Module 4: Purchasing and

Facilities
Management
Services
Purchasing and facilities  Transport services
management  Travel
 Purchasing-to-sales turnover ratio  Accommodation
is relatively low  Training and education
 Purchasing for the primary  Search and recruitment
process is usually absent  Market research
(since there is no physical  Media
production process)  Events
 Purchasing saving have a limited  Factoring
effect on return on assets IT & Telematics
 Management will spend most of  Mainframes and software
the time on value added and  Midrange systems
people-related issues and  PCs
activities, they will put little effort  Peripherals
in support activities (purchasing)  Data communication networks
 Telephone switching equipm.
Major categories of expenditure  Infrastructure
Buildings, installation and  IT projects
Infrastructure  Outsourcing
 Real estate Office supplies and printing
 Restructuring and renewal  Copying
 Maintenance  Office equipment
 Technical installations  Office supplies
 Security Systems  Paper
 Office furniture  Packaging material
 System walls  Printing
 Temporary buildings  Representation
Housekeeping  Books and subscriptions
 Energy
 Catering The service sector is changing from a
 Cleaning services traditional and local arena to an
 Green keeping international arena. As a result,
 Removal services service companies strive to improve
 Security their services for the end user whilst
 Garbage removal reducing operational costs.
 Clothing  Increased outsourcing of support
 Technical support materials activities
Temporary labor  Integration of support activities in
 Hiring of temporary personnel a facility management
 Interim managers organization
 Consultants  Increased scale of operations
 IT programmers, analysts and
project managers
  The actions necessary to
make this happen
 The results that can be
Effective purchasing for facilities expected from these
actions

4. Cross functional buying teams

and organizational structure:
 Teams with specialists from
user departments should be
formed to develop specific
sourcing plans.
5. Develop sourcing strategies:
 Use purchasing portfolio
Expectations levels with regard to  Detailed action plan per
purchasing are not always identical purchasing category
6. Implementation:
Customer product group matrix  Careful monitoring and results
in terms of:
 Savings generated
 Customer satisfaction
 Administrative lead time

Effective purchasing in facility

environment
 Different approaches for an
optimal structure
Improve customer orientation (1)  Focused on the internal
1. Analyze and document customer
internal customer/product  Product focused orientation
categories: (most used)
 Determine the total purchasing  Supplier focused orientation
spend per department  How can an effective internal
 Determine which fraction of customer focused approach be
this is purchased through the achieved in combination with
purchasing department knowledge of products and
2. Assess internal customer markets?
satisfaction:  Make the internal customer
 Find out what bottlenecks responsible for going through
there exist in the relationship the purchasing process
3. Target setting (detailed action  Solving internal communication
plan): problems by pointing out an
 What customer/product account manager of the
category combinations the purchasing department for each
purchasing department will specific customer department.
reinforce its position, i.e.
market share Buying indirect goods and services
Indirect goods and services that
are required for those
activities that do not belong to the Conclusion
company’s primary  Services companies represent a
processes. growing share of economic
 Distinction on destination: activity in most European
 Buying of general goods and countries.
services  Developing a professional
 Buying of investment goods purchasing approach in service
 Buying of trade items organizations is a far from simple
 Distinction on character: matter
 IT, marketing and  For reasons of effectiveness
communication, professional buyers should be primarily
services, human resource service driven rather than cost
management, facility driven.
management, transport and  Facility goods and services are
logistics, technical part of indirect sourcing.
maintenance.

