I have read and understood the rules on cheating, plagiarism and appropriate referencing as outlined in my handbook and I declare

that the work contained in this assignment is my own, unless otherwise acknowledged. No substantial part of the work submitted here has also been submitted by me in other assessments for my degree course, and I acknowledge that if this has been done an appropriate reduction in the mark I might otherwise have received will be made Signed: ......Arjald Gordani................................................................ (for on-line submission it is only necessary to type your name in this space)

MODULE TITLE: MODULE CODE: MODULE DATE:

Supply Chain Management UKFM-SCM 10SC01 18th 22nd October 2010

NAME/NUMBER: ...Arjald Gordani.............................................. GROUP: ...................................1...............................

Module Code

THE UNIVERSITY OF WARWICK SCHOOL OF ENGINEERING MANUFACTURING GROUP MSc PROGRAMMES POST MODULE ASSIGNMENT SUPPLY CHAIN MANAGEMENT Write two study reports to further explore the two of the following three SCM areas: 1. Explore the emerging concepts of Lean Supply Management based on what can be referenced in concurrent literatures; discuss the critical imperatives of efficiency and effectiveness that the lean approach can bring about. Propose a general approach with adequate level of details for an organization to initiate, develop and sustain lean supply management. 2. Elucidate the critical importance of supplier relationship management for the supply chain competitiveness; by finding and referencing to a number of professional literatures critically review some relationship management frameworks, models and approaches; discuss how a business might decide on the most appropriate relationship portfolio and management approach. 3. Explore the definition and concept of supply chain performance and explain how that is related or contributing to business excellence; explore what constituent components of supply chain performance measures and further distinguish it from business performance measures; discuss how those measures may be used constructively to transform the business strategy and improve operations and customer services. Requirement: a. A content page and page numbering b. To complete two separate reports on two chosen topics from the three above, indicating the question number. c. Properly structure the discussion into sections and give subtitles for each section. d. Use references (normally 3-5 professional journal articles for each report) to demonstrate the extended learning e. Each topic is recommended to be around 2000 words in length. f. No lengthy case study is required, but some short (a few sentences) real world examples may be adequate.

Module Code

COMPLETION DATE: To be submitted electronically using the appropriate web-form available from http://www2.warwick.ac.uk/fac/sci/wmg/ftmsc/postmodulework/submissions/ and following the guidelines provided in your handbook BEFORE 09:00 on 06/12/10 PLEASE NOTE 1. PMW received after 09:00 will be stamped as having arrived on the next working day. 2. Post Module Work which does not reach WMG by the due date will be considered to be late. Penalties for lateness may be applied at the rate of 3 percentage points per University working day after the due date, up to a maximum of 14 days late. After this period the work may be counted as a non-submission.

