Purchasing and Supply Management

Chapter 6

Table of Contents

Just in time purchasing refers to the implementation of lean thinking concept in purchasing function. Most companies have implemented the just in time concept in purchasing function. The integration of the lean thinking concept in purchasing has resulted to profitability in many industries. The lean concept has focused on people and elimination of waste. It has also focused on efficiency. The elimination of wastes, efficiency and other functions linked with lean concept have a direct effect on purchasing functrion. Thus, the Just in time purchasing has enabled firms to implement the lead concept in their purchasing functions (Benton, 2006).

There are different elements that are linked with just in time purchasing. The element have made just in time purchasing different from the traditional purchasing method. The first element is reduced order quantities. The just in time purchasing is associated with small lot sizes (Benton, 2006). Long production runs in the organization result to high levels of raw materials and finished inventor goods. The long production runs are linked with big set up times. The just in time purchasing has helped reduce the set up times in production. It has also helped reduce the cost associated with production by implementing change over technique and simple product designs. This has led regular production runs and small lot sizes. Thus, the just in time purchasing has helped reduce the order quantities.

Apart from reducing the order quantities, it has helped improve the delivery schedules. The just in time purchasing function has resulted to frequent and on time delivery of goods. The just in time purchasing offers a deliver window. For example, the delivery of goods can be done within 6 days. Other manufactures have used the just in time concept to set the window to 5 days (Benton, 2006).

Moreover, the just in time purchasing has helped reduce the lead time. Reducing the lead time helps maintain low inventory levels. The just in time purchasing helps suppliers relate with the company for longer than traditional methods. This helps reduce paper work and manufacturing time. It also reduces the inspection time as the manufacturers incorporate quality into the products (Benton, 2006). Also, the just in time purchasing concept helps improve the quality of materials being purchased. Most manufactures reduce the inspection of incoming material by emphasizing on the quality of materials coming through the JIT system (Benton, 2006). Lastly, the just in time purchasing helps enhance reliable suppliers. Just in time system does not offer for buffer stock and unreliable supply in incoming material. This results to production problems. One should consider the reliability of supply when selecting just in time suppliers (Benton, 2006).

There are various problems that are linked with the implementation of just in time purchasing. Implementing just in time purchasing is not easy as organizations encounter various problems when implementing just in time purchasing. First, lack of cooperation from suppliers affects the implementation of JIT purchasing. Most pf the companies have problems with suppliers and this affects the implementation process

Most of the suppliers are not always willing to adapt the just in time method. The suppliers believe that the buyer is the only person who benefits from the implementation of the just in time method. Also, the buyers are not committed. For example, buyers who treat suppliers as independent agents are not committed in the implementation of the system. This results to competition among the buyers. In addition, most of the suppliers find it hard to provide quality materials at the right quality and time to buyers. Moreover, lack of support from the management affects the implementation of just in time systems in the organization. The top management in most organizations does not support the implementation process. The implementation of JIT in the organization requires the change of organizational culture (Benton, 2006).

Changing the culture is not easy if the top management does not support the process. Moreover, the implementation of just in time systems is affected by employee. Most of the employees do not support the implementation process and they are not ready to accept change. This in turn slows the implementation process. Further, in adequate support from the design engineering employees affects the process. The design engineering personnel are supposed to make the technical specification for the materials. The purchasing function does not get support from engineering function and this makes it hard for purchasing to advise suppliers on the quality of materials. Low product quality affects the implementation of just in time purchasing. This happens if the suppliers do not provide quality materials regularly (Benton, 2006).

In adequate support from carrier firms has also affected the implementation process. Many companies spend huge amount of money to transport materials in and out of the factor. Only few buyers work together with carries to establish the long term relations that improve the delivery of material and reduce costs. This in turn affects the just in time systems. Lastly, the implementation of just in time system is affected by lack of communication. The implementation of JIT system requires integration of different sections like purchasing, manufacturing and quality. Other areas include production and transportation. Lack of clear communication between the areas affects the implementation process (Benton, 2006).

Culture plays an implementation of Just in time systems. For example, culture helps in creating good relationship between manufacturers and suppliers. This makes it easy to implement JIT system. Countries that have had good culture like Japan have managed to implement JIT systems. On the other hand, countries like United States have failed to implement JIT systems due to cultural differences and issues. Suppliers have a different expectation from manufactures. For example, some of the suppliers do not want to supply quality materials to buyers. The suppliers do not also want to supply the materials on time (Benton, 2006).

There are various benefits that are linked with JIT system. The JIT systems help reduce the levels of inventory and the costs linked with the inventory. Most of the firms that have used JIT systems instead of traditional methods have been able to reduce the cost of inventory and its level. In addition, Just in time purchasing has helped enhance lead time reliability unlike traditional method. The delivery lead times in just in time systems are shorter than in traditional purchasing method. Moreover, it has made the scheduling process flexible by reducing the purchasing lead time and set up times. Also, just in time purchasing has improved the quality of products and satisfaction of customers (Benton, 2006).

