Purchasing is of vital importance in manufacturing because materials and components form a significant part of product costs. The effectiveness of purchasing improves the overall productivity of manufacturing organizations. Purchasing management has received increasing attention in recent years because of its tremendous influence on the production capabilities of the firm.
The company is a privately held international business that sources its supplies from around the world. The company from its original business of selling muffins to selling a multitude of bread products. The food industry is very competitive. The company’s strategy is low-cost leadership. They are intent on keeping expenses as low as possible. They believe this is their sustainable competitive advantage.
Because of the large number of items they source worldwide, supplier selection is a major activity for the company. It is essential to cost management. The Company’s owner daughter (Mary) is studying Supply Chain & Logistics and is doing an internship with the company. The internship will focus on what is involved in the supplier selection process.
The CEO took the first turn. She explained to Mary that for her, communication capability was the most important factor when selecting suppliers. In the food industry, products have an expiration date. Getting the correct item to the correct location in time was essential. Consequently, communication of schedules, deliveries, any issues is the must in the business. The CEO felt reliability was another important factor to consider and that it complimented communication capability.
The CFO is big on the cost factor, He explained to Mary that they to determine the total cost of ownership. This went way beyond the price. The total cost of ownership also included payment terms, cash discounts, ordering costs, carrying costs, and much more.
The CTO emphasized the importance of supplier process and product technology. In addition, he focused on the supplier’s willingness to share technologies. Because of the CTO stance on these factors, he ensured the company engaged in early supplier involvement when deciding to procure a new product.
Mary listened to them and knew that these weren’t the only factors to consider. She planned to discover what other factors were necessary to consider.
- Name and explain two factors of the supplier selection process that were not mentioned in the case.
- What are the advantages of early supplier involvement?
- Identify qualitative and quantitative factors that are taken into consideration when looking at the total cost of ownership