The Procurement of New Plant Equipment - ABC Company - Case Study Example

Running Head: Supply Chain Case study Your name Course name Professors’ name Date Introduction Manufactures in United States are under pressure to deliver variety of products in small quantities at a faster rate. It is the expectation of customer to order different products at lower prices. To achieve this objective, manufactures are now shifting to cellular manufacturing where production workstations are organized in sequential manner that enhances smooth flow of materials and components in the course of production process with less transfer and delay. To implement this manufacturing process, there is a need for a shift in production activity to a state that increases production velocity and flexibility in addition to reduced capital requirement. The aim of cellular manufacturing in ABC Company is to move products through the manufacturing process at a rate determined by the customer’s needs. Briefly, cellular manufacturing aims at reducing delays in moving a product along the production line. This paper will address transformation of company ABC to a Cell Manufacturing Process Plant with an aim of manufacturing not only the gears and shafts but also large number of parts, which were not previously produced at a plant located in Manchester. The scope of this paper is to address four specific issues in relation to transforming a plant to Cell manufacturing set up. These issues are procurement of new plant equipment, procurement of previously used equipment, identification, and use of new suppliers, and managing existing suppliers to realize increased supply. 1. Strategies employed for the different categories The Procurement of New Plant Equipment: To procure new plant equipment, standard purchasing procedure is appropriate since it takes care of the lead-time. It is expected that the plant should be in full operation by 27th October 2011. In the standard procedure, the first step is to place a purchase request. Departments are usually vested with the responsibility of determining specifications, quantity, and delivery of the new plant equipment. The case study clearly indicates that 40 new CNC machines valued at £450,000 are to be purchased with a lead-time of 3 to 10 months. The next stage in the standard procedure of purchasing the new equipment is to choose suppliers with previous established business relationship. The choice of the company depends on factors such as quality, performance of equipment, compatibility with existing facilities, degree of reliability, safety, delivery time and after sale services (Christopher, 1992). A supplier who will deliver within the specified period will be offered the task of supplying the equipment. The third step involves requesting the selected supplier to present cost estimates and specifications before a specific date. At the forth step, purchasing department that will use the machine is allowed to check the specification sheet in order to determine whether standards are met. This stage is critical since company ABC may at its own volition, request changes to the specifications. After a comprehensive review of costs and specifications, contract terms and conditions are discussed at the fifth stage. When the contract is concluded, business is established in writing. This marks the start of obligations and liabilities of company ABC. The seventh stage is a confirmation of delivery dates as specified in the contract and subsequent inspection of the equipment to confirm whether specifications were met. Finally, payment is made with reference to contractual terms. Procurement of previously used equipment: The case study focuses on purchasing 40% of previously used machines. These machines, as indicated in the case study, will be sourced from auctions of liquidated stock. Equipment purchased should meet the needs of company ABC and further result in cost savings as compared to acquisition of new or renovated equipment. When the company is placing requisition for the used machine, a statement containing the following items should be attached. inspection of the machinery machinery is in proper working conditions machinery satisfies the needs of ABC company it is within the interest of the company to buy used machine the price of used machine should be reasonable The statement should be re-examined and subsequently accepted by the procurement manager. Current value of machine will be considered by employing services of qualified machinery appraisers. Strategically, procurement auction is employed in such a situation. The ultimate aim is to find new suppliers while ensuring that the present supplier proposes lower prices and better terms. The identification and use of New Suppliers: To succeed in any business, suppliers are indispensable. This means that suppliers are needed to supply raw materials for ABC extended manufacturing process. In terms of overhead, ABC will consume some supplies and services thus make it impossible to operate without suppliers. Attard (2006) gives a very clear discussion on how to find suppliers for a business. The writer clarifies the fact that locating manufactures, distributors, and service providers is crucial for an establishment. The strategy is to exercise patience since good suppliers are hard to come along. It is imperative to put extra energy in searching for the best products, prices, and suppliers. Magazines, newspapers, internet, and