Page 326 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes
Example: Obtaining a better price for a longer commitment might be offset by being
locked into obsolescent technology during the term of the lease.
Similarly, a decision to buy might lock an organization into equipment that is difficult to
replace when it becomes obsolete.
3. Supplier involvement in product and process development has become increasingly
important. This means that purchasing and supply management must become involved in
new product and processes development programs at (or before) the idea stage. In addition,
purchasing and other areas of the organization must be skilled at integrating the
development efforts of multiple suppliers to develop competitive products, and improved
production and administrative processes, on time and within budget.
4. Finally, cost avoidance/reduction opportunities must increasingly be coordinated among
external and internal customers, other interested organizational departments, and suppliers
throughout the supply chain (or the supply web).
The application of value analysis/engineering techniques to products and services has long
been recognized. However, these techniques are equally important to administrative processes.
This is especially important to supply management professionals because much of what we do
is manage administrative processes.

Notes According to the Wall Street Journal (October 6, 2004, page A-1), General Motors
wants to reduce the types of radios in its cars worldwide from 270 to 50 for a 40% savings.
Other examples of savings in tangible products include rationalization of MRO (work
gloves, lubricants, and repair parts), substituting one material for another to reduce the
total costs of manufacturing, finishing, packaging, distribution, returns, and warrantee
claims.

Administrative processes have not received much attention from value analysis/engineering
advocates. Purchasing and supply professionals develop, coordinate, and participate in a wide
range of administrative processes. They include supplier identification and qualification,
developing and administering RFPs and contracts, monitoring supplier performance, negotiating
internally and externally, and developing and implementing buying procedures and policies.
During the 1990s purchasing underwent a revolution in procedures. The "traditional purchasing
cycle (receive a requisition, selecting a supplier, issuing a purchase order, follow-up and
expediting, reconciling the purchase order with receiving, and authorizing the invoice for
payment) evolved into programs of p-cards, systems contracts, annual contracts, and electronic
ordering. Other purchasing and supply management processes lend themselves to value analysis/
engineering techniques. They include monitoring of supplier performance, monitoring supplier
financial health, development of specifications and statements of work, supplier qualification,
development of negotiation strategies, and the development and management of supplier
agreements.

14.3.1 Value Analysis Method

In all problem solving techniques, we are trying to change a condition by means of a solution
that is unique and relevant. If we describe in detail what we are trying to accomplish, we tend to
describe a solution and miss the opportunity to engage in divergent thinking about other
alternatives. When trying to describe problems that affect us, we become locked in to a course of

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