Page 105 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes Unlike stand-alone Commodity Trading systems, or in-house systems using dozens of
spread sheets, Scalable’s Commodity Procurement for Manufacturing solution is tightly
integrated with the Dynamics AX manufacturing process through the MRP modules to
ensure Raw Material/Commodities are resourced and delivered on time. This helps prevent
delays in the production schedule and allows Manufacturers to adopt just-in-time production
strategies that strive to improve cash flow by reducing inventory levels and the costs
associated with higher inventory holdings.
Allocation and accrual of all additional cost information associated with the acquisition of
raw materials and shipments improves the flow of information from trading, logistics
and production to the financial department. Improved access to contract position details
contributes to improved efficiency in logistics, production and risk management functions.

In addition manufacturers can hedge futures and foreign exchange contracts to minimize
the effect of volatility of raw materials pricing. Details of these hedged contracts are also
available inside of Dynamics AX and help improve overall financial reporting.
The procurement of physical commodities directly effects the operations of many
manufacturers. Sourcing the right quantities and qualities of a given commodity
immediately impacts the costs and profitability of subsequent products and not having
the readily available information can be a risk factor.

Due to the unpredictable nature of commodity markets, many manufacturers face difficulties
with the efficient administration of contracts, shipments and associated risks. Often this
information is captured in separate systems or spread sheets within separate departments.
This inhibits efficient data flow and therefore communication between the procurement,
trading, logistics, manufacturing and finance departments.
Source: http://www.scalable.com.au/index.php/industries/commodity-procurement-for-
manufacturing

Self Assessment

Fill in the blanks:
1. An important step in developing an effective …………………… strategy is volume
consolidation through reduction in the number of suppliers.
2. Maintaining multiple sources reduced the …………………… dependence on any one
supplier.

3. The primary objective of …………………… integration is to cut waste, reduce cost, and
develop a relationship that allows both buyer and seller to achieve mutual improvements.
4. Many firms have achieved operational integration focused on ……………………
arrangements.

5.2 Sourcing Strategies

Although interlinked closely, both procurement process and sourcing strategy are not one and
same. While, sourcing strategy deals with planning, designing and building a reliable and
competitive supplier base, procurement process deals with operational business process of
procurement function and ensuring performance. Sourcing also helps in determining the strategy
for procurement, defining pricing strategies and supply chain requirements. The strategy involves
integration of its objectives in line with or confirming to the objectives of stake holders in

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