The document discusses lean purchasing philosophies for companies implementing lean enterprise systems. It argues that purchasing should focus on developing partnerships with suppliers rather than seeking the lowest costs. Considering the total costs of components, including quality issues and supply chain disruptions, is important. Purchasing organizations' customers should be seen as the production system and workers since they add value. Reducing the supplier base can help streamline operations and incentivize suppliers to prioritize the customer. True lean purchasing requires calculating all relevant costs and developing strategic supplier partnerships.
Success in supply begins with the right choice of suppliers and in the long run is directly related to how suppliers are managed, because suppliers have a significant impact on the success or failure of a company. Multi-criteria decisions are approaches that deal with ranking and selecting one or more suppliers from a set of suppliers. Multi-criteria decisions provide an effective framework for comparing suppliers based on the evaluation of different criteria. The present research is applied based on the purpose and descriptive-survey based on the nature and method of the research. In the present study, two library and field methods have been used to collect information. According to the objectives of this study, suppliers will be evaluated using two methods of fuzzy hierarchical analysis with D-numbers. In order to better understand these two methods, a case study is presented in which suppliers are ranked using two methods and then the results are compared with each other. For manufacturing companies, 4 categories of parts were considered and based on the classification, the suppliers of the manufacturing company were evaluated and analyzed. In the results of suppliers of type A and B components in hierarchical analysis, D and fuzzy methods have many differences in the evaluation and ranking of suppliers, and this shows the lack of expectations of experts in D and fuzzy analysis. On the other hand, in type C and D components, the classification and ranking of suppliers have been matched in two ways and shows that the opinions in the evaluation of these suppliers are the same.
Single Or Multiple Sourcing: A Mathematical Approach To Decision Makinginventionjournals
ย
ABSTRACT: There is often a tussle between choosing a right sourcing strategy which says, whether the buyer should go for single sourcing or multiple sourcing. In this paper we introduces quality as a parameter apart from other parameter such as economies of scale and specific knowledge or learning effect on sourcing strategy selection by taking into account the small number of interaction involving buyer and competing suppliers, formulated mathematically using Berndt Wood Model (Translog cost function). The objective is to find whether the difference function between the cost of production in single sourcing and Multiple (dual) sourcing is decreasing or increasing, when quality as parameter is introduced. Using the concept of maximization and minimization of a function, it is achieved, considering certain assumptions. Here the results indicates that in the long run multiple sourcing is definitely the better option, which able to cater quality as well as supplier opportunism and cost. This further established by the numerical illustration.
Supplier Selection and Order Allocation Models in Supply Chain Management: A ...IJERA Editor
ย
Supplier selection decisions are an important component of production and logistics management for many
firms. Such decisions entail the selection of individual suppliers to employ and the determination of order
quantities to be placed with the selected suppliers. This paper reviews supplier selection and order allocation
models based on an extensive search in the literature (170 paper during 2000-2016) and tries to show their
contribution to supply chain management. After discussing different methods and their applications, the most
prevalently used approaches and criteria are presented. In the second step, different attributes of these papers are
defined and finally issues for future research are recommended
Success in supply begins with the right choice of suppliers and in the long run is directly related to how suppliers are managed, because suppliers have a significant impact on the success or failure of a company. Multi-criteria decisions are approaches that deal with ranking and selecting one or more suppliers from a set of suppliers. Multi-criteria decisions provide an effective framework for comparing suppliers based on the evaluation of different criteria. The present research is applied based on the purpose and descriptive-survey based on the nature and method of the research. In the present study, two library and field methods have been used to collect information. According to the objectives of this study, suppliers will be evaluated using two methods of fuzzy hierarchical analysis with D-numbers. In order to better understand these two methods, a case study is presented in which suppliers are ranked using two methods and then the results are compared with each other. For manufacturing companies, 4 categories of parts were considered and based on the classification, the suppliers of the manufacturing company were evaluated and analyzed. In the results of suppliers of type A and B components in hierarchical analysis, D and fuzzy methods have many differences in the evaluation and ranking of suppliers, and this shows the lack of expectations of experts in D and fuzzy analysis. On the other hand, in type C and D components, the classification and ranking of suppliers have been matched in two ways and shows that the opinions in the evaluation of these suppliers are the same.