Module Code

Arjald Gordani

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Table of contents

Introduction

Page 5

The lean philosophy

Pages 6-7

Efficiency and effectiveness of lean supply

Pages 7-8

Approaches to lean supply

Pages 9-12

4.1 Lammingss lean supply model 4.2 Stammers 5 steps

Pages 9-11 Pages 11-12

Conclusion

Page 12

Bibliography

Pages 13-14

Appendix 1

Page 15

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Question 1: Explore the emerging concepts of Lean Supply Management based on what can be referenced in concurrent literatures; discuss the critical imperatives of efficiency and effectiveness that the lean approach can bring about. Propose a general approach with adequate level of details for an organization to initiate, develop and sustain lean supply management. 1. Introduction The increase in customer demand variability, together with an increase in pressures from competitors and decrease in the resource base has led organisations to seek new strategies to reduce cost and improve responsiveness to customer demand Keen and Evans (2010). An increasing number of companies are now implementing the lean management approach to their internal operations as well as to whole supply chain Keen and Evans (2010). Cagliano, Caniato and Spina (2004) argue that companies are increasingly focusing on inter-company processes in order to enhance efficiency and effectiveness of the whole value stream. Suppliers are increasingly contributing more value to the final product through greater input in the product development process or even complete responsibility for engineering and design Nellore, Chanaron and Soderquist (2001). It is at this time that lean thinking evolved into the value stream concept, and it was seen to extend from the initial raw materials supplier to the end customer while using the production pull system through the whole supply chain Hines, Mathias and Nick (2004). An important consideration of lean is to add value in all stages of the process and activities that do not add value are removed Mangan, Lalwani and Butcher (2008). The relationships between suppliers and customers along the value stream are critical to achieving leanness, hence the importance of lean supply Erridge and Murray (1998). This report will continue by briefly discussing the characteristics and evolution of lean manufacturing. It will then draw on the effectiveness of lean supply and the arguments for and against in concurrent literature. It will then conclude by analysing one of the most widely referenced lean supply models.
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2. The lean philosophy To further analyse the concept of lean supply management, it is first necessary to discussing the main characteristic behind lean manufacturing. The lean concept was first introduced in the book The Machine That Changed The World Gottorna (2006). Womack found a 2:1 difference in productivity with Japanese companies that showed 50 percent superiority on defects per car compared to the American mass producers McIvor (2001). Lean producers employ teams of very skilled workers at all levels of the organisation and use highly flexible, automated machines to produce volumes of products in enormous variety Womack, Jones and Ross (2007). Over time, different models of manufacturing have evolved through two key output criteria, namely output volume and output variety Mangan, Lalwani and Butcher (2008) and only recently, the two output criteria have been realised at the same time. This can be outlined in figure 1 below. Figure 1.

Sourced from Mangan, Lalwani and Butcher (2008:39) Lean manufacturing can be traced back to the Toyota production system, where the emphasis was on total flow through the system, quick machines turnover, even production, exclusion of muda, low levels of inventory, faster total process time and total quality management (TQM) Mangan, Lalwani and Butcher (2008). Lean production uses a wide range of management practices in a multidimensional approach such as, cellular manufacturing, just in time (JIT)

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purchasing, quality systems, work teams, 5S and supplier relationship management Adamides et al (2007). These approaches are integrated to create high quality products in line with customer demand with little or no waste Shah and ward (2003). 3.Efficiency and effectiveness of lean supply Manrodt (2005:7) defines lean supply as A set of organisations that collaboratively work to reduce cost and waste by efficiently and effectively pulling what is needed to meet the needs of individual customer In mass production, errors would be passed on to keep the assembly lines running. This resulted in a multiplication of errors through each stage down the line. Where as in the case of lean, working in a team culture producing small batches made it possible to recognise errors straight away. Problems are solved by tracing every error to its cause and fixing the issue so that it would not happen in the future. Lean uses less to create the same but at higher variety and better quality compared to mass production Hines, Rich and Esain (2004). As a consequence manufacturers like Toyota have no rework areas compared to 20% of the total plant area in a mass production environment Womack, Jones and Ross (2007). In mass production, the parts would normally be designed by the assembler who would then select a supplier according to the lower price Lamming (1993). However, sourcing in lean supply is for the long term, this may not necessarily reduce price but it can lead to cost reduction efforts, so that margins are kept or improved by reducing cost Keen and Evans (2010). For example, Toyota would always buy from Nippondusso where it would also hold a minority stake Womack, Jones and Ross (2007). In this way, the companies would grow together in what Lamming (1993) referred to as shared destiny. Lean supply chains are established and managed through proactive and collaborative relationship between all the suppliers and customers that add value to the chain. To quote Adamides et al (2007:35) lean supply involves designing,

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planning and executing across multiple partners to deliver products of the right design and features, in the right quantity, in the right place, at the right time. In addition to lean manufacturing principles outlined above, lean supply uses rate based planning and execution to even deliveries and production along the value stream through effective capacity planning Adamides et al (2007). Lean supply decreases dependency on inventory and firms can benefit from higher inventory turns and lower inventory day sales Manrodt (2005). It reduces or removes the bullwhip effect through information enrichment Sucky (2009). For example, Wall Mart sends point-of-sale date to Procter and Gamble every two hours Manrodt (2005). However, there is a need for collaborative decision making between partners in order to create a win-win scenario with a culture of trust and agreements. The assemblers gain benefits by rationalising the supply base Lamming (1993). This can be in terms of lower administration costs and higher negotiation power. Through rationalisation, the assembler can concentrate to excel in its specialised area or its core abilities. The supplier will gain benefits through higher responsibility and greater contribution in the value adding activity. However, lean supply management is still at an early stage of its application in practical terms, with many firms only concentrating implementation in the shop floor by looking just at the first tier suppliers Hines, Mathias and Nick (2004). Companies have to be aligned with the suppliers suppliers and with the customers customers or even with the competitors in order to make operations more efficient Jain et al (2008). For example JCI and Lear who are first tier suppliers for Volve share each others production capacity Choi and Wu (2009). Lamming (1993) suggests that in order for lean supply to have an important role in strategy planning and development, it needs to be viewed as a realistic and practical solution with a focus on constant improvement. Such processes require rich knowledge exchanges that can be done through face to face interaction. However, knowledge exchange can be quite difficult when dealing with global supply chains Shi and Gregory (2005).

