The WashingtonSupply Chain Management Manual

1.Introduction

1.1.Authority for supply management policies

1.2.Agency Representative

1.3.Supply Chain Training, Professionalism and Leadership

2.How to use the Washington Supply Chain Management Manual

2.1.How to get guidance and help

2.2.How to request OSP assistance with supply chain management

3.Supply Operations

3.1.Establishing Supplier Performance Requirements in Bids, Contracts and Orders

3.2.Supplier Management

3.3.Warehouse Operations

3.4.Receiving Supplies

3.5.Transportation Operations and Management

3.6.Storage of Records

3.7.Used Item Management

4.Supply Chain Management Recommended Best Practices

4.1.Strategic Sourcing

4.2.Total Cost of Ownership

4.3.ABC Inventory Analysis

4.4.Inventory Cycle Counting

4.5.Back-Order Prevention

4.6.Standardization

4.7.Product Choice versus Product Standardization

4.8.Smart Buying

4.9.Working Collaboratively with Suppliers

4.10.Supplier-Managed Inventory Programs

5.Inventory Management

5.1.Inventory Calculations:

5.2.Developing an Inventory Management Strategy

5.3.Inventory Requirements (SAAM)

5.4.Other related SAAM requirements include:

6.Appendix A: Glossary of Terms

7.Appendix B: Laws and Rules

1

The Washington Supply Chain Management Manual 07/01/05

1. Introduction

The Washington Supply Chain Management Manual contains guidelines that apply to the management of supplies and materials in the state.

The guidelines in thismanual are the minimum expectations that state agencies should meet and consistently apply regardless of the source of funds (e.g. federal, or local). An agency may adopt additional guidelines and procedures in greater detail, or use additional or alternative supporting documentation, as long as the agency meets the required minimum standards.

Agencies are encouraged to establish processes and systems to comply with current regulations and to take advantage of best practices. Change is an ongoing and necessary element in government operations, including supply management, and it is imperative that state government managers and staff stayknowledgeable about the changing requirements. The Washington Supply Chain Management Manual will help you apply supply chain management best practices to your best advantage when acquiring, storing and managing supplies.

As you develop your agency’s supply chain processes, consider the following industry principles:

  • different products should not be treated equally or procured in the same manner
  • quality must be a fundamental requirement
  • all cost factors (customer and supplier) must be determined
  • effectiveness must be measured long term

The Washington Supply Chain Management Manual is located electronically on the Office of State Procurement home pagehttp//

1.1. Authority for supply management policies

The Assistant Director of the Office of State Procurement has the authority to prescribe guidelines and policies for the management of supplies and materials in the state. See RCW43.19.190.

1.2. Agency Representative

Agency heads are responsible for making sure their agency uses the Washington Supply Chain Management Manual.

Agencies should designate an agency supply management representative(s) at the management level with policy and operational level oversight.

The agency supply management representative(s) is responsible for:

  • Functioning as the primary point of contact with the Office of State Procurement,
  • Distributing and implementing the Washington Supply Chain Management Manual within the agency, and
  • Coordinating agency Washington Supply Chain Management Manual training.

All supply personnel are responsible for applying the guidelines of the Washington Supply Chain Management Manual in their agency.

For the purposes the Washington Supply Chain Management Manual, supply personnel are defined as all persons who perform any of the following duties for a state agency:

  • Approves purchase orders for supplies
  • Orders supplies from vendors or other sources
  • Conducts inventory analysis
  • Manages inventory
  • Operates a warehouse or manages a warehouse
  • Is responsible for the supply/material management function of the agency
  • Approves the expenditure of resources for the transportation of supplies or equipment
  • Is directly involved in any aspect of the agency’s supply chain

1.3. Supply Chain Training, Professionalism and Leadership

People in the State of Washington with supply management responsibilities control hundreds of millions of dollars. Every organization in the state employs at least one person who is in some way involved with supply chain management. Successful supply chains have a direct impact on the operational success of government organizations.

Supply chain performance can and should be measured. People in supply chain management positions should look for training opportunities that will give them the knowledge to measure performance and take steps to improve overall supply chain efficiency and results. There are a number of professional groups such as the National Institute of Governmental Purchasing (NIGP) and the Institute of Supply Management (ISM) that provide on-going training programs in both classroom settings and on-line via webinars. GA-OSP now offers supply chain management training on this manual and on supply chain best practices.

The supply chain leadership challenge is to become knowledgeable enough to understand the supply chain issues facing your organization. Then you can lead your organization in developing the supply chain strategies that will help your organization achieve its business and operational goals.

2. How to use the WashingtonSupply Chain Management Manual

This document is best viewed with Windows XP.

The Washington Supply Chain Management Manual has been structured to allow you to find information regarding the requirements for managing supplies and materials. After the Introduction, the three main sections of this manual are: 3. Supply Operations; 4. Supply Chain Management Recommended Best Practices; and 5. Inventory Management. A glossary of supply chain management terms is included in Appendix A. Laws and rules covering supply chain management are included in Appendix B.