posting in online forums can be used to trace suppliers. Trade magazines normally advertise new machines for a specific industry. These advertisements in trade magazine helps a manager find new suppliers. Additionally, search engine e. g Google provides the best link to a supplier. In an attempt to save on shipping costs and time, local bargains are consulted. To work effectively with suppliers, ABC Company should develop strategy that works well for both the manufacture and the supplier. It is essential to note that suppliers are motivated by fast product development process. Additionally, it should be responsive to changes that are induced externally. The second factor that should be examined when working with new suppliers is how to relate with them. General Motors and Ford have a record of accomplishment of maintaining less than ideal contact with several suppliers (Fleischer, 2008). Nevertheless, the two entities have been able to develop and execute best practices with their suppliers. Some of these practices are early sourcing, long-term relations, and supplier development. This strategy can be applied similarly to Company ABC. The management of Existing Suppliers increased supply: ABC management is under obligation to make decisions on strategic supply chain policies with respect to suppliers. At this strategic stage, the company management makes executive supply chain decisions that affect the entire organizations. The supply chain decisions must reflect corporate strategy followed by the ABC Company. If purchasing spending were reduced, there would be an increase in profitability. At the same time, influencing total purchases over several businesses would allow ABC Company Management to choose suppliers who offer the best discounts. Such kind of management decisions should respond to company objectives. Suppliers can also be assigned responsibilities related to different parts thus allow multiple suppliers to work together. To ensure that suppliers follow standardized improvement and planning steps, part quality plans are assigned to suppliers. The overall effect is management of supplies. 2. Supply chain strategy for C $ D In the case of new suppliers, a strategy to be used is “many suppliers.” The motivation to use this strategy is that ABC Company hardly understands the record of accomplishment of the new supplier. Since ABC Company will manufacture different parts in addition to gears and shafts, many sources per item are appropriate. The relationship will be for a short-term and conducted with little openness. Negotiation will be sporadic and any successful procurement would be delivered to the receiving doc. In the context of existing suppliers, “few supplier strategies” is employed. Sources per item are minimized whilst strong, stable and long-term partnership is formed. Suppliers will be audited based on quality, low prices, and their ability to deliver to the point of use. The existing suppliers will be allotted large orders simply because of the fact that trust between the parties is strong. 3. How to set up partnership agreement with suppliers Partnership agreement comes in handy to settle conflicts and misunderstanding when they arise. It further spells out the rights and responsibilities of both a supplier and the business. According to Spandaccini (2005), partnership agreement allows structuring relationship with supplier in a way that suits both parties in a supply chain. To form partnership with suppliers, ABC Company can take the following steps: analyze cooperative partners select partners in the supply chain establish standards of relationship define clearly the roles of each partner specify criteria used in management of supply chain such as sharing information and motivation Choice of supplier: In choosing a supplier, it is necessary to carry out an evaluation of suppliers. A supplier chosen should demonstrate commitment to quality. Some of the specifics in this section are supplier’s statistical process control methods, methods of problem solving, and preventive maintenance. The choice of a supplier is further determined by competitive pricing since costs are fundamental variables for any business. The third factor is communication. Suppliers who do not maintain a policy of open communication are avoided as partners. Constant and timely communication ensures smooth and efficient flow of manufacturing business. Apart from ability to present timely services, a chosen supplier should exercise flexibility while offering special services. These are some of the extra measures taken by a supplier to satisfy its customers. Suppliers who have an extensive knowledge of market would assist ABC company sustain financial success. Moreover, a good supplier should be financially stable to convey security. In terms of logistics, the partner should be capable in transportation capacity, sourcing ability and timely performance. While focusing on improving performance, supply chains collaborate and make partnerships. Collaborative relationship calls for members in a supply chain to use networked communication tools with an objective of sharing data and coordinate planning in all spheres of the supply chain (Kampstra, 2006). The outcome of a coordinated relationship is reduced costs through eradication of waste and improving efficiency. Formation of partnership agreements between supply chain members has the effect of creating formal and long-term relationship. In the context of partnerships, members may decide to execute joint development projects to improve inputs or ultimately reduces costs. Briefly, partnership enhances stability in a business relationship, which would then guarantee continuity of supply. 