 Spend on indirect goods is

sometimes higher than spend
on direct goods and services:
 Outsourcing of processes
 Average 50:50
 Indirect purchasing generally
uses a big supplier database Module 5: Buying Business
 Suggestions for cost savings:
Services
 Reduction of number of
Increasing Importance of Services
suppliers
 Purchasing of business services is
 Introducing category sourcing
getting more important:
 Analyze user pattern ‘end of
– More and more activities are
year fever’
purchased
 Product standardization
– Share of purchased services
 Supply base reduction
in the value proposition is
 Reviewing current contracts
increasing
and agreements
– Purchasing services is getting
 Reducing transaction costs
more professional
 Outsourcing the purchase of
 Many improvement possibilities
small items and contracts
due to the limited role of the
purchasing department in the
Breakdown purchasing spend
relation between internal
customers and external service
suppliers
 Purchasing is getting higher on
the executive officers' agenda
Differences between Goods and
Services
Service: a process consisting of a
series of more or less tangible activities, Classification of Services
that normally take place in the Classification on organizational
interaction between customer- and activity (Axelsson & Wynstra,
supplier employees, and/or physical 2002):
resources and systems, that are offered  Facility services
as an integrated solution to customer  Financial services
problems.  Information and communication
 Combination with physical technology services
goods is possible  Operational services
 Reaction to a customers'  Research and development and
problem or need technical services
 Production is the interaction  Transportation and distribution
between customer and services
supplier  Human resource services
 Marketing services

The approach of services

(co-)determines the way in which the
purchasing process and operational
phase are designed

Purchasing Process for Services

Specifying a Service:
– Input, specification of resources
and skills needed to provide the
service
– Throughput, specification of the
process needed to produce the
service
– Output or outcome, the buyer is
explicit in terms of results which
need to be accomplished by the
provider resulting in e.g. service
level agreements (SLA)
In general, output/outcome based
contracts are preferred over input or
throughput specifications
Contracting: – If the role of a purchasing
– In services it can be unclear when professional remains unclear,
the service is delivered this can lead to friction. The
– Agreements on access to internal customer and the
company information are in some purchasing professional should
cases necessary therefore strive for a common
– Key performance indicators (KPI's) result.
have to be tracked using Service Conclusion
Level Agreements – The number of services is
– Periodic assessment and increasing and becomes more
evaluation by buyer important for a company
– Professionalizing services buying
Post-Contractual Stage is far from simple.
The post-contractual stage is  most of the service
important for establishing a expenditures are spread
successful service delivery. throughout the company.
– Interaction between buying  buying services requires
organization and supplier specific expertise and close
determines the success of the collaboration with internal
contract experts.
– Much time is put in to the phase – Buying services in a professional
of specifying the service, too way is challenging
little time is put in the  the specification of services
process of realizing what this may take much more time
demands from both parties then for goods.
– Outsourcing asks for different  the quality of the service
capabilities of the buying provided may be embedded
party; Employees do not longer in unique human expertise,
take care of the jobs, this is done this is much more difficult
by employees of a third party to decide on objective
– One has to realize beforehand selection criteria.
what kind of service has to be
bought, the role this service will
fulfill in the organization and how
these things can be realized. Module 6: Public Procurement
Nature of Public Procurement
Purchasing and Contracting
 Governmental institutions
Services
Some notions:
play crucial role in internal
– Identify which services are markets
purchased and which suppliers  In 2002 public procurement
are involved in these processes accounted for 16.3% of the
– Usually there is an existing GDP in the EU
relation between the internal
 EU strives towards a free
customer and the supplier of the
service, it may be difficult for the
market without any
buyer to intervene. impediments
Nature of Public Procurement
Public Accountability: Public Procurement Law -
 Legitimacy of procurement Public procurement law prescribes
process is important in a formal way how to go about
 Public institutions are subject government contracts.
to European Procurement  Major constituents of public
Laws procurement law are
 Process is procedure driven  European Public Procurement
instead of result or Directives
performance driven – 2004/17 for public
 This often has a negative utilities sector
effect on the efficiency – 2004/18 for classical
government
Not subject to free markets:
 Public institutions are funded Scope of the European Directives
by money from taxes Scope:
– All governmental institutions
 Not always a drive to create
(State, regional or local
best value for tax payers authorities and bodies governed
 Sometimes focus on other by public law)
than commercial goals: Public procurement directives:
– Support local economy – Supplies, works and service
– Sustainable contracts
investments
Framework agreements:
 Sometimes budgets are – Agreement between one or more
granted per year: contracting entities and one or
– If the budget is not more suppliers
completely used in one – To establish the terms governing
year, this often means contracts to be awarded during a
given period
that the budget will be
In a limited number of cases
lowered for the next
governmental institutions do not
year have to European Public
– Results in an increased Procurement, special arrangements
spend at the end of the exist for:
year  Contracts for Ministry of Defense
 Often only purchase price of  Secret assignments or
assignments aimed at protecting
products and
state
services are considered (rather  security
than total costs of ownership)  Contracts placed based upon
 Professionalization of public international treaties
procurement is a rather slow  Intra-public assignments
process
European Threshold Values  Proportionality: Inline with the
nature of the assignment
 Nondiscriminatory:
Specifications cannot form a trade
limitation
 Equality: Fair competition
allowing a ‘one level playing field’
among suppliers

