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Supplier Reliability

Supplier Reliability

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Published by ClassOf1.com
The components of supplier reliability cover both response time and quality. The more often a supplier is unreliable, the greater is the tendency for its customers to hold more safety inventory to compensate for supplier incompetence. By changing suppliers or improving existing supplier reliability, a business can reduce its safety inventory levels in the knowledge that the supplier can support the business efficiently.
The components of supplier reliability cover both response time and quality. The more often a supplier is unreliable, the greater is the tendency for its customers to hold more safety inventory to compensate for supplier incompetence. By changing suppliers or improving existing supplier reliability, a business can reduce its safety inventory levels in the knowledge that the supplier can support the business efficiently.

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Published by: ClassOf1.com on Jun 26, 2013
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09/01/2014

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Finance
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Sub: Finance Topic: Reliability
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Supplier Reliability
The components of supplier reliability cover both response time and quality. The more often asupplier is unreliable, the greater is the tendency for its customers to hold more safety inventory tocompensate for supplier incompetence. By changing suppliers or improving existing supplierreliability, a business can reduce its safety inventory levels in the knowledge that the supplier cansupport the business efficiently. The main variables are as follows:
Response time
 
 –
the lead time from a supplier receiving an order and being able to deliver it.Sourcing supplies from another continent to drive down cost may be advantageous at one level,but it is likely to extend lead time (for transportation) and require higher inventory levels to coverfor uncertainty and potential delay. The risk of delays in supply can be passed back to the supplierin the form of guarantees and penalties, but the supplier providing the guarantee is likely to passon the cost in its pricing, as it will with any fulfillment obligation imposed on it. The way to reduceresponse time and unit cost is to work with the supplier on how efficiencies can be achieved.
Quality
supplier error (failures in fulfilling an order to specification);short or delayed delivery (the inability to supply on time and in full, which is critical in supplierperformance
 –
failure on this measure can be one of the biggest contributors to holding safetyinventory);Product quality (supplies that are not fit for purpose, damaged, fail in service or not tospecification).
 
 
Sub: Finance Topic: Reliability
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In structuring a supply chain for sourcing it is important to balance a
supplier’s ability to manage
demand response times with reliability and split requirements between supplies that need to be agileand those that can be lean:
Agile
 –
the primary goal is revenue and growth. These are supplies where there is highvolatility in demand and a quick response time to replenish is crucial. An example isfashionable clothing, where demand is unpredictable. Retailers need to be able to replenishinventory quickly should the product be popular, but they do not want to hold inventory incase demand is low. Agile typically means that products need to be manufactured near to thepoint of sale and therefore a short transport time is important.
Lean
 –
the primary goal is cost reduction. These are supplies where demand is predictable andlow-cost sourcing can be the focus. An example is basic clothing such as underwear, whereretailers can plan volumes with reasonable accuracy and inventory does not become obsolete.As volumes are predictable slow transport is not a problem. As a manufacturing businessgrows it can develop an increasingly complex portfolio of products, variants, components,spares and sub-assemblies.

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