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This report mainly focuses on how contingency factors cause major problems in a manufacturing plant. It analyses various negative impacts in case of large number of suppliers and it emphasizes on the different areas to be addressed to cope with such situation along with maintaining the current production and operational effectiveness. Moreover, it addresses the issues of streamlining the suppliers, improving the quality of procured products, optimizing the operations and productions and satisfying the customers.
Through entire study and findings, it is recommended that the manufacturing plant should adopt measures like supply chain management, buyer-suppliers integration and operational approaches. The best and positive solution is to improve the quality of procured products by streamlining the suppliers and choosing the few but best and reliable suppliers in order to optimize the production.
The operations manager has the responsibility for productions and operations such as improving the quality of procured products, production capacity and customer satisfaction. Various tasks including the designing of goods and services, managing quality, process and capacity design, strategy formulation for locations, layout and supply chain management (Paulraj & Chen, 2007). The operational management needs to deal with the tasks like the optimization of production and operations improving the operational effectiveness.
The operational manager has to eradicate if any problem arises in manufacturing plant which hinders delivery levels; quality of products and raw material , production scheduling and customer satisfaction. Operational manager needs to streamline on too many suppliers and improving the quality of service as well as improving the employees performance as they are the key factor of their manufacturing plant. Operational manager designs a framework and few new strategies for to implement them in the manufacturing plant to improve operations and performance (Everett,2000).
The operational manager has to make the operations decisions in such a way to reduce cost, provide better goods and services, improve supply chain, attract and retain global talent, understand market, learn to improve operations and quality of products, maintain optimum productions capacity, satisfy customers and ultimately gain an operational effectiveness and efficiency. All this will provide an opportunity for an operational manager to achieve competitive advantage and creation of customer value in an efficient and sustainable way.
1.1 Streamlining suppliers:
In a manufacturing plant, operational manager is facing major problem related to streamline on their suppliers. As per Ellram (1991) the contemporary supply management is to maintain long term partnership with suppliers and use fewer but reliable suppliers. Therefore choosing the right suppliers involves much more than scanning a series of pricelist and choices will depend on a wide range of factors which involve both quantitative as well as qualitative. The manufacturing plant's operational manager tries to co-ordinate the relationship between the suppliers and the production process. The manufacturer's quick decision on internal production processes not only lead to a winning bid with the competitive price or supplier but also positioning the manufacturer on the market place in terms of responsiveness, efficiency, customer service and potentials sales in the long run.
According to Hahn (1990), 'With globalization and emergence of the extended enterprises of independent manufacturing organizations there has been a steady increase in the outsourcing of raw materials'. This has lead firms to give more importance to the purchasing functions and associated decisions. One of those decisions which impact all the manufacturing areas is the supplier selection. Operational manager specially focuses on the final selection stage that consists of determining the best mixture of vendors and allocating orders for the satisfaction of different purchasing requirements (De Toni & Massimbeni, 1999).
2.1 Streamlining the suppliers along with maintaining optimum production and operations require spotlight on number of aspects:
2.1.1 Strategic Purchasing: To streamline suppliers, there should be strategic purchasing. Strategic Purchasing has a rapid evolution. It is a key function within organizations. It helps to know the importance of the buyer and supplier working together in an ongoing relationship. With it, the focus on a traditional win-lose relationship, based on the location of power between the bargaining positions of the two parties, shifted on the scenario in which win-win relationship can be created (Hines, 1996). There should be implementation of better purchasing strategies:
a) Lean supply model: This model was developed by Lamming in the United Kingdom (Ford, 1980). This model helps to capture the present position of the leading manufacturing and assembly companies.
b) Network sourcing model: This model helps to describe the key elements of the buyer supplier relationship. As per Hines (1990), 'this has a tiered supply structure with the heavy reliance on small firms and a small number of direct suppliers with individual part numbers sourced from one supplier but within the competitive dual sourcing environment. Adoption of this model will help to streamline the suppliers along with improving the quality of procured products, production capacity as well as full customer satisfaction. This can have many benefits like reduced supplier base which is easier to manage but very reliable and this will reduce the time looking for new suppliers and gathering competitive bids.
