Supplier Partnership through ISO 14001 - Essay Example

? Supplier Chain Management Supply chain management is commonly used for material management, purchasing and distribution (New, 1997). The paper examines supplier partnership, advantages of ISO 14001 implementation procedure, and the various methods of procurements in supplier chain management through three different cases studies. TABLE OF CONTENTS 1. Introduction 4 2. Supplier Partnerships 4 3. Supplier Partnership through ISO 14001 5 4. Ethical Sourcing 7 5. Environmental Issues 7 6. Purchasing 7 7. Conclusion 9 8. References 10 1. Introduction Supply chain is a network of different actors which delivers products or services to customers (Lee and Billington 1992). Earlier, companies were individual entities that gained profit for itself and were based on specified strategy of their production programs, which was not necessarily connected to the external world. However, in the future, companies will either be trading partners where the companies are linked to selected partners through exchange program, or the companies will have integrated supply chain management, which can build relationship with customers and suppliers. Christopher (1998) found competition is not within firms but between the supply chains. The main difficulty is to develop SCM, which not only creates effective relationship with supplier and customers but also is transparent, definable, demonstrable, tangible and communicable for the involved parties. Organizations have been making use of collection of methods, tools, techniques and programs for SCM. Fisher (1997) found two distinctive approaches in supply chain - efficient supply chain and responsive supply chain. The application of SCM improves efficiency of industries and the target is to improve competiveness and profitability (Ellram 1991; Cooper et al. 1997; Persson 1997; Christopher 1998; Mentzer 2001). 2. Supplier Partnerships Working with suppliers provides an opportunity to acquire high quality products and services. Additionally, long term loyalty can be developed. The concept of JIT becomes significant in this regard where the raw materials are delivered on need and not before. Deming (1986) claimed building long-term relationship with suppliers can ensure improved products delivery. For long term commitment, the organization needs to be involved and each party has to contribute to the process of production and manufacturing. The supplier and buyer both need to understand that ultimately the goal is to satisfy the customers and hence, the decision should be made as a team. Various types of sourcing are used for supplier partnership such as single sourcing and multiple sourcing. In case of multiple sourcing, the products are delivered through competition. Further, it also reduces the disruption of work. Dr. Kaoru Ishikawa’s (1980) ten principles on supplier and buyer relationship include: 1. Customer and supplier are responsible for quality control. 2. Customer and supplier should respect the independence of other. 3. Supplier is entitled to get complete information from the customer. 4. The contract should be based on quality, price, quantity, method of delivery and payment terms. 5. Supplier should provide the quality desired by the customer to ensure satisfaction. 6. The quality should be determined through mutual consent. 7. The settlement of disputes should be made through agreement. 8. Frequent exchange of information should be promoted to improve the service or product quality. 9. The partner should be involved in procurement, inventory planning and production. 10. The interest of end users should be considered above all. In the case - NOSC has a proposal to enter into ULV’s partnering agreement for office supplies; offering discounts between 50% and 70% will help to reduce total costs of acquisition of supplies. Additionally, it would provide daily deliveries of supplies to users. In return, ULV will use NOSC exclusively for the purchase of office supplies. It can be concluded the partnership is beneficial for both the parties. 3. Supplier Partnership through ISO 14001 Supplier evaluation provides verification to suppliers which imply the creation of willingness on the part of supplier and customers to commit, share goals and risks for the partnership. ISO 14001 certifications provide the method to identify the supplier which cannot meet the performance trends, creating cross-functional supplier development team and meeting the requirements. It also provides guidance for the management of suppliers, rank suppliers, defines the details of suppliers’ agreement and monitors the projects status and strategies. The implementation of ISO 14001 quality assurance standard is increasing worldwide and it is the primary driving force towards enhancement in quality management. Working with customer as supplier and existence of the recognizable quality standards leads to the process of Total Quality Management. Although, there are numerous confusing terms in SCM, it interconnects companies, clusters of companies, integrates applications and creates continuous set up of networks. At Mt. Baker Products, the plywood manufacturing company, the push for green wood products aimed to integrate ethical and environmental-friendly products. The mill objectives, targets, and environmental management programs were developed under the ISO 14001 implementation process. Furthermore, it involves training programs to achieve the objectives. The process of ISO implementation procedure, implementation of standardization and various other activities are also integrated. There are two important features - firstly, it promotes Business Process Reengineering which provides a method for continuous improvement. Secondly, it has impact on the enterprise resource planning, which is the new base for the implementation of philosophical activities of a company. Mainly, five strategies are used in SCM in relation to ISO 14001 implementation - Managing inventory investment in the supply chain (the aim of ISO 14001 implementation is to improve the management of inventory) Establishing relationship with supplier (the aim is to establish relationship with companies) Increasing responsiveness of customer (the impact of ISO 14001 implementation is studied to increase customer responsiveness - in terms of customer loyalty, customer satisfaction and customer complaints) The strategy aims to reduce the overall logistics costs, decreasing costs of nonconformity, increase sales, and meet the deadlines and market share. It also introduces SCM through IT solutions - ERP software and integration of automatic system for customer and suppliers. The relationship between the TQM process and supply chain management was studied and the following was found: It helps to improve the quality control mechanism of various departments. It provides incentives to supplier and encourages quality implementation. It aims to collect data related to defects and the information can be passed to employees. It promotes the process of providing training, incentives and recognition to employees for quality improvement and full cooperation. 