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of Purchase Department and purchase polices, Use of Mathematical model for Vendor Rating/ evaluation, single vendor concept, Management of stores, Accounting for materials, Just- in- time and Kanban System of inventory management. Purchase is the procurement of goods or services from some external sources. Acquisition of some kind in lieu of accepted price on consideration in return. “Purchasing is the procurement of the materials, supplies, machines, tools and operation of a manufacturing plant.” ---------- Alford & Beatty Objectives of purchasing: 1. To acquire the goods or services at