2. Supplier Selection
 Separation between selection
Public Procurement Procedures and award criteria
Formal notice, an advertisement  First evaluate suppliers on
through which the exclusion criteria
contracting authority invites interested  Then on suitability criteria
parties to submit a  Inform suppliers when they are
proposal not selected for short list
 Formal notice sent to Tender
Electronic Daily (TED) Procurement Process (2)
 Three different notices: 3. Soliciting bids and awarding
 Prior information notice contracts
 Contract notice  Initial award of the bid
 Contract award notice – Based upon lowest price
– Based upon economic offer
European Procurement Procedures  Informing non-selected parties
 Open procedure: Every market about refusal
party can apply  Awarding the contract to the
 Restricted procedure: Focused selected supplier
on pre-selection
 Competitive dialogue: Used in
Implications for Public Procurement
complex projects, investigates
 Resistance against
which solution best fits the
procedures from governmental
functional specification
purchasers
 Negotiated procedure
 Successful implementation of
with/without contract notice:
European legislation calls for
Announcement on forehand:
clearly structured purchasing
negotiations about execution and
processes and a professional
costs possible, with or without a
organization
pre-selection
 Management culture in
 Design contest: A jury grants
governmental institutions are
the project to one party; the
causing problems
procedure has to be clear and
 Examination on correct
genuine
application of these procedures
is needed
Procurement Process (1)
 European Procurement
1. Defining Specifications
Procedures have been developed
without looking at current position
 and competences of purchasing Industrial column or supply
function chain
The purchasing function in public  Materials flow:
procurement should be improved  Diverging materials
drastically flow
 Linear materials flow
 Converging materials
Compliance Rates (For all
flow
governmental sectors in the
 External factors determine
Netherlands)
the market structure
 Number of suppliers
 Number of buyers
 Degree of differentiation

MARKET STRUCTURES
 Structures at the supply side:
 Pure competition
 Monopolistic competition
 Oligopoly
 Monopoly
Conclusions  Structures at the demand
 Procurement within the side:
government concerns a lot of  Pure competition
money.  Oligopsony
 The EU Treaty has significant  Monopsony
implications for public
TYPOLOGY OF MARKET
procurement.
STRUCTURES
 Public procurement primarily
serves political objectives and
plans.
 Contracting authorities need to
respect European financial
thresholds.

