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Transcript of Business Economics WEEK 2 W/C 18 th February 2013 INTRODUCTION Course 17832 Advanced Diploma...
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Business Economics
WEEK 2W/C 18th February 2013
INTRODUCTION
Course 17832 Advanced Diploma Management
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Week Chapter TopicsOne (1) Ch 16 – Purchase
controlIntroduction- Course overview- Objectives- AssessmentThe time value of moneyPurchasing - Intent
Two (2) Ch 16 – Purchase control
Supply strategies (make or buy?)OutsourcingPurchasing strategies
Three (3) Ch 16 – Purchase control
Supplier analysisPurchasing processesPurchase simulation exercise
Four (4) Ch 17 – Stock management
What does a company want to achieve?Stock mgmt – IntentStock adv vs disadv.Stock ordering methods
Five (5) Ch 17 – Stock management
OPV methodsOPV calculations Conundrum – People/Profit/Planet
Six (6) Ch 17 – Stock management
Case study tasksTrivia – Pop Quiz Course review
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Education
• What is the purpose of education?
• Perspective or perception
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The time value of money concept
• How much is $1.00 worth in 12 months time if you leave it in your drawer at home?
• $0.90c
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Purchasing
• What is the intent of purchasing?
• Right #, right time, right customer or client
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Purchasing control
Purchasing functions:1. Provides an external link with the supply
market.2. Controlling purchasing in cooperation with
production and sales.3. Ensure an efficient purchasing control.
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Purchasing control
The primary objectives of purchasing are:1. Ensure uninterrupted flows of raw materials
at the lowest total cost, 2. Improve quality of the finished goods
produced, and 3. Optimize customer satisfaction.
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Purchasing control
Purchasing contributes to these objectives by: – Actively seeking better materials and reliable
suppliers, – Work closely with strategic suppliers to improve
quality materials, and – Involving suppliers and purchasing personnel in
new product design and development efforts.
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Understanding purchasing• Purchasing-
Obtaining merchandise, capital equipment; raw materials, services, or maintenance, repair, and operating supplies in exchange for money or its equivalent.
• Merchant Buyers-Wholesalers and retailers who purchase for resale.
• Industrial Buyers- Purchase raw materials for conversion, services, capital equipment, & MRO supplies.
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Purchasing control
• Purchase goods and services:– From the right suppliers– In the right quantities– In the right qualities– At the right prices– Delivered at the right place and time
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Proposition
• Niche is the new mass?
• In your group – take 5 or 10 mins to discuss and then explain this to the class.
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Make or buy
• The following slide contains a summary of the issues involved when deciding whether to make products yourself or buy them from other suppliers.
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Supply strategy – make or buy
Do the company´s core competences includemaking the products concerned?
If the products are bought, is there a risk thatthe company will become dependent on thesuppliers in question?
If the products are bought, is there a risk thatthe company´s supply reliability will beaffected negatively?
Are the costs of making the products lowerthan the cost of buying them?
Buy Make
No
No
No
No
Yes
Yes
Yes
Yes
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Make or buy
• Reasons for making:• Lower Production Cost• Unreliable Or Unsuitable Suppliers• Assure Adequate Supply (Quantity)• Utilise Surplus Labor Capacity• Obtain Desired Quality• Protect Special Design Or Quality
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Make or buy
• Reasons for buying:• Lower Acquisition Cost• Inadequate Capacity• Reduce Inventory Costs• Ensure Alternative Sources Of Supply• Item Is Protected By A Patent Or Trade License
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Make or Buy Break-Even Analysis
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Make or buy
• Choosing between making or buying an item is largely dependent on the vertical integration strategy of a company.
• By vertical integration, it means developing the ability to produce goods or services that are previously purchased.
• It can take the form of forward or backward integration:
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Make or buy
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Make or buy
• Factors to consider:
• What are your core competencies – does it include making products?• Is competitive advantage linked to making
products?• What is the risk of not making your own
products?
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Outsourcing
• In the short term a company’s fixed costs remain unchanged whether the products are made or bought.
• Short-term financial view the cost price of buying products should be compared with the company’s variable unit costs (VU) incurred in producing the products concerned.
