University of Twente Student Theses


How to order from the Orient? : improving purchasing and inventory management at Promocionales Pacífico de Mexico

Potze, Taco Wychert (2007) How to order from the Orient? : improving purchasing and inventory management at Promocionales Pacífico de Mexico.

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Abstract:This is a Bachelor Assignment Report for the study of Industrial Engineering and Management at the University of Twente, The Netherlands. Our internship took place during the 1st of September 2005 until the 23d of December, 2005 at Promocionales Pacífico de Mexico located in Mexico City, México. The importance of purchasing is getting more and more attention in many industries these days. Purchasing is PPM’s core business and top management must realise that every dollar not spent on purchasing is a dollar extra profit. We identified three major problems at PPM relating to purchasing and inventory management: 1. The customers of PPM are not satisfied with the current service 2. Decreasing inventory turnover 3. Overspending on purchasing budget After analysing the purchasing process at PPM we set the following objectives, mainly in the order stage of the purchasing process: 1. Improve timeliness of purchasing to provide better services for customers. 2. Match purchase quantities and demand to increase inventory turnover time 3. Reduce purchasing and inventory costs by minimizing the average inventory level To get a better understanding of requirements of customers we suggest implementing an exponential smoothing forecasting model to predict future demand. Next, to control inventory PPM should implement an appropriate Inventory Control System (R, s, S system). This combination checks every week if the stock level is bellow or at a reorder point. If so, a replenishment order should be placed to raise the stock level to a certain level. Whether or not a reorder point exists depends on the forecast and the amount of safety stock needed for the item. We propose a Customer Service Approach to establishing safety stock using a certain fill rate. The fill rate approach gives a better idea of the on-time delivery performance and is therefore often used in practice. To minimize holding and shipping costs, we propose an Economic Order Quantity model, which minimizes total costs. Because of the current shipping cost method (base on the flete) order costs can differ a lot. PPM should therefore use CFR (Cost and Freight) prices instead of the current FOB (free on board) prices. Instead of using the value of the shipment, the volume could also serve as a base to calculate order cost. In section 3.5, we have schematically drawn the flowchart of the proposed purchasing and inventory model. Although the system seems rather complicated in the beginning it is actually easy to understand and to implement. Purchasing can add a lot of value to organisations because of its impact on an organisation’s financial, logistical and operational performance. At PPM it seems this potential added value is not recognized yet. The CCO his first task is therefore to market the purchasing function to the senior management. If they can be convinced of the benefit of a renewed purchasing function, a great opportunity can be seized. After the top management, the sales and operational departments should also be involved since the set up of a purchasing function is a joint undertaking and success should be communicated as such. Since the current information system of PPM, ASAP, is not capable of delivering the information needed, a new application has to be created that does fulfil the needs of the purchaser and includes the methods and models we discuss in this research. We have created a timeline where PPM develops an application in half a year with the help of an external party to write the application. For the scope of this research, the (R, s, S) inventory model seems to fit well. The model depends on good forecasts and safety stock models. Since data from the ASAP system was limited and the new models are not evaluated in this research we urge PPM to evaluate the models after implementation. In addition, when more data regarding seasonal demand is available, forecast models should be further researched. We have added some further research suggestions in the end of this report. In the last chapter, we evaluate our personal and professional performances. Professionally we have learned a lot, both doing our internship and writing our report. We found that what management wants is not always what they need. And what the company needs is not always what the University wants. In the end, we had a great experience in Mexico and hope we were able to add value that helps PPM to reach their ambition “Become the number one promotional company in Mexico.”
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
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