Single Or Multiple Sourcing: A Mathematical Approach To Decision Makinginventionjournals
ย
ABSTRACT: There is often a tussle between choosing a right sourcing strategy which says, whether the buyer should go for single sourcing or multiple sourcing. In this paper we introduces quality as a parameter apart from other parameter such as economies of scale and specific knowledge or learning effect on sourcing strategy selection by taking into account the small number of interaction involving buyer and competing suppliers, formulated mathematically using Berndt Wood Model (Translog cost function). The objective is to find whether the difference function between the cost of production in single sourcing and Multiple (dual) sourcing is decreasing or increasing, when quality as parameter is introduced. Using the concept of maximization and minimization of a function, it is achieved, considering certain assumptions. Here the results indicates that in the long run multiple sourcing is definitely the better option, which able to cater quality as well as supplier opportunism and cost. This further established by the numerical illustration.
Supplier Selection and Order Allocation Models in Supply Chain Management: A ...IJERA Editor
ย
Supplier selection decisions are an important component of production and logistics management for many
firms. Such decisions entail the selection of individual suppliers to employ and the determination of order
quantities to be placed with the selected suppliers. This paper reviews supplier selection and order allocation
models based on an extensive search in the literature (170 paper during 2000-2016) and tries to show their
contribution to supply chain management. After discussing different methods and their applications, the most
prevalently used approaches and criteria are presented. In the second step, different attributes of these papers are
defined and finally issues for future research are recommended
A Comparative Study of Customer Satisfaction in Hyper Stores and Super Storesdeshwal852
ย
The purpose of the present study was to compare the satisfaction level of customers purchasing products in hyper market stores and super market stores. A sample of fifty customers purchasing goods in Hyper Stores and Super Stores in Dwarka was selected for study. Retail Service Quality Scale (RSQS) developed by Dabholkar, Thrope and Rentz (1996) was used to measure customer satisfaction.
The data was interpreted with the help of mean, standard deviation andโtโ test. The result of the study showed that there was significant difference between customer satisfaction in hyper stores and super stores. Customers feel more satisfied by shopping in hyper market.
VENDOR EVALUATION - RESOURCE MANAGEMENTVismay Shah
ย
This is the PowerPoint presentation for the Vendor Evaluation Topic in the subject of Resource Management. Resource Management is taught as a subject in various fields of engineering and management. I & my group mates have prepared this ppt as a part of our course curriculum in M.tech Construction Engineering & Management.
Purchasing mangement - Puchasing Process - Make Or Buy Decisions - Supplier S...FaHaD .H. NooR
ย
Purchasing department in any organization assist with the identification, selection and acquisition of required materials and services.
Accomplish this as economically as possible, within acceptable standards of quality and service.
โPurchasing profession can be defined as the act of obtaining merchandise; equipment; raw materials; services; or maintenance, repair and operating (MRO) supplies in exchange for money or its equivalentโ.
What Is The Difference Between Procurement and Purchasing?Procurify.com
ย
Procurement is a tricky term often confused with purchasing. But in reality, they are both quite different. This document is for individuals interested in learning what the difference is between procurement and purchasing.
Supply Chain Efficiency vs. EffectivenessHandshake
ย
What's the difference between supply chain efficiency and effectiveness? Find out how businesses build supply chains that are both efficient and effective.
Oct 2016 (it's evolving rapidly!) overview of the Zahara Purchase Management system from UK based C2S.
Zahara is a cloud based purchase requisition, approval workflow and spend analysis platform.
