Industrial Products Corporations Strategic Purchasing Management - Case Study Example

Strategic Purchasing Management Table of Contents Explain the Role of the Supplier Performance Rating System In This Case 3 2. Using the Text and Exhibits Summarise Branco’s Performance as a Major Supplier 4 3. Identify the Key Steps That Maggie Should Follow To Rectify the Issues with Justification 6 4. Critically Evaluate How the Supplier Performance Rating System In This Case Could Be Improved 8 References 12 Bibliography 14 1. Explain the Role of the Supplier Performance Rating System In This Case Industrial Products Corporation (IPC) is an organisation manufacturing diversified products having a wide range of market comprising both industrial along with consumer market. The company values quality control and offers commitment of providing quality products through the use of the quality control techniques which is important for the success of IPC. IPC keeps track of the quality standard of supplier’s products. Any abnormality in the quality is reported through the use of Non-conformance Action Report to the purchasing manager (Leenders & et. al., 2010). Moreover, IPC has criteria to measure the supplier performance based on various aspects such as quantity accuracy, on time shipment and also availability of relevant papers. Accordingly, IPC has supplier performance rating system wherein the suppliers are rated which is of help to decide upon the reliable supplier. Every quarter based criteria rating is provided on the scale of 0-4. The rating criteria are based on the three major factors namely continuous performance, delivery and quality. Quality holds the major chunk i.e. 50 per cent of the total. The measurement scale was evaluated on the factors of quality, shipment delivery and quantity accuracy. The supplier can attain maximum of 4 points which implies that the performance of the supplier is the best. Furthermore, the score of 3 as per the scale reflects the minimum acceptable performance rating for the supplier to supply their products in IPC. Anything below the point of 3 is regarded as unacceptable from the part of IPC as it might lead to the failure of desired level of output from the organisational point of view. The scale is of importance as this quarterly report helps the suppliers to be attentive regarding their delivery of the products. This rating will help the suppliers to evaluate their position and future orders from the company (Leenders & et. al., 2010). Moreover, the rating system enables to make IPC more conscious regarding their relation with the suppliers and the capabilities of the suppliers. IPC will be able to identify and mitigate the supply risks to ensure the desired level of success. The rating system will increase the commitment of the suppliers and ensure continuous improved opportunity which signifies the concept of Kaizen theory (Aligaz, n.d.). This implies that IPC would abide by Kaizen theory to deal with the prevailing competitive environment. The company is able to gain strong relationship and a bond of trust along with certainty due to the supplier performance rating system. The role of the system is that it increases the level of competency, capacity, commitment of the supplier and also effective control amid IPC and supplier (Infosys, 2013). 2. Using the Text and Exhibits Summarise Branco’s Performance as a Major Supplier Branco is the one of the major suppliers of the packaging cartons for the abrasive products of IPC. It offers customised packages as per the size of the products to ensure quality packaging. Branco due to its commitment and values had become the only supplier for IPC for specified packages. Branco was meeting the requirements of IPC in terms of customised packaging demand for the products. The relation amid the two had taken time to bridge a strong relationship of trust along with certainty. The performance of Branco has been good in the past on the basis of the quality, timely deliverance and shipment. The performance has been evaluated with the help of the supplier performance rating system which is based on the criteria and the report from the purchasing manager. The performance of Branco is rated under the criteria of quality, delivery and continuous improvement. The performance of Branco was the best in the past years as it was generating value for the company and the people in the supply chain. Providing value for IPC was of due importance for Branco in keeping with ethical perspective of supply chain management (CIPS, 2007; Wilhelmsen, n.d.). In accordance with the category of quality, the performance is rated as 4 in the initial phase but as the monopoly of the supplier and the bargaining power of the supplier are increasing, the quality has reduced to 3, which is acceptable by IPC. Nonetheless, the process capability a factor of quality has reduced to 2 which implies that, 80-90% of the shipments have samples. However, the products are delivered on time, with proper quantity as per the orders and have proper shipment. On the continuous improvement