aasm05k assignement 3 unique number 602755

Subject code: AASM05K

Student number: 77923529

Assignment 03 – Second semester

Unique No. 602755

Topic 1

Title

Issues regarding purchase &

supply turnaround times for fast

pace high value projects in the

engineering & construction private

sector

.




Unique No. 602755

Table of contents

Page 1 Introduction

Discussion about the background of the company & the procurement and materials management system (PAMMS) used to facilitate part of the Supply Chain Management Process

Page 3 Section 1 Issues slowing down the process of orders

Figure 1.1

Increasing the efficiency of processing orders

Page 4 Section 1 1.1.1 – Classification of products material and services

1.1.2 – The Supply Risk

1.1.3 – The Profit Impact

1.2.1 – Strategic items

1.2.2 – Leverage items

1.2.3 – Non critical items

Pages 5 Section 1 1.2.4 – Bottleneck items

Figure 1.2 & Figure 1.3

Page 6 Section 1 1.3.1 Lower total cost

1.3.2 Higher quality

1.3.3 Access to advance technology

1.3.4 Access to unique sources of supply

1.3.5 Alternative suppliers

1.3.6 Access to diverse/broader sources of supply

1.3.7 Access to more reliable sources of supply

Page 7 Section 2 Poor expediting is causing delays in the delivery of material and equipment

Providing and expediting management & process solution

Page 7 Section 2 2.1 Planning for expediting

2.1.1 The main goals

2.1.2 Other goals




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2.1.2.1 – Entire Product

2.1.2.2 – Correct Product delivered

Page 8 Section 2 2.1.2.3 – Prices must match

2.1.2.4 – Damaged and poor quality identified

2.1.2.5 –Integrate expediting process

2.1.2.6 – Follow up with vendors on orders

2.1.2.7 – Follow up on milestone payments

2.1.2.8 –Visit Factories

2.1.2.9 – Ensure relevant documents and components are delivered

2.1.2.10 – Reporting

2.1.3 Specific, Measurable attainable, relevant & time bound

2.1.4 Plans must be discussed with management

Page 9 Section 2 2.2 Organising the expediting function

2.2.1 - Design the job

2.2.2 – Identify the interfaces

2.2.3 – Reports required

2.2.4 – Discuss chain of command

2.2.5 - Coordination

2.3 – Leading

2.3.1 – Leading the expeditor

2.4 – Controlling the expediting function

2.4.1 - Control

2.4.2 – Deviation

2..5 – Characteristics of an effective control system

Page 10 Section 2 2.6 Quality Standards

Figure 2.1

Page 11 Section 3 Receipting not being complete in time, causing delays in payment

Restructuring of the receipting process

Figure 1.3

Page 12 Section 3 3.2 – Seamless planning process

3.3 – Steps in the warehouse process

Page 12 Section 3 3.3.1 – Step 1

3.3.2 – Step 2

3.3.3 – Step 3




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3.3.4 – Step 4

Page 13 Figure 1.4

Page 14 Conclusion

Page 15 Bibliography




Unique No. 602755

Introduction

In this study we look at issues in slow order processing, poor expediting and the

issue of receipting not being done in time. These issues are slowing down the

process of the supply chain causing the organization time and money and affecting

the value of the end customer. In this study we will be looking at possible solutions to

create more efficiency in processing orders, expediting management and processes

& warehouse receipting processes in order to increase the flow of goods, services

and information through the supply chain in order to optimize shareholder and

customer value

Page 1




Unique No. 602755

Discussion about the background of the company & the procurement and materials

management system (PAMMS) used to facilitate part of the Supply Chain Management

Process

Kentz, a Member of the SNC-Lavalin Group, is a global engineering specialist solutions

provider, with 15,500 employees operating in 36 countries worldwide. We have provided

Engineering, Construction and Technical Support Services (TSS) to clients in the energy and

resources sectors for more than 90 years http://www.kentz.com/# (accessed on the

27/10/2015).

Research will be conducted in the organization on various issues relating to Supply Chain

Management as outlined below.

This report outlines issues slowing down the order processing and supply of commodities to the

various projects and the tools & techniques to be used to resolve these issues and allow an

efficient & effective flow of commodities from suppliers to projects.