A Comparative Study of Customer Satisfaction in Hyper Stores and Super Storesdeshwal852
ย
The purpose of the present study was to compare the satisfaction level of customers purchasing products in hyper market stores and super market stores. A sample of fifty customers purchasing goods in Hyper Stores and Super Stores in Dwarka was selected for study. Retail Service Quality Scale (RSQS) developed by Dabholkar, Thrope and Rentz (1996) was used to measure customer satisfaction.
The data was interpreted with the help of mean, standard deviation andโtโ test. The result of the study showed that there was significant difference between customer satisfaction in hyper stores and super stores. Customers feel more satisfied by shopping in hyper market.
VENDOR EVALUATION - RESOURCE MANAGEMENTVismay Shah
ย
This is the PowerPoint presentation for the Vendor Evaluation Topic in the subject of Resource Management. Resource Management is taught as a subject in various fields of engineering and management. I & my group mates have prepared this ppt as a part of our course curriculum in M.tech Construction Engineering & Management.
Purchasing mangement - Puchasing Process - Make Or Buy Decisions - Supplier S...FaHaD .H. NooR
ย
Purchasing department in any organization assist with the identification, selection and acquisition of required materials and services.
Accomplish this as economically as possible, within acceptable standards of quality and service.
โPurchasing profession can be defined as the act of obtaining merchandise; equipment; raw materials; services; or maintenance, repair and operating (MRO) supplies in exchange for money or its equivalentโ.
What Is The Difference Between Procurement and Purchasing?Procurify.com
ย
Procurement is a tricky term often confused with purchasing. But in reality, they are both quite different. This document is for individuals interested in learning what the difference is between procurement and purchasing.
Supply Chain Efficiency vs. EffectivenessHandshake
ย
What's the difference between supply chain efficiency and effectiveness? Find out how businesses build supply chains that are both efficient and effective.
Oct 2016 (it's evolving rapidly!) overview of the Zahara Purchase Management system from UK based C2S.
Zahara is a cloud based purchase requisition, approval workflow and spend analysis platform.
Running head PURCHASING ORGANIZATION METRICS REPORT .docxtodd581
ย
Running head: PURCHASING ORGANIZATION METRICS REPORT 1
PURCHASING ORGANIZATION METRICS REPORT 3
Purchasing Organization Metrics Report
Zachary T. Trigger
UMCG
Purchasing Management
Professor James Swaim
February 23, 2020
To obtain suppliers for the muscles from turkey legs, heart of pigs, alligator claws, corn leaves and Kelp from the Chesapeake Bay, the company would need to consider the various legal ramifications of purchasing. There is need for the company to routinely sign purchase orders and contracts which commit them to the specific terms and conditions of purchase orders and contracts. There are several essential elements of a purchase order and they include:
I. The two parties, both the company and the suppliers, must be capable of delivering
II. The subject of the matter must be legal and valid
III. There must be mutual consideration
IV. The parties must reach an agreement by offer and acceptance.
All four elements have to be present for the contract to be legal. If any of the elements is missing it makes the agreement unenforceable before a court of law.
The details of the purchase contract need to be well defined and it should not be carried out in a hasty manner. This is because, once the contract has been approved, there are no changes which can be accepted. In addition to the purchase contract, a purchase requisition should be made available as it specifies the required parts. This is important because the five items which are required by the company are part of a whole and hence the need for the purchase requisition. These contracts are aimed at binding the supplier and the company together and to provide security to the company for a source of their raw materials. Whenever the company requires the raw materials to be supplied, a purchase order has to be created. This provides a records of the details of the raw material to be supplied by the suppliers.
Several elements need to be clarified in the contract to ensure that there are no misunderstandings between the supplier and the company. The first is the quality of the raw materials that the suppliers will supply and this ensures consistency and surety of products the company receives. The second component highlights the cost of the raw materials, that is the price which the suppliers will supply the raw materials per unit. The duration before the raw materials are supplied should also be specified to allow the company to calculate the lead time and avoid running out of raw materials. Finally, the duration of payment should also be outlined in the contract to stipulate the time taken before payment is made.