dimension, the corrective actions have been acceptable but in relation to cost and lead time facets there has been no reduction in the unit cost. This reflects that the performance of Branco has reduced to a considerable extent from a rating above 3.5 to a reduction to 2.83 (Leenders & et. al., 2010.) At the same time, it is stated that the supplier following the best practices of the supply chain can be termed as a major performer as per the performance rating system. In keeping with the best practices approach, a quality supplier must provide timely delivery of goods as per the requirement of the company. The reason is that delay in the delivery leads to loss for the company along with losing the customer base. With regard to the case, Branco was supplying cartons on a timely basis with specifications stated by IPC. It can be apparently stated that there must be constant delivery of frequency to be effective. Likewise, Branco supplied products on daily basis which ensured cost advantage and reduced the number the defects (Beil, 2009). Reasonable price and minimal paper work with proper shipment is another best practice related to supply chain. In the current scenario, Branco is unable to provide sufficient help by offering major reductions as earlier. Thus, the performance in this aspect has reduced considerably affecting its position. Another aspect is to have proper transportation facility which is provided by Branco to IPC, making it the major performing supplier (Bizymoms, 2008; Gordon, n.d.). However, in the recent times, the aspect of quality which is the main criteria of the supplier rating system has reduced as Branco was not being able to extend support with quality products at the desirable extent. The cartons were defective due to overlapping affecting the quality and cost along with the production. The defect in the carton created 30% loss in the production of IPC affecting the performance and image of Branco. 3. Identify the Key Steps That Maggie Should Follow To Rectify the Issues with Justification Owing to the fact that the performance rating of Branco was dipping by a considerable extent it was in turn affecting the performance of IPC at large. Suppliers are one of the most important stakeholders and therefore decrease in their performance has an adverse effect on the business. As the rating of Branco had reduced, Maggie the purchasing manager of IPC initiated meeting with the sales representative of Branco namely Lonnie Crowbak. The meeting was scheduled to be held to explore the reasons regarding the performance and understand the requisites of both the company and the supplier. The meeting was of importance by Maggie to evaluate the relationship amid them and bring changes in the supply chain by implementing strong ideas which would be beneficial for both the company and the supplier. The issues faced by the company from the supplier end were based on the quality aspect and noncompliance of the policies by the supplier with regard to the products. The issues were raised during the production run as the company follows the automated line method wherein any defect in the product was creating pressure for the company. The reason was that IPC was unable to meet the requirements of the customers on time that can be termed as the ultimate stakeholders of the organisation. Moreover, as a result of poor quality of the provided carton, the production of IPC is getting hampered, creating financial and operational loss. Thus, in order to reduce such issues Maggie the purchasing manager needs to bring changes in the supply chain. The first step is to bring value to the supply chain along with ethics so that the corporate responsibility is met by delivering quality product on time to the end consumers (Commercial Vehicle Group, n.d.). Maggie in order to mitigate the issue of dipping performance needs to have a proper sharing of information with the supplier. It should be the objective of Maggie to share the same mission and vision of IPC with Branco so that the loss is reduced to a considerable extent. Maggie can resolve the issue by collaborating with the supplier in order to ensure quality performance and hence it can further improve by integrating their thought process. The supplier strong relation can be maintained by creating a sense of commitment amid Branco and IPC. Moreover, Maggie should treat Branco the supplier as a partner and not commodity supplier to make them more inclined towards IPC. Maggie should make Branco more knowledgeable about their business, products and the objective. Besides, regular audit can be done by IPC in order to ensure high quality supply of the product with cost efficiency (Rickert & et. al., 2000.). The best way by which Maggie can resolve the issues is by assimilating Branco with the business operations in terms of profit sharing by giving a certain percentage. This would make the supplier more conscious regarding the product delivery for IPC for its own benefit. On the contrary, in terms of a differentiated approach, it can be ascertained that as the