4. How to handle suppliers who I have influence with Suppliers have the ability of affecting availability of a machine or input depending on inventory or delivery time. Suppliers can also influence Company ABC cost due to their changing prices, credit terms, and other variables. ABC Company should refine its methods, tools, and techniques to realize compliance with supply chain. In the case of suppliers who ABC Company have influence with, constant appraisal is vital. This will entail examining their efficiency in terms of timely delivery, cost, communication, and consistency in supply. ABC will be able to reduce their costs as well as maintain operational control if the quality of input is consistent. In brief, I therefore propose three ways that can be used by ABC to work with influential suppliers. These are: partnering with influential suppliers streamlining purchasing guidelines assist suppliers find ways e. g through technology, to modernize, achieve efficiency, reduce waste and slush costs How to handle suppliers who ABC do not have influence with: Standards and guidelines is the first principle that can be applied. The intention is to minimize problems and solve any arising issue. Additionally, these suppliers should be monitored and verified on their performance against the company standards. Usually, new suppliers demonstrate aspects of laxity but if stringent standards and guidelines are maintained, the supply chain will be smooth. 5. Approach to Inventory Management Inventory management and control must be designed to satisfy the market and support Company’s strategic plan (Tempelmeier, 2006). The market demand usually fluctuate following new opportunities in worldwide market, global sourcing of materials, and emergence of new manufacturing technology. Inventory management and control should therefore be aligned to match with these changes. The ability to maintain inventory management systems would provide information that can be used to ensure effective flow of materials, utilize people and equipment, coordinate internal activities, and communicate with customers. ABC procurement manager should review status of machinery or rather stock periodically in order to deduce inventory, which are in short supply or damaged. This means that ABC inventory is order driven. An order will be placed when minimum level has been attained or rather when inventory of a specific item is exhausted. To improve on this approach, a re-order line is drawn. To minimize cost incurred for every purchase made, ABC would place a single order for the whole year consequently incurring the cost of a single purchase order. Nonetheless, this strategy may result in large average inventory of working stock as a result expanding carrying costs. The road map for order driven management of inventory: There are three basic reasons that prompt ABC organization to maintain an inventory. The first one is maintenance of certain level of stock or machinery to be used during the lead-time. Inventories are also kept as buffers to meet uncertainties in the market. In a situation of changes in the market, buffers are used during transition periods. The last reason for managing inventory is to achieve economies of scale. In the same vein, bulky buying, movement, and storing have the effect of realizing economies of scale. The road map for managing inventory in ABC Company is highlighted as follows: Monitor inventories: this will entail frequent inspection of machines and movements of inputs. Conditions in terms of storage, transfer postings, and security must be examined in an expeditious manner. Machines and material should be tracked and maximized. This would help optimize resources and reduce overheads. With the emergence of information technology, inventory process can be automated by using System Application and Product (SAP). Gain operating efficiency by shortening distance within distribution centre or warehouse. Conclusion This paper gave an explicit coverage on Company ABC that assembles transmissions for the North American Truck Market. In its re-organization, ABC has moved to cell manufacturing process plant producing significantly large number of parts in addition to gears and shafts. To succeed in the new cell manufacturing process, this paper discussed how procurement of both and used and new equipment is carried out. The discussion further analyzed how new suppliers can be identified whilst managing existing ones. Various supply chain concepts were utilised in the discussion. Reference List Attard, J., 2006. Find Suppliers for Your Business. [Online]. Available at: [Accessed 7th April 2011]. Christopher, M. L., 1992. Logistics and Supply Chain Management. London: Pitman Publishing. Fleischer, Mitchell. (2008). "The new suppliers - and their suppliers". FindArticles.com. Availlable at: [Accessed 7th April 2011]. Kampstra, R.P. et al., 2006. Realities of Supply Chain Collaboration. Wageningen, Netherlands: Wageningen Academic Publishers. Spandaccini, M., 2005. "The Legal Ins and Outs of Forming a Partnership." Entrepreneur. 2 June. Tempelmeier, H., 2006. Inventory Management in Supply Networks, Norderstedt: Books on Demand GmbH. Read More