An implementation of the AIM and DRIVE method

Résumé du document

According to the 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. 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.

Extraits

[...] The egg co-op grew for many years, and eventually became a national egg distributor with many branches in the area surrounding Utah and from coast to coast. But, during World War II the U.S. Government severely needed supplies for overseas troops. So, the Government started commandeering the supplies necessary to support the war effort. This commandeering included the eggs distributed by the egg co-op. Although the co-op was paid market value for the eggs, the loss of product had led to the loss of their largest markets. [...]

[...] In 2003, Bob's Farm Company made investments in new stores and a new high-volume feed mills in central Utah. With limited capital on hand and the huge investment of current assets, we will not change the current store and warehouse capacity and location. Policy of stable labor wages and employee retention: Most buyers, assistant buyers and store managers have worked in Bob's Farm Company for more than four years and have built long term relationships with vendors and customers. Buyers, especially, have gone through several roles, such as product managers, merchandisers, and salespersons. [...]

[...] (Hourly wage) x (Hours spend in purchasing activities per day) x (number of employees) Of the four job functions related to the purchasing process (Buyer, Assistant Buyer, Store Manager, and Store Employee) all were believed to affect future cash flow and be impactable. The Category Manager, Director of Purchasing, and the Direct of Marketing did not have enough of a day-to- day impact on the purchasing process to merit consideration in this model. Indirect Materials Cost Estimates Calculating the indirect costs was not as straightforward. Daily revenue of $185,000 was given. We assumed that 70% of the revenue was the cost of direct materials, or $129,500 per day. [...]

[...] The PO rate could be one of the main tools to measure the efficiency of all the employees involved in the purchase process. It definitely has a high impact on the 4 labor costs since every PO requires a certain amount of time, which results in additional labor costs The negotiation skills of the assistant buyer will affect the cost of his labor since the more skilled and experienced he is, the less time he should need to negotiate an order. [...]

[...] Labor-Assistant Buyer An Assistant Buyer is responsible for the orders placed with non-authorized vendors. After much deliberation we concluded that labor cost associated with Assistant Buyers is driven by the Assistant Buyer's hourly rate, their negotiation skills, negotiation rate, non-authorized vendor order (NAVO) rate, and PO rates. Negotiation skills and negotiation rates would vary from one Assistant Buyer to another. We defined negotiation rate as the number of negotiations it takes in order to arrive at a price and other requirement consensus for an average NAVO. [...]