bargaining power of the supplier was increasing to a considerable extent, Maggie can implement the multi sourcing model to reduce the bargaining power and hence ensure better quality due to the competition within the suppliers (Ford & et. al., 2012). Nonetheless, if IPC changes its strategy and treats their supplier as a partner then the quality will be maintained by fulfilling the criteria of timely delivery, continuous improvement and efficient output from supplier’s end. Sharing of knowledge and objective of the business will help the supplier to meet the changing demands of the customers. Due to committed long-term supplier relationship, the price range and the quality aspect will be met by the company without delaying the deadlines of the customer. Furthermore, IPC can enhance the supplier support and quality by increasing the synchronisation and augmenting the value for delivery. Honest projections of the demand and need should be shared by Branco so that they are provided with adequate lead time and IPC should make the payments of the supplier on time (Aberdeen Group, 2002; Walters, n.d.). Besides, Maggie can provide advanced technological help to the supplier, which will make them to be committed towards IPC’s needs and business objectives by meeting the customer deadlines. More personalisation of the relationship should be emphasized upon by Maggie wherein strategic meetings can be held and success of the organisation can be discussed. 4. Critically Evaluate How the Supplier Performance Rating System In This Case Could Be Improved The supplier performance rating system is an important tool to ensure the quality and timely delivery of the goods by the suppliers. It is a vital tool in order to analyse the performance of the supplier and likewise it helps in bringing improvement in the supply chain management (SCM). It is effective as it facilitates to measure the level of satisfaction from the product offered by the supplier to the company. The performance rating system used by the company i.e. IPC was effective yet it could be more beneficial with the help of improvement of the method. IPC implemented the weighted point method for the evaluation of the supplier performance which is an important aspect for the business. This technique was of benefit for the organisation and the supplier to evaluate their performance in the market. This technique reflected that the quality and performance of the supplier is good which is helping IPC to succeed. The weighted point method is of importance as it is useful for the assessment of control over quality, delivery and continuous improvement for the management which is the base of every organisation. IPC also values quality therefore the performance rating system is used for the purpose of development and also as a motivational tool (Dobus & Vorosmarty, 2012). This method is of valuable to assist the supplier development and it will ensure strong relationship amid the supplier attributes and performance outcome. Therefore, it can be stated that this method is of importance for the success of the organisation in the long run. IPC as per the case has implemented the performance rating system which is based on the scale of 0-4. The performance is evaluated every quarter and hence the quality aspect is given the priority. The role played by the system is that it has a strong relation with the company and hence provides quality product on a timely basis. The grades allocated to the supplier make them aware of their position. The performance of supplier Branco was initially supreme but with time it decreased to a considerable extent. The dipping performance and the quality issues of Branco were identified due to the implementation of the performance rating system. Therefore, the method of performance rating system is of importance for the company at large keeping in view several factors such as the cost, lead time and quality. The method evaluates the accuracy and brings across the visibility, reliability and proper service which immensely valuable for the organisation. The rating system is effective in nature as it is useful in evaluating the protection of the consumer interest by assuring the quality of the products offered by the supplier (Duarte & et. al., n.d.). The point scale used by IPC is provided to the suppliers as well so that they are able to judge their position and the reliability they have in the organisation. Branco offered customised products to IPC as per their product requirement wherein the quality was assured and verified through the help of the quality control check. However, issues were arising for IPC from the end of Branco in the recent few months, which were coming into notice during the time of production. This was causing a loss for IPC as it was unable to meet the demands of their customers regarding on-time delivery due to the quality issue. The supplier performance assessment is used as a yardstick in order to determine the good practices followed by the organisation. The assessments are done on the basis of product quality, service