REQUEST FOR PROPOSAL
Company name
Introduction
The company requests for proposals from qualified supplying firms to supply the raw materials required in the manufacture of products used in laboratory testing. For the production of the end product, different qua.
Running head PURCHASING ORGANIZATION METRICS REPORT .docxjeanettehully
ย
Running head: PURCHASING ORGANIZATION METRICS REPORT 1
PURCHASING ORGANIZATION METRICS REPORT 3
Purchasing Organization Metrics Report
Zachary T. Trigger
UMCG
Purchasing Management
Professor James Swaim
February 23, 2020
To obtain suppliers for the muscles from turkey legs, heart of pigs, alligator claws, corn leaves and Kelp from the Chesapeake Bay, the company would need to consider the various legal ramifications of purchasing. There is need for the company to routinely sign purchase orders and contracts which commit them to the specific terms and conditions of purchase orders and contracts. There are several essential elements of a purchase order and they include:
I. The two parties, both the company and the suppliers, must be capable of delivering
II. The subject of the matter must be legal and valid
III. There must be mutual consideration
IV. The parties must reach an agreement by offer and acceptance.
All four elements have to be present for the contract to be legal. If any of the elements is missing it makes the agreement unenforceable before a court of law.
The details of the purchase contract need to be well defined and it should not be carried out in a hasty manner. This is because, once the contract has been approved, there are no changes which can be accepted. In addition to the purchase contract, a purchase requisition should be made available as it specifies the required parts. This is important because the five items which are required by the company are part of a whole and hence the need for the purchase requisition. These contracts are aimed at binding the supplier and the company together and to provide security to the company for a source of their raw materials. Whenever the company requires the raw materials to be supplied, a purchase order has to be created. This provides a records of the details of the raw material to be supplied by the suppliers.
Several elements need to be clarified in the contract to ensure that there are no misunderstandings between the supplier and the company. The first is the quality of the raw materials that the suppliers will supply and this ensures consistency and surety of products the company receives. The second component highlights the cost of the raw materials, that is the price which the suppliers will supply the raw materials per unit. The duration before the raw materials are supplied should also be specified to allow the company to calculate the lead time and avoid running out of raw materials. Finally, the duration of payment should also be outlined in the contract to stipulate the time taken before payment is made.
REQUEST FOR PROPOSAL
Company name
Introduction
The company requests for proposals from qualified supplying firms to supply the raw materials required in the manufacture of products used in laboratory testing. For the production of the end product, different qua ...
The presentation discusses the fundamentals of procurement, how your organisation views suppliers and what you should be doing to ensure a profit-centric procurement department. This presentation serves as a continuation of our previous presentation -What is Supply Chain?
Mr. Buggs is an industry icon with over 28 years in the direct sales and network marketing industry worldwide.Mr. Buggs never made more than $500 a month for his first 7 years in network marketing and his organization never grew to more than 50 people.In the past 10 years, however, Mr. Buggs has built a network of over 3 million distributors and has generated over $3 Billion in sales.Mr. Buggs bestselling audio series, How to Turn Your Network Marketing Business into a Cash Cow, has been reviewed as one of the most influential business tools in the world for distributors. He has also been featured in the โBillionaireโ edition of Millionaire magazine and is the first distributor to be on the cover of Networking Times magazine.Mr. Buggs knowledge of the industry, high moral standards, business ethics and passion to share with all those willing to learn has won him numerous awards and has earned him the respect of being one of the most admired and successful distributors in the industry today.
Consumer durables retail efficiency- Images Retail-December 2013Shijo Thomas
ย
Consumer durable retail in India have
an extended and a peculiar value chain. Efficiency and integration can bring about a sea change across all points in the 'search to service' business processes.
