Page 322 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes Once the product is designed, purchasing has the following responsibilities:
1. To determine the availability of parts and material.
2. To collect up-to-date cost data that can be used to project the cost of producing the product
in-house.
3. To judge whether the specifications can be met from the current list of suppliers.
4. To ensure that the specifications are consistent with accepted commercial standards and
the material satisfies the purposes intended.
Purchasing manager may develop single or multiple sources for each required part. In buying
services, the processes are similar. However, as physical units are not exchanged between supplier
and customer, these transactions can sometimes become complex.

14.2.2 Developing Criteria for Supplier Selection

Three criteria most often considered by firms selecting new suppliers are price, quality, and
delivery. The costs of poor quality can be high, particularly if defects are not detected until after
considerable value has been added by subsequent operations. Shorter lead times and on-time
delivery help the buying firm maintain acceptable customer service with fewer inventories.
A fourth criterion that is becoming very important in the selection of suppliers is environmental
impact. This involves identifying, assessing, and managing the flow of environmental waste
and finding ways to reduce it. In the not-too-distant future, suppliers who are environmentally
conscious when designing and manufacturing their products will find this the most important
criterion in their selection as suppliers.

14.2.3 Classifying Suppliers

Many organizations design formal programs to certify suppliers. With supplier certification, a
supplier must be able to meet specific criteria. In many cases, a supplier has to receive certification
before it can ship the first part.
Supplier certification typically involves site visits of a cross-functional team from the buying
firm who do an in-depth evaluation of the supplier's capability to meet cost, quality, delivery,
and flexibility targets from process and information system perspectives. Aspects of producing
the materials or services are explored through observation of the processes in action and review
of documentation.

ISO (International Standards Organization) 9000 is a set of standards that suppliers need to
satisfy to compete in the global marketplace. Certification programs can be established under a
variety of circumstances. Where a supplier is the sole source for the part, certification should be
mandatory, and a close and cooperative working relationship needs to exist between the customer
and its supplier.
Whether or not an organization has a certification program, a supplier's performance should be
monitored regularly. The performance review should be held with the supplier and, if possible,
supplemented by notifying the supplier every time there is a violation of the criteria so that
corrective action can be taken.
Another reason for informing suppliers about mistakes is that the importance of product quality
and delivery date requirements are reinforced in the mind of the supplier.

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