Supply side techniques that really work
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Purchasing e-book details - an MRPII or ERP system provides you with the opportunity to provide better information to your suppliers and so enable them to both improve their performance and save costs, some of which you can reasonable expect to be passed back to you. Companies following this route typically save between 10% and 20% of the direct material spend, which for many companies is considerable.
2. Purchasing Opportunities
3. Single source Suppliers
4. Building Supplier Partnerships, sometimes called Logistics
5. Technical Links
6. Material Delivery Arrangements
7. Quality and Point of Use Delivery
8. Supplier Schedules
9. Kanban Delivery of Materials
10. Supplier Managed Inventory
11. Payment - The Final Act
2. Purchasing Opportunities
Another major change in thinking that can have a dramatic effect on the effectiveness of the purchasing function, is to move away from using purchase price variance as a measure, and frequently the only measure, of the performance of the purchasing function. When purchase price is the only performance measure, this pressurises the purchasing function to buy large quantities of the lowest quality parts that meets the specification. This frequently results in large numbers of remote suppliers. The challenge is to capture the cost of ownership rather than the purchase price to encourage the “soft” issues to be addressed.
The purchasing process starts with design. Up to 90% of the cost of a part is fixed at the point of design; this point will be followed up below but is mostly a design issues. Once the part is designed, purchasing then involves choosing supplier(s), negotiating the price and delivery arrangements, receiving the goods, storing them, paying for them and eventually using them. There are many opportunities in this sequence of activities to save cost. Traditionally almost all the effort to reduce costs focused on the price negotiation, as price was the most obvious cost. The purchase price is also the easiest cost to collect and monitor. Forcing down the price of supplies, however, not only undermines the supply chain fundamentals but seriously harms the customer’s ability to openly communicate with his suppliers.
After the direct cost of the product, all the other opportunities to reduce purchase costs rely on first building a good relationship with the suppliers. This is not something that happens by itself or overnight. The building of these relationships is primarily the responsibility of the buyer.
The building of good supplier relationships takes a considerable amount of time but is made easier if the number of suppliers is reduced. A strategic decision has to be taken at the start of a supplier partnership program to actively seek to reduce the number of suppliers. The reduction of the supplier base takes courage as companies derive a sense of security from having alternative suppliers. This security is often an illusion.
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This e-book plus 10 more like it can be purchased together in the compendium book "Business Excellence - the integrated solution to manufacturing planning and control" price £24.90, about 45US$ / €37. . . more details