Purchasing performance is significantly dependent on the selection of the supplier, which is why supplier sourcing is such a significant task and one that is not to be entered into lightly.
Often supplier selection is thought of being dependent on costs but in fact there is much more to be considered if the right suppliers are to be taken on board. It actually takes time and effort to select the right suppliers, or the supply chain may be exceptionally weak in the following areas:
Instability:
Any good supplier will offer you stability within the supply chain. This is imperative if the supply chain is to be able to withstand any sudden changes or dramatic differences in terms of demand. This means in practice that suppliers need to be financially stable, be able to cope with varying demand profiles, have flexible distribution channels and most importantly the capacity and management systems to provide the materials you require.
Quality:
The supplier needs to be able to offer quality as an inherent part of everything they do. This is not just about having a low level of rejects, but about having quality in all aspects of their service, from the administration to the methods used for transportation. So quality systems need to be in place; if they aren’t then in the future you could find that the supplier is simply not able to cope with any quality demands that you may have, remember that quality standards may change in future and become even more prescriptive.
Cost:
The supplier needs to be able to provide you with the items that you need at the right price. This does not mean the absolutely lowest price, simply because there are times when it could be the case that it is better to pay slightly ore for goods, but be sure that you are going to get them and that they are going to be the right quality to meet your needs. Paying less often costs more, simply because you then have to reject the goods that have been provided and then you have a down time whilst you wait on replacement goods coming in.
Philosophy:
Any supplier that will help your performance will be willing to work with you on a mutually beneficial basis. If the supplier is not interested in working with you in this way, then it is unlikely that you will be able to develop together in the future. There is more and more emphasis on collaboration between suppliers in the supply chain, between suppliers and vendors and so on. If a supplier is not able or willing to work collaboratively then there is a real risk that they will not be able to grow with you as you develop more sophisticated means of working, which requires integrated systems between suppliers and vendors.
The philosophy is also important because it will cover a general philosophical approach. For example if your company is into Lean thinking and is wholly devoted to Lean, then you should make sure that suppliers that you choose are well aware of Lean and at least understand all the principles of improvement, even if they do not practice all of them (although ideally they should). If not then there will always be a potential for conflict as your suppliers do not understand where you are coming from or what you are trying to achieve.
Introduction To The Role Of Forecasting
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The forecasting process is extremely important for most businesses. In many cases the forecasting activity drives supply chain processes including the procurement of goods and corresponding inventory control. It can be a challenging and complex activity depending on the business environment and in many cases is analogous to crystal ball gazing albeit one in which you are armed with some level of information.
The key output required from forecasting is determining how much of a product will be bought by customers (or consumed by internal customers). Overly optimistic forecasts may result in the acquisition of too much raw materials (therefore wasting valuable capital). Where the forecast is too low and does not match demand then the company may not meet customer demand and may either lose customers or fail to meet agreed service levels.
What you create when you carry out a forecast
A forecast will typically deliver the anticipated demand profile over a number of months/years for the top level product/part– in many environments this in turn will drive procurement activity that will utilize known lead times to order to procure material in time to meet the the requirements of the forecast.
While the actual forecasting processes may vary from company to company the key concepts are fairly common and are utilized by most businesses.
Statistical Forecasts
Many organizations choose to utilize specialist forecasting software that commonly take data from the ERP system and extrapolate it into a future demand profile. For many organizations this data analysis is supported by what is known by the organization (i.e. market intelligence) to tune the demand profile into what is thought to be realistic.
Data integrity is obviously key for organizations following this approach and the benefits include that the organization is basing its forecast on non-subjective transactional data (often that which is happening in real time) the forecast is configured in such a way that the forecasting solution can deliver a number of outputs or models depending on pre-configured criteria.
Non Statistical Forecasts
There are other forecasts that are often grouped together as non-statistical forecasts. These are forecasts that have been devised from quantities that are determined by production planners. The forecast is usually based on current demand alone.
The Importance Of Forecasts
Forecasts are vital if the supply chain is to be kept stable. If the supply chain becomes vulnerable to stock outs or if there are no accurate forecasts made, then the manufacturing function can be severely impacted putting strain on the supply chain and supplier lead times as the result of inaccurate forecasts are attempted to be mitigated.