"๐ฉ๐ฌ๐ฎ๐ผ๐ต ๐พ๐ฐ๐ป๐ฏ ๐ป๐ฑ ๐ฐ๐บ ๐ฏ๐จ๐ณ๐ญ ๐ซ๐ถ๐ต๐ฌ"
๐๐ ๐๐จ๐ฆ๐ฌ (๐๐ ๐๐จ๐ฆ๐ฆ๐ฎ๐ง๐ข๐๐๐ญ๐ข๐จ๐ง๐ฌ) is a professional event agency that includes experts in the event-organizing market in Vietnam, Korea, and ASEAN countries. We provide unlimited types of events from Music concerts, Fan meetings, and Culture festivals to Corporate events, Internal company events, Golf tournaments, MICE events, and Exhibitions.
๐๐ ๐๐จ๐ฆ๐ฌ provides unlimited package services including such as Event organizing, Event planning, Event production, Manpower, PR marketing, Design 2D/3D, VIP protocols, Interpreter agency, etc.
Sports events - Golf competitions/billiards competitions/company sports events: dynamic and challenging
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โข Korean Vietnam Partnership - Fair with LG
โข Korean President visits Samsung Electronics R&D Center
โข Vietnam Food Expo with Lotte Wellfood
"๐๐ฏ๐๐ซ๐ฒ ๐๐ฏ๐๐ง๐ญ ๐ข๐ฌ ๐ ๐ฌ๐ญ๐จ๐ซ๐ฒ, ๐ ๐ฌ๐ฉ๐๐๐ข๐๐ฅ ๐ฃ๐จ๐ฎ๐ซ๐ง๐๐ฒ. ๐๐ ๐๐ฅ๐ฐ๐๐ฒ๐ฌ ๐๐๐ฅ๐ข๐๐ฏ๐ ๐ญ๐ก๐๐ญ ๐ฌ๐ก๐จ๐ซ๐ญ๐ฅ๐ฒ ๐ฒ๐จ๐ฎ ๐ฐ๐ข๐ฅ๐ฅ ๐๐ ๐ ๐ฉ๐๐ซ๐ญ ๐จ๐ ๐จ๐ฎ๐ซ ๐ฌ๐ญ๐จ๐ซ๐ข๐๐ฌ."
RMD24 | Debunking the non-endemic revenue myth Marvin Vacquier Droop | First ...BBPMedia1
ย
Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
ย
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
What are the main advantages of using HR recruiter services.pdfHumanResourceDimensi1
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HR recruiter services offer top talents to companies according to their specific needs. They handle all recruitment tasks from job posting to onboarding and help companies concentrate on their business growth. With their expertise and years of experience, they streamline the hiring process and save time and resources for the company.
Taurus Zodiac Sign_ Personality Traits and Sign Dates.pptxmy Pandit
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Explore the world of the Taurus zodiac sign. Learn about their stability, determination, and appreciation for beauty. Discover how Taureans' grounded nature and hardworking mindset define their unique personality.
Accpac to QuickBooks Conversion Navigating the Transition with Online Account...PaulBryant58
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This article provides a comprehensive guide on how to
effectively manage the convert Accpac to QuickBooks , with a particular focus on utilizing online accounting services to streamline the process.
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Improving profitability for small businessBen Wann
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In this comprehensive presentation, we will explore strategies and practical tips for enhancing profitability in small businesses. Tailored to meet the unique challenges faced by small enterprises, this session covers various aspects that directly impact the bottom line. Attendees will learn how to optimize operational efficiency, manage expenses, and increase revenue through innovative marketing and customer engagement techniques.
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As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
Unveiling the Secrets How Does Generative AI Work.pdfSam H
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At its core, generative artificial intelligence relies on the concept of generative models, which serve as engines that churn out entirely new data resembling their training data. It is like a sculptor who has studied so many forms found in nature and then uses this knowledge to create sculptures from his imagination that have never been seen before anywhere else. If taken to cyberspace, gans work almost the same way.
Explore our most comprehensive guide on lookback analysis at SafePaaS, covering access governance and how it can transform modern ERP audits. Browse now!