Kentz uses an MRP II system called “Procurement and materials management system”

(PAMMS). The system has six process phases namely:

1. Portal – This is where authorizations take place as per lines and limits of authority set

by the management executive committee (MEC)

2. Material Catalogue (MatCat) – This is where the projects Bill of Materials (BOM) are

loaded (Per commodity type i.e. Piping, Instrument, Electrical Civil & Structural etc.)

Standard construction material can be found here for the purpose of raising a requisition

in the next process phase

3. Document drawing management system (DMS) – This is where all drawings and related

documents are loaded and controlled. Commodities are pulled through from MatCat to

the next phase based on the BOM and the drawings and documents in this phase

4. Materials Management System (MMS) – This is where project material controller’s load

material requisitions for the various commodities they require to complete the project &

is based on the BOM and supportive commodities i.e. Stationary & office furniture,

Assets, power tools & related consumables i.e. grinding discs and drill bits est.

5. Procurement Management System (PMS) – This is where the order processing begins

i.e. request for quotations (RFQ’s), Bid analysis sheets (BAS) are created for

adjudication purposes and purchase order documents (PO’s) are created and sent to

vendors.

6. Warehouse Management system (WMS) – This is where invoices get receipted for

payment and the inventory is managed

Page 2

http://www.kentz.com/




Unique No. 602755

Section 1

Issues slowing down the process of orders

Low value fast moving items i.e. stationary, grinding discs, cutting discs, drill bits,

power tools, hand tools & service kits (Filters) etc. is being processed through

PAMMS and this is delaying procurement from processing orders for high value, high

risk, slow moving items i.e. High voltage cable, specialized electrical components i.e.

Power distribution panels & control panels, Spare parts for heavy machinery i.e.

Cranes & Cherry pickers. These high value high risk items are of high importance to

the successful completion of the project.

The low value fast moving items are important to the support function of the project

and also require attention and without these processed in the time available, the

project will come to a standstill & could face penalties for not meeting deadlines. The

time it takes to process a material requisition & purchase order on PAMMS can take

between 1 to 3 hours or more depending on the amount of line items and system

approvals by management.

Increasing the efficiency of processing orders

For this specific issue the Product Classification Matrix can be used to identify the

different product groups, their supply risk and profit impact.

See bellow Figure 1.1

Profit

Impact High

Leverage Items

1. Grinding discs 2. cutting discs 3. drill bits 4. service kits 5. Power tools 6. Hand tools 7. Cleaning Services 8. Gardening Services 9. Guarding Services

Strategic Items

1. High Voltage Cable 2. Cranes & crane

Spares 3. Cherry Picker &

cherry picker Spares

4. Power Distribution panels & control panels

Non-Critical Items 1. Stationary 2. Office consumables

i.e. printer cartridges

Bottleneck Items 1. Spare parts for

vehicles 2. Nuts and bolts 3. High voltage lugs 4. Cable Glands

Low Supply Risk High

Product classification Matrix. Source: Adapted from Kraljic (1983: 109-117) Page 3




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1.1.1 Kraljic (1983: 109-117) mentions that all products materials & services can be

classified on the basis of the supply risk and on profit impact for the firm. By

classifying the supply situations using these variables, the supply department

can develop different action plans (Strategies) to best manage all purchase

transactions

1.1.2 WMJ Hugo & JA Badenhorst-Weiss (2011 : 15-16) State that The Supply Risk

refers to the risk of supply in the market i.e. long lead times due to scarcity

factor, government embargoes, limited supply markets or natural disasters

1.1.3 WMJ Hugo & JA Badenhorst-Weiss (2011 : 15-16) State that The Profit

Impact refers to the contribution to the profit of the firm that can be

Attributed to a specific product i.e. quality of the product or if it is a substantial

component of the final product or an event that is an essential part of a

production machine, which can cause a major cost escalation if unavailable

Figure 1.1 illustrates the following categories:

1.2.1 Strategic items are items that are of high profit impact, high supply risk & there is

a limited amount of suppliers in the market. These strategic items are of high

importance to the organization and need to be well managed. Long term, collaborative

& cohesive relationships need to be maintained with suppliers that supply these items in

order for the organization to maintain a competitive advantage in the market. It is also

advisable to source additional suppliers from other countries to better equip the

organization for delays in supply.