Module 7: Market Structures and

Supply Research
DEFINITION
PROGRAM
SUPPLY MARKET RESEARCH:
 Market and market structures
 Supply market research Systematic gathering, classification and
 Structuring supply market analysis of data considering all relevant
research factors that influence the procurement
 Supply market research and of goods and services for the purpose of
information technology meeting present and future company
requirements.
MARKETS AND MARKET  On a regular or project base
STRUCTURES  Qualitative or quantitative
 External structure  Focused on long term or short-
 Industrial branch, horizontal term supply
relationship
THREE AREAS OF SUPPLY MARKET have built similar systems based
RESEARCH on Microsoft Outlook software.
 Data suppliers like Yellow Pages,
ABC have now available through
their websites vast supplier bases
covering supplier addresses in all
major EC countries enabling
buyers to conduct market surveys
in short time.
 Sony uses its Purchasing website
to attract new suppliers for
WHY SUPPLY MARKET RESEARCH? certain commodities.
The following factors have stimulated  Companies like FedEx, DHL,
the development of supply market UPS provide linkages through the
research: Internet which enable companies
 Continuous technological to keep track of their deliveries.
development
 Supply market dynamics
 Monetary developments
 Offset obligations CONCLUSIONS
 Changes in tax regimes  The ever-increasing turbulence in
global supply markets makes
STRUCTURE OF SUPPLY MARKET supply market research a crucial
RESEARCH activity.
 Supply market research is
required in order to keep informed
about going on changes
 Supply market structures
determine the buyer's tactics
 In setting up research a stepwise
approach is recommended

Module 8: Outsourcing and

Risk Management
Outsourcing as a business concept
PURCHASING MARKET RESEARCH Previously:
AND IT  Mainly outsourcing of activities
Companies are discovering the many  Trend
ways in which ICT may support their Currently:
purchasing operations and strategies.  Complete business functions are
Some examples: outsourced
 Company's like Saint Gobain,  Viable business strategy
which is active in a wide range of
products ranging from glass Definitions and Concepts
manufacturing to construction Characteristics of Outsourcing:
materials, have installed a
 In-house performed activities are
worldwide purchasing Intranet.
transferred to a third party
Other manufacturing companies
  Assets, knowledge and  Turnkey (integral)
sometimes employees are send to outsourcing: responsibility for
the external party the execution and the
 Extended and long-term coordination of the entire function
relationship (or activities) lies with the
 Buyers from both parties external supplier.
experience new costs and risk  Partial outsourcing: Only a part
profiles of an integrated function is
outsourced. The coordination of
Forms of Outsourcing Services the function still lies with the
outsourcer.

Partial vs. Turnkey Outsourcing:

Definitions and Concepts

 Offshoring: Offshoring relates to
the commissioning of work to a
provider in a low-cost country. In
many cases offshoring is
concerned with outsourcing of (IT)
services.
 Partial outsourcing: only a part
of an integrated function is
outsourced. The coordination of
the function and activities still lies
with the client (the buyer). Here a
major problem is of course how to
demarcate the responsibility
between the parties involved.
 Turnkey outsourcing: applies
when the responsibility for the
execution of the entire function
(or activities) lies with the
external provider. This includes
not only the execution of the
activities, but also the
coordination of these activities. Rationales for Outsourcing

Two Different Types of Outsourcing:

  Strategic phase (why, what,
who?)
 Transition phase (how?)
 Operational phase (how to
control?)

Strategic Phase
1. Motives for outsourcing
– Focus on core competences
– Focus on cost efficiency/
effectiveness
Advantages and Disadvantages of – Focus on service
Outsourcing 2. Which activities or functions are
outsourced
– Transaction cost approach
– Core competence approach
3. Qualifications of the supplier
– Technical and managerial
qualities to achieve demanded
level of performance
Phase Model

