Advantages of Pursuing Quality Purchasing - Coursework Example

ADVANTAGES OF PURSUING QUALITY PURCHASING ADVANTAGES OF PURSUING QUALITY PURCHASING Insert name: Insert course code: Instructor’s name: 23 October, 2010. 1.0 EXECUTIVE SUMMARY This paper entails the discussion concerning the advantages of pursuing quality purchasing. The document commences with a prologue of the topic, which highlights the role of purchasing function and its objectives. Then we have the literature review which reveals the current situation in the global marketplace. The literature review shows the essence of improving the competitiveness of companies at global level. The statistics indicates how quality is becoming most significant factor in the marketplace. The document also talks about the returns of pursuing quality management. There are discussions on the aspect of quality supplier who is much connected to quality purchasing. Purchasing management has been discussed and the responsibilities of quality management. The future expectations concerning the purchasing and outsourcing are discussed in the paper. The paper ends by showing what has been done to improve the performance of companies through the implementation of Invisible Quality process with the help of performance indicators. Table of Contents 1.0 EXECUTIVE SUMMARY 2 Table of Contents 3 2.0 INTRODUCTION 4 3.0 TOTAL QUALITY IN PURCHASING 5 3.1 LITERATURE REVIEW (BACKGROUND) 5 3.2 SOME STATISTIC ON ORIENTATION TO QUALITY 6 4.0 ADVANTAGES OF PURSUING QUALITY PURCHASE 7 5.0 SUPPLIER QUALITY MANAGEMENT 9 6.0 QUALITY PURCHASING MANAGEMENT 10 7.0 FUNCTIONS OF QUALITY PURCHASING 12 7.1 Quality purchasing is able to evaluate and select the right suppliers 12 7.2 Quality purchasing helps in reviewing specifications 13 7.3 Quality purchasing act as the main contact with suppliers 13 7.4 Quality purchasing determines the method of awarding purchase contracts 14 8.0 DISCUSSIONS ON IMPLICATIONS AND FUTURE DIRECTIONS 14 9.0 CONCLUSION 15 References: 16 2.0 INTRODUCTION The traditional role of the purchasing function is to satisfy the operational requirements of internal customers and purchasing ought to perform several activities to achieve this. Purchasing frequently supports the requirements of operations through the purchase of raw materials, components, sub-assemblies, repair and maintenance items as well as services. Purchasing might as well support the requirements of physical distribution centers accountable for storing and delivering replacement parts or finished products to end customers. Purchasing as well supports the engineering and technical groups, especially during new product development and outsourcing of fundamental processes. As outsourcing is increasing dramatically, enterprises gradually continue to rely on external suppliers to material and products as well as information technology, services along with design activities. Suppliers have the greatest responsibility of managing key business processes and thus purchasing ought to support this strategy by providing an uninterrupted flow of high quality products and services that internal customers need. Purchasing ought to move side by side with current conditions in supply markets to make sure that purchasing selects suppliers that are competitive, identifies new supplies that have the potential for excellent performance and develops closer relations with the suppliers, improves existing suppliers and develops new suppliers that are not competitive. Through this, purchasing can appoint and control a supply base that can provide performance advantages in product cost, quality, technology, delivery as well as new product development. Supply base management requires that purchasing pursue better relations with external suppliers and develop reliable, high-quality supply sources (Monczka, Handfield, and Giunipero p. 40). 3.0 TOTAL QUALITY IN PURCHASING 3.1 LITERATURE REVIEW (BACKGROUND) Factors like global marketplace, technological changes and many more are encouraging the companies to become more competitive. This implies that companies are doing their best to satisfy the clients with quality products and services. These transformations have great impact on numerous companies in their approach to achieve excellence and distinctive competitive advantages. Currently, several companies view the Total Quality Management (TQM) as a significant approach. Thus, quality is becoming the most important strategic issue facing top management currently. In fact, according to the Profit Impact of Marketing Strategies, there is a strong relationship between quality and profitability. The emphasis of TQM has influenced many functional areas in the company including purchasing, since purchasing strategies often tie directly with corporate competitive strategy. Furthermore, purchasing and supplier organizations have a great potential for improving the quality of products and services. Due to the influence of the TQM approach, purchasing has adopted a new strategy of operation with emphasis quality rather than price. In the selection and evaluation of suppliers, quality has been elevated to the most important factor, while other considerations like price have become less important. Furthermore, purchasing professionals are pursuing practices to improve the supplier relationships and ensure quality. These include supplier certification, reducing the supplier base by shifting towards one source of supply, investment in the training and support of suppliers, involving suppliers in the product design as well as sharing information and rewards with suppliers (Kanji, 1995. P. 181). 