2.1.2 Lean Production: It is a system that uses less of all inputs to create outputs similar to the traditional mass production system, while offering increased choices for the end users (Hahn et al. 1990). This will help the companies to identify the value stream for each product by paying close attention to a number of key processes running cross-functionally across the organization. This will help the manufacturing plant to make major changes that will lead towards improvement as well as continuing their ongoing activities. This will help the manufacturing plant to double its productivity and to integrate the supplier network.
Hahn et al. (1990) states that a firm's ability to produce a quality product at a reasonable cost and in a timely manner is largely dependent on the capabilities of its suppliers. A firm's ability to compete effectively in the market can be hampered significantly without a competent supplier network so there should be a proper supplier network in order to achieve the operational effectiveness.
Peter Drucker commented on its potential advantage to be gained by working closely with suppliers:
"Nowhere in business is there greater potential for benefitting from interdependence than between customer firms and their suppliers. This is the largest remaining frontier for gaining competitive advantage and nowhere has such a frontier been more neglected" (Hahn et al. 1990).
2.1.3 Supply chain management:
Another area which can help to solve the situation of selecting the best suppliers amongst a large number of suppliers can be the supply chain management and pipeline management. These two areas take the relationship between end consumers and raw material sources further and these are primarily concerned with optimizing the value stream by creating the correct balances, work allocation and good relationship between ram material and consumer (Ellram, 1991).
The supply chain is a collection of physical entities linked to processes that provide goods or services from source through consumption.Â The physical entities in the supply chain consist of suppliers, manufacturers, distributors, retailers and consumers. To effectively manage the supply chain, all functions and entities in the supply chain must be fully integrated.Â Such integration may be possible using the communications networks which enable collaboration between different actors and functions of the supply chain.Â Some supply chains are simple, others are quite complex.Â The complexity of the supply chain will vary depending on firm size and complexity and the number of goods manufactured.
The supply chain management is not an easy task.Â Effective supply chain management requires the integration of supplier manufacturer, distributor, retail, and customer requirements into one cohesive process.Â This requires utilizing the expertise of all stakeholders involved in supply chain.Â Drawing on the experience of all functions change in supply will lead to efficient supply chain management.Â Supply chain management can examine all aspects, the use and purchase of raw materials and services and to link the resources of the leading suppliers to strategic objectives of the company, thereby enhancing market competition advantage. To ensure that supply chains operate as efficiently as possible and produce the highest level of customer satisfaction with lower costs, companies have adopted Supply Chain Management processes and related technology.Â Supply Chain Management has three levels of activities in different parts of the company and it will focus on: strategic, tactical;Â and operational.
Strategic: At this level, the company management will try to look at high-level strategic decisions for the entire organization, such as size and location of production facilities, partnerships with suppliers, products to be manufactured and sales market.
Tactical: Tactical decisions focus on measures that will bring economic benefits, such as using industry best practices, developing a strategy to market with favored suppliers, and in co-operation with logistics companies to develop the transport cost effectiveness and develop warehouse strategiesÂ to reduce storage costs of stock.
Operational: Decisions at this level occur every day in businesses that affect the way products move along the supply chain.Â Operational decisions involve changes in the program for the production, procurement agreements with suppliers, receiving orders from customers and moving the product to the warehouse.
As the supply chain management operates at three levels; strategic, tactical and operational.Â At the strategic level, company management makes high level strategic supply chain decisions that are relevant to whole organization.Â The decisions that are made with regards to the supply chain should reflect the overall corporate strategy that the organization is following. The strategic supply chain processes that management has to decide upon will cover the breadth of the supply chain.Â These include product development, customers, manufacturing, vendors and logistics.