Success of Outsourcing
 Lyons (2001): 76% of
outsourcers rate their outsourcing
as good or extremely good.
 Gartner (2003): Satisfaction
with the business benefits from
outsourcing contracts fell from 86
percent in 2001 to 50 percent in Transition Phase
2002 among executives in  Contract negotiation
Europe. – Contract forms a legal basis for
 Monczka e.a (2005): reported relationship
that 9 to 31 percent of the – Contracts depends on
companies reported that characteristics of outsourced
outsourcing initiatives were falling activity
short of their expectations and – The contract type has a great
goals. impact on the success of the joint
operation
The Outsourcing Process  Project execution and transfer
Three phases:
 – Outsourcing transition can be
very complex
– The transfer should be conducted
using project management
principles
– Test phase before going ‘life’
Risk Assessment
Different Outsourcing Contracts  In cases where trust and
interpersonal relationships are not
present, parties try to arrange for
dealing with these risks and
uncertainties by detailed
outsourcing contracts
 These contracts are associated with
the following kinds of risks:
– Technical risks: related to the
extent to which the supplier is
able to provide the desired
functionality and performance
– Commercial risk: related to
The type of contract is just one of many the uncertainty with regard to
issues to be discussed. Other the price we will pay and the
‘ingredients’ in an outsourcing costs that we will incur when
agreement are: having outsourced our activities
– The scope of the service to the supplier
– Terms of agreement – Contractual risks: e.g. does
– Rates, fees, incentives the contract in sufficient detail
– Termination plan describe the performance that is
– Conflict resolution expected from the supplier?
– Communication – Performance risks: related to
– Management and control the chance that the supplier is
– Other (warranty, confidentiality not capable of doing the job he
etc.) was hired for.
 Trust and partnership are more
The Operational Phase important to solve the problem.
 It is in the operational phase that
the outsourcing will deliver its Critical Success Factors of Outsourcing
expected results  Understanding company goals and
 Successful outsourcing depends objectives
heavily on close cooperation with  A strategic vision and plan
the supplier  Selecting the right vendor
 McQuiston (2000) identifies six  A properly structured contract
core values as being critical to a  Open communication with the
successful outsourcing individual groups involved
relationship  Ongoing management of the
relationship
 Senior executive support and
involvement
 Careful attention to personnel
issues
 The way the company is
strategically positioned vis-à-vis its
 supplier. Can it still exert some
control over its supplier, or not?

Conclusions
 Outsourcing has become very
popular as a business strategy in
many industries around the world.
 The new strategy involves the
decision to move an activity, that
was conducted in house, to an
outside provider.
 A careful outsourcing process is
crucial for its success.
 The outsourcing strategy should
be in line with the overall
corporate strategy.
 Early supplier involvement
 Suppliers are an increasingly
important source of innovation, e.g.
The automotive industry
o fuel injection by Bosch
o sun protecting and security glass
by Saint Gobain
 Academic results are controversial
 Some problems in early supplier
involvement
o Conditions for cooperation not
always present;
Module 10: Purchasing, Innovation o Conflicts considering intellectual
and Quality Management property
Purchasing and Innovation o Overestimation of the developing
 Innovation is totally different than skills of supplier
two decades ago o How to reward the supplier for the
 Transition from closed to open efforts
innovation:
o Sharing ideas
o Stage-gate models
 Complexity of products asks for
external expertise Echtelt (2004) distinguishes:
 External cooperation can speeds up 1. Short term benefits
the innovation process • Better production quality
• Lower production costs
Closed vs. Open Innovation • Shorter develop cycle
• Lower developing costs
2. Long term benefits
• Joint research programmes
• Aligning technology strategies
• Risk sharing

Integrated New Product

development
Three parallel processes/Three
Core Process:
1. Strategic management
processes
- Create infrastructure for future
technological collaboration
2. Operational management
processes
- Individual development process
 - For which technology areas do we Involving buyers in development
want to get suppliers involved processes at an early stage can
3. Collaboration processes result in contribution of new
- Cooperate with external parties knowledge and better
understanding of:
Purchasing and New Product - Construction
Development - Suitable materials
Stages of New Product - Suppliers
Development: - Supplier knowledge
• Idea generation
• Concept study stage Involving the supplier in new
• Design stage product development can also
• Product development result in considerable savings
• Preproduction planning
• Pilot production Early Supplier Involvement
• Start of regular production Early supplier involvement may
lead to significant cost
How do large manufacturers reductions
communicate with their first tier
suppliers in product development
projects?
 Purchasing engineering
o A specialist function to provide
the liaison between the
engineering department and the
purchasing department
 Early supplier involvement (ESI)
o Best-in-class suppliers are invited Purchasing and Quality
to participate in the company’s Management
product/process development IBM defines quality as:
projects at an early stage. Quality is the degree in which customer
 Residential engineering requirements are met. We speak of a
quality product or quality service when
o Engineers from the other party
both supplier and customer agree on
are located on a more or less requirements and these requirements
permanent basis within the are met.
organization.
Quality control: making sure that the
requirements are met and being able to
demonstrate this objectively.