3.2 SOME STATISTIC ON ORIENTATION TO QUALITY In an attempt to determine the award of business to suppliers, the respondents were asked to rate the importance of five factors on a scale of 1 (most significant) to 5 (most insignificant). The respondents rated quality as the most significant factor with a mean value of 1.45, followed by price 1.78, reliability 1.85, delivery 2.03 and service 2.17. Furthermore, the analyses showed that 66% of respondents were willing to pay higher prices for higher quality materials, which is significant at the 0.05 level for Chi Square Test. In reference to the present role of purchasing in their companies, there was a requirement for the respondents to their degree of agreement to purchasing’s growing role in five quality areas on the scale from 1 (strongly agree) to 5 (strongly disagree). The median responses of the respondents to all five areas of quality was 2, showing that they somehow consent that purchasing has a greater responsibility in their companies currently in all five quality parts than it was in the past. The respondents were as well requested to give their view on the performance of Total Quality in purchasing. They were asked to express their views on a 1-5 scale concerning the results of Quality Purchasing in the form of acquisition as well as provision of quality materials. The respondents showed that they believe quality supplies assist their corporations to attain all the five results with median values for ‘good quality product’ shown as a strongly approved outcome (Kanji, 1995. P. 183). 4.0 ADVANTAGES OF PURSUING QUALITY PURCHASE According to the above statistics, it is clear that purchasing professionals put more emphasis on quality than price. This concurs with the trend that the practice of awarding business is taking from price to a new quality orientation. Total quality in purchasing can assist in ensuring the procurement and provision of quality supplies which will have the direct outcome of superior product quality as well as reduced production costs along with indirect outcome of faster delivery times, lower inventory levels and greater profits. This has led most of companies, particularly the big ones to apply the basic features of Total Quality approach to purchasing. Most of them now are using the suppliers’ input to quality. The pursuit of quality purchase has led many companies to implement the Total Quality Management approach. This is because the role of purchasing is very important in improving the quality of products and services. Thus firms pursuing TQM reduce the number of suppliers they work with to the point of having only one supplier for some components. Although this has some demerits, it also has rewards that far overshadow the shortcomings. The administrative costs are greatly reduced since much of the paper work is greatly reduced. Also reducing the number of suppliers reduces the variability in the incoming products, making it much easier to control the quality of outgoing products. Due to reduction of suppliers, companies establish long-term contracts with suppliers. Establishing long-term contracts allows suppliers to make even greater commitments to improve the quality of products and provides greater opportunity for joint improvement efforts and the development of teamwork across the organizational boundaries. Quality purchasing has also led to the certification of supplier performance. Supplier certification is utilized by several companies as the focal point their supplier management system. Formal programs generally are established to rate and certify suppliers who provide quality materials in a cost-effective and timely manner. This further helps the company since the suppliers provide the companies with information that will further improve the quality, reduce cost and facilitate ease of manufacture. Quality purchasing helps companies develop cooperative relationships and strategic alliances. Gradually, suppliers are viewed as partners with customers, since there is normally a codependent relationship. Just like how teamwork within an organization operates, so do the quality customer-supplier relations help both parties to achieve their goals. Early involvement of suppliers in the design of new products allows the suppliers to make cost-cutting and quality-improving suggestions concerning the design while changes are relatively easy and inexpensive to make (EVANS, 2007 p. 193). 5.0 SUPPLIER QUALITY MANAGEMENT Quality is the total composite of product and service characteristics of marketing, engineering, manufacturing, as well as maintenance through which the product or service in use will meet or exceed the expectations of the customer. The concept of quality has radically changed from meeting customer requirements or expectations to exceeding them. Customer expectations are dynamic and constantly shifting. Several actions that a company’s competitors take can change the customer’s quality expectation. Changes due to competition can quickly and dramatically redefine the requirements that customers accept as their standard of performance. Supplier quality is the capability of the dealer to congregate or go beyond present and potential client prospect or necessities within major performance areas on a reliable basis. This definition has three major parts: I. Ability to meet or exceed. Suppliers ought to meet or exceed the requirements or the expectations of customers throughout. The products need to be of excellent quality and be delivered on time. II. Current and future clients’ needs or expectations. Suppliers must meet or exceed today’s demanding requirements and should also posses the ability to anticipate and satisfy future customer requirements. Suppliers ought to show continuous performance improvement. III. Within critical performance areas on a consistent basis. Quality suppliers satisfy a customer’s expectations or requirements in many areas, including product or service delivery, product or service conformance, after-sale service, current technology and features as well as total cost management. Breakdowns in managing supplier quality can tarnish the reputation of even the world’s best brands. Quality improvement requirements are a function of a company’s industry along with how well its performance compares to that of its competitors (Monczka, Handfield, and Giunipero p. 274). 