Question

1. What does buying at right price mean? What supplier and purchasing considerations need to be made in pricing agreement? Explain with examples.

2. (a) Analyse the contribution the purchasing manager can make to quality both at the design stage of a product and during the production stage.
(b) Purchasing has bcen involved in strategic decision making. Explain how.


3. (a) 'In certain organizations the functional approach to purchasing has decided advantages'. Consider the extent to which this statement is true.
(b) Why should the purpose of a purchased item always be made known to the supplier?

Answer 1

For the suppliers, it is a level that maintains the supplier's margins with meeting strategic business goals. For the buyers, the price issue encompasses more than the figure that winds up on the sales . Total cost of purchase (TCP) clearly includes the factors which have traditionally calculated in total cost of ownership, such as quality, supplier reliability, lead times and warranty. The TCP also encompasses more abstract factors, such as the risks of buying too much or buying too little of a component; the tradeoffs of buying one product over another, similar good; and the costs associated with doing the business with a particular supplier under a given set of terms as opposed to little different terms.

Emergence of the e-procurement has arguably made figuring the total cost of the given purchase considerably more difficult, because e-procurement systems has the potential to expose the purchasers to a greater number of potential suppliers and the exponentially broader range of options. Using manual processes to calculate total the cost of purchase has never been easy because of fuzziness of TCP's constituent components. But manual processes are the greater liability today because they impede the ability of a company and its supply chain to react to the changes in its demand or unexpected bottlenecks. Companies striving to operate in proverbial Internet time need the TCP-discovery tools that can enable them to rapidly respond in a dynamic way to the fluctuations in the market.

Following steps you should follow while considering supplier and purchasing consideration in pricing agreement:-

1. Identifying a Supplier
Before selecting the supplier, it is very important to gather the opinions of stakeholders and the criteria . The list of stakeholders may include members from research and development, purchasing, marketing, quality assurance and any other area of your organization that touches the supplier selection process.

its important to identify few suppliers to assess their capabilities and compare pricing. The supplier selection team should work with the potential suppliers to establish specifications. Example, they should explain how supplier’s materials would be used in your products and within the manufacturing process. The ultimate goal is win situation for the supplier and manufacturer; therefore, open and transparent communication is extremely important.

A key criterion in selecting the right supplier is value.The total cost of ownership, which looks at the supplier’s:
• Customer service

• Delivery commitments

• Reliability and responsiveness

• Resource savings (hard and soft)

2. Measuring Supply Performance.
The another important step of the supplier management process is developing the audit and assessment program.The best supplier programs conduct audits throughout multiple stages of manufacturer/supplier relationship. You should always conduct an audit before the contract is signed to confirm that the supplier doesn't have any significant compliance. The reason to conduct the audit beforehand is to understand supplier’s strengths and the weaknesses before the relationship becomes official.
Then after the contract is signed, you should start auditing, the frequency of the audits on the criticality of the supplier. To determine the frequency, all the suppliers should be categorized into a level of risk or importance. This prioritization will help you in being smarter and more effective with your resources and place a higher focus on your important, high-risk suppliers, while continuing to monitor second-tier suppliers.

And you should continuously monitor and assess each supplier’s performance. You can track the positive or sustained strong performances, as well as the negative trends.

3. Gaining Supplier Feedback
You can utilize with suppliers is a self-assessment questionnaire. The supplier self-assessment can be used to identify performance gaps, as well as the discover how supplier understands their own operation.

In addition to the audits and assessments, it's beneficial to monitor informative metrics that direct value to the business. You should discuss and select the appropriate metrics with suppliers to receive their understanding of purposeful measurements. Examples these metrics include rejected lots, perfect shipments and some documentation errors. The metrics selected should measure the total cost of ownership, as well as to improve performance toward the maximum finished product performance.

4. Achieving Certification
As the supplier relationship grows stronger, and both parties feel that they are receiving positive performances, the supplier may be able to achieve a certified status. This occurs when you establish a set of selected criteria to be met by your suppliers. Certification must be obtained with the sustained successful performance and can be lost with poor performance or a negative compliance from an audit.

As the relationship grow, the supplier will also become more integrated into your manufacturing process.

5. Developing Partnerships
The manufacturer/supplier relationship is at its best when the strategic partnership is formed, allowing full knowledge of the source of the materials and ensuring high quality.
With a stronger business partnership, a supplier is more likely to:
• Anticipate its needed from the manufacturer and begin to take the leadership role in communication.

• Notify the manufacturer if any problems occur that limit production availability, or a quality issue is identified.

• Communicate production delays when downtime or maintenance is required.

This type of partnership allows for an increased in understanding and mutual benefits for both the parties. And cultivates stronger commitments and encourages a greater interest in success for the material and finished goods. This type of relationship is your ultimate goal.

However, there are risks associated with forging this kind of partnership. Trust in both parties becomes paramount, and both the entities must ensure no potential or real conflicts of interest occur. When both the parties become more reliant on each other, if there is a breakdown on either side or the relationship dissolves, there is much more to lose.

6. Ensuring about the Quality for Consumers
Depending on the number of materials and ingredients is needed, developing a supplier quality management program can be complex and upfront investment. once you choose to build strong relationships with reliable suppliers, you will have the peace of mind, knowing you’re delivering high quality to your consumer.

The benefits are realized when your supplier quality team is focused on issues other than material quality, and your satisfied end-users have confidence in the products you provide.

The right supplier can help you meet the consumer demand for higher-quality ingredients and also meeting high regulatory standards.