• Long-term financial view the cost price of buying products must be compared with the company’s total unit costs (TU) incurred in producing the products concerned.
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Outsourcing
• The following slide shows a trend towards outsourcing.
• Once only Peripheral tasks (cleaning, canteen operations, and transport) were outsourced but now Core tasks (production, product development and design) are being outsourced.
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Outsourcing:VU/TUDEPENDENT?
Coretasks
Peripheraltasks
Time
Caretakerfunctions
Cantine functions
Book-keeping
IT-systems
Cleaning
Transport
Marketing
Product development
Production
Design
Outsourcing
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Outsourcing
• Advantages: – Companies can concentrate on core competencies– Reduce fixed costs (increases variable costs)– Offers greater flexibility
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Outsourcing
• Disadvantages:– Risk of being overly dependent on suppliers– Is a greater risk when their is only a small number
of suppliers.
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Purchasing Strategy
There are three (3) main purchasing strategies:A – competition-based purchasing strategyB – cooperation-based purchasing strategyC – differentiated purchasing strategy
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Purchasing Strategy
Competition-based Purchasing Strategy – Price is the primary factor– No preferences for specific suppliers– Regards their suppliers as opponents– This type of strategy is know as
’Multisourcing’
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Cooperation-based purchasing strategyCooperation-based
• Using this type of strategy usually involves:
– Regarding their suppliers as partners– Singlesourcing– Win-Win situation
Partnership normally:– Make more information available – ”Open calculations”– Common product development
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Cooperation-based purchasing strategyCooperation-based
• Competitive Advantages– More rapid exchange of information– Easier and more reliable planning– Simpler administration– Better utilisation of capacity– Better product and service quality– More rapid delivery – Reduction of stock costs– Reduction of logistics costs– Better quality of development work
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Differentiated purchasing strategy
A combination of the two market based purchasing strategy with coperation based strategy.
It is mult- faceted. Companies may choose to switch suppliers due to price.
The following model show this strategy in practice. Some important points to note:
• The strategic importance of a product reflects its importance with regard to the company’s core competence and future competitiveness.
• The financial importance of a product reflects its importance with regard to the company’s overall purchasing budget.
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Differentiated purchasing strategy
• Partnership• When products have large strategic and
financial importance for a company, there are often a great number of advantages to be gained by entering into a close, long-term and committed partnership with a chosen supplier
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Differentiated purchasing strategy
• Framework Agreement• A framework agreement is a contract defining
the terms on which a more regular trading relationship can be based (for one year.
• Framework agreements contain details of the products to be supplied, prices, and terms of delivery and payment for the contract period.
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Differentiated purchasing strategy
• Routine Purchases• Require little time or effort required• Use small number of suppliers• Can involve competition based purchasing
strategy• In Danish environment companies try to
reduce the number of suppliers they deal with.
• In Australia the best deal is important.32
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Differentiated purchasing strategy
DPS Model
Economic significance
Small
Strategicimportance
Large
Frameworkagreement
Partnership
Routine purchase Negotiation
Large
Small
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Triple bottom line
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Starbucks Announces Leadership Moves to Accelerate Global Growth Agenda
• SEATTLE, May 16, 2012 - Starbucks Coffee Company (NASDAQ:SBUX) today announced several leadership changes to accelerate its innovation and growth. The company announced the following leadership moves as it further strengthens its three-region operating model:
• “As we continue to sharpen our focus and strengthen our three-region operating model, local relevancy and speed of decision making are two critical requirements we must deliver so that we can seize opportunities,” said Howard Schultz, Starbucks chairman, president and ceo. “We will never rest when it comes to coffee innovation and elevating the overall coffee experience for our customers. The leadership moves we announced today will enable us to more swiftly position ourselves for the exciting opportunities ahead while never losing sight of the fact that we are a global brand with a rich heritage in coffee, long-standing values, and the responsibility to use our scale for good.”
• http://news.starbucks.com/article_print.cfm?article_id=655
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What do you notice about the new packaging?
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Global Responsibility Report Goals & Progress 2011
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Global Responsibility Report Goals & Progress 2011
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Homework tasks
• Please complete 16.1 and 16.3 from the textbook chapter.
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