For every transaction between

customer and supplier, they need
to agree on:
• The basic requirements of the
transaction
• The way in which the requirements
are to be realized
• How to check that the requirements
are (being) fulfilled
• The measures to be taken when the Internal Quality Assurance
requirements/ expectations are not Regarding Suppliers
met • Preparing the purchase order
• Quality assurance concerns specification
keeping methods and procedures of • Preliminary qualification of
quality control up to date. (potential) suppliers
• Sample inspection procedure
Plan-Do-Check-Act Cycle • Delivery of first and subsequent
preproduction series
• Manufacture of the first production
series
• Quality agreement and certification
• Periodic verification

Assessing Supplier Quality

Methods for assessing a supplier’s
capabilities:
 Product audit - Provides an
image of the degree in which a
company succeeds in making
everything run perfectly by
inspecting final products.
 Process audit - A systematic
The Cost of Quality investigation of the extent to
1. Prevention costs - the costs of which the (technical) processes
preventing quality errors are capable of meeting the
2. Assessment costs - the costs standards.
related to the timely recognition  Systems audit - Compares the
of quality errors quality system to external
3. Correction costs - the cost that standards (e.g. ISO 9000).
result from (rectifying) mistakes
3.1 Internal error costs -
result from mistakes noticed in
time
3.2 External error costs - are
result of flaws identified by the
customer

Cost of Quality
Quality Costs Model

Implementing Supplier Quality

Assurance: Consequences for
Purchasing
The most important changes to be
prepared for by purchasing:
 Clear task descriptions and
performance measures
⚬ Maximum rejection percentage
per article code or per supplier
Supplier Quality Assurance (SQA)
 ⚬ The average term in which  Supply Chain Management
rejection reports must be dealt (SCM) - is a connected series of
with (per buyer) activities which is concerned with
⚬ Number of quality agreements planning, coordinating and
closed with suppliers controlling material, parts, and
⚬ Number of certified suppliers finished goods from suppliers up
 Clarity concerning supplier to the customer.
selection  Purchasing and Supply
⚬ Who in the company is management - can be seen as
competent to enter into an integrated part of SCM.
relationships with suppliers?
⚬ Who is responsible for Materials Requirement Planning
ultimate selection of suppliers? - MRP starts in the sales department
⚬ Communication to suppliers with drawing up a sales plan,
from one central point providing an estimate of the volume
(supplier account to be sold. MRP is the input for the
management) manufacturing planning and control
 Quality first system consisting of:
⚬ Take responsibility for quality  Master Planning
and being accountable o Plans at the level of the
⚬ Rejection percentages and product families (product
number of quality agreements groups) are established.
becoming part of the buyer’s Customer orders, sales plan,
annual assessment planned stocks of finished
 To measure is to know products and the production
⚬ Essential that suppliers receive and purchasing plans are
feedback on their performance linked together.
(e.g. vendor rating system)  Manufacturing Resources
Planning (MRP-II)
Module 11: Purchasing, logistics, o Records the Manufacturing
and supply chain management Resources needed to realize
Definition and Concepts the master plan

 Master production scheduling

(MPS) - Translates the master plan
into specific materials requirements.
MPS provides the input for
calculating the net materials
requirements.
 General capacity testing - The
MPS should be tested for capacity
limitations and this should be done
 Materials management - for all potential bottleneck
encompasses all materials related capacities.
activities aimed at optimising the  Materials requirement planning
incoming materials flow from the (MRP-I) - The materials
supplier to production. requirements planning explodes the
 Logistics management - requirements from the MPS level on
encompasses all materials flows, a weekly basis, step by step, in
from the flows of purchased accordance with the bill of materials.
materials into a facility, through  Capacity requirements planning -
the manufacturing process, and Conceptually comparable with
out to the customer. materials requirements planning.
The current and planned
 manufacturing orders from the MRP
provide the input for the detailed
production line planning.