Product Development: As product cycles mature or products' sales fall, management must make strategic decisions to develop and introduce new versions of existing products on the market, the rationalization of current product offerings or develop a new range of products and services.Â These strategic decisions may include the need to acquire another company or sell existing businesses. However, in making these strategic decisions of product development, the general objectives of the operation should be the determining factor.
Customers: AtÂ the strategic level, the company must identify customers for products and services.Â When the company management makes strategic decisions about products for production, then the key customer segments should be identified where the company's marketing and advertising will be targeted.
Suppliers: The Company's management must decide on the strategic policies of the supply chain with their suppliers.Â The decline in the purchasing spend of a company can have direct bearing on profit growth; there are many decisions that can be done to get this result.Â Leveraging global markets business in many companies may allow the company's management to select strategic global suppliers that offer the biggest discounts.Â But those decisions must be consistent with the overall objectives of the company.Â If a company has adopted policies for quality, then strategic decisions on their suppliers should be fall within the overall objective of the company.
In an increasingly competitive international business environment of today, many companies focus on supply chain management as a means to achieve long-term competitive advantage.Â The term supply chain management has been used since the 1980's.Â Modern supply chain management is a complex project management and demanding, for which a number of systems management software have been developed.
An important aspect of supply chain management is supplier management- organizing the optimal flow of high quality, value-for-money materials or components to manufacturing companies from a suitable set of innovative suppliers. Consequently, what used to be regarded as a purely tactical exercise market is now recognized as a strategic function and external suppliers are the most important influence on the success or failure of a business.Â To obtain a competitive advantage, companies are streamlining the number of suppliers from whom they purchase.Â Reduced supplier base means that closer, longer-term relationships may be established by a few (sometimes single-source) suppliers who then play a crucial role in contributing to the new product design, greatly reducing the costÂ and continuous quality improvement.Â All this is far from the traditional multi-sourcing approach, where each relationship between buyers and suppliers were common and where short-term orders were simply placed with the supplier offering the lowest price.
2.1.4 The importance of supplier management
Supplier management, which is also called supplier base management, is an essential issue for manufacturing companies.Â It is useless for large companies to reform their manufacturing without the strong support of suppliers.Â We begin to see positive and strategic contribution of market and procurement process can make towards the overall performance of an enterprise. One reason for the growing importance of supplier management is that many manufacturers focus on core competencies, away from vertical integration and, therefore, need to gain competitive advantage from the supply side of their activities. Good suppliers can help manufacturers in developing new products and processes, with long-term quality improvement and cost reduction and can provide enhanced delivery performance. Therefore, the manufacturers' challenge is to maximize performance better than competitors. For companies that spend a high percentage of their revenue on parts and materials, the savings are particularly important. In these cases, savings of 1 per cent on the purchase cost can have the same effect on profits as a 8-10 percent increase in sales.Â Working closely with suppliers quickly brings lower unit costs and long term, even greater quality at lower cost.
2.1.5 Supplier selection, auditing and supply base reduction
The decision criteria used in the traditional approach to purchasing were unit price, the quality and speed of delivery.Â Price is often the main emphasis: selection of the lowest price is probably one of the most primitive features of certain purchases.Â The quality tends to be viewed from the standpoint of compliance, i.e. if the supplier's quality simply meets the required level of current required level, is acceptable.Â A better way of selecting suppliers is not only the current quality, but also their quality record means their potential for further improvement and use of total quality management. Current thinking proposes a wide set of factors to be considered when selecting suppliers.Â It is important to look not only at today's unit price, but also the total costs of purchasing; including procurement, transport and storage costs and the possibility of lowering prices. Items to be considered when selecting suppliers are suppliers' financial stability and environmental standards.Â In selecting suppliers, not only the original supply base to be examined, including other foreign suppliers should be taken into account.