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4. Approaches to lean supply There have been two main models to the implementation of lean and lean supply which have been widely referenced in the academic literature, namely Lamming (1993) and Womack and Jones. (1996). However, the model provided by Lamming (1993) will be discussed due to its greater focus on the supply chain and not just the firm itself. This model will be considered together with a framework provided by Stammer (2009). Stammers five steps were chosen because they are believed to be highly comprehensive and easy to implement. A table representing the Womack and Jonsons model is shown in Appendix 1. Figure 2: Lean supply model of customer supplier relationship

Sourced from Lamming (1993:194)

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4.1.

Lammings lean supply model 4.1.1. Sourcing and nature of competition

Sourcing is for the long term to provide a more stable basis for planning with an emphasis on developed working relationships. The supplier should develop strategies and technologies for global cover independently from those requested by the customer. Lean supply includes collaboration with competition as well as between customers and suppliers. 4.1.1. Data

According to Lamming (1993), the supplier must relate its own business operations to the final market using the concept of heijuka and not the batch production smoothing. The supplier must be able to work in confidence with more than one assembler and not share information with other customers. 4.1.2. Capacity

Lamming argues that it is not necessary to have geographical closeness between the supplier and the customer in order to implement and achieve JIT through kanban systems. However, to have your component supplier located close to your plant does have its advantages. For example, Johnson controls invested 8 million to locate a plant within 10 miles of the Toyota assembly plant. There should be joint planning on capacity and it might even be necessary to agree to comparable rates of return on assets employed. 4.1.3. Price changes and Costs

There is a need for open books so that each party can be made aware of the relevant costs structures of the other party and the implications resulting from change. Lean supply requires knowledge of the cost of the value-added in each stage, possibly through a use of value analysis and target costing. Marginal price increases can be smoothed out by marginally reducing costs though collaboration.

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4.1.4.

Quality

Product quality is measured at defects levels in parts per million using the six sigma approach. As soon as this is achieved, the relationship continues in the assumption that the quality level will be constantly improved. 4.1.5. Risk and R&D

Risk is reduced for the assembler when it comes to moving into new technology because the supplier will help develop the idea and invest in assets outside contract terms. The supplier will also incur benefits when it comes to planning accordingly. Collaboration and innovation between customer and supplier by making inventions practicable through shared research and development. For example, Mercedes Benz and Bosch shared resources to create the anti-lock breaking system. 4.1.6. Critique

However, there is a lack of empirical evidence of the implementation of Lammings lean supply model which questions whether the benefits can actually be achieved McIvor (2001). In a study carried out by McIvor (2001) in the electronics industry, it was found that there is no evidence of true cost transparency. Price changes were dealt by eating away the margins from the supplier and not by finding ways to reduce cost. However, there can arguably be more integration in the future. Hines, Rich and Esain (2004) suggest that lean approaches such as kanban or level scheduling are difficult to be integrated in a chaotic and volatile market. 4.2. Stammers 5 Steps

Stammer (2009) argues that there are five ways to implement lean supply: Step 1: Balance manufacturing efficiency with customer needs by producing smaller batches. Step 2: Use supplier portals to extend this efficiency with the supplier and eliminate administrative and manual work. Step 3: Running parallel MRP processes through make-to-order systems and changing the point of postponement over time by constantly analysing demand and inventory turns.
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Step 4: Improve forecasting accuracy to reduce inventory and increase levels of service by assigning the forecasting role to an independent party within a company and not to individual departments. Step 5: The enterprise application used must support and integrate lean efforts with a system recording performance and quality in every batch.