India Orthopedic Devices Market: Unlocking Growth Secrets, Trends and Develop...Kumar Satyam
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According to TechSci Research report, โIndia Orthopedic Devices Market -Industry Size, Share, Trends, Competition Forecast & Opportunities, 2030โ, the India Orthopedic Devices Market stood at USD 1,280.54 Million in 2024 and is anticipated to grow with a CAGR of 7.84% in the forecast period, 2026-2030F. The India Orthopedic Devices Market is being driven by several factors. The most prominent ones include an increase in the elderly population, who are more prone to orthopedic conditions such as osteoporosis and arthritis. Moreover, the rise in sports injuries and road accidents are also contributing to the demand for orthopedic devices. Advances in technology and the introduction of innovative implants and prosthetics have further propelled the market growth. Additionally, government initiatives aimed at improving healthcare infrastructure and the increasing prevalence of lifestyle diseases have led to an upward trend in orthopedic surgeries, thereby fueling the market demand for these devices.
3.0 Project 2_ Developing My Brand Identity Kit.pptxtanyjahb
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A personal brand exploration presentation summarizes an individual's unique qualities and goals, covering strengths, values, passions, and target audience. It helps individuals understand what makes them stand out, their desired image, and how they aim to achieve it.
3.0 Project 2_ Developing My Brand Identity Kit.pptx
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A new purchasing philosophy
1. A new purchasing philosophy
Lean enterprise systems require supplier partnerships
By Chris Harris and Chuck Streeter
As companies continue to implement lean enterprise systems, the
purchasing of components has become an area where there is
opportunity for improvement. Purchased components and other material normally make up a large
percentage of the cost of goods sold and therefore make the arena of purchasing one that deserves a
great deal of attention in the implementation of lean enterprise systems.
Preparing a purchasing organization for the implementation of a lean enterprise system takes a
philosophical change in thought process to support the lean enterprise initiative effectively. The
philosophy needs to change from a traditional supplier-customer relationship to a mutually beneficial
partnership mentality while understanding true cost and information flow between the new partner and
customer. By focusing on this philosophical change to the purchasing organization, understanding who
the customer is, understanding the total cost to purchase a component and being committed to the
change, a company implementing a lean enterprise system likely will have a higher success rate of
implementation and better customer satisfaction.
The question to ask
Scouring the globe looking for the lowest piece price cost for a component is a type of traditional
purchasing that can be harmful to a lean supply chain. By sourcing components with many different
suppliers in many different countries around the globe, a supply chain can become disjointed and
inflexible. For example, take the economic downturn that began toward the end of 2008. Many
organizations had purchased raw materials via MRP from a forecast bought in large lots to get a low
piece price cost. The raw materials coming from other countries could not be stopped from arriving
because they already had been shipped and were on the ocean somewhere. This left companies
strapped with large inventories that they had to pay for but could not use because they had no
consumers to sell the product to.
Practices such as global purchasing may look good on paper, but when that philosophy is implemented,
the stress and extra work that it places on the actual production system can cost the organization a lot
of money. A question that purchasing departments and organizations need to ask is โWho is our
customer?โ
A different thought process
Understanding the customer is vital to being able to provide value to that customer. So when
purchasing looks at whom their customer is, the answer will drive the behavior that a purchasing
organization exhibits. For example, if the customer of a buyer is his supervisor, meaning that the
buyerโs performance is measured upon acquiring the lowest piece price cost, then the buyer, assuming
he wants to do well in his job, obviously will spend the majority of his time chasing the lowest piece
price, even if he has to scour all over the world.
A different thought process would be to ask:
๏ง Who uses the component that purchasing buys?
๏ง Does the buyer go to the production floor and see how the component is used?
๏ง Is the quantity of components in a box determined by the ease of use in the production system
or by the supplier because it can provide the product cheaper in this quantity?
๏ง Is the weight of the box with components considered when purchasing components?
๏ง Is the frequency with which the box has to be lifted, turned and moved by the production
associate considered when a component is purchased?