1.2.2 Leverage items are items that have a high profit impact and low supply risk and

there are large number of suppliers in the market supplying these items. For this group

of items the purchasing department can look into developing a catalogue of standard

items for their construction sites and submit this catalogue for pricing to the market and

create a vendor alliance with one or two Supplier that will agree to supply these items at

a fixed price for a set duration of time i.e. 6 to 12 months. Once agreed, this catalogue

can be uploaded on PAMMS in the MATCAT and the projects can select items from the

Vendor Alliance Catalogues (VAC) this will speed up the procurement process as the

items will have prices attached to them that have been preapproved by management.

The organization can befit from economies of scale and continua’s supply if a stock

holding level is agreed upon with the supplier

1.2.3 Non-critical items have a low profit impact, low supply risk and there are many

suppliers in the market. For this group of items the purchasing department can look into

developing a catalogue of standard items for their construction sites and submit this

catalogue for pricing to the market and create a vendor alliance with one or two supplier

that will agree to supply these items at a fixed price for a set duration of time i.e. 6 to 12

months. Once agreed, this catalogue can be uploaded on PAMMS in the MATCAT and

the projects can select items from the Vendor Alliance Catalogues (VAC) this will speed

up the procurement process as the items will have prices attached to them that have

been preapproved by management. This type of agreement is also known as a blanket

agreement.

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1.2.4 Bottleneck items have a low profit impact, high supply risk and few suppliers in the

market. It is important to maintain long term, collaborative and cohesive relationships with these

suppliers In order to keep track of stock holdings and potential stock outs. In this case it may be

good to source a few more suppliers in or out of the country as an alternative source of supply.

A term agreement can be set to ensure continues supply i.e. 6 to 12 Months Term

Figure 1.2 identifies the implementation process of strategic supplier alliances or

partnerships

Preparation Align Sourcing Strategy with organization overall strategy

Step 1

Create infrastructure for managing, planning and implementing of alliances

Step 2

Identification and evaluation Identify products services and materials for alliances

Step 3

Identify candidates for alliances of partnerships

Step 4

Evaluate alliances or partnership candidates

Step 5

Initiate executive level contact with candidates

Step 6

Conclusion and Management Negotiate with candidates Step 7

Nurture and growth of the relationship

Step 8

Performance assessment of alliance or partnership

Step 9

The implementation process of strategic supplier alliances or partnerships Source: Adapted from WMJ Hugo, JA

Badenhorst-Weiss & EHB Van Biljon (2004: 43-44)

In figure 1.3 WMJ Hugo & JA Badenhorst-Weiss (2011: 82-86) suggest the following

seven step supplier selection process. This process ensures that the supplier will meet

all the organizations requirements and will rule out any supplier that could possibly

delay supply

Figure 1.3

Establish criteria for supplier selection

Exploratory Stage Identify possible suppliers Pre-Assessment Phase

Prescreen to reject unsuitable suppliers

Selection Stage Conduct research on suitable suppliers

Assessment Phase

Choose the assessment method and Annalize the suppliers

Select supplier

Supplier management or maintenance Stage

Ongoing measurement of supplier performance

Post- Assessment Phase

Supplier accreditation

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Unique No. 602755

Prof JW Strydom, C Bothma and P Prinsloo (2011:45-49) have provided reasons for and

benefits of international purchasing and global sourcing:

1.3.1 Lower total cost as a result of bulk purchases and economies of scale

1.3.2 Higher quality provided by countries that are ISO9000 certified and better price benefits

of such quality can be gained due to other countries quality standards being greater than South

African Standards

1.3.3 Access to advance technology in the form of products and machinery and easy to

assemble items which can result in faster production thereby giving the organization a

competitive advantage and speeding up supply chain procurement

1.3.4 Access to unique sources of supply can be sourced to ensure that there will be no

delays in delivery i.e. Spare parts for a machine that was bought in the UK might not have a

division in South Africa with a large stock holding and stock outages are most likely to be

experienced. By sourcing suppliers in other countries with larger stock holdings the organization

can deal direct and fly in the parts if no stock is available locally. There are also cost befits

involved in purchasing direct

1.3.5 Alternative suppliers can be sourced globally to ensure that there are back up suppliers

should the local suppliers not have the stock required or if there is a delay due to stock outs or

natural disasters. This is important for strategic items and bottleneck items and will alleviate

some of the pressures involved in these categories.