5.

Conclusion

The report looked at the emerging concept of lean supply by referring to concurrent academic and non academic literature. It was found that lean supply is an extension of the lean manufacturing concept with a focus on eliminating non value adding activities throughout the chain in order to reduce costs and increase customer service. It was said that the application of lean can result in efficiency gains by both the assembler and the supplier. However, the implementation of lean is still in an infant stage with many companies focusing on the shop floor, even within the automobile industry which is the mother of lean. Also the understanding of lean supply still remains unclear. Finally, this report concluded by analysing one of the most widely referenced lean supply models in academic literature. However, it can be argued that there is no best practice approach that can be highly effective because it will depend on the industry the firm is in and whether the firm is a manufacturing or service organisation.

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Bibliography Adamides E. D., Karacapilidis N., Pylarinou H., and Koumanakos D. (2007) Supporting collaboration in the development and management of lean supply networks, Production Planning and Control, Vol. 19, No. 1, pp. 35-52 Bozarth C. C., Warsing P. D., Flynn B. B., and Flynn J. E. (2009) The impact of supply chain complexity on manufacturing performance, Journal of operations management, Vol. 27, No. 1, pp. 78-93 Cagliano R., Caniato F., and Spina G. (2004) Lean, agile and traditional supply: how do they impact manufacturing performance?, Journal of Purchasing and Supply Management, Vol. 10, No. 4-5, pp. 161-164 Choi Y. T., and Wu Z. (2009) Taking the leap from Dyads to triads: Buyersupplier relationships in supply networks, Journal of Purchasing and Supply Management, Vol. 15, No. 4, pp. 263-266 Erridge A., and Murray G. (1998) The application of lean supply in local government: the Belfast experiments, European Journal of Purchasing and Supply Management, Vol. 4, No. 4, pp. 207-221 Gattorna, J. (2006) Living supply chains: how to mobilise the enterprise around delivereing what the customer wants, New York: Financial Times/Prentice hall Hines P., Matthias H., and Nick R. (2004) Learning to evolve: A review of contemporary lean thinking, International Journal of Operations & Production Management, Vol. 24, No. 10, pp. 994-1011 Hines P., Rich N., and Esain A. (2004) Creating a lean supplier network: a distribution industry case, European Journal of Purchasing and Supply Management, Vol. 4, No. 4, pp. 235-246 Jain V., Benyoucef L., and Deshmukh S. G. (2008) Whats the buzz about moving from lean to agile integrated supply chains? A fuzzy intelligent agentbased approach, International Journal of Production Research, Vol. 46, No. 23, pp. 6649-6677 Keen M., and Evans C. (2010) Lean in the supply chain: friend or foe?, Management Services, Vol. 54, No. 3, pp. 16-20 Lamming, R. (1993) Beyond partnership: strategies for innovation and lean supply, London: Prentice-Hall Mangan, J., Lalwani. C., and Butcher, T. (2008) Global logistics and supply chain management, Hobeken, New Jersey: John Wiley & Sons
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Manrodt B. K. (2005) Understanding the lean supply chain: beginning the journey [On-Line]: UK: Available http://coba.georgiasouthern.edu/centers/lit/oracle_WP_supply_chain_r6.pdf, Accessed: 12 November 2010 McIvor R. (2001) Lean supply: the design and cost reduction dimensions, European Journal of Purchasing & Supply Management, Vol. 7, No. 4, pp. 227242 Nellore R., Chanaron J., and Soderquist E. K. (2001) Lean supply and priced based global sourcing: the interconnection, European Journal of Purchasing & Supply Management, Vol. 7, No. 2, pp. 101-110 Shah R., and Ward T. P. (2003) Lean manufacturing: context, practice bundles and performance, Journal of Operations Management, Vol. 21, No. 2, pp. 129149 Shi Y., and Gregory M. (2005) Emergence of global manufacturing virtual networks and establishment of new manufacturing infrastructure for faster innovation and firm growth, Production Planning and Control, Vol. 16, No. 6, pp. 621-631 Stummer R. (2009) Top five ways to lean your supply chain, manufacturers monthly, pp. 18-18 Sucky E., (2009) The bullwhip effect in supply chains - An overestimated problem, International Journal of Production Economics, Vol. 118, No. 1, pp. 311-322 Womack, P. J., Jones, T. D., and Ross, D. (2007) The machine that changed the world, London: Simon & Schuste