Unfortunately, too many times these questions are not considered, and the piece price cost becomes
the single driving factor of how a component is purchased.
The value produced by a company is determined by the customer that it sells the service or product to.
Value is what the customer is willing to pay the supplier for the product. In most cases, the customer is
not willing to pay for a purchased component. The customer is only willing to pay for that component
once it is added to the final product that the customer wants to buy. Therefore, it is a safe assumption
that the value is added on the production floor when a worker assembles the purchased component
onto what will become the final product.
When it is agreed upon, as it should be, that value is added on the production floor and that the
purchased components support that value-added process, the purchasing organizationโs customers
become clear. The customers are the production system and the production associates on the
production floor because those entities add value to the product.
However, the fact that the purchasing organizationโs customers are the production system and
associates does not make cost unimportant. Cost always has to be considered when sourcing
components โ not in the traditional sense, but in a new thought process that considers the total cost of
sourcing a component.
True cost
2. There are many different costs that go into sourcing a component, many of which are not calculated in
the cost of a component. Take the questions asked in the previous section. If a production associate
has to open a cardboard box, that is a cost. If the production associate has to move the box multiple
times due to the large quantity of parts in a box, that is a cost. These are both legitimate costs, but
ones that often can be dealt with through a well-designed and efficient internal timed material
movement system.
The thought process of looking at true costs that are not normally calculated in the โpiece price costโ is
valid on a larger scale for buyers in a global economy. Three types of costs need to be considered when
determining the true cost of a component: ongoing cost, change cost and risk cost.
Ongoing cost is the cost of the component that an organization incurs as it continually buys the
component. For example, piece price, transportation, inventory carrying cost, customs and duties are all
costs that occur on an ongoing basis. In the past, many purchasing organizations have looked at the
piece price cost and the transportation costs, but rarely considered the carrying cost for the amount of
inventory created by their purchasing decision.
The second type of cost is risk cost. Most organizations cannot name one supplier that they never had a
quality problem with. Suppliers will have quality problems, and when they do it costs their customers
money. This cost can take the form of downtime, poor quality to the end customer, poor end customer
satisfaction, expedited air shipments, reworking parts and other costs.
Though most people would agree that quality spills happen and can be expected, seldom do
organizations calculate the cost of a quality spill into the component being purchased. Many
organizations put this in the column of the โcost of doing business,โ but if an organization reasonably
can expect a quality problem from a supplier, then it should be calculated in the total cost of the
component.
The third cost that needs to be considered when determining where to source a component and how
much that component will cost is the change cost. Changing suppliers can cost a lot of money, but
many times a purchasing organization cannot calculate the true cost of this change, and the true
change cost is neglected.
There are many reasons to change suppliers, and items like volume, quality, price and others need to
be considered and included when calculating change cost. For example, a person will have to be sent to
the potential new supplier to validate it and its processes. This can cost the company a possible plane
ticket, expenses and time lost that the individual would have been doing her normal functions. Tooling
may need to be purchased. Testing the new components will have to be done. The prints of the
components may have to be changed as well. All of these costs are legitimate and are able to be
calculated, therefore they should not be lumped into a category called the โcost of doing business.โ It
may seem like a daunting task to develop a true cost model for your organization, but if the true cost of
a component is to be determined, it is necessary. However, this leads to another important aspect of
lean purchasing โ the development of suppliers.
Lean supplier development
What if an organization was able to decrease its supply base by 50 percent? What would that do to the
โnoiseโ that surrounds a purchasing organization with many suppliers? What would that do to the
transportation costs of a facility? What would that do to the chaos and inefficiencies that happen on the
receiving dock? What would that do to the quality of the facility, assuming that the 50 percent of the
suppliers that the organization chose to work with had good quality?
There can be many benefits to reducing the supply base. So why do many organizations not pursue this
initiative? Many organizations want to be diversified and have the capability to buy their components
from many different suppliers. This is understandable from a theoretical point of view because the
organization wants to have many options, but from a practical point of view the philosophy is flawed.