It is necessary to explore the potential of strategic suppliers, such as the ability to contribute to product development.Â What are their technological capabilities?Â How does the supplier to contribute to the buyer's competitive advantage? These are the kinds of questions that must be asked during selection of suppliers.Â Co-operation between buyers and suppliers has moved out of the deal, in the long term.Â This new relationship is completely different - is of strategic importance for the company.Â Therefore, cross-functional teamwork is important when choosing suppliers.Â Most of the selection criteria focus on measurable actions; however, other more qualitative factors need to be considered.Â For example, the assessment must be whether the culture of the supplier organization can effectively co-operate with the buyer organizational culture.
22.214.171.124 The effects of supplier base reduction
The main effect of reduced supplier base is that it leaves the buyer with more time to develop closer relations with other suppliers. When properly managed, it will lead to a competitive advantage as a producer, through cost reductions, increased quality and innovation resulting from the support of suppliers in product development or process.Â Stronger buyer-supplier co-operation necessitates closer communication.Â New technology has played a key role in making closer relationships easier, e.g.Â through Electronic Data Interchange. Factors that determine the closeness of the buyer-supplier relationships include the degree of mutual dependence, the length of the cooperation on the joint projects and technological links and the degree of satisfaction with cooperation.
Supply chain helps to optimize production planning and materials planning.Â Finite materials and capacity planning can be performed at the same time, so that production capacity, inventory levels and purchase terms are taken into account in the planning of production. The result is more reliable planning of purchasing, production and transfer of order which will result in optimizing production flow and helps to ensure the timely delivery to customers.
2.1.6 Supply chain integration: It is the integration of the activities that produce materials and services, transforming them into intermediate goods and delivering the final products through a distribution system (Heizer, 2008). It a process of integration and collaboration in which manufacturing firms in supply chain work together in a cooperative manner to arrive at mutually acceptable outcomes (Wong, 2008). This will help to improve the effectiveness and efficiency of operations.
2.1.7 Strategic buyer-supplier relationship: The notion of strategic buyer-supplier relationships will help the partners to work together to leverage both their assets and capabilities towards better integration of delivery activities to satisfy the ultimate needs of their customers (Paulraj & Chen, 2007). This will also help to focus on the initiatives that enhance superior relational characteristics between the supply chain members and create a win-win situation for both buyer and supplier firms. The buyer-supplier relationship is the mutual efforts by buying manufacturing firms and their suppliers considered in emphasized efforts to improving communication and information sharing. Poor communication will result in failure to achieve supplier quality improvements (Tyler, 2008). Trust plays an important role in achieving successful partnership and alliances. Knowledge sharing will also help operational manager to increase the new product development and decrease in the number of delays and increase of collaboration between buyers and suppliers.
2.1.8 Porter Value Chain: Porter value chain is also very helpful to sustain the current production and gaining the operational effectiveness as it is meant for seeking excellence. Blois (1992) states that this approach will help to develop logical and long term relationships with suppliers. Implementation of value chain will also help to get quality in processes which will ultimately result in achieving customer satisfaction.
many suppliers seek creative ways to decrease inventory and are often willing to negotiate new deals. These deals may take the form of volume discounts or better non-price terms such as decreased delivery time or improved warranties. And with such new offers, comes an opportunity for revision and reevaluation of the existing purchasing agreements
The ability to analyze all aspects of a deal is critical in taking advantage of these new market conditions. For example, a majority incumbent supplier might have invested in fuel efficient, alternative specifications that can meet the buyer's requirements -- while a minority incumbent may have lost a large customer giving him more capacity to meet the buyer's volume. An evaluation based primarily on costs may ignore these supplier realities. Optimization makes this analysis possible. When applied to supply chain operations, optimization helps the sourcing professional simultaneously evaluate thousands of different procurement inputs. This evaluation can take into consideration the global market, specific current supply chain conditions, and individual supplier conditions, and offers solutions that address the buyer's [and supplier's] goals in the best possible way. Optimization-driven technology allows the procurement manager to evaluate the "new best state" of their supply chain and to react promptly. This could be as simple as relaying some or all key factors that affect a decision on suppliers. By allowing suppliers to compete on more than just cost, you empower them to be creative. Once the suppliers understand the buyer's goals, they can offer alternatives based on their own competitive advantages, and avoid being squeezed on just price.
