What is integrated procurement

Integrated materials management, logistics and procurement

1. Integrated logistics, procurement, materials management and production

The aim of the text and practical book is to cover all areas of supply chain management across the entire value chain. This book describes all areas of the supply chain, from logistics, materials management and logistics. At the beginning of the first chapter, the importance of logistics and procurement is presented using short practical examples. Then the terms, goals and tasks of logistics are briefly and concisely explained. Then the process orientation and added value are presented. In addition to explaining the global logistics networks, the textbook gives a detailed look at the organization of logistics, materials management and purchasing in the company.

2. Analyzes to reduce costs in materials management

Materials management has to deal with an abundance of materials and the various tasks associated with them. It is therefore necessary to establish focal points and to deal with the material groups which, due to their total value, require intensive processing. Likewise, those suppliers who have a high value share in the total procurement volume require intensive observation.

3. Material inventory and material requirements in the company

The determination of the material requirement forms the basis of all activities in the context of materials management. The requirement is the quantity / quantity of materials or products that are delivered to the consuming or producing departments of the company within a certain period of time.

4. Procurement and purchasing management

Material procurement has to guarantee the company's material supply in terms of type, quantity, time and quality. Its task is to meet the material requirements of the company itself as well as of suppliers outside the company. In the context of logistics, procurement is of strategic importance, as it is at the beginning of the material flow through a company. In relation to the sales area, which is generally described as a bottleneck, it bears performance responsibility and, consequently, success responsibility for the company.

5. Procurement strategies

Relationships between Original Equipment Manufacturers (OEMs) and suppliers are often subject to tension. Short-term price concessions are often preferred to long-term benefits of supplier development. Long-term successful procurement companies operate a variety of procurement strategies along their supply structure.

6. E-procurement and e-commerce

Online trade grew by 27.2% to 27.6 billion euros in 2012 (figures from the Federal Association of German Mail Order Companies, BVH). In addition, there are service revenues: online sales for digital services such as tickets, media products or apps of around 10 billion euros. In stationary retail, online retailing leads to falling sales, which (excluding groceries) have fallen by 3.9% in nominal terms and by well over 5% in real terms (Heinemann 2014, p. 1).

7. Energy management (EM) and energy logistics

Energy costs are rising sharply, as the long-term development of crude oil prices shows. In Fig. 7.1 the price for a barrel (159 liters) of Brent is clear. It is precisely these costs that affect fuel prices for the logistics industry.

8. Contract management

Rights and obligations do not only arise when a contract is concluded. The parties involved can also have “claims” in advance (what is to be understood by the term “claim” is legally defined by the legislature in Section 194 of the German Civil Code). As soon as the contract negotiations begin, a “statutory obligation” arises between the negotiating partners, with some very extensive obligations. Statutory obligation means that the law creates legal relationships between parties, regardless of whether the parties are aware of all the details in the individual case.

9. Warehouse management

Warehouse management, often assigned to procurement, must be viewed as an independent sub-area of ​​logistics due to its importance in the context of the material flow. The fact that two thirds of the total logistics costs are accounted for by storage costs illustrates the direct or indirect influence of storage on the operating result (Bichler 1997, p. 155ff).

10. Picking systems

Picking is the process of collecting different items according to a given order. The requirement information can be a sales-oriented order (customer order) or a production-oriented order (internal order).

11. Production and Cost

The concept of costs is one of the most important terms in business administration. Costs are understood to mean the assessed performance-related consumption of goods and services in the production process and the maintenance of the necessary capacities.

12. Production, manufacturing, spare parts and maintenance management

The following chapter shows the cost theoretical fundamentals and terms for production and manufacturing. The terms are explained in more detail using practical examples.

13. Standardization strategies and complexity management

The industry has faced the following challenge in recent years: Customers want a tailor-made product tailored to their needs at an affordable price. This "one-off production" requested by the customer is very expensive and is often not paid for by the customer.

14. Service logistics and marketing logistics

Service and marketing logistics are firmly established as profit centers in many companies. In 2005, around 42 billion euros were turned over in the automotive industry with service and spare parts. That was almost 24% of total sales. Here, with sales of 6.8 billion, more than half of the profit was achieved (manager magazin 10/2007, p. 22). In technology-oriented industries, sales in after-sales logistics for services and spare parts are around 25%, but the profit contribution is 40% to 80%. For spare parts, the profit margin in mechanical engineering averages 12% to 32%.