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Appendix 1: Stages of implementing lean thinking

Sourced from Hines, Mathias and Nick (2004:1004)

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Table of Contents

Introduction to supplier relationship

Pages 17-18

Models, approaches and frameworks Pages 18-20 Pages 20-21 Pages 21-22 Pages 22 Pages 23

Pages 18-23

9.1 Kraljics purchasing matrix 9.2 Bensaous contextual factors 9.3 Partnerships 9.4 Just-in-time purchasing 9.5 Just-in-Time ll

10 Relationship portfolio and management approach

Pages 23-24

11 Conclusion

Page 25

12 Bibliography

Pages 27-28

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Question 2: Elucidate the critical importance of supplier relationship management for the supply chain competitiveness; by finding and referencing to a number of professional literatures critically review some relationship management frameworks, models and approaches; discuss how a business might decide on the most appropriate relationship portfolio and management approach. 1. Introduction to Supplier Relationship Management The Industrial Marketing and Purchasing group (IMP) carried out one of the first studies that looked at the relationship between buyers and sellers in 1982 Lamming (1993). Since this early stage, there has been an increase of interest from both professionals and academics on the importance and influence of intercompany relationships to the competitive success of the supply chain Leek, Turnbull and Naude (2003). Reichheld Sasser (1990) argued that forming successful relationships with buyers can lead to increased satisfaction and loyalty, leading to improved supplier performance. Croom, Romaro and Giannakis (2000) state that organisations should not strive to gain cost reductions and improve profitability by draining margins from their partners, instead they should seek to make the whole supply chain more competitive through collaboration with supply partners. Supplier relationship is increasingly becoming more important as the global competition intensifies requiring coordination and fast response in the value chain Choy, Lee and Lo (2003). Supplier relationship management (SRM) is a new element in the Supply Chain (SC) prescriptive. Choy, Lee and Lo (2003:88) SRM is about maximising the value of the supply base by providing an integrated set of management tools focused on the interaction of the manufacturer with its suppliers. Day (2006) suggested a strategic view of SRM defining it as a cross-company structured process that improves the value obtained between customer and supplier. Choi and Wu (2009) called for a move away from current dyadic and transaction cost models introduced by the IMP group to the networked view of the SC relationship in a triadic consideration. This view is also shared by Olsen and Ellram (1997) suggesting that companies should manage the entire portfolio of supplier relationships.

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By integrating SRM with customer relationship management (CRM) through the same Enterprise Resource Planning (ERP) system, important benefits can be gained such as faster cycle times, quicker and flexible response to changing demand and cost saving through quality improvements. Park et al (2010) suggest that systematic SRM efforts can reduce risk and uncertainty and optimize inventory levels. A recent study has shown companies can achieve a 23 percent increase of value when concentrating on supplier relationship, which is on average $1 billion of cost reductions for each respondent Day (2006). Another example of such benefits was given by Andrews (2010) stating that Unilever has achieved higher on-shelf availability and 4 percent in cost reduction through better SC relationships. However, SRM has often been implemented without cross functional alignment and poor efforts on building trust and mutual commitment which are essential to exploit opportunities on value creation Hughes (2008). Purchasing strategy in the past twenty years has been incorporated in the term Supply chain management (SCM) Krause et al (2009). This increase in importance is highly correlated to the increase of the purchasing and outsourcing costs as a percentage of total revenue Park et al (2010). According to Lee and Drake (2010) and Kraljic (1983) many manufacturing firms use 50-70 percent of their sales revenue on purchasing costs. Metty, Harlan and Samelson (2005) stated that Motorola has become stronger, leaner and more profitable from strategically managing purchasing and supplier relationships through their strategic sourcing platform. Therefore, it can be argued that to ensure a successful performance for SCM, the purchasing function needs careful consideration. 2. Models, approaches and frameworks 2.1. Kraljics Purchasing Matrix Kraljic (1983) introduced a purchasing portfolio model in which purchased items are classified on the basis of two dimensions, profit impact and supply risk. Each dimension has two possible values: high or low table 1. Profit impact is defined in terms of volume purchased, impact on quality, and percentage of purchase

