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Lean Manufacturing Articles

THE LEGACY PROCESS: WHAT IS THE PROCESS WE ARE TRYING TO EMULATE?

 

A requirement is generated in the form of purchase req­uisition (PR). The PR is routed to a buyer. The buyer finds a source that can provide the requested item within schedule and at minimum cost. The buyer asks poten­tial sources for quotes on schedule and price, and at­taches some other provisions, clauses, terms, and conditions. Suppliers send their quotes. The buyer makes a decision as to who will get the order and places an order with that supplier. Post award, the buyer has to follow up on the fulfillment of the order. When the goods are provided, they have to be received and the supplier must be paid. The payment may be in response to an invoice, or triggered by the receipt transaction.

"NO SYSTEM" SOLUTION

One of the ways we can buy is without any formal order placed in the procurement system. The are several varia­tions of this mode.

•    Manned terminals: Suppliers, mostly distributors,
keep a person with a terminal on site. Their person
helps the users identify parts they need and their avail­
ability, suggests substitute parts or other options
when appropriate, and, once the user is satisfied, sends a. fax or places the order directly into the supplier's system. Payments are triggered either by the receipt transaction or, most frequently, by a com­bined monthly invoice.

     Electronic catalog: The electronic catalog became the
most frequently used feature of electronic commerce.
In consumer-to-business operation (C2B) it has the
basic format: buyers are browsing the Internet to find
suppliers by a commodity. Once they log on to the
supplier's site, they refer to a catalog. They navigate
the catalog to find the parts they want, and place an
order. Credit checks and payments are usually done
by the use of a credit card. For business-to-business
transactions the process is usually somewhat more
complex, and some workflow capability is required
for the authorization and for the payment process,
which is again most commonly done by a monthly
invoice. The effectiveness of the electronic catalog is
limited by two major issues: how easy it is to browse
and navigate to find the exact items we look for and
visibility of the availability of these items. While many
companies are using it as a channel for sales, not
many of them link it to an online check of their in­
ventory or, when the items are not on hand, to a cred­
ible promised date of delivery. Many vendors quote
standard lead time, which is never accurate, as it is a
result of the ratio of supply versus demand. A cred­
ible available to promise (ATP) capability at the ven­
dor is a condition for better credibility.

     Procurement card: The use of a procurement card
became quite popular in recent years. The card al­
lows authorized users within a company to buy items
and get the supplier paid by the credit card company.
The problem here for business is the amount of data
suppliers are willing to provide on the transaction,
to find its way into the buyers account system, and
for accountability and audit purpose. Although there
was some progress in this area, and standards were
established for level 1,2,3 of pro-cards, the amount
of level 3 suppliers is quite small. The data is not vali­
dated at the time of the transaction, and the process
is somewhat error-prone.

     Vendor Managed Inventory: VMI was a hot topic sev­
eral years ago, and became a way of life for some sup­
pliers. Not being a procurement system by itself, it is
yet a good method of avoiding a lot of communica­
tion and time-consuming transactions by the buy­
ers. Once an agreement is reached, and a long time
order is placed, all the details of deliveries are done
outside the buyer's system.

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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