4. Ethical Sourcing The green purchasing program is a part of ISO 14001 implementation which integrates environmental-friendly approach in SCM. It promotes the use of material, goods, services which can reduce the impact on the environment. Most of the organizations consider the customers and supplier as people who cannot be trusted. However, this helps to create long term relationship. 5. Environmental Issues Companies have formed various innovative technologies to work with suppliers to take care of environmental issues. These features can be added to products to enhance brand image, to reduce costs, to promote risk management, to improve quality of products and to ensure the products are delivered as per responsible legislation. 6. Purchasing The role of purchasing is to buy raw materials, parts and information, which are needed for production of services or goods. Purchasing process involves need recognition, supplier identification, contract negotiation, purchase order placement, purchase order follow up and order receipt/fulfilment. Purchasing involves Request for Quotation (RFQ), supplier selection, supplier market analysis, purchase plan implementation and contract negotiations. The goal is to develop and implement purchasing to support the company’s operation and the overall strategic plan. Performance is viewed narrowly and the decisions of procurement are primarily based on price. Previously, purchasing was considered a supporting function but now it is vital for organization and it enhances the overall business strategy. The significant aspects of SCM involve searching for high quality products, emphasising on lean / profitable production and outsourcing. At the Sunny Hotel/Spa & Wellness Resort, the company purchases and contracts for the outsourcing of the following services: security, cleaning, animation, insurance, software support, staff training and food storage & delivery services. The method used for procurement does not involve management level employees from all departments, which is leading to the selection of wrong partners for procurement. Technological advancement, ecommerce and internet are the latest mechanisms which are used for procurement related decisions and to build purchasing relationships with buyers and suppliers. Purchasing can be centralised or decentralised, and the sourcing decisions can have direct impact on supply chain control. This also has an impact on the performance of the firm. In centralized purchasing, the complete requirement of the organization is consolidated. This provides better purchasing plan for potential suppliers. However, the department level control is low and hence, decentralised purchasing is preferred by organizations where department heads and local business units get more power to select the best supplier which can effectively make use of resources. Decentralised system of purchasing has a disadvantage which is it results in poor quality discount and it mainly influences the selection of one key commodity. A hybrid model of purchasing is most suitable for the Sunny Hotel/Spa & Wellness Resort, which will make use of the advantages of both the approaches. 7. Conclusion SCM is a significant business concept as it integrates logistics and business. In enterprise-to-enterprise model of SCM, the integrated approach to manage products, information and cash flow is required. SCM allows firms to integrate the various competitive strategies into one system to meet the growing competiveness and to increase strategic competiveness. The companies are no more able to provide competitive advantage through traditional methods and the understanding of SCM becomes important. In the ISO 14001 quality management, the implementation of QM is integrated to SCM. The supplier quality certifications were also designed to promote supplier - buyer partnership. Supplier partnership provides an opportunity to acquire low cost and better quality products or services. Purchasing creates a liaison between the departments of organisations and with the external suppliers. All in all, the ultimate goal of SCM procedures is to improve customer experience and satisfaction. 8. References 1. Cooper, M.C., D.M. Lambert, and J.D. Pagh. (1997). Supply Chain Management: More Than A New Name For Logistics. The International Journal of Logistics Management. 8.(1): 1-14. 2. Christopher, M. (1992), Logistics and Supply Chain Management, London: Pitmans 3. Deming, W. Edwards (1986). Out of the Crisis. MIT Press. 4. Ellram, L.M. (1991). Supply Chain Management: The Industrial Organisation Perspective. International Journal of Physical Distribution & Logistics Management. 21.(1): 13-22. 5. Fisher, M. L. (1997). “What Is The Right Supply Chain For Your Product?” Harvard Business Review (March-April 1997), p.105-116. 6. Ishikawa, Kaoru (1980) [original Japanese ed. 1970]. QC Circle Koryo: General Principles of the QC Circle. Tokyo: QC Circle Headquarters, Union of Japanese Scientists and Engineers. 7. Lee, H.L. and C. Billington. (1992). Managing Supply Chain Inventory: Pitfalls And Opportunities. Sloan Management Review. 33(3): 65-73. 8. Mentzer, J.T. (2001). Managing the Supply Chain – Managerial and Research Implications. In: J.T. Mentzer, ed. 9. New, S.J. (1997). The Scope Of Supply Chain Management Research. Supply Chain Management – An International Journal. 2(1): 15-22. Read More