1.3.6 Access to diverse/broader sources of supply can be achieved through global sourcing

i.e. suppliers that provide specialized products that the organization will require and that cannot

be found in South Africa

1.3.7 Access to more reliable sources of supply i.e. local suppliers shut downs due to strikes

can delay production and prove to be unreliable. Sourcing alternative suppliers that are more

reliable can improve the organizations competitive advantage in the market.

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Unique No. 602755

Section 2

Poor expediting is causing delays in the delivery of material and equipment

1. Expediting of orders is a problem as there is currently no set process or training and

development for expeditors in the organization. Due to this issue, orders are not

expedited accordingly i.e. the manufacturing of a bus for the organization – There is

various production processes the bus needs to go through before it can be

manufactured and dispatched to site

2. The expeditor is not familiar with these production processes due to lack of

knowledge, training & experience. This lack of knowledge in turn causes a delay in

the order turnaround time as the expediting is not efficient & effective and reporting

is not comprehensive and there is no real time information available on hand.

3. This lack of knowledge in expediting results in penalties and losses i.e. the need to

get a rental bus of higher due to exorbitant costs incurred by the project & put in

place a new purchased bus (Manufactured to required spec). By the expeditor not

providing the project with accurate feedback regarding the production of the new

bus and expediting the production process effectively there is a delay in the

manufacturing process and delivery of the bus in turn causing the project more

money

Providing and expediting management & process solution

GS Du Toit, BJ Erasmus & JW Strydom (2012:174-242) suggests that a management

approach to business be used i.e. Planning, organizing, leading and controlling

Planning for expediting

2.1 Planning provides direction, reduces the impact of change, promotes co-ordination,

ensures cohesion and facilitates control. The cost of planning in this case is minimum

and will include resources such as time, expertise, development cost for the expeditor in

the field of supply chain management & administration costs i.e. paper, ink, e-mail data

costs for researching

2.1.1 The main goal is to ensure that the product purchased reaches the project in time

for the project to utilize the product and satisfy the end customers’ needs and provide

value to shareholders. The goals of the expeditor must be in line with the overall goals

of the organization which in this case has been aligned.

2.1.2 Other goals include:

2.1.2.1 Ensuring the entire quantity of the order is delivered

2.1.2.2 Ensuring the correct product is delivered and that incorrect products are

returned and exchange timeously to prevent any delays to the project

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Unique No. 602755

2.1.2.3 Ensuring the price on the order matches the price of the goods and that any

discrepancies is brought to the purchasers attention in order to resolve the

problem at an early stage to prevent any delays at a later stage

2.1.2.4 To ensure that any damaged or poor quality products are identified at an early

stage and returned and exchanged timeously in order to prevent any delays

2.1.2.5 To integrate expediting processes and information with the supplier, purchaser

& project to ensure that all are kept informed of the progress of production and

the status of the delivery and to report any changes to production schedules or

delivery issues in order for the project to plan accordingly, Such reporting can

be regarded as real-time information

2.1.2.6 To follow up with vendors on receipt and acknowledgement of orders and

confirm delivery dates to ensure that deliveries are on schedule from inception

stage and to notify the purchaser and project of any changes

2.1.2.7 To follow up on milestone payments to ensure that production starts and that

the order is delivered on time

2.1.2.8 To visit factories to check up on the status of production in order to ensure

schedules provided by the supplier are accurate

2.1.2.9 To ensure that all relevant certificates, factory acceptance testing documents,

drawings and related requirements are delivered in time as per the projects

requirement’s

2.1.2.10 To report back to procurement on poor performing vendors in order for

corrective action to be taken

2.1.3 The above mentioned goals are specific, measurable, attainable, and relevant and

are time bound. The goals must be discussed with the expeditor and must form the

structure of the expeditor’s job description. Key performance indicators must be

discussed and agreed upon with the expeditor, procurement manager and project

manager. Check points are set by the procurement manager to ensure that

predetermined goals are being reached

2.1.4 Plans must be discussed with management to obtain additional value and

approval and reactive planning must be done when changes occur. This plan is at

operational level and will be approved by middle management level.

