Strategic Sourcing in Purchasing and Supply Chain Management Essay
In the globalized era when most of the business organizations are involved in different business activities it has become inevitable for the firms independently perform all the functions. Most of the companies do not operate their supply chain and rely on other firms to perform the multi-faceted tasks. The successful and efficient combination of the operations of these firms provides the company with the competitive edge in the market. (Cook, DeBree, and Feroleto, 2001). Lummus and Vokurka (1999) points out towards the need for the managers to understand the performance of all the stake holding firms in the supply chain. According to (Pohlen, 2003), this insight in the performance of each firm will enable the managers to develop measures in order to fulfil the demands of the customers. The main task of the supply chain management is to develop a strategy which can cater the need of the customers and is aligned with the company objectives (Pohlen, 2003).
In this lieu it is important for the mangers to keep on measuring the performance of different parts of supply chain (Deloitte, 1999). It has been a proven fact that the improvement in the company’s performance cannot be undertaken with out improving the performance of its suppliers (Lummus, Vokurka, and Alber, 1999). The planning and information taking activities can be easily performed by the operations managers and senior executives it they have an up to date information regarding the performance of different supply chain firm and stake holders and the resources available to the firm.
Authors (La Londe and Masters 1994; Lambert, Stock, and Ellram 1998; Mentzer et al. 2001) regard a supply chain as a set of firms involved in the upstream and downstream flows of products, services, information, and/or finances. Mentzer et al. (2001, p. 4) described a supply chain as “a set of three or more organizations directly linked by one or more of the upstream and downstream flows of products, services, finances, and information from a source to a customer.” Thus, the nature of a supply chain is comprehensive so that membership is not limited to a supplier, a manufacturer, and a distributor, but open to any firm that performs various flow-related services (Mentzer et al. 2001).
The notion of production management has been transformed from the manufacturing activities and has expanded to activities as purchasing, warehousing, transportation, and other operations from the procurement of raw materials through various activities until a product in available to the buyer. The notion includes the process of delivering the services to the customers with the products. With the changing time the aspects covered are increasing, the process now also includes R&D, value creation, marketing management, sales activities, accounting and finance.
The operation management model constitutes of inputs and outputs. The list of inputs include,
1. customer needs
3. Technology management
4. Fixed assets of the business
5. Human capital
6. Variable assets related to transformation process.
Information and the physical factors play an important role for managers in order to produce outputs.
Most of the physical assets remain unchanged. These include buildings, land, manufacturing plants, warehouses etc. Planning, operating and controlling are the important constituents of transformation process. The improvement in the system is also an important aim of the model. Outputs consist of products and services and may even be information, such as that provided by a consulting organization. (Koontz and Weihrich, 1994; p 633, 634)
The international sourcing policy effects the corporate, marketing, purchasing, and other strategies. It is important for the firm to connect the future objectives with corporate objectives and strategy. The purchasing function should also be undertaken in order to support the corporate objectives. It is often observed that the purchasing functions in the firms are undertaken without gathering proper and enough information. Also the purchasing decision of most of the companies are not undertaken in the line of the strategy of the company. It is also important for the companies to undertake strategic planning while undertaking the purchasing decision. Most of the researchers emphasize the need of aligning the purchasing function with the firm’s strategic planning process. In order to undertake effective planning according to the company’s goal it is important to plan and implement strategic planning more effectively at the departmental level. Some of the researches also pay great attention in establishment of the link between the customers and the suppliers as part of their purchasing strategy.
The purchasing decision in the right direction can also help the company in acquiring the market leadership through cost reduction. “Purchasing’s contributions to corporate strategic planning include the following: monitoring supply market trends, interpreting the impact of these trends on the firm, identifying the materials and services required to support company and strategic business unit strategies, and developing supply options.” (Ellram and Carr, 1994)
There are many techniques, which can be undertaken by the management in order to improve the quality of management process. Some of them are described below.
Time network analysis is a logical extension of the famous Gantt chart. Often referred to as the program Evaluation and Review Technique (PERT) an in its essentials as the Critical Path Method (CPM), this technique of planning and control has wide potential use in many applications. But PERT and its various refinements, like PERT/COST, have considerable potential for use in many aspects of planning and controlling operations (Koontz and Weihrich, 1994; p.648).
For a company having the expanded supply chain PERT/ COST analysis should be performed in order to evaluate the effectiveness of supply chain.
A product can be improved and its cost lowered through value engineering, which consists of analyzing the operations of the product or service, estimating the value of each operation, and attempting to improve that operation by trying to keep costs low at each step or part. The following specific steps can be taken in order to improve the supply chain.
