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Procurement Future
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Lean Manufacturing Articles

BUSINESS ENVIRONMENT

Most companies that analyze their procurement profile find that it falls under the 80/20 rule: 80 to 90 percent of the purchasing orders (POs) account for 10 to 20 percent of the material dollars. At the same time, most compa­nies feels a tremendous pressure to cut costs in order to remain competitive and survive the market demand for lower prices. That created a dilemma for our company. One of the methods of cost cutting is a reduction of the workforce to the level the company can afford. This is usually done without regard to the amount of work still needed to get done. For the supply chain organization, it meant our buyers' head count was reduced significantly, yet we had to place the same amount of purchase orders with our suppliers. We still had to order all parts and bring them in on time We still had to manage our busi­ness and maintain accountability

The solution: We have to spend precious buyers' time where we get the best return of investment, which is fo­cusing on high-dollar items or negotiating agreements with suppliers. We had to find a way to buy the low-value items without buyers.

HOW CAN WE BUY WITHOUT BUYERS?

 

The work still needs to be done. The are basically three options for us:

     Automation: let the computer do the work of people.

     Let the supplier do the work. Enable the suppliers to
enter data directly into our system.

     Let the user do more work (self service). Enable the
users to place his own purchasing requisitions and
follow up on their orders. We found this option spe­
cifically favorable with engineering groups. There is
a long history of resentment of engineers who per­
ceive the buyers as a hindrance to their success, slow
to respond, and too bureaucratic for simply buying
low-value parts. They welcome the opportunity to
control their own destiny.

WHAT CAN BE AUTOMATED?

•   Communication: The way buyers can communicate
need, sellers communicate availability of the goods,
and the meeting of buyers and sellers for the same item can be easily automated.

     Decisions: Buying low-value parts does not require a
complicated decision process. To begin with, the
problem is more to find who has the goods available
rather than find a lower price. If there is more than
one source, we always want to buy at the lowest price
and still support the schedule. Trade-off between
schedule and cost can be translated to a formula, cal­
culated by the computer.

     Workflow. The process of generating requirements
and authorizing procurement, checking of funding,
budget limit, credit, and other steps can be helped
significantly by adequate software.

     Documentation: Generation, retrieval, storage, and
communication of documents are easily subjected to
automation, especially in the new reality of the In­
ternet where connectivity and access to data are universal
and simple.

     Data maintenance: The new technology enables sup­
pliers and customers to enter their own data directly
into other systems, either manually or via automated
interface.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 14


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