and relation along with financial basis that is provided by the supplier to the organisation, as per the case Branco and IPC (CIPS, 2006). Accordingly, the supplier performance rating system needs certain improvements which can be done with the use of the 7cs concept for the improvement in quality and an increase in reliability of Branco. The 7cs concept was initiated by Ray Carter in order to have an effective supplier evaluation. This framework incorporates the factors which help in evaluating the performance of the supplier at large. Competency is the first aspect which needs to be considered by IPC to measure the capability of Branco as a supplier. Besides, competency can be evaluated by making the supplier believe in the objective of IPC to become more competent. Capacity of the supplier needs to be evaluated in order to identify whether the supplier will be able to meet the growing and changing demands of the organisation. The quick responsiveness of the supplier to the demand with quality will help in evaluating the performance. The equipment, human resources and storage should be considered in order to evaluate the performance (Greenwich School of Management Ltd, 2013). Commitment of the supplier towards the organisational success by providing high quality product is one of the most important factors for the evaluation of the supplier commitment and performance. The quality commitment should be judged with the use of Six Sigma tool to ensure the quality initiative. The quality system used by the supplier must be observed to get the best outcome and to enhance the performance rating. Control is another vital factor as it will help to monitor the performance by keeping an eye on the internal process. Control is important to evaluate the fact that how much governance the supplier has over the policies, procedure and the supply chain. The reliability, delivery and resources supply depend on the level of control. Cash represents the financial position of the supplier. It is important to evaluate the financial status of the supplier owing to the reason that their better financial condition will support the organisation during the scenario of economic turmoil. The supplier must be robust as this reflects that the performance of the supplier will be better as it will be able to withstand the crisis in future if it occurs. Cost by the supplier for the products is another aspect to be considered as it will have a direct effect on the costs of the products. The cost provided by the supplier is important to form the pricing strategy. Cost will help in selecting the supplier as lower cost of the product will be beneficial for the company. Consistency is required by the supplier to have a long-term relation with the organisation. Quality of the product must be consistent as it is amid the most vital factors. Consistency facilitates in enhancing the performance rating of the supplier (Supply Management, 2001). References Aberdeen Group, 2002. The Supplier Performance Measurement Benchmarking Report. Measuring Supply Chain Success, pp. 3-23. Aligaz, B.W., No Date. Kaizen Basis. Files, pp. 3-33. Bizymoms, 2008. The Qualities of a Good Supplier. Suppliers. [Online] available at: http://www.bizymoms.com/entrepreneur/library/supplier002.html [Accessed April 21, 2014]. Beil, D., 2009. Supplier Selection. Business School, pp. 1-21. Commercial Vehicle Group, No Date. Supplier Quality and Packaging Requirements Manual. Documents, pp. 2-26. CIPS, 2006. Appraisal and Performance Monitoring Of Suppliers. Supplier Appraisal, pp. 3-10. CIPS, 2007. The Role of Strategic Purchasing and Supply Management in Risk Management. Documents, pp. 1-4. Dobus, I. & Vorosmarty, G., 2012. Supplier Selection and Evaluation Decision Considering Environmental Aspects. Corvinus, pp. 2-23. Duarte, A. A.L.S. & et. al., No Date. Effect of Criteria Weighting Methods on the Ranking of Water Suppliers’ Performance. University of Minho, pp. 350- 355. Ford, C. & et. al., 2012. Single and multi-sourcing models. Outsourcing, pp. 1-7. Gordon, S.R., No Date. Supplier Performance Management. Suppliers, pp. 1-3. Greenwich School of Management Ltd, 2013. Improving Supply Chain Performance. Courses, pp. 2-156. Infosys, 2013. White paper. Supplier Performance Management, pp. 1-7. Leenders, L. & et. al., 2010. Purchasing & Supply Mgmt. Tata McGraw-Hill Education. Rickert, J. & et. al., 2000. Common Problems & Collaborative Solutions. University of Wisconsin-Madison, pp. 1-39. Supply Management, 2001. Measure for Measure. Resources. [Online] available at: http://www.supplymanagement.com/resources/2001/measure-for-measure [Accessed April 21, 2014]. Walters, A., No Date. Supplier Quality and Excellence Manual. Documents, pp. 3-37. Wilhelmsen, W., No Date. Supply Chain Management. Fact Sheet, pp. 1-2. Bibliography Ellegaard, C., No Date. Joint Problem Solving in Buyer-Supplier Relationships –Motivational and Perceptual Challenges. Copenhagen Business School, pp. 1-13. Monczka, R. & et. al., 2011. Purchasing and Supply Chain Management. Cengage Learning. Read More