falls, total costs will always be minimised at the point where the
total holding costs equals the total ordering costs.
 This point will be the economic order quantity (EOQ).
REORDER POINT

Two element are important in doing this decision:

1.Usage during lead time 2. Safety stock desired

 TOTAL QUALITY MANAGEMENT (TQM)
Is an integrated effort designed to improve quality performance at every level of
the organization.

Requires a
continual
commitment

Measure have
been defined and Involved giving
the process in TQM people
responsibility
true TQM

Employees must be
true participants in
the business
Differences Between Old and New
Concepts of Quality
TIME: Early 1940s 1960s 1980s and Beyond
1900s

FOCUS Inspection Statistical Organizational Customer driven quality

sampling quality focus

Old Concept of Quality: New Concept of Quality

Inspect for quality after production Build quality into the process.
Identify and correct sources of
quality problems.
Necessity For Inspection

▪To check out quality standards are expressed

▪ To insure that the production or operations process is producing the
desired output.
▪The variation in the attributes of products and services due to change
occurrences causes the firm to produce products where attributes are not
identical to specifications
▪ Firm would inspects up to the point where cost of inspection equals the
savings from inspection.