A direct correlation exists between supply chain recoverability and the maturity of the supplier relationship. As part of the formalization of the supplier relationship, emphasis should be placed on developing robust day-to-day communications processes, as well as strong crisis communications processes to coordinate recovery operations. Supplier relationships are critical to any organisation. Suppliers can directly impact the financial performance and profitability of a buying enterprise, as they influence product development costs, inventory levels, manufacturing schedules and the timeliness of delivery of goods and services. Many leading companies have realised that it is worthwhile investing to make sure these relationships are managed effectively and efficiently.
In recent years, companies have invested in supply chain management (SCM) software to automate procurement processes, improve delivery times and reduce the cost of doing business. Now, market trends, such as increased global competition, shorter product lifecycles and a move to outsource business processes, require organisations to improve collaboration with their supplier base and to examine methods of further reducing the costs associated with supplier relationships. the need for effective supplier relationship management is the move by enterprises to outsource key functions, from design to product assembly to after-sales service, in order to improve competitiveness and financial performance. Gartner describes this use of contract manufacturing and other unconventional supplier relationships as 'virtualisation'. As the need to maintain quality, coherence and deliver tangible savings across the supply chain has increased, so the focus has turned to procurement departments to realise the benefits through supplier relationship management (SRM). Improving the selection and management of global suppliers is a key issue for many large organisations.
Effective management of the supply base is critical. When companies are confident they are working with the most capable and economical suppliers, processes can be streamlined
SGI considers the following key factors when selecting a supplier/service provider:
Quality of the product or service provided
On-time, cost-effective delivery of products
Technology infrastructure of the supplier
Environmentally conscious policies
In those instances where the complexity and/or dollar amount of the intended purchase warrants, bidders are given an opportunity to make formal presentations before a cross-functional selection team.
What We Expect from Our Suppliers
In order to remain the best in our industry, we need suppliers/service providers that are the best in their particular industry. SGI expects the suppliers with whom it does business to provide the highest quality of products and services.
Flexibility is one component of a successful relationship. The dynamics of the computer industry require SGI to periodically execute programs and projects with short lead times. It is therefore critical that our suppliers be able to respond accordingly. Supporting SGI means that our suppliers take ownership of all aspects of the products and services that they provide. We rely heavily on our suppliers to be the experts on their products and services, and to show a willingness to provide extraordinary support, responsiveness, and expertise when required.
SGI is a supplier of high-performance computer solutions and is continually striving to increase quality and service while lowering costs. SGI Purchasing seeks suppliers that share this same awareness and that demonstrate that their processes and procedures support a lower total cost of ownership to their customers.
SGI is also committed to implementing internal processes that will result in the conservation of natural resources, as well as diminish the impact on the environment we inhabit. We look for potential suppliers that have similar commitments.
Lean supply chain management:
Lean supply chain management gained popularity in the manufacturing area as this is where significant improvement can be achieved. Manufacturing processes can be improved to reduce waste and resources while maintaining operational performance. Companies who have adopted lean supply chain practices have examined each of their routings, bill of materials and equipment to identify where improvements can be achieved
Many businesses have complex purchasing operations. Large companies often have corporate purchasing groups as well as local purchasing. This can lead to vendors being given multiple contracts leading to variations in prices depending on location. Companies that practice lean supply chain management reduce their procurement function so that each vendor has one point of contact, one contract and offers one price for all locations. Businesses are looking to new technologies to assist them in improving procurement processes. These include internet based purchasing that allows requisitioners to purchase items from vendor's catalogs containing company wide contract prices. Changes in payment options to vendors can also streamline processes. Companies that use a two-way match, which is payment on receipt rather than payment on invoice, will reduce resources in their purchasing department as well as improve supplier relationships.