References to statutes, rules, agencies, definitions and parts within the Washington Supply Chain Management Manual are hyperlinked to additional information. Hyperlinks are colored and underlined text or a graphic that you click on to jump to a file, a location in a file, a page on the World Wide Web, or a page on an intranet. This is what a hyperlink looks like.

2.1. How to get guidance and help

Your primary point of contact for guidance and help in understanding and implementing the Washington Supply Chain Management Manual is your designated agency representative.

For additional assistance you may contact the OSP Statewide Supply Chain Manager.

You can e-mail to:
or call: (360) 902-7192
or write:

Statewide Supply Chain Services Manager

Office of State Procurement

PO Box 41017

OlympiaWA98504-1017

2.2. How to request OSP assistance with supply chain management

Agency requests for OSP to assist with supply chain management or provide related training should be directed to the statewide supply chain services manager. For complex supply management issues, involve OSP early in the planning process.

Attention to detail in the following areas will promote effective supply chain management assistance by OSP:

  • Ordering supplies
  • Transportation of supplies
  • Receiving supplies
  • Storing or warehousing supplies
  • Inventorying supplies
  • Removal of excess or obsolete supplies

3. Supply Operations

3.1. Establishing Supplier Performance Requirements in Bids, Contracts and Orders

Supplier performance requirements may include: product quality, delivery lead times, unit of issue, unit-quantity pack identification, packaging requirements, marking or labeling requirements, palletization requirements, shipping and delivery instructions, resolution of damage claims and minimum fill rates. These requirements must be put in writing in order to be fully enforceable. In addition, terms of your contract or order should address supplier and shipper liability for lost or damaged shipments, reporting of overages and ship-shorts (shipment of less than the amount ordered), and supplier default. The latter should clarify how the supplier can remedy a problem, purchase from alternate supplier, and liability of defaulting supplier for damages.

3.2. Supplier Management

The supplier is a critical link in the supply chain. If the supplier does not perform to expectations there will be a ripple effect in the supply chain all the way to the end user. Assuming the contract or order includes the necessary performance requirements, it is incumbent on the receiving agency to track and measure the supplier’s performance. Documentation should be in writing and may even be substantiated by other evidence such as pictures taken of damaged shipments or copies of bills of lading.

3.3. Warehouse Operations

Warehouse operations should provide customers with timely, accurate and efficient service. There are generally two roles for a warehouse in government operations.

  • Central warehouses are used to store and consolidate items from a variety of suppliers, for combined shipment to customers. Typically these warehouses are most efficient when providing customers with regular deliveries of full pallets or full case quantities.
  • Field warehouses are geographically distributed across the state to shorten transportation distances and allow for rapid response to customer needs. Frequently these warehouses must provide single items on an as-requested basis to the users.

The primary functions of warehouses are receiving, putaway, order picking, packing and shipping.

  • Receiving involves the orderly receipt of all items and materials coming into the warehouse. In addition, receiving ensures that the quality and quantity of items are the same as ordered.
  • Putaway involves working with receiving to ensure the items are stored in the proper inventory location and the warehouse management system is properly updated to reflect the received stock is available for picking.
  • Picking is the process of removing items from inventory in response to customer orders. A basic warehouse service, the picking process should be the focus of how traffic and material movement is planned and designed within a warehouse.
  • Packing is responsible for ensuring the picked orders are complete and correct. Packing the packaged items in appropriate shipping containers and prepares shipping documents, including packing lists, address labels, and bills of lading. They may also be responsible for pre-positioning orders for shipment.
  • Shipping is responsible for determining the shipping method and carrier. They also weigh orders to determine shipping charges. Orders may be accumulated by route or carrier. Shipping is responsible for ensuring the outbound trucks are loaded.

All of the above warehouse functions require planning and attention to detail. The size of warehouse operations and staff will dictate how these functions are staffed and managed, as well as the level of technology that is employed in the warehouse. There are a number of excellent resources available for warehouse managers such as books and consultants. Web searches for warehouse best practices will also yield good results.

Warehouse efficiency starts with keeping the warehouse neat, clean and orderly. Industry studies have shown a direct correlation between good housekeeping and warehouse productivity. Is your warehouse delivering the right products on time, damage free, and in the right quantities? Ways to measure warehouse effectiveness include:

  • Space utilization – this is the cubic feet of space utilized divided by the cubic feet of warehouse space available
  • Order picking productivity – this is the number of orders picked compared with the number of hours worked
  • Supply availability – this is the lines of product demanded divided by the lines of product provided on time (or some variation thereof)
  • Injuries ratio – this is the number of injuries reported compared to the number of employee work days
  • Warehouse damage ratio – this is some measure of damaged items (cases, cartons, etc) compared to the number handled

3.4. Receiving Supplies

Inspectall deliveries of supplies, materials, and equipment purchased

Under normal circumstances, when receiving supplies, materials or equipment, do not accept the delivery until an inspection has been completed to verify the correct items and quantities

