An implementation of the AIM and DRIVE method
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31 word format
document in english
logistics
presentation
date published 22/11/2006
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SummaryBased on industry benchmarks, Bob’s Farm Stores is spending more than it needs to on its purchasing process. We believe that they could save a total of $1,065,462 by implementing three strategies, namely 1) implementing a mid-tier ERP system, 2) consolidating the number of annual purchase orders through the use of blanket purchase orders, and 3) standardizing their vendor authorization process and increasing the number of authorized vendors.
Implementing a mid-tier ERP system
Our company deals with 650 different suppliers, having each hundreds to thousands of SKU’s. The current manual ordering process is overwhelmed by the complexity of the supplier base which has resulted in severely inaccurate forecasts, redundant process and data entry, and increased lead time. With the implementation of a fairly off-the-shelf, mid-tier ERP system we believe that we can 1) Increase forecast accuracy, 2) Eliminate redundant processes, 3) Decrease the amount of labor required to generate and process each PO, and 4) Decrease the lead time by 4 days. Total net expected savings are $624,462.
PO consolidation through the use of BPO’s
By using blanket PO’s we believe that we can conservatively achieve at least a 0.5% reduction in annual materials spending per year. The risks associated with this strategy include exposing ourselves to price fluctuations (market price could drop during life of contract) and increased dependency on our forecasted demand (we may overbuy). Total net expected savings are $240,000.
Standardization of vendor authorization process
Standardization of the vendor authorization process and increasing the number of authorized vendors will decrease the negotiation and order processing time which will decrease the lead time. We expect to reduce the lead time of non-authorized vendor orders (NAVO’s) by 25% resulting in a net expected savings of $240,000.
Implementing a mid-tier ERP system
Our company deals with 650 different suppliers, having each hundreds to thousands of SKU’s. The current manual ordering process is overwhelmed by the complexity of the supplier base which has resulted in severely inaccurate forecasts, redundant process and data entry, and increased lead time. With the implementation of a fairly off-the-shelf, mid-tier ERP system we believe that we can 1) Increase forecast accuracy, 2) Eliminate redundant processes, 3) Decrease the amount of labor required to generate and process each PO, and 4) Decrease the lead time by 4 days. Total net expected savings are $624,462.
PO consolidation through the use of BPO’s
By using blanket PO’s we believe that we can conservatively achieve at least a 0.5% reduction in annual materials spending per year. The risks associated with this strategy include exposing ourselves to price fluctuations (market price could drop during life of contract) and increased dependency on our forecasted demand (we may overbuy). Total net expected savings are $240,000.
Standardization of vendor authorization process
Standardization of the vendor authorization process and increasing the number of authorized vendors will decrease the negotiation and order processing time which will decrease the lead time. We expect to reduce the lead time of non-authorized vendor orders (NAVO’s) by 25% resulting in a net expected savings of $240,000.
Table of Contents- Executive summary
- Background
- Bob’s farm stores
- Description of commodity/service to analyze
- Why this particular project
- Agreeing on a primary cost
- Identifying critical costs in the supply chain
- Process maps
- Secondary and tertiary costs
- Measuring secondary and tertiary costs
- Defining the key cost drivers and developing strategic options
- Cost drivers and functions
- Po rate
- Navo rate
- Lead time
- Reducing, changing or eliminating activities that cause costs: the strategy
- Constraints
- Strategic option: implement mid-tier erp system
- Strategic option: po consolidation through blanket po’s
- Strategic option: standardize authorization process and increase # of authorized vendor base
- Implementing
- Mid-tier erp
- Po consolidation through blanket po’s
- Standardize authorization process and increase number of authorized vendor base
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