PURCHASING IN LOGISTICS
The optimal procurement solution.
In today’s globally networked world, a company has a number
of material-procurement options. As a result, a company must think about its
number of suppliers, procurement time, order size and procurement sites.
Another question to be addressed is whether it makes more sense to select local
suppliers or many different and sometimes widely distant ones. A company must
also consider whether a supplier should use a just-in-time system or whether
the company’s own buffer storage system should be put in place. It is only
through the use of a mature procurement strategy that such questions can be
answered and opportunities optimally used.
Best purchasing from reliable sources
A special relationship exists between procurement channels
and procurement logistics. One key decision that must be made in purchasing
strategy involves the determination of the procurement channel - e.g., the use
of direct purchasing or purchasing assistants such as buying agents or
wholesalers. This decision is heavily influenced by the suppliers’
sales-channel strategy. As a result of the similarities between the decisions
involving distribution and purchasing strategy, execution can be transferred
to distribution strategy.
Three points need to be stressed:
- The problem of the number of suppliers,
- The problem of the procurement time,
- And the problem of suppliers’ geographic locations.
Number of Suppliers
In multiple sourcing, the large number of suppliers reduces
the risk of dependency. For instance, it protects against delivery failures
resulting from production disruptions at individual suppliers. At the same
time, however, it puts a tremendous strain on the procurement-logistics system
and results in a high level of complexity.
In the automotive industry, vertical integration is being constantly reduced. Sometimes, automakers install only component groups that have been preassembled by suppliers - e.g., completely assembled seats, doors and cockpits. For such component groups, the number of suppliers is frequently limited to one supplier (single sourcing) or two suppliers (double sourcing). At the same time, reducing the number of suppliers creates the possibility of lowering coordination and logistics costs. Through cross-company planning and management, material and information streams from the supplier to the customer can be efficiently designed. For those instances where particularly close relationships with suppliers have to be established, as is the case with, a reduction in the number of suppliers is unavoidable.
This is reflected in the trend toward single sourcing or double sourcing. In the process, the complexity of the procurement program can be reduced, cost-effective lot sizes can be achieved, quality assurance can be simplified, and transaction costs can be cut. At the same time, there is a growing risk of becoming dependent on the suppliers.
In the automotive industry, vertical integration is being constantly reduced. Sometimes, automakers install only component groups that have been preassembled by suppliers - e.g., completely assembled seats, doors and cockpits. For such component groups, the number of suppliers is frequently limited to one supplier (single sourcing) or two suppliers (double sourcing). At the same time, reducing the number of suppliers creates the possibility of lowering coordination and logistics costs. Through cross-company planning and management, material and information streams from the supplier to the customer can be efficiently designed. For those instances where particularly close relationships with suppliers have to be established, as is the case with, a reduction in the number of suppliers is unavoidable.
This is reflected in the trend toward single sourcing or double sourcing. In the process, the complexity of the procurement program can be reduced, cost-effective lot sizes can be achieved, quality assurance can be simplified, and transaction costs can be cut. At the same time, there is a growing risk of becoming dependent on the suppliers.
Procurement Time
Another question is the timeframe in which the material is
to be provided to the company from outside.
Here, there are three general options:
- Individual procurement as needed: In terms of individual procurement, the materials are acquired only after the need arises. In this manner, warehouse costs and capital tie-up created by stored procurement articles can be kept to a minimum. But one disadvantage is that production must be put off until the material arrives. If the delivery times promised to the customer cannot be kept, downtime costs can easily rise above savings achieved through reduced capital tie-up.
- Procurement with stock-keeping: In terms of procurement with stock-keeping, the materials are warehoused at a company for its own internal material use. As a result, the company’s needs can be met within a short time. This gives the company added independence from swings in deliveries or unreliable suppliers. Stock-keeping also involves large purchases. Among other things, this result in cost savings achieved through quantity discounts. On the other hand, the capital tie-up associated with this strategy is higher as a result of the stored materials. Warehousing costs climb as well.
- Just-in-time delivery: A customer can order a car based on his own desires and can change this order - frequently up to a week before delivery. The automaker could not offer this service without a production- or operation-synchronized supplier concept. With this supply system - just-in-time concepts or just-in-sequence programs - the flow of material between supplier and customer is optimized. As a result, short run times of the material, lower capital tie-up and reduced warehouse costs are achieved. But the just-in-time concept requires extremely reliable suppliers. In addition, an intense exchange of information forms the basis of this close working relationship.
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