6.0 QUALITY PURCHASING MANAGEMENT For purchasing to manage its internal operations effectively and efficiently, it must perform the following tasks: determining staffing levels, developing and adhering to administrative budgets, providing professional training and growth opportunities for employees and introducing procure to pay systems that lead to improved spending visibility, efficient invoicing and payment as well as user satisfaction. Purchasing management has limited resources available to manage the purchasing process and must continuously work toward improved utilization of these resources. To achieve this, purchasing function has to develop supply base management. The most significant aim of purchasing function is to select, develop, and maintain supply (in other word the process of supply base management). Supply base management requires that purchasing pursue better relations with external suppliers and develop reliable, high quality supply sources. This aim as well requires that purchasing work directly with suppliers to improve existing abilities as well as developing new abilities (Monczka, Handfield, and Giunipero p. 41). Quality purchasing has the ability of developing aligned goals with internal functional stakeholders. Purchasing ought to converse intimately with other functional groups, which are purchasing’s domestic clients (or stakeholder), since they have an important bet in the efficiency of purchasing performance. To achieve this goal, purchasing must develop constructive relations and interact closely with other functional groups, including marketing, manufacturing, engineering, technology as well as finance. Quality purchasing supports organizational goals and objectives. The most significant goal of purchasing is to support organizational goals and objectives. This objective indicates that purchasing can directly influence (constructively or destructively) total performance and that purchasing must involve themselves with organizational directives. For instance, assuming that an association has an obligation of lowering the quantity of inventory across its supply chain, purchasing can work directly with suppliers to deliver lesser amounts more regularly, leading to reduced inventory. By doing this, quality purchasing is viewed as a strategic asset that offers a prevailing competitive gain in the market place (Monczka, Handfield, and Giunipero p. 41). 7.0 FUNCTIONS OF QUALITY PURCHASING Functional groups execute various duties on behalf of the organization. This is referred to as function’s responsibility or span of control. Purchasing ought to have the legitimate authority to formulate conclusions that lie inside their span of control. Even though the internal customers influence several important decisions, the final authority for certain matters must ultimately be assigned to the purchasing department. In this section, we are going to see these decisions and thus see the advantages of pursuing quality purchasing. 7.1 Quality purchasing is able to evaluate and select the right suppliers The purchasing personnel are trained to carry out the most significant responsibility of evaluating and selecting suppliers. Pursuing quality purchasing ensure that this right is retained to avoid maverick buying and selling – a situation that takes place when seller contact and attempt to sell directly to end users (purchasing’s internal customers). However, this right does not imply the purchasing will not consult other departments when evaluating or identifying potential suppliers. For instance, engineering may support the selection of suppliers through evaluating supplier product and process performance capabilities. However, this process is being affected by the use of sourcing teams with purchasing and non-purchasing representation. Thus, the selection decision in sourcing teams requires that members reach a consensus in selecting suppliers. Thus pursuing quality purchasing makes sure that the organization acquires the right and best preferred quality suppliers. The quality supplier is discussed in the previous section (Monczka, Handfield, and Giunipero p. 41). 7.2 Quality purchasing helps in reviewing specifications Purchasing’s span of control has the right to review material specifications. Thus it is important to pursue having quality purchasing. Quality purchasing personnel work hard to develop knowledge and expertise concerning a wide variety of materials and also make this knowledge to work for the goodness of the organization. For instance, quality purchasing may question whether a lower-cost material can still meet an engineer’s stress tolerances. The right to question material specifications also assists in avoiding developing material specifications that only a user’s favorite supplier can satisfy. Through the combination of purchase requirements, quality purchasing frequently achieves a lower total cost (Monczka, Handfield, and Giunipero p. 42). 7.3 Quality purchasing act as the main contact with suppliers Having quality purchasing in an organization, it acts as the main contact with the suppliers, though the other functions also have the right to interact directly with suppliers as needed. Involving many people enables the communication process between internal customers, purchasing, sales, as well as the suppliers’ internal functions to be more effective and accurate. Despite the fact that purchasing ought to retain the mandate to be the primary contact with suppliers, involving other people improves the transfer of information and knowledge between buying and selling organizations (Monczka, Handfield, and Giunipero p. 42). 