15. Production planning and production control systems (PPS) and enterprise resource planning (ERP) systems

Industrial production has undergone major structural changes over the past 20 years. The explosive increase in the variety of products and the complicated supplier / buyer relationships have led to increasing complexity in internationally operating companies. In the course of the development of IT, production was also equipped with improved, computer-aided production planning and control systems.

16. Types of PPS systems in the company

In recent years the conventional systems for production planning and control have been further developed. The most important among these new systems are
  • Material Requirement Planning (MRP),
  • load-oriented order release (BOA),
  • inventory-regulated flow control (BGD),
  • Optimized Production Technology (OPT),
  • Cumulative number system (FZS),
  • Toyota Production System (TPS),
Table 16.1 shows a comparison of the content of traditional PPC concepts with modern logistics-oriented concepts.

17. Supply chain management systems

Supply chain management is understood to mean the organization and control of the material flow, the service and the associated information in, through and out of the company. The efforts of an SCM thus affect both the company's internal processes and the networking with suppliers and customers. With regard to the internal supply chain (SC), efforts are made to optimize communication and material flows between all departments involved in the value chain. The company-integrated supply chain focuses on quickly and easily bridging the interfaces between internal and external areas. An effective and efficient logistics chain is to be set up in the SCM in order to maintain competitiveness (Werner 2000, p. 5).

18. Networked supply chain management

The vertical range of manufacture in many companies is often only 20%. This means that 80% of the added value of a product is produced by the suppliers. In the automotive industry, up to 70% of all innovations come from the suppliers, as this is where the majority of the vehicle is manufactured. If an important supplier cannot deliver or delivers defective parts, the entire supply chain is blocked. The chain is only as strong as the weakest link, the weakest supplier, in the chain. The smooth and optimal cooperation of the supply chain, the effective networking of the supply chain is therefore crucial for competition (cf. Wannenwetsch 2005, p. 1ff).

19. Quality management (QM)

Products are becoming more complex (cars have tens of thousands of parts, the Airbus A 380 three million), safety requirements are increasing, and the cycles are becoming shorter. The importance of quality management is therefore increasing. Apparent little things are easily overlooked, with serious consequences.

20. Environmental management systems (UM)

Sustainable management is increasingly becoming a competitive factor. Global companies choose their suppliers based on sustainability criteria. Table 20.1 shows the number of rapidly increasing external sustainability audits at Siemens suppliers and the resulting measures.

21. Disposal logistics and ecological logistics

In the course of business performance, industrial companies produce products that are neither used in their own production nor in other areas of the company. The collective term waste is usually used for these products. Waste disposal can be seen as the core of corporate waste management.

22. In-house material transport

Transport systems are used to move goods from one place to another. A distinction is made between internal (within the company) and external transport. In DIN 30781, Part 1, internal transport is referred to as "conveying".

23. Packaging, dispatch and load securing

Before the finished goods are delivered to the customer, they usually have to be packed.

24. Distribution logistics and ECR logistics

Distribution logistics is the link between production and the sales side of the company. It includes all storage and transport processes for goods to the customer, as well as the associated information, management and control activities. The goal of distribution logistics is to deliver the right goods, at the right time, in the right place, with the right quality and, at the same time, the optimal relationship between delivery service and costs incurred (Schulte C 1999, p. 371ff).

25. National and international carrier logistics

The increasing globalization of competition has far-reaching influences on logistics in all industries and markets. The following developments have a lasting impact on the worldwide use of various modes of transport in logistics:
  • lower stocks, the associated smaller batch sizes and more frequent deliveries (just-in-time, just-in-sequence),
  • greater variety and shorter product life cycles,
  • Use of the global procurement market,
  • Relocation of production to the supplier (modular sourcing),
  • Relocation of production in the raw materials sector to the location of raw material extraction (e.g. oil refineries on the Persian Gulf),
  • Concentration of businesses in the metropolitan areas.
This results in traffic congestion in many places.

26. Logistics, purchasing, supply chain controlling

Logistics controlling is understood to mean the performance of controlling tasks in the company's logistics area. The high complexity of logistics systems and the performance requirements on them increase the need for targeted planning, information, analysis, control, coordination and management.