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cost. Factors such as number of suppliers or make-or-buy decision can influence supply risk Kraljic (1983). The purchased items are than classified into one of the four quadrants of the portfolio model Lee and Drake (2010). Kraljic (1983) also introduced a second approach where he identifies the relative power position of the organisation in the supply market. He examines three purchasing strategies which depend on the power balance in the relationship, namely, diversify: if the supplier has dominant power; exploit: if the buyer is dominant and balance: if the relationship is balanced. Both of these approaches will be considered in the next paragraphs. Table 1: Kraljics model

Applied from Kraljic (1982:112) 2.1.1. Strategic Strategic items are critical to success and require close interaction between the buyer and the supplier. The purchasing strategy here is to maintain a strategic partnership, regular information exchange and long term relationships to increase coordination intensity. There is arguably a balance of power with high mutual dependency Caniels and Gelderman (2005).

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2.1.2. Leverage Leverage items are easy to manage but have high strategic importance due to their large share of cost. They can be obtained from different sources and the buyer is encouraged to exploit the purchasing power by selecting suppliers who will be subject to a bidding war. Vendor and value analysis together with price forecasting should be implemented. 2.1.3. Bottleneck Bottleneck items are challenging to manage but have low financial impact. They can cause production problems due to scarcity of supply, or due to power imbalance, with suppliers dictating high prices. Therefore the buyer can diversify, have back up plans, control suppliers and keep safety stock. 2.1.4. Non Critical Non critical items have low strategic importance and should be dealt through simple market analysis. The purchasing strategy should reduce transaction cost through product standardisation and optimisation of inventory. Suppliers of non critical items can be reduced to increase the power of buyers. The relationship is characterised by mutual dependency and a balance of powers. 2.2. Bensaus contextual profiles The model given by Kraljic can help buyers optimise capabilities for different suppliers and effectively manage relationships. There have been recent refinements of Kraljics model such as Olsen and Ellram (1997), Caniels and Gelderman (2005) or Bensaou (1999). Bensaou developed a model using two dimensions namely: buyers and suppliers tangible and intangible investments Figure 1. These authors have filled gaps not covered by Kraljic though a strategic focus on all quadrants, and the identification of a unique strategy for each relationship.

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Figure 1: Bensaus model

Sourced from Bensaou (1999:36) 2.3. Partnerships

Recently, most car manufacturers have decreased their vertical integration, reduced their total number of direct suppliers and moved towards publicly declared strategic partnerships Ploetner and Ehret (2006); Bensaou (1999). Partnerships can be placed in the strategic quadrant of Kraljics model Caniels and Gelderman (2007). However, not all relationships can be a strategic partnership. Day (2006) argues that really strategic suppliers can be five-fifty depending on the organisations size, scale and sophistication. Anderson and Narus (1990:96) define partnerships as: A process where a customer firm and a supplier firm form strong and extensive social, economical, service, and technical ties over time, with the intent of lowering total costs and for increasing value, thereby achieving mutual benefit. In true partnerships, each side is not only committed to the other but also change their behaviour in order to meet the other partners needs Ryu, So and Koo (2009). Partnership can also be in between competitors for example: JCI and Lear both supply seats to Volvo however they collaborate and share production capacity with each other Choi and Wu (2009). Some of the main advantages are shown on Figure 2. However, Ploetner and Ehret (2006) argue that partnership can result in conflicts when bargaining and buyers may use the open book system to gain higher profits by extracting more margins from their suppliers.