Difference between MRP-I and

MRP-II
 MRP-I (Materials Requirement
Planning) stands for materials
requirements planning; aims at
releasing and managing
manufacturing orders and
purchasing requisitions.
 MRP-II (Manufacturing
Resources Planning) stands for
 Order release - Order releases manufacturing resources
change the status of the planning, an integrated system
manufacturing orders from ‘planned’ that controls relevant materials
to ‘released’. The decision to release flows and production capacity
is based on the availability of the while also taking into account the
required materials and capacity. relationship between these
 Priority management - The materials flows and the required
priorities are directly derived from capacity.
the MPS. Each unit receives a priority
sheet which lists all manufacturing Basic logistics structures
orders for that line or machine Order decoupling point (or order
center. penetration point):
 Capacity Management - Waiting - Indicates how deeply the customer
times per processing group have to order penetrates the firm’s materials
be controlled. Input/output reports planning systems.
have an important function: to - Defines from what moment on a
compare the realized output for a production order becomes customer
production unit against its planned specific.
output.
Five Basic Manufacturing and
logistics Structure

Manufacturing Planning and

Control System
 Differences between the Traditional
Approach and the JIT Approach in
Purchasing

Customer Order Decoupling Point

(CODP): The deciding factor for an
effective Logistics Structure

Consequences for suppliers

Advantages of JIT for a supplier
- Supplier is able to plan his
production volume much better
because he’s informed regularly
about the quantities to be delivered.
- Administrative savings: supplier’s
and customer’s production and
materials planning systems are
linked through electronic information
Just-in-time management (JIT) systems (like EDI).
Characteristics of JIT management: - Constant communication on quality
JIT - All materials and products become and costs improvements can lead to
available at the very moment when product and process innovation.
they are needed in the production - Investment policy: JIT contracts are
process, not sooner and not later but signed for a long period of time
exactly on time and exactly in the right and guarantee a certain volume and
quantity. turnover over that time period.
Major objective: Continuously tackle
and solve manufacturing bottlenecks Disadvantages of JIT for a supplier
within, and interfaces between, - It may result in a pyramid shaped
consecutive steps in the manufacturing structure with a strong hierarchy
process in the different links of the supply
 JIT production and scheduling cannot chain. The large manufacturers at
be successfully implemented without the top of the pyramid impose their
a zero defects philosophy demands ruthlessly on the often
 JIT and zero defects need to go hand- smaller first tier suppliers.
in-hand: - It takes time (and money) to
o Smaller batches make it deliver at zero defects or to
necessary to detect quality produce zero defects. These
defects at an early stage investments come at the expense of
o JIT must be supported by all the supplier.
functions within the company - Supplier can become very
o Adopting JIT will take time (It took dependent on only one
Toyota 15 years to implement the manufacturer. This can become a
KANBAN philosophy) threat to its continuity.
 JIT and supplier selection
 Suppliers located near the JIT-partner
are in an advantageous position
 Business based on open calculation
 ‘Quality on Time’
 Supplier classification:
On time delivery:
A = Excellent
B = Good
C = Inadequat
Quality delivery:
1 = Excellent
2 = Good
3 = Inadequate
Example: C1 supplier provides high
quality but does not always deliver on
time

Elements of the purchasing

information system
Most important elements of a
purchasing system:
- Requisitioning and ordering
- Product, supplier and contract
database
- Order follow up
- Delivery
- Invoice handling and payment

Coordination problems
Some typical problem situations
between purchasing and logistics:
- Lack of well-defined specifications
- Lack of standardization
- Frequent changes in materials
planning
- Unreliable planning information
- Insufficient integration of
purchasing in logistics
management