Page 104 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 5: Procurement and Manufacturing Strategies

quality is incorporated into new product design. Early supplier involvement can be critical in Notes
achieving cost reductions. As a firm’s new product development process proceeds from idea
generation through the various stages to commercialization, the company’s flexibility in making
design changes decreases. Design changes are easily accommodated in the early stages, but by
the time prototypes have been developed, a design change becomes difficult and expensive. The
earlier a supplier is involved in the design process, the more likely an organization is to capitalize
on that supplier’s knowledge and capabilities.
An example from an automobile manufacturer demonstrates the benefit of early supplier
involvement. In designing the front bumper for a new model, the design engineer was completing
design of the bracket assembly for the bumper. During the process, an engineer from the assembly
supplier, which had already been identified even though actual production was in the future,
asked if the bracket location could be moved by about ½ inch. The design engineer, after some
consideration, replied that it could be done with no impact on the final product. The design
engineer was interested to know why the supplier requested the change. The answer was that by
moving the bracket, the supplier would be able to use existing tools and dies to manufacture the
bracket. Under the original design, major capital investment would have been required for new
tooling. The result was approximately a 25 to 30 percent reduction in cost of the bracket.

Clearly, value management extends beyond procurement in an organization and requires
cooperation between numerous participants, both internal and external.

Notes Teams representing procurement, engineering, manufacturing, marketing, and
logistics as well as key supplier personnel jointly seek solutions to lower total cost,
improve performance, or improved accommodation of customer requirements.

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Caselet Microsoft Dynamics AX Procurement for
Manufacturing

n Manufacturing Companies, the Purchase Order may not be the first phase of the
Supply Chain, but the acquisition of Raw Materials by negotiated contract. The
Iavailability of the commodities from these contracts has a direct impact on production,
but in many cases, they are not visible to Production Scheduling.
These commodities typically have a high value and high cost with volatile pricing on
open markets. Many manufacturing organizations buy raw materials under predetermined
contract terms and are responsible for the shipping of those commodities.

The manufacturing company must be agile in its processes and procedures to ensure not
only the timely transportation of the commodity to their production plants but also
control of all costs associated with a contract.
Larger manufacturing organizations may have risk strategies in place to manage overall
exposure to the market. These strategies can include hedging their physical position on
exchange traded futures market and covering their foreign exposure position with forward
foreign exchange contracts. In the current economic climate manufacturers need access to
as many tools as possible to help them mitigate risk.
Contd...

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