7.4 Quality purchasing determines the method of awarding purchase contracts Purchasing has a significant area of control by possessing the right to determine how to award purchase contracts. Purchasing ought to coordinate and lead negotiations with suppliers. Thus, having quality purchasing improves the performance of the company. However, the purchasing should also use personnel from other functions to support the negotiation process. Having quality purchasing lowers the costs of purchase through effective negotiations (Monczka, Handfield, and Giunipero p. 42). 8.0 DISCUSSIONS ON IMPLICATIONS AND FUTURE DIRECTIONS Several firms have outsourced their electronic data processing operations while others their logistics and warehousing operations for various reasons including cost savings and lowering investment in facilities. Future purchaser should expect that outsourcing tends will continue. Purchasing ought to continue impressing top management that it adds value or else it will be outsourced. If purchasing is entirely outsourced, there are implications like loss of control, loss of competitive information, poorer than expected long term service and a reduction in internal skills. However, current trends favor outsourcing to continue which include management’s desire to keep employee headcount low, and the desire to focus on core competencies. There are various skills that will be needed in the future including customer focus, analytical, negotiation, computer literacy and many more. These skills depict the change in the way sourcing decisions are made. Purchasing personnel will be involved in developing closer relationships with fewer sources and the sourcing decisions will be made by teams. Many of these skills are required for success in the purchasing function, however, the increased importance of customer focus; computer literacy; and change management are very evident in responses. Evidence that purchasing will be working through teams is particularly evident in the required skill sets of: negotiation; problem solving; conflict resolution; and influencing/ persuasion (Swamidass, 2000 p. 613). 9.0 CONCLUSION To pursue quality purchasing, companies are now implementing the Invisible Quality process through the development of departmental performance indicators for use by their major departments. Performance indicators have been developed in the areas of quality, delivery, cost, customer satisfaction, and research as well as development in major departments like Marketing and Sales, Engineering, Purchasing, along with Production. Performance indicators ensure the personnel within every department are focused on improving the department’s greatest performance problems. By continuing to maintain quality, delivery, cost, customer satisfaction, and research and development performance measurements in the company’s major departments, in addition to making sure that departmental management is committed to improve performance in the areas targeted by the indicators, the company’s overall performance will continue to improve. The purchasing department ought to make sure that actions are taken by the department’s employees in response to their quality performance indicator, to reduce the costs attributable to defective supplier materials. The purchasing department must as well deal with performance weaknesses flagged by their delivery performance indicator, improving the on-time delivery performance for products purchased from the company’s supplier base. Finally, purchasing department should make sure that actions are taken in response to their cost performance indicator, to lower deviations between planned and actual expenses incurred in purchasing products, which counts in profit margin erosion (Maromonte, 1996 p. 188). References: EVANS J.R. 2007. QUALITY AND PERFORMANCE EXCELLENCE: MANAGEMENT, ORGANIZATION, AND STRATEGY. London, Cengage Learning. From http://books.google.com/books?id=cp0k20nfMBcC&pg=PA191&dq=Advantages+of+pursuing+quality+in+purchasing&hl=en&ei=KZfBTOiPIYRjAeI6pmKBw&sa=X&oi=book_result&ct=result&resnum=7&ved=0CEoQ6AEwBjgK#v=onepage&q=Advantages%20of%20pursuing%20quality%20in%20purchasing&f=false (accessed October 22, 2010) Kanji, G.K. 1995. “Total quality management: proceedings of the first world congress”. NY, Springer. From http://books.google.com/books?id=kdMY3vAgRwQC&pg=PA181&dq=Advantages+of+pursuing+quality+in+purchasing&hl=en&ei=1yfBTNiWFsqD4Qbh5YTwCw&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDgQ6AEwAg#v=onepage&q=Advantages%20of%20pursuing%20quality%20in%20purchasing&f=true (accessed October 22, 2010) Maromonte, K.R. 1996. Building the invisible quality corporation: the executive guide to transcending TQM. Westport, Greenwood Publishing Group. From http://books.google.com/books?id=N5p0JKdwDL0C&pg=PA186&dq=Advantages+of+pursuing+quality+in+purchasing&hl=en&ei=KZfBTOiPIYRjAeI6pmKBw&sa=X&oi=book_result&ct=result&resnum=8&ved=0CE8Q6AEwBzgK#v=onepage&q&f=false (accessed October 22, 2010) Monczka, M., Handfield, R.B. and Giunipero, L. 2008. Purchasing and Supply Chain Management. Edition4, London, Cengage Learning. From http://books.google.com/books?id=YGTaTIPKSsMC&pg=PP26&dq=Advantages+of+pursuit+quality+in+purchasing&as_brr=3&client=firefoxa&cd=7#v=onepage&q=Advantages%20of%20pursuit%20quality%20in%20purchasing&f=false (accessed October 22, 2010) Swamidass, P.M. 2000. Encyclopedia of production and manufacturing management. New York, Springer. From http://books.google.com/books?id=HH0vVv6dMb0C&pg=PA606&dq=Advantages+of+pursuing+quality+in+purchasing&hl=en&ei=1yfBTNiWFsqD4Qbh5YTwCw&sa=X&oi=book_result&ct=result&resnum=5&ved=0CEIQ6AEwBA#v=onepage&q=Advantages%20of%20pursuing%20quality%20in%20purchasing&f=false (accessed October 22, 2010) Read More