It has also led to reduction in cost of parts. This is due to cooperation between suppliers and manufacturers. The manufacturers and the suppliers have worked together to reduce the cost of various parts bough and analysis the value. This is in contrast to the traditional methods of purchasing (Benton, 2006).

The just in time purchasing affects the order costs by reducing level of physical inventory. The reduction of the level of physical inventory has an impact on the cost of holding the inventory. Hence, reduction in inventory level results to low cost. It also reduces the labor cost and costs resulting from handling of material. In addition, it reduces the obsolesce costs and this results to high profit. It also reduces the lead time by eliminating paper work lead time and other kinds of lead times. This in turn reduces the inventory level and cost (Benton, 2006).

The just in time system does not solve all the manufacturing problems in United States. This is because most firms do not understand JIT systems and have faced numerous problems when trying to implement the system. Hence, very few firms in United States have realized the benefits associated with JIT system (Benton, 2006).

Chapter 7

There are various objectives that are associated with a sound purchasing system. First, a sound purchasing system should be aimed at using funds provided well. Second, the purchasing should be conducted in a professional manner. In addition, the company should purchase the right materials in the right quantity, time, and place. Also, the company should get materials from the right source. The procedures should ensure ethical standards are followed so as to enhance confidence. Any purchasing actrivity carried out should be based on the objectives above (Benton, 2006).

There are various functions that are associated with a purchasing department. First, the purchasing department is supposed to identify the supplier. After identifying the supplier, the purchasing department should negotiate the price with the supplier and then agree on the date of delivery (Benton, 2006).

System contracting is a kind of stockless inventory method that is used order and stock MRO and other items. The use of system contracting in the organization helps reduce ordering costs and inventory costs. In system contracting the buyer and the seller are supposed to use a negotiated agreement. The agreement states the type of material, price, billing policy etc.

Total cost ownership refers to the total costs incurred during purchasing process (Benton, 2006).

Reverse auctions involves the process of purchasing goods online. The growth in internet technology has helped in the purchase of goods. Most people are able to order goods online. The reverse auction helps business purchase goods online. The reverse auction is used in the construction industry and government agencies. Electronic data interchange or EDI refers to the transmission of orders and inform about transactions using computers. EDI is used to transfer orders, invoices using electronic means. It also used to transmit payment between buyers and seller. The EDI system consists of different elements. For example, the EDI system is made up of computer hardware and software. It should also ensure computer compatibility between the person sending orders and the receiver. In addition, the system should ensure all people are subscribed to a common network (Benton, 2006).

EDI has changed the purchasing functions in different ways. First electronic data transmission has helped in improving time taken to purchase items or materials. This is because customers are able to place orders online and get products immediately. It has also helped reduce paper handling in the organization as organizations use computers to handle information. In addition, it has helped improve data processing in the organization as companies are able to process data quickly. The reverse auction has also made it easy for organizations to purchase materials quickly. They have also improved the methods of payment (Benton, 2006).

The Lewin theory of change is used to overcome the challenges organizations face when implementing EDI. For example, it helps prevent loss of jobs. The Lewin-Stein theory of change consists of various steps. The first step is unfreezing. In this case, the organization is required to create awareness of the need for change. Creating awareness helps employees in the organization accept change.

The second step is moving. This involves changing the direction of forces that are used to define the situation. The organization has to develop new methods and attitudes. The third step is refreezing. Refreezing involves reinforcing changes that have already happened. This helps maintain a balanced situation. Any organization implementing EDI should follow the steps listed above (Benton, 2006).

Radio frequency identification is a term that is used to refer to technologies that utilize radio waves to identify items like products and track them. The Radio frequency identification keeps a serial number of the product and uses it to track the product. There are various advantages associated with RFID. First, radio frequency identification helps in reducing the cost of labor. It also helps simplify the business processes and enhance the control of inventory in the organization. It also helps increase sales in the organization and reduces shrinkage. Though RFID has a lot of advantages, it has some disadvantages. First, implementing RFID is expensive. This is because companies have to purchase many readers to cover various facilities like warehouses and stores. The cost of readers ranges from $1000.They also have to RFID tags which are expensive.

Purchasing technologies have various advantages and disadvantages. First, purchasing technologies have helped reduce the cost of purchasing as firms use electronic means to purchase items. The traditional methods of purchasing have forced firms to use a lot of money in purchasing materials. The purchasing technologies have helped reduce the time need to purchase items. Most companies using traditional methods of purchasing spend lot of time to purchase items. On the other hand, purchasing technologies are expensive. This is because firms spend a lot of money purchasing different types of purchasing technologies and implementing them (Benton, 2006).

The internet has helped improve the purchasing function by enabling firms use different types of purchasing technologies. For example, the internet has enabled firms use Reverse auctions and EDI. This has helped eliminate problems associated with purchasing functions. Most of the firms are able to use e-sourcing when purchasing materials and other products. E- Sourcing has helped improve the purchasing functions by enabling firms meet their purchasing objectives like ethical consideration and utilization of funds well during purchasing process (Benton, 2006).

Reference

Benton,W.C.(2006).Purchasing and supply management. McGraw-Hill Irwin

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