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Figure 2: Partnership Advantages

Sourced from Gelinas, Jacob and Drolet(1996:43) 2.4. Just-in-Time purchasing

The purchasing function is highly important to one form of partnership such as Just in Time (JIT) purchasing Gelinas, Jacob and Drolet (1996). Gilbert, Young and ONeal (1994) argue that the JIT philosophy requires long term partnership commitment and constant communication. JIT purchasing is characterised by the frequent delivery of high quality items in small quantities, just when they are needed through a small supplier base Gunasekaran (1999). There is a wide agreement on the benefits achieved through JIT Hong and Hayya (1992); Gunasekaran (1999); Gilbert, Young and Oneil(1994). These benefits include reductions in lead time, lower inventory and the elimination of waste through improved quality of incoming items. In a JIT environment, the buyer must commit through long term agreements, offer technical assistance or financial support to the supplier and share production and operational related information. The suppliers have to improve their performance through higher quality, higher flexibility and lower prices Gilbert, Young and ONeal (1994). However, there are some drawbacks associated with JIT: high costs and difficulties in changing suppliers (buyer prospective) and high costs if the buyer does not fulfil its commitment (supplier prospective).

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2.5.

Just-in-Time ll

The JIT ll concept was introduced by BOSE Corporation as an approach that minimises purchasing cost as sales increase Green, Inman and Brown (2008). In a Jit ll environment, a suppliers employee sits in the purchasing office of the customer replacing the buyer and the sales person Dixon (1999). The employee has full access to customer facilities and data and is empowered to use the customer purchase orders and place orders on himself/herself. The previous 4 stage communication system is replaced by a 2 stage system figure 3. Some of the advantages described by Dixon (1999) include: immediate and ongoing material cost reduction, increase in dollar value of business, reduced paper work and real time data. Figure 3: Traditional 4-stage system and 2-stage JIT ll system

Applied from Dixon (1999:16) 3. Relationship portfolio and management approach The final part of the report will discuss the most appropriate relationship portfolio and management approaches available to organisations on different circumstances. The model used in this discussion will be the portfolio analysis provided by Bensaou (1999). Firms should consider market characteristics, product characteristics and supplier characteristics when deciding on a relationship portfolio and management approach. 3.1. Market Exchange If a firm purchases standardised items that require little engineering from suppliers, and are not subject to major technological innovation or design changes, the company should employ a Market Exchange relationship. This relationship requires little capital investment and many suppliers can be sourced. Buyers hold most power and are encouraged to leverage economies of scale
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from large orders. Suppliers should be selected according to price and official meetings are very rare. Delivery, quality control and inventory are coordinated through established routines. 3.2. Captive Buyer When a customer operates in a stable market with little technological change and purchases complex components that require some form of customisation, a Captive Buyer relationship can be implemented. The supply market is very concentrated with few well established players who hold great power, resulting from proprietary technology. Shifting to a different supply is costly and difficult due to investments made by the buyer and therefore some in-house manufacturing capability is recommended. There is a need for detailed information sharing on a regular basis between all functions in both firms. 3.3.Strategic Partnership A firm should consider entering a Strategic Partnership if it operates in fast changing environment, and if it requires highly customised components. The relationship requires mutual contribution and joint investments in R&D, from the design stage to the final delivery of items through a just in time approach. The exchange of information is done electronically and face to face through the use of electronic data interchange, CAD/CAM systems and three dimensional quality and production control. 3.4.Captive Supplier When customers require highly complex components that are often developed or owned by suppliers, the considered relationship is Captive Suppliers. The supplier has low power and carries out high capital investments to stay in the market. The buyer should keep three to four suppliers for each component part and shift each time that there is quality, delivery or other operational problems. The relationship is based on a low level of information exchange. There is high mutual trust with a focus on coordinating complex tasks rather than control.

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4.Conclusion The report discussed briefly the importance and influence of supplier relationship management on the supply chain competitiveness by giving real case examples. It was argued that SRM can bring many advantages to the partners in the SC and increase the SC competitiveness through higher value added and significant cost reductions. Purchasing strategy was found to be of high importance in the supply chain management perspective. Two highly cited portfolio models were analysed to identify specific purchasing strategies that firms can implement according to their purchase requirements and the supply market characteristics. The partnership approach was next discussed by referring to Just-in-Time purchasing and Just-in-Time ll. Advantages and disadvantages of these approaches were identified. In the last part of the report, Bensaus (1999) portfolio model was implemented. This model served as a guide on the specific relationship portfolio and the corresponding management approach that a firm should take depending on three characteristics, namely market, product and supplier characteristics.

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