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Procurement Solutions
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Lean Manufacturing Articles

Small and medium-sized companies are faced with a fragmented, painful procurement process—buyers who never know whether they're getting the best price, and suppliers who spend a great deal of money and time try­ing to bring in new business.


Today, many of these companies in manufacturing are looking for a solution to this problem. Let's discuss the current procurement process and how online trad­ing exchanges can be utilized as a tool to streamline these processes for both buyers and suppliers.

To best understand how independent trading ex­changes (ITEs) will help its customers, it's worth review­ing how target customers do business today.


Writing the RFQ

Let's assume you're a manufacturer that makes ballpoint pens that include a pen cap. You need to find a supplier that can provide the pen caps to you. Today you will typi­cally write an RFQ, a request for quote. This is a docu­ment that tells the potential supplier what you need. RFQs vary significantly from company to company—some are short and broad, others are very long and detailed. Some companies will simply hand-write their RFQs on notebook paper. Your RFQ might say you need 10,000 pen caps over the next three months and that they need to be three inches long, gray, plastic, and have a diameter of X inches.

Distribute the RFQ

Now that you've written the RFQ, you need to get it out to potential suppliers. How do you do this? There are typically three ways:

1.       You can use a directory like the Yellow Pages or the
Thomas Register to look up suppliers.

2.       You can make contact with manufacturers' represen­
tatives who are trying to get business for their clients.

3.       You can contact manufacturers you currently do
business with or have done business with in the past.
Once you've made contact, you can fax these compa­
nies the RFQ and ask them to prepare a quote.

Answer Questions about the RFQ

Even though you think you may have filled out the RFQ well, you will always forget something or will leave some­thing unclear. Even if you are perfectly clear, many suppliers may still not "get" what you meant. This means that the suppliers will phone and fax questions to you. Unfortunately for you, when you answer the question for one supplier, the other suppliers don't get the word. Often, you'll receive the same question a number of times and have to spend wasted hours answering them.

Begin Receiving Bids on the RFQ

After the question period is over, suppliers will begin sub­mitting their bids to you. But they don't see each other's bids. So you probably won't get the best price from all of them. You'll also have to go back to all the suppliers after the first bid and negotiate further. For example, say you get three bids: one for $10k, one for $llk, and one for $11.5k. You prefer the supplier with the $11.SK price because that company is located nearer to you and you'd like to be able to work easily with them. But you'd rather not pay $11.5k when you could pay $10k. So you have to go back to the $ 11.5k bidder and ask him if he can go lower because you've received a better bid from another company. This back and forth can go on for some time. All the while you may not really know that much about the supplier.

Choose a Supplier

After all the back and forth, you choose a supplier. But because you went through the entire process without knowing that much about the supplier, you might find after making your decision that they're not the best com­pany for you. In that case, you have to go with one of the other finalists in the bidding process.

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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