The contemporary supply management is to maintain long term
partnership with suppliers, and use fewer but reliable suppliers.
Therefore, choosing the right suppliers involves much more than
scanning a series of price list, and choices will depend on a wide
range of factors which involve both quantitative and qualitative.
Extensive multi-criteria decision making approaches have been
proposed for supplier selection,
the most popular criterion used
for evaluating the performance of suppliers is quality, followed by
delivery, price or cost, and so on. This proves that the traditional
single criterion approach based on lowest cost is not supportive
and robust enough in contemporary supply management. The traditional
cost-based approach cannot guarantee that the selected
supplier is global optimal because the customer-oriented criteria
(quality, delivery, flexibility, and so on) were not considered. Besides,
some recommendations were made based on the inadequacies
of some approaches. This can definitely aid the researchers and
decision makers in solving the supplier selection problem
In the face of growing competition, the Western manufacturing management is forced into becoming much more frugal in resource management. Just-in-time (JIT) is a set of principles which, by attacking all types of waste in manufacturing, can help management to achieve this competitive prerequisite. One of the main pillars of JIT manufacturing is JIT purchasing practices, which are predicated on selecting and maintaining close relationships with a few, albeit reliable and high-quality, vendors. Most traditional approaches to vendor selection have been based on the notion of maintaining a competitive supplier base to achieve the least invoice cost. However, since there are many other costs, some explicit some implicit, JIT adopts the more encompassing objective of "total material costs", augmenting the invoice cost with such avoidable wastes as large lot sizes, paperwork, inspection, and with losses due to poor quality and delivery. Many authors have proposed that limiting the number of suppliers that a company deals with is a prerequisite in the pursuit of JIT purchasing practices. When a relatively small number of parts are externally procured, single sourcing on a part-by-part basis can be quite effective in achieving the required small vendor base. However, when the number of parts and components externally purchased is large, as in the case of most fabrication/assembly operations, decisions pertaining to which vendors to keep, what to buy from them and which ones to drop are not as straightforward as finding the best single source for each part. The difficulty stems from the need to consolidate varying numbers of parts to the same supplier and to resolve many trade-offs among important, conflicting and often non-quantifiable criteria. This paper proposes a decision support approach to selecting vendors under the conflicting criteria of minimizing the annual material costs, reducing the number of suppliers and maximizing suppliers' delivery and quality performances.
Supply chain strategies are one of the most important aspects of supply
chain management. The success of any business as a whole relies on the
specific techniques executed to manage costs. Purchasing materials is a large
part of managing costs. Two of the major issues in purchasing are: selecting the
right supplier and finding the correct purchasing strategy in hiring suppliers.
Effective production planning and scheduling are core competencies of competitive process supply chains. But the growing complexity of process industries has made achieving this goal more challenging. Corporate consolidation, globalization and expanding product portfolios increase supply chain complexity while growing competition, increased customer demands and difficult market economics put pressure on producers to meet challenging financial performance goals.Â
Accordingly, production planners and schedulers have to focus on several important goals: scheduling the plant efficiently, keeping inventories low, satisfying customer demand, and anticipating the impact of every decision on the supply chain.Â
They should understand how much inventory is needed to support demand during the production cycle, and how much is needed to support a desired level of customer service. They should know how to reshape plans smoothly and responsively, without breaking the rhythm of the plant. And they should be able to visualize the impact of a planning decision on the entire supply chain.
SUPPLIER PERFORMANCE - Key to supply chain success
The Problem. Ask yourself these questions, regardless of whether you are a wholesaler, retailer, manufacturer, distributor or even a 3PL trying to manage a supply chain for a client.
How well does your supply chain work?
How do you measure your supply chain performance?
Does the performance measure align with the company's strategy, goal and direction? (Note we are talking about key metrics, not a plethora of measures for measures sake.)