1. Identify the costs for each part and operation.
2. Identify each part’s relative contribution value to the final unit or product.
3. Find a new approach for those items, which appear to have high cost and low value. (Koontz and Weihrich, 1994; p.648)
Work methods can be improved through work simplification, which is the process of obtaining the participation of workers in simplifying their work. Training sessions should be conducted in the company to teach concepts and principles of techniques such as time and motion studies, workflow analyses, and the layout of the work situation. (Koontz and Weihrich, 1994; p.648)
The supply chain management should establish a group of people from the same organizational area who meet regularly to solve problems they experience at work. (Goldstein, 1985; p.504-517) Members should be trained in solving problems, in applying statistical quality control, and in working in-groups. A facilitator should work with each group consisting of six to twelve members. The QCs may meet 4 hours a month. Although QC members may receive recognition, they should also receive monetary rewards.
Quality circles should evolve from suggestion programs. In both approaches, workers will participate in solving work-related problems. Although in suggestion programs the problems are usually quite specific, those dealt with by quality control circles are often more complex and require the involvement of several team members.
The team should consist primarily of rank-and-file workers and sometimes it can also include supervisors. (Koontz and Weihrich, 1994; p.649)
The Concept of TQM:
TQM is defined as both a philosophy and a set of guiding principles that represent the foundation of a continuously improving organization. It is the application of quantitative methods and human resources to improve all the process within an organization and exceed customer needs now and in the future. TQM integrates fundamental management techniques, existing improvement efforts, and technical tools under a disciplined approach. (Besterfield, Michna, Besterfied & Sacre, p.1)
Possibilities for improvements of the downstream supply chain:
TQM is based on a number of ideas. It means thinking about quality in terms of all functions of the enterprise and is a start is a start-to-finish process that integrates interrelated functions at all levels. It is a systems approach that considers every interaction between the various elements of the organization. Thus, the overall effectiveness of the system is higher than the sum of the individual outputs from the subsystems. The subsystems include all the organizational functions in the life cycle of a product, such as (!) design, (2) planning, (3) production, (4) distribution, and (5) field service. The management subsystems also require integration, including (1) strategy with a customer focus, (2) the tools of quality and (3) employee involvement (the linking process that integrates the whole). A corollary is that any product, process, or service can be improved, and a successful organization is one that consciously seeks and exploits opportunities for improvement at all levels. The load-bearing structure is customer satisfaction. The watchword is continuous improvement. (Ross)
Hence following steps should be taken in order to improve the supply chain of the company:
1. Management Commitment: Top management must become convinced of the need for quality and must clearly communicate this to the entire company be written policy, starting that each person is expected to perform according to the requirement or cause the requirement to be officially changed to what the company and the customers really need.
2. Quality improvement team: From a team composed of department heads to oversee improvements in their departments and in the company as a whole.
3. Quality measurement: Establish measurements appropriate to every activity in order to identify areas in need of improvement.
4. Cost of quality: Estimate the costs of quality in order to identify areas where improvements would be profitable.
5. Quality awareness: Raise quality awareness among employees. They non-conformance.
6. Corrective action: Take corrective action as a result of steps 3 and 4.
7. Zero defects planning: From a committee to plan a program appropriate to the company and its culture.
8. Supervisor training: All levels of management must be trained in how to implement their part of the quality improvement program.
9. Zero defects day: Schedule a day to signal to employees that the company has a new standard.
10. Goal setting: Individuals must establish improvement goals for themselves and their groups.
11. Error causes removal: Employees should be encouraged to inform management of any problems that prevent them from performing error free work.
12. Recognition: Give public, non-financial appreciation to those who meet their quality goals or perform outstandingly.
13. Quality councils: Composed of quality professionals and team chairpersons, quality councils should meet regularly to share experiences, problems, and ideas.
14. Does it all over again: Repeat steps 1 to 13 in order to emphasize the never-ending process of quality improvement. (Ross)
Production management refers to all those activities necessary to manufacture products; it may also include purchasing, warehousing, transportation, and other operations. Operations management has a similar meaning, referring to activities necessary to produce and deliver a service as well as a physical product. It is important for the supply chain management to give importance to all of the above activities. Since a low level of performance from any part of supply chain can effect the whole process. (Koontz and Weihrich, 1994; p.653) The method of operations research, which is the application of scientific methods to the study of alternatives in a problem situation to obtain a quantitative basis for arriving at the best solution, should be used. Other tools of production management such as linear programming inventory planning and control, the just-in time inventory system, and distribution logistics should be used to enhance the productivity of the Company. Other tools and techniques such as time-event inventory system, engineering, work simplification, quality circles, total quality management, and a variety of computer-aided approaches can also be used according to the need. (Koontz and Weihrich, 1994; p.653)