Page 161 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Production and Operations Management

Notes Technology, Quality, and Timely Delivery: Any make or buy decision should take into account
considerations other than the economic factors. What technology is being used by the potential
supply sources? Better technology generally results in lower rejections and long-term cost
savings. What is the quality of the management? Do they meet the minimum requirements for
the job?
In addition, quality and delivery need to be integrated with the economic analysis when deciding
whether to make or to buy. Such qualitative factors need to be given weightages. These decisions
require judgment and are often subjective. However, a careful analysis of the opportunity costs
due to failure of performance has to be worked out to reach a good decision.

8.2.5 Expediting and Follow-up

Expediting is the monitoring of supplier deliveries of materials that in some way have become
critical for the customer.

Example: Production schedulers may have forgotten to order floppy disk drives, and
now they are needed quickly. Inventory records may overstate the number of hair pins available.
The supplier may not have met the delivery date for some reason. Expediters phone suppliers to
talk about the importance of an order. They plead with and threaten suppliers to get their order
moved up in line for fast delivery.

!

Caution Expediting is usually caused by a failure of the organization or its suppliers.
Efforts should be made to solve the problem by eliminating the source of the problem,
rather than by relying on expediting.

Eliminating the source of the problem involves better supplier selection and improved
control of purchasing functions. A well-run purchasing operation should strive to eliminate
expediting by making suppliers responsive to the organization’s needs.

Follow-up and Evaluation

As part of an organization’s supplier certification program, the purchasing department should
collect and maintain information about each supplier. This information should be used to evaluate
performance and to determine the future acceptability of all suppliers. In addition, both positive
and negative information should be given as feedback to all suppliers. Suppliers who are doing
a good job should be positively reinforced. Suppliers who are not performing well may not
fully understand the importance of their performance to the customer’s organization. These
poorly performing suppliers may not even be aware of the extent of their shortcomings. Clear
and immediate feedback may help them improve.

8.2.6 Forward Buying

Purchasing retail inventory in quantities more than current demand, usually when manufacturers,
or other suppliers, offer provisional discounts. When the promotion period expires, the retailer
can then sell the left over inventory to consumers at regular prices, earning a bigger margin of
profit. In several cases, an authorized dealer who receives a substantial discount might resell the
merchandise to other retailers. Diverted units possibly will end up at “stores” or other less-
than-selective retailers to which manufacturers do not sell directly. Those retailers can sell to the
public at a discount the authorized dealer is not permissible to offer. Retailers who use aggressive

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