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In the truly integrated materials management function there is a
major opportunity to transform buyers to the role of strategic
managers of material cost (value). The keys to such a metamorphosis
will be achieved through the following:
• Training
• Commodity strategies
• Understanding the market
• Benchmarking
• Supplier quality programs
• Managing suppliers who are not cost effective
• Managing the supplier selection process
• Understanding the difference between material price and total cost
(value)
As in most situations the best performers are also the best trained.
An aggressive training program for buyers should include the
following broad based programs.
• Negotiating skills including those that result in a "Win-Win"
situation for both the supplier and your company.
• Accounting techniques that focus on cost of inventory, present net
worth, etc.
• Statistics that teach SPC, PCI, and CPK, as well as how to do
Pareto analysis and reading run charts.
• Value analysis that teaches buyers how to break down product
prices to material costs to see where greatest improvements are
possible.
• Target costing that focuses on setting a price for an item and
working with suppliers to meet or be less than that price while
maintaining quality standards.
Another key to having successful buyers is their educational
background. World class purchasing organizations will need not just
college educated personnel, but more importantly individuals that:
have skill sets in the areas they are responsible for. An example is
chemical buyers should have degrees in Chemistry or Chemical
Engineering. There is a world of difference between being able to
pronounce complex chemical names and understanding the production
processes. Packaging buyers might well be those who have a packaging
engineering degree. In all cases an MBA should be expected to
solidify the technical and business skills needed to best manage the
business.
Commodity strategies are table stakes for an effective purchasing
organization. These serve the purpose of providing a written
understanding of any commodity; they also are a key parameter in
allowing a smooth transition as buyers change responsibilities. In
some research I have conducted, I have found few companies have
commodity strategies. A good commodity strategy contains the
following:
• A summary of the current suppliers and the use(s) of the material.
• Other potential suppliers in the marketplace.
• Abreakdown of the raw materials used to manufacture the item and
the current price of raw materials.
• A contingency plan if the commodity is sole sourced.
• Energy source used at the supplier's plant to evaluate potential
price concerns if fuel costs escalate.
• Labor union and date of contract expiration if the manufacturer is
a union plant.
• Location of plant(s) and transportation sources from that area.
• Current specification for the commodity and process capability of
the suppliers manufacturing the item.
• Research and development budget of the supplier.
• Data on the current delivery and quality performance versus
specification.
• A breakdown of the current raw material, labor and burden prices
the supplier is paying.
• Improvement initiatives at the supplier such as MRP II, ISO 9000,
empowerment, etc.
• Financial status of the manufacturer including a balance sheet.
• Key management of their site and company.
• Other customers of the company to make sure development efforts
you are engaged in with them are managed properly.
• Current lead times and lead time reduction efforts the supplier is
engaged in.
• Capacity of the plant and what portion of the capacity your
commodity requires.
By compiling these key items, buyers will be able to manage their
commodities rather than being managed by others.
To be Continued
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