If there are defects in or damage to the products received, annotate it on the bill of lading or other delivery document provided by the delivery person

If there are incorrect products or incorrect quantities, these errors should be annotated on the bill of lading or other delivery document provided by the delivery person

If it is not feasible to be present for receiving, and defects, damages, shortages, overages or incorrect products are discovered, declarations should be provided in writing to the entity responsible for delivery as soon as possible

For programs offering service to the point of use, including supplier-managed inventory programs such as Central Stores’ CIM or PUSH, it may not be necessary or practical to inspect deliveries. For these programs we suggest usage information be monitored and compared with historical demand. Unusual or unanticipated consumption trends should have reasonable explanations, such as a special event, change in mission, or seasonal usage.

3.5. Transportation Operations and Management

Transportation is an essential function of the supply chain. In the private sector, it is by far the largest logistics expense area for most companies. Frequently transportation costs are buried in the cost of an item, leading many agencies to be unaware of the transportation costs in their supply chain. Gaining visibility into the transportation costs from the sources to the end users will allow the supply manager to pursue opportunities for gaining leverage in other areas such as inventory management and purchasing.

Transportation management should make sure products get to customers in good condition, at the right time and at the lowest possible cost. The four basic factors critical to transportation management and cost are:

  • The distance traveled
  • Efficiency of loading
  • Mode of transportation (truck/rail/ship/air)
  • Shipment cost (cost per mile and/or weight charged by carrier)

More than 80% of America’s freight is shipped by truck, so it is likely that most of your transportation management will revolve around trucks. There are 3 highway modes that will cover most agency shipping requirements: truckload (TL), less-than-truckload (LTL) and small package delivery. The 6 components of the cost of transportation apply regardless of transportation mode:

  • rate schedules
  • National Motor Freight Classification (NMCF) class rating of the material being shipped
  • the weight and/or cube (volume) of the shipment
  • the origin and destination of the shipment
  • the required level of delivery service (next day, week, etc)
  • Any pricing agreements in place between the shipper and the carrier

Existing pricing agreements with shippers can save agencies as much as 40% on the cost of shipments. For small packages there is a state contract available for small package delivery service. For TL or LTL agencies may want to consider first using existing state resources by using space available on agency-owned trucks. For example, the Department of General Administration’s Central Stores has its own trucks and sells available space at rates well below commercial rates. Contact Central Stores Customer Service at (800) 503-9898 and tell them you are interested in transportation services.

To manage your agency’s transportation usage, first identify what your service requirements are by customer, product and location. Then develop your strategies for optimizing the transportation of your requirements using on-time delivery and cost as your primary criteria.

3.6. Storage of Records

Many agencies have a need for storing records and other paper documents. Agencies must ensure they are following proper retention procedures and requirements for these items. RCW 40.14 Preservation and Destruction of Public Records, requires each agency to have an Agency Records Officer. This person should be involved in all agency decisions regarding the retention, storage and destruction of records.

3.7. Used Item Management

Excess used items are collectively the largest occupiers of storage space in state government. While there are clearly reasons for keeping and storing used items, most agencies would benefit by performing a cost of ownership analysis in determining whether to keep or surplus used items.

What are excess used items? Excess used items are considered to be any purchased product or equipment item that is not currently in service or use. Generally, excess used equipment has been fully depreciated. Examples include system furniture, office furniture, computer hardware and peripherals, forms, publications, and equipment.

Value of used items? Determining the value of excess used items is necessary in order to perform a cost of ownership analysis, but can be complicated when there is a difference between the perceived value to the owning agency and the perceived value outside the agency.

The first question to ask regarding used items is “Does the condition of the item make it suitable for continued use or service in the future?” Obviously a “no” answer indicates that the item should be sent to state surplus or otherwise disposed. NOTE: The State Surplus Property Program operates under the statutory authority of Revised Code of Washington 43.19.1919. For more information go to .

If the used item is suitable for continued use or service, then determine the fair market value. This value will range between the cost of a like used item on the open market and the cost of a new replacement item. There is a tendency to over-value used items.

According to the GA Division of State Surplus, sales of used items will bring the following as a percentage of the current cost of a like, new item: office furniture less than 20%; systems furniture less than 10%; and personal computers & monitors less than 5%.

3.7.1.What does it cost to keep used items?

Add up the costs associated with owning and storing the used items. These may include the cost of storage space, administrative costs, costs of moving an item, and costs of warehouse or storage management.

If you have difficulty determining the cost of owning and storing the item, OSP estimates that the total cost of keeping an item averages about 27 cents per cubic foot per month. Multiply the size (volume) of an item in cubic feet by $.27 to estimate the cost of keeping an item. For example, an office desk that is 3 feet high, 4 feet wide and 5 feet long has a volume of 60 cubic feet, and multiplied by $.27 equals a cost of about $16 per month.