Question

ABC was a medium-sized Hong Kong-based company with two manufacturing plants in China, one in Dongguan and the other in Shanghai with employees of 3,000. The company was manufacturing micro-were ovens in three different product lines including oven-P, oven-Q & oven-R series.While P & Q models were for its domestic customers, R models were designed for its overseas clients. The three product lines were targeting at difference market segments. 40% of their components were nevertheless shared among the three product series and 60% of the components were common to P & Q models.Basically,the components were divided into several categories including the casing,the heater,the glass front door, the electronic control, the magnetron, and the small mechanical and plastic parts. The following was the generic purchasing procedure that ABC was adopting to control its purchasing activities.
-User department (e.g, Production of Oven-Q) issued a Purchase Request (PR) to Purchasing Department for a component W(e.g., light bulb).
-Purchasing Department negotiated with the supplier about the price of manufacture of W.
-ABC issued a Purchase Order (PO) to detailing the specification of W and the required receiving date.
-Upon the receipt of order,Receiving Department checked the material against PO and issue Receiving Report (RR) to Incoming Quality Control(IQC)Department
-IQC check in accordance with the testing TEST-W101~108-MILSTD and issued a Testing Report (TR) to Purchasing Department to close the order.
-Accounting Department issued a cheque to the supplier upon received an invoice from it.


Given the following.problems/issues, what are your suggestions to the Purchasing Department?

There were three potential suppliers X,Y and Z providing W to ABC. X was good at qualify, Y was responsive and Z’s price is competitive.

Hints. Score :X...%
                        Y...%
                        Z...%
----------------------------
             Total:100%

Answer 1

Seven key categories of purchasing problems are listed below:

1. Supplier or brand specifications. ...
2. Inadequate supplier selection. ...
3. Personal relationships. ...
4. Lack of good contractual arrangements. ...
5. Too much emphasis on price. ...
6. Poor administrative processes. ...
7. Delivery problems.

Purchase Department should look for the above issues in each supplies X, Y & Z

Factors in Selecting Suppliers:

1. Technical ability: Does the supplier have the technical ability to make or supply the product wanted? Does the supplier have a program of product development and improvement? Can the supplier assist in improving the products?
2. Manufacturing capability: Manufacturing must be able to meet the specifications for the product consistently while producing as few defects as possible. This means that the supplier’s manufacturing facilities must be able to supply the quality and quantity of the products wanted. The supplier must have a good quality assurance program, competent and capable manufacturing personnel, and good manufacturing planning and control systems to ensure timely delivery.
3. Reliability: In selecting a supplier, it is desirable to pick one that is reputable, stable, and financially strong. If the relationship is to continue, there must be an atmosphere of mutual trust and assurance that the supplier is financially strong enough to stay in business.
4. After-sales service: If the product is of a technical nature or likely to need replacement parts or technical support, the supplier must have a good after-sales service. This should include a good service organization and inventory of service parts.
5. Supplier location: Sometimes it is desirable that the supplier is located near the buyer, or at least maintain an inventory locally. A close location helps shorten delivery times and means emergency shortages can be delivered quickly.
6. JIT capabilities: Companies competing in a just-in-time (JIT) environment depend on suppliers to quickly deliver small quantities of product. Modern companies operate with very little inventory of raw materials and require accurate, on-time deliveries from their suppliers. JIT suppliers who simply keep extra inventory to meet
   these demands will soon have increased costs and pressures to increase their prices.
7. Other considerations: Sometimes other factors such as credit terms, reciprocal business, and willingness of the supplier to hold inventory for the buyer should be considered.
8. Price: The supplier should be able to provide competitive prices. This does not necessarily mean the lowest price. It is one that considers the ability of the supplier to provide the necessary goods in the quantity and quality wanted, at the time wanted, as well as any other services needed.

Final Selection of supplier can be done by supplier ranking:

The figure shows an example of this method of selecting suppliers. Supplier B has the highest total of 223; however, supplier D comes in a very close second with 222. The normal practice when using the ranking method is to eliminate the bottom ranking suppliers from consideration, allowing management to make a simpler decision.
The ranking method is an attempt to quantify those things that are not quantified by nature. It attempts to put figures on subjective judgment. It is not a perfect method, but it forces the buying company to consider the relative importance of the various factors. When the method includes the input of many people in determining the relative weights, agreement on the final selection will be improved.