Take an organization that chooses to buy 30 plastic components from 30 different plastic suppliers. This
organization is diversified, but so are its suppliers. So the 30 suppliers donโt have much incentive to take
care of that one customer. If one of the 30 plastic component suppliers does not ship product, it shuts
down the purchasing organization. So the price of diversification to the organization is that any one of
its 30 plastic component suppliers can shut it down. Conversely, the organization cannot shut down any
of its suppliers because the suppliers have many more customers, and the organization is just a small
part of their business.
Take another organization with a different purchasing philosophy. Instead of diversifying its plastic
components among 30 different suppliers, it chose the best plastic supplier and gave it all 30
components. This turned out to be beneficial because the two were connected by the common goal of a
successful business. The supplier now was very concerned with the customer because that organization
represented a great deal of its business, so if there were problems, the supplier was quick to react. This
does not normally happen when the supplier only supplies an organization with one low-volume part.
Next, quality got a lot better because the organization chose a supplier with good quality.
Transportation costs also went down because shipments of plastic components came from only one
supplier.
3. There can be many benefits to decreasing the supply base and working with suppliers to develop them
into long-term partners. The goal of these relationships is to work together to create a mutually
beneficial supply chain that provides efficient and consistent value to the end customer, which allows
for the companies in the supply chain to prosper. However, even if an organization can change its
purchasing philosophy and determine true costs, it must be committed to developing a solid supply
base.
Making a commitment
In the future, it likely wonโt be facility versus facility or even company versus company. It is going to be
supply chain versus supply chain. The organization with the best supply chain is going to win.
Therefore, it is imperative that organizations looking to compete successfully in the global economy
focus on developing a lean, agile and efficient supply chain.
To accomplish the development of a competitive supply chain, the suppliers have to be a focus. An
effective supply chain that competes successfully in a global economy has suppliers that are healthy,
efficient and in it for the long run. To achieve suppliers with these traits, it takes a commitment from
the customer and resources to help develop good suppliers into long-term partnerships.
The problem with this type of change in thinking is that the benefits likely will not be seen tomorrow. It
takes time to have the impact that is expected. But if the end goal is to compete successfully in the
global economy, then successfully developing suppliers into key partnerships throughout the supply
chain is necessary.
The future
It does not seem that the global economy is going anywhere. It is evident to many organizations that
past purchasing practices have not supported new leaner, more agile production systems as effectively
as needed. There must be a change in thought process to transform the important aspect of purchasing
components into an area that effectively and efficiently supports the creation of value for the end
customer.
To achieve the needed change, the companyโs purchasing organization needs to change its philosophy
from the traditional supplier-customer mentality to a long-term partnership mentality. As this happens,
the true customer of the purchased components, the value-added production associate and the overall
production system, needs to be considered when sourcing a product. Furthermore, a move from piece
price cost to the true cost to the value stream needs to be understood for the purchasing organization
to support production in the most efficient and economical way.
There is no doubt that this is a drastic change from the way that many organizations purchase their
components, but it is necessary to compete effectively around the globe.
Chris Harris is vice president of operations at Harris Lean Systems, where he has worked since
September 2001. He focuses on helping organizations implement and improve their lean enterprise
systems. Harris has written many articles and was awarded the Shingo Prize for co-authoring the
book Making Materials Flow. He also co-authored two other books on lean enterprise principles and has
a new book due out this year on lean supplier development. Harris holds a doctoral degree in business
administration.
Chuck Streeter owns Streeter Lean Principles LLC in Indianapolis. He has years of experience in the
automotive and electrical industries. He has been responsible for designing and implementing
manufacturing processes and material delivery systems to transform mass to lean production processes
in North America, Europe and Asia. Streeter earned a bachelorโs degree in management from the U.S.
Air Force Academy and a masterโs degree in systems management from the Air Force Institute of
Technology. He is a retired commissioned officer in the U.S. Air Force Reserve.