Traditionally, purchasing function was a low- level activity that was decentralized. Staff is each department, branch or plant used to make their own purchasing decision. In addition, relationships with supplier were ad hoc in nature. Strategic planning involves systematic planning for the entire organization to ensure its long term survival. However, traditionally purchasing decisions were made at the departmental level in an ad voc manner. Therefore, supply chain management was not involved in corporate strategic planning function.
I would consider single sourcing if an item has a high profitability impact and its supply risk is low. If an item has a high impact on profitability, then cost minimization is important if profits are to be maximized. By single sourcing, I can place large orders hence reap the cost benefits of economies of scale. Secondly, if the supply risk is low then there is no need of diversifying by using several suppliers. The reason most firms use several suppliers as a means of militating against supply risk.
Few companies are classified as stage four companies because few companies have embraced a fully integrated supply chain. Few firms are willing to integrate their supply chains because of the heavy investment required in terms of money, time and human capital in implementing and overlooking such a supply chain. It is even worsened by the facts that the expected returns will neither be realized in the short run neither can it be estimated. The situation is likely to change as in the future. When companies that have already invested in fully integrated supply chain starts to realize a return on their investments firms, other companies will see the need to follow suit.
Vendor managed inventory (VMI) and integrated supplier programs are increasing becoming popular with buyers because of the advantages that accrue from adopting them. Firstly, information is passed from computer-to-computer which reduces data-entry errors. Therefore, they generate more accurate inventory data. Secondly, they generate purchase orders on a predetermined basis. Therefore, they do not only make it easier to make purchase orders buts also stabilizes their timing. In addition, it allows buyers to maintain lower inventory levels hence reducing costs and increasing profitability. Lastly, it creates a true partnership between buyers and suppliers since they work closely together to ensure customer satisfaction.
Sharing cost-information is important in maintaining effective buyer-seller relationship in the long run. However, most suppliers are reluctant to share cost information in the early stages of buyer-seller relationships because buyers with detailed cost information may use aggressive bargaining to minimize their costs thus reducing the profit margin of the seller. Being rational, buyers expect the seller to sell to them an item at a price close to its costs. In addition, aggressive bargaining may strain the buyer-seller relationship in the early stages. Buyers may use all means to get a price reduction including threatening to buy from a competition.
Sustainability in business refers managing a firm in such a way that it maximizes its financial performance but takes into account its social and environmental obligations. The business aims at meeting the triple bottom line; people, profit and planet. Sustainable business supply environmentally friendly goods and are committed to social and environmental principles in their operations. Sustainability is becoming more important in supplier surveys because sustainable business tend to deal with sustainable suppliers who are committed to the social and environmental principles. Using a Supplier surveys is one of the ways that can be used to identifying sustainable suppliers.
The time it takes to evaluate and select a supplier should decrease in order to avoid stock outs costs due to inventory shortfalls that may occur during the selection period. It is also vital to select a supplier early enough so that there is adequate time to create a close working relationship with the supplier. Supplier evaluation software, sector-standard specification and scorecards have the largest impact on reducing supplier selection time. These methods are the most effective in reducing supplier selection visit since they do not involve site visits and correspondences with potential suppliers. Therefore, a supplier can be evaluated and selected in a single meeting.
A buyer should monitor quality performance of a supplier because it is the buyer who sells the products to the final consumer. Therefore, the quality performance of the supplier consequently determines their quality performance. In order to enhance customer service, buyers need to monitor supplier’s quality performance. Customers can only be satisfied if they are supplied with high quality goods. In order to supply high quality goods, firms need to purchase high quality goods. Therefore, monitoring the quality of suppliers is paramount.
Early supplier design involvement can improve product quality because there will be a correct evaluation of the technology used supplier’s design against the requirements of the product. In addition the supplier competence will be assessed early enough before the products are produced. In addition, the supplier can be updated on recent markets developments and consumer expectations.
Total Quality Management (TQM) and Six Sigma are management philosophies that seek to improve the quality of products. TQM was designed before Six Sigma. TQM focuses on general product improvement using a cultural and collaborative approach whereas Six Sigma is data driven and focuses on a statistical approach. TQM stresses on improving performance level whereas Six Sigma places emphasis on minimum standards and acceptance requirement. Lastly, TQM bases the quality of a product on standards set by the company whereas Six Sigma definition of quality is based on customers’ expectations.
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