Do you have customer service problems because of a lack of the right product/inventory?
What are your inventory turns, overall and by category?
How many dollars of inventory are tied up in inventory-by age?
The answers, especially if they are negative or poor answers, can significantly impact how well the company does or does not build shareholder value, increase profits, add to market share, or build scale.
Often, supply chain performance and customer service results correlate to inventory. Inventory-lack of velocity, poor turns and too many dollars tied up-is both a problem and a symptom of a problem. It does not matter where the inventory problem resides-in raw, WIP or finished goods. The issue is not just a matter of managing the inventory on-hand. It is a matter of how to improve supply chain and customer service while improving inventory-velocity and turns and reducing dollars-at the same time.
This is not a contradictory or impossible challenge. The inventory failures shown above usually go beyond forecasting or demand planning. They start and end with supplier performance. Not surprisingly, many companies with inventory problems do not have a sourcing strategy as part of its supply chain management effort. These companies focus primarily, if not exclusively, on price, landed or contract.
Performance is not a concern. Yet analysis of supplier performance shows that often suppliers, for over 25% of purchase orders, fail to ship or deliver on-time. The effect of such service failures ripple through the business with customer service problems, too many dollars tied up in inventory, serious aging of inventory, poor turns and poor return on the capital investment required for the inventory, larger than needed warehouse space in terms of capital tied up and/or reduced warehouse productivity from having to travel extra distance around the excess inventory.
Sometimes, for orders shipped on time, there may be quality problems. Poor quality brings its own set of customer service, inventory and other costs and problems.
The Solution. Think of the dollars tied up in inventory as more than product that creates sales or gathers dust in the warehouse. Think of inventory as part of the company portfolio. Too much capital, too much investment, in inventory lessens the value of the division and/or company. In turn, this lessens the return for shareholders. The underlying objective and strategy may be diluted or sidetracked. All this can restrict the ability to develop, exploit or implement strategic alternatives or options.
Companies should have a strategy that tells how it will outperform the competition in terms of customers, products or services. It positions where the business will be long-term. Strategic sourcing and supplier management (SSSM), as a component of supply chain and operational effectiveness, should be an integral element of that strategy. The firm should perform this differently and better than competitors. This approach can create competitive advantage and be sustainable.
Steps to developing a Strategic Sourcing and Supplier Management program include:
Identify suppliers as to importance as measured in importance-volume or profit margin, long lead-time, how critical, stringent specifications and how strong or weak each. (Note, not all products from an important supplier are critical.)
The Krajlic model can be used for this stepÂ
Segment how you will work with critical suppliers from non-critical ones
Build, manage and maintain relationships with key suppliers.
Define desired relationship for each supplier, ways to evaluate the relationship, plans for evolving that relationship and specific goals to be achieved.
Understand what suppliers want from you.
Recognize and mitigate the risk as you proceed for both the supplier and you.
Implement supplier relationship management.
Collaborate with prime suppliers as to potential new products.
Partner with them as to pricing and stable product availability.
Gain extended resources from key strategic suppliers for market research, supply, pricing, spot market situations and other areas.
Streamline across the supply chain.
Measure relationship with agreed upon metrics that complement company strategy
Meet regularly with important suppliers with a mutual agenda.
Depending upon your practices and history with suppliers, implementing SSSM will take time. The program should start "small" and grow.
The benefits to customer service, reduced inventory, warehouse productivity and other areas can be dramatic and significant. It complements sales and operations planning (S&OP). SSSM and supplier performance are required for and should be implemented into Lean because
too many suppliers works against lean and create waste
waiting for product deliveries is waste
inspection may be waste
inventory includes waste
suppliers are important to accomplishing pull
suppliers have a key role in kanban
Conclusion. Firms that do not have a procurement strategy, firms that overemphasize price without regard to performance, firms that do not manage supplier performance, are hoisted by their own petard. They create unnecessary customers, sales, operations and inventory problems.