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Expand EDI links with suppliers - Electronic Data Interchange is a tool that allows current
information to be passed quickly up the chain. Supply chain management requires the electronic links
be built with customers, dealers, warehouses, transportation, manufacturing and suppliers. Purchasing
needs to work with suppliers to expand the use of
EDI. Traditional EDI involves communication to the supplier and often EDI is not compatible with
current retail systems. SCM requires communications from the customer back to the supplier.
Purchasing needs to work with the suppliers, retail stores, and systems to develop retail tracking.
Purchasing needs to work with the supplier to react quickly to retail demand and ship directly to the
dealers when stock is needed. Wall Mart and other large retailers have been very successful in using
retail demand to reduce supply chain costs.
2.
Supplier personnel in the chain - Another way purchasing can help improve communication in
the supply chain is to locate supplier personnel at different levels in your supply chain. To make these
strategies effective, the supplier needs to be involved in non-traditional ways with your supply chain.
The supplier should have:
Supplier systems personnel working with your retail locations to capture retail sales
Just in Time,
Quick response.
The key is to recruit the supplier as part of your team to reduce the inventory in the supply chain.
Action #3 - Reduce cycle times. The shorter the cycle time, the more responsive the supply chain will
be and the less backup inventory that needs to be carried. Purchasing plays a key role in reducing
supplier lead times that are a part of the SCM cycle times. The following are four key steps purchasing
can take to reduce supplier lead times:
1.
Track and measure supplier lead times - Do you measure and track supplier lead times? This is
the first step in reducing supplier lead times. Recognize which suppliers and which commodities have
the longest lead times and start with these. Set a goal with each buyer to reduce negotiate lower lead
times. This concept holds for each level in the supply chain, not just supplier lead times. Measure how
long it takes for:
Inbound transportation
Negotiate lower lead times - The buyer should challenge supplier lead times. Ask for a
break down of the components of supplier lead times. Compare one supplier leadtime to others. When
the leadtime components are reviewed it is often found that most of the leadtime is "waiting time" and
little of the leadtime is actual "processing" time. Challenge the supplier to reduce the waiting time.
Other options to reduce supplier lead times include:
Utilizing distributors,
Understand the tradeoffs - Inventory costs are reduced when supplier lead times are
reduced. Be aware of the tradeoffs between lead-time and inventory carrying costs and give buyers
cost reduction credits for reducing lead times. We credit buyers with 11% of the value of the inventory
reduced as cost savings.
There are many other pieces of cycle time in the supply change that purchasing can help to reduce.
Included in these are:
1.
Select and negotiate with suppliers - Purchasing needs to find, select, establish and manage
the relationship with suppliers who will perform the outsourced function. Most buyers are more
experienced in outsourcing direct material. Many of the items we have outsourced have been services
such as:
Transportation services,
Warehousing
Incoming inspection
Mail room
Security
When establishing the outsourcing agreement for service items these are two key items to include:
- Performance and quality measurements. It is difficult to establish performance and quality
measurements for services , but these are needed to effectively measure the outsourced supplier
performance. Several of our early, service outsourcing agreements did not define well our performance
expectations and we learned quickly that was a mistake.
- Clear definition of charges. It is also important to establish what the charges are for performing
the service. Is the billing rate based on hours worked, services performed, or each job completed.
Manage the transfer process. I have witnessed many disasters in the past few years
that were caused by poor execution of outsourcing. Purchasing needs to help with the planning and
implementation of the outsource to avoid a problem. You should negotiate so the old supplier builds a
bridge quantity to protect the customer during the transition. The buyer also must arrange to transfer
all the knowledge possible to the new supplier (tooling, specifications, quality requirements, forecasts).
Action #5 - Improve customer service. We need to re-focus our organizations on the customer. There
is a tendency to concentrate on re-engineering the processes and forgetting the needs of the
customer. The test of the effectiveness of the new process should be gauged by the impact to the
customer. Purchasing should ask each day: How can we get the product to the customer on time? How
can we reduce transport time? How can we improve communications with our customer? Establish
objectives for the supply chain targeted on serving the customer better. Some measurements we have
used include:
Backorders
Lost sales
Fill levels
Late shipments
Action #6 - Select a supplier based on supply chain capability. Another key action needed to improve
the supply chain is to establish a closer link with the suppliers who can help reduce supply chain costs.
Purchasing should take the lead in establishing a sourcing strategy project for each purchased
commodity. In the past at our company, we have had purchasing and engineering at each plant
selecting suppliers focusing on low quotations and supplier reduction. The goal of our new project
(which we are calling "strategic sourcing") is to establish corporate wide preferred suppliers for each
commodity that will reduce cost throughout the entire supply chain. The traits that will be critical to
being designated a preferred supplier are also the factors that will improve supply chain management
including:
Reduce lead-times,
Make sure you keep the customer as the focus of the supply chain.
Strategically select suppliers who can help reduce supply chain costs.