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Unique No. 602755

2.2 Organizing the expediting function

2.2.1 The first step in organizing the expediting process is to design the job which can be

developed from the above mentioned list of goals that has been discussed

2.2.2 The second step is to identify the interfaces that the expeditor will be involved in i.e.

Procurement, Finance & Operations/ Project and discuss the expediting process with all the

interfaces to ensure that buy in and acceptance is obtained from all involved.

2.2.3 The third step is to advise the expeditor of the reports that need to be submitted and the

formats in which these reports must be submitted, when the reports must be submitted and to

who the reports must be submitted. This will ensure continues feedback from the expeditor

regarding progress of the orders and any issues can be identified at an early stage and

measures can be taken to prevent delays.

2.2.4 The third step will be to discuss chain of command & authority must be explained to the

expeditor to prevent any confusion. The expeditor will have authority over suppliers and must

ensure that there is a professional but cohesive and collaborative relationship maintained. The

expeditor will take instructions from the procurement manager for the specific project and

reports will be sent to the procurement manager first for review prior to sending reports to the

project

2.2.5 The fourth and final step is co-ordination. The expeditor will be responsible for all the tasks

mentioned in the job description and will co-ordinate deliveries with suppliers, procurement and

projects to ensure that accurate information regarding production status and deliveries is

provide via the reporting system.

2.3.1 The expeditor must be lead into completing his/her tasks in accordance with the

predetermined standards of the organization. The procurement manager will be responsible for

motivating and ensuring that the expeditor follows the correct process and achieves his/her

objectives and goals. The expeditor will be required to maintain constant communication with

suppliers, procurement and the project and must ensure that communication is clear, precise

and accurate

2.4.1 The expediting function must be controlled and this can be done by setting standards for

achievements of goals i.e. are reports sent on time, is stock being delivered on time, are all the

necessary documents being delivered with the commodity in the time required, is the process of

returns with in a reasonable time est. These time frames are set as standards and actual

performance is measured against these standards in order to identify deviations and

outstanding performance.

2.4.2 If deviation occurs, deviation is evaluated to identify the seriousness of the deviation.

Corrective action is then taken to improve performance, strategies can be revised to accomplish

the standards & performance standards can be lowered to make them more realistic and

achievable. Other areas of control can be financial resources, information resources & physical

resources.

2.5 GS Du Toit, BJ Erasmus & JW Strydom (2012:239-240) States that characteristics of an

effective control system are: integration, flexibility, accuracy, timeliness & simplicity

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2.6 The expeditor should also be familiar with the various quality standards and quality control

process in order to ensure that the right quality standard of product is supplied prior to the

product being delivered to site.

WMJ Hugo & JA Badenhorst-Weiss (2011: 127) Suggests the following synoptic presentation of

the quality control process (See figure 2.1) be followed to reduce the issue of the incorrect

quality of products being delivered to site

Figure 2.1

Set standards

Recording

Explained deviation

Page 10

Quality

specifications Supplier

Determine

Sample Delivery

Inspection

Determine Inspection Size

No

Inspection

Sample

Inspection

Total

Inspection Further

Inspection

Look for reason for

deviation

Decide

Return entire

consignment

Return defective

products Negotiate

adjustment

Effect measures for preventing deviation




Unique No. 602755

Section 3

Receipting not being complete in time, causing delays in payment

1. Receipting in the central warehouse is unorganized and is not done timeously and there

is no plan or structure in place for receipting deliveries / invoicing. Due to this process

being unorganized, there is a jam in the supply chain i.e. receipting is not done in time

to meet the organizations financial departments deadlines for processing invoices and

loading payments.

2. This in turn means no payment processed for the suppliers with in the mutually agreed

30 day payment terms. This causes cash flow problems for suppliers and in turn the

organizations account with the supplier is place on hold and causes penalties in the

form of interest on the outstanding amounts & production loss for the project as a result

of no commodities supplied.

Restructuring of the receipting process

3.1 Kentz has a central warehouse situated in Alrode South. This warehouse is

responsible for receiving, checking, packaging, labeling, loading and receipting (Briefly

explained) there are multiple projects in and out of the country which the warehouse is

responsible for in terms of consolidating loads and loading trucks for delivery. There

are a limited amount of staff members and all are responsible for warehouse

operations. The issue as mentioned above is causing a jam in the supply chain and

from an investigation into the situation it has been discovered that there is no

accountability for processing receipts on specific projects, all delivery notes are

receipted by random members in the team and there is no specific time or deadline for

completing receipting.

The supply chain process flow for the warehouse is as follows:

Figure 1.3

Step 1 Step 2 Step 3 Step 4

Step 5 Step 6 Step 7 Step 8

Page 11

Requisition

loaded onto

PAMMS

Purchase order

processed &

sent to supplier

Order

Expedited

Order delivered by

supplier to warehouse

Warehouse

Offloads and

checks order

If all is in order,

warehouse

receives the order

Warehouse then

receipts the order

against the delivery

note / Invoice

Ware house then

consolidates the

commodities for

various projects

and loads the

truck




Unique No. 602755

3.2 WMJ Hugo, JA Badenhorst-Weiss & EHB Van Biljon (2004: 34) suggests a

seamless planning process that will ensure that there is a constant flow of goods

services and information to the customer.

3.3 From Figure 1.3 it can been seen that there are steps from source to the point the

goods are loaded onto the truck. The issue occurs in step 7 the following steps are

recommended to ensure the smooth flow of receipting in the warehouse:

3.3.1 Step 1 – Each member in the warehouse must be responsible for the receipting of

a specific projects delivery notes / invoices there by enforcing accountability

3.3.2 Step 2 – Each member in the warehouse must provide a report on receipts done

in the week and highlight any issues causing delays i.e. price differences, quantity

differences, quality issues est.

3.3.3 Step 3 – All queries must be resolved within a period of 3 days maximum

3.3.4 Step 4 – A predetermined time of 3 days is set for receipts to be completed, any

deviation from this set date will have to be analyzed and a decision on corrective action

determined by the procurement manager

The above mentioned steps have been selected based on an intuitive method which

has been taken from “selecting the most appropriate technique” by WMJ Hugo, JA

Badenhorst-Weiss & EHB van Biljon (2004 : 88)

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Unique No. 602755

Figure 1.4 selecting the most appropriate technique

Yes

Intuitive method

(Judgment and

Or experience)

No

Yes

Statistical

Analysis

No

Yes Optimization

Or heuristics

Model

No

Yes Develop Model

No

Yes Develop AI or

Simulation model

No

Page 13

Analyse the scope and

complexity

“Can you use your intuition,

judgement or experience to

solve the problem?”

“Will basic statistical analysis be

sufficient?”

“Is an optimisation or heuristics

model available?”

“Can such a model be

developed?”

“Is AI or simulation available?”




Unique No. 602755

Conclusion

We have identified the issues of slow order processing and have identified the product

classification matrix and the different types of methods used such as blanket cover, fixed term

contract and vendor alliances to relieve the procurement officer from processing an order for

every request, and we have identified the supplier selection and relationship requirements for

the various commodities. We have identified the issues in expediting and have provided a

management approach and process to resolving the issue. Finally we have highlighted the

issues in receipting and have identified a method from “selecting the most appropriate

technique”.

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Unique No. 602755

Bibliography

1. http://www.kentz.com/# (accessed on the 27/10/2015). 2. WMJ Hugo & JA Badenhorst-Weiss. 2011. Purchasing and Supply Chain Management.

Sixth Edition. Pretoria: Van Schaik 3. WMJ Hugo, JA Badenhorst-Weiss & EHB Van Biljon. 2013. Ninth impression. Pretoria:

Van Schaik 4. GS Du Toit, BJ Erasmus & JW Strydom. 2012. Eighth impression. Cape Town: Oxford

University Press Southern Africa (Pty) Ltd 5. Prof JW Strydom, C Bothma and P Prinsloo 2011. Global Sourcing Management

(Focusing on international purchasing). MuckleneukTshwane: University of South Africa

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http://www.kentz.com/

aasm05k assignement 3 unique number 602755

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