Supply Chain Management For Logistics And Production

Integrated Buying Model

Discuss about the Supply Chain Management for Logistics and Production.

Purchasing and Supply Chain Management comprises the activities of obtaining the materials and services necessary for an organization to manufacture the products and deliver it to the customers. The Supply Chain Management includes all the managerial activities included in sourcing, procurement, logistics, production, and customer relations. It is focused on managing the flow of goods and services from the acquisition of the raw materials from the suppliers to delivery of manufactured products to the customers (Hugos, 2010). A supply chain manager has to make provision for the movement and storage of the raw materials, establishment and control the inventory and making provision for the delivery of services to the customers. Supply chain management is focused on planning and executing the logistics and supply chain activities to maximize the supply chain values synchronize the supply with the demand.

The management of the supply chain is a cross-functional management approach in which several aspects of flow of materials and their storage is managed. Most of the large business organizations strive to enhance their core competencies and reduce the number of unnecessary processes. In this regard, most of the organizations hire external contractors for the acquisition of the raw materials and their delivery. It results in less control over the supply chain and increased focus on customer satisfaction. The supply chain management is focused on enhancing trust and collaboration among the supply chain partners and increasing the efficiency of the organization (Quayle, 2005).

The integrated buying model explains the buying decisions and process of the buyers. There are several factors that affect the buying decision of an organization such as cost per unit, quality of the product and the lead time for the procurement of the product. The factors affecting the purchase decision of vary according to the requirements of the organization. However, the basic factors that affect the buying decision of an organization are acceptable cost of the product, product quality and lead time. In the procurement process of big organizations, the decision-maker has to take into consideration several factors which impose several constraints on buying decision. A business manager has to address multiple goals in the purchase decision and cost, quality and lead time are the major factors that impact the buying decision of a business organization. The material cost is a significant factor in the purchase decision. Several times, the business organizations have limited budget which increases the quality and quantity constraints on the material. Moreover, cost of per unit material is dependent upon the volume purchased, quality of material and the lead time for the delivery. Most of the business organizations prefer to buy materials at large amount to buy them at discounts (Fader and Hardie, 2002).

Strategic Sourcing Plan

In business processes, the quality level of the material plays a significant role in the quality of the end product. Therefore, the companies buy the raw material according to the competitive priorities of the organization and the role raw material plays in manufactured product. If an organization has low level of defect acceptance rate per unit material, the quality level of the purchased material remains high. The six sigma suppliers have the highest standards for the materials produced and the defects are reduced to defects per million units as a standard process (Kenneth, 2007).

The large manufacturing organizations spend substantial amount of their finances in the acquisition of the raw material. Therefore, it is important that the business organizations focus in optimising their purchase cost in order to reduce their operating costs. The purchasing process of an organization can be considered as strategic function of an organization that can control the bottom-line cost of the organization. It is also important to improve the customer satisfaction of the customers.

The supply chain managers use strategic sourcing to reduce the operational cost and improve the quality of the products. The strategic sourcing involves the process of analysing which products are raw materials; the company buy at highest volume and are most significant for the end product and organization. Henceforth, the business organization develops a procurement strategy to establish working relationships with the suppliers and obtain high quality products at minimum costs.

In this regard, the products which are purchased at highest volume are most significant in the cost reduction process. One these products are identified, the organization can invest both time and money to study the industry and detect the ways to reduce their acquisition costs. In this process, the contribution of the suppliers is increased.

Similarly, the supplier-organization an also focus on improving the product quality. The buyers can also define quality targets for the suppliers to enhance the quality of their products. The buyers can also collaborate with the suppliers to achieve the quality targets. It can enhance the purchase process for the buyer as they will have significant cost saving, reduced development costs and efficiency inventory.

The strategic sourcing is an institutional process which is directed to improve and increasing the efficiency of the purchasing process of the organization. It is a part of the supply chain management and is a systematic process which is aimed at improving the overall value proposition or the organization. The strategic sourcing is not focused solely on cost reduction, but aims to provide the best value proposition to the customers by incorporating the customer needs, organization goals and market conditions. It is a continuous and collaborative approach which aims at identifying all the ways to reduce the cost associated with the production. The concept of strategic sourcing extends beyond price negotiation and price reduction and focuses on total cost leadership. Today, most of the companies have adopted strategic sourcing strategy to increase the cost savings, increase quality, access to new suppliers, establish partnerships with suppliers, increasing efficiency and standardizing the prices. It is different from the traditional purchasing process as it stresses on the entire life cycle of the product rather than the initial buying price of the product (Pandit and Maranis, 2008).

The strategic sourcing standardizes the resource requirements and optimizes their use in the organization. Therefore, it is the process of developing supply chains not at the lowest cost but reducing the overall price of the procurement. It also focuses on establishing long term relationships with the suppliers to reduce the overall cost and establishing a competitive advantage. The most significant aspect of strategic sourcing is the supplier-buyer relationship as it is important in the sharing information and identifying opportunities.

The concept of the strategic sourcing came as in most of the companies the procurement and the logistics related activities are loosely coordinated. The lag companies procure their raw materials from different suppliers at the same time. Therefore, it is common to see cost and quality differences in the raw materials of the same suppliers. However, the challenge for these companies is to implement the most cost-effective procurement method with highest product quality and customer service (Pandit and Maranis, 2008).

The traditional procurement method can be transformed into strategic sourcing methods by adopting three principles, namely, focusing on the total delivered value rather than the price, collaboration with the suppliers for the procurement of the products rather than avoiding responsibility, focusing on overall profitability to the organization rather than the cost savings. When a firm adopt these strategies, it enhances overall economy of scale and establishes long-term relationships with the suppliers based on collaboration. With the strategic sourcing, both the buyer and the supplier can focus on increasing their core competency and this increasing their market share.

This procurement strategy is in alignment with the new production models such as total quality management, outsourcing and globalization. Moreover, as the competition in the business world is increasing, it is important for the organizations to implement strategies to remain competitive. Therefore, they are required to emphasize on a more strategic view rather than a transaction based view to achieve the corporate goals and remain competitive in the market (Lamb and Dunne, 2011).

It could be critiqued that the ultimate goal of the strategic sourcing is to achieve the strategic goals of the organization and establish a competitive advantage for the organization. As a result, the strategic sourcing focuses on increasing the profit targets of the organization and capitalize on the value attained from the raw materials. The maximization of the value of the purchased material is different from attaining the raw materials at the lowest cost and this is the fundamental difference between the traditional procurement and the strategic sourcing. A business organization can implement strategic sourcing in three steps, namely, expenditure category strategy formulation, total supply cost and negotiating. In the first step, the importance of the supplier’s product or the organization is evaluated. The manufactured products or services can be categorized into different sections according to their importance for the organization success. For instance, the office supply and the stationary are integral part of the organization’s operations. However, it does not impact on the competitiveness and the profitability of the organization. In the expenditure category strategy formulation, the goods and the services are assessed according to the impact of the resource on the competitive position of the organization. Unlike, office supply, the quality and the price of silicon can have a drastic impact on the profitability and the sales of an electronics organization. Therefore, silicon is a strategic source in the competitiveness of the organization. If any issue occurs in purchasing silicon or quality of the product, it can impact the whole supply chain of the organization (Parniangtong, 2016).

The total supply cost of the organization refers to the total expenditure to the organization while purchasing materials or services. It includes all the direct and the indirect cost to the organization in the overall product life cycle. The total supply cost is used by the organization to make the most cost-effective choice. When the organizations are using this approach, all the expenditures and cost associated in the life time of the product are used to evaluate the cost of the total product cost. It is superior approach to the previous price estimations as it helps the organization to evaluate the total expenditure to the organization and with this approach, the organization can evaluate the quality, yields and the total value of the product. The firms can better negotiate by using this approach, can examine the supplier performance improvement and can identify the key cost and quantify savings. The last step of the strategic sourcing is negotiation in which the information obtained in the previous step is used to undertake fact-based negotiations. In the negotiation process, the firms use the total cost of ownership approach rather than stressing on the buying price (Parniangtong, 2016).

An electronics manufacturing companies can increase their efficiency and save both time and cost by adopting strategic sourcing techniques. In the strategic sourcing methods, an organization can also enhance the quality and the reliability of the end product. In the strategic sourcing, the buyer should have adequate technical and product knowledge along with the negotiating skills.

The management of the organization should focus on supplies, regulations and the quality-centric approaches, required inventory while maintaining the cost low. The supply chain in the electronics industry is complex; therefore, it is important that the electronics companies focus on the strategies that yield long term strategic advantages rather than methods that yield immediate results. Electronics organizations are characterized by long lead time for the raw materials, high volatility in the prices and distribution and supply networks all across the world. Therefore, these organizations only obtain supply from the long-standing collaborative partners to ensure the quality and the reliability of products (Kismet, 2017).

Conclusion

It can be concluded that supply chain management is an integral part of organization’s success. It is important that the organizations implement different strategies to reduce the cost associated with the procurement of the raw products and the materials. In this essence, the companies use the integrated buying model and the strategic sourcing plan. The integrated buying model highlights the different factors which are important in the buying decision of the organization. It includes the cost, quality and the lead time. The strategic sourcing model emphasizes that an organization should focus on the overall cost of the product, including the cost incurred by the organization in the product life cycle rather than minimizing the purchase cost. It can be used to gain a competitive advantage for the organization.

References

Kismet. 2017. Strategic Sourcing. [Online.] Available at: https://www.kismetssp.com/index_files/Strategic_sourcing.htm [Accessed on: 13 February 2017].

Parniangtong, S., 2016. Strategic Sourcing: Concepts, Principles and Methodology. In Supply Management (pp. 5-14). Springer Singapore.

Pandit, K. and Maranis, H. 2008. Spend Analysis: The Window Into Strategic Sourcing. J. Ross Publishing.

Fader, P.S. and Hardie, B.G., 2002. A note on an integrated model of customer buying behavior. European Journal of Operational Research, 139(3), pp.682-687.

Kenneth, C.E. 2007. Integrated Advertising Promotion , and Marketing Communication. Pearson Education.

Hugos, M.H. 2010. Essentials of Supply Chain Management. London: John Wiley & Sons.

Quayle, M. 2005. Purchasing and Supply Chain Management: Strategies and Realities: Strategies and Realities. Idea Group Inc (IGI).

Lamb, C.W. and Dunne, P.M. 2011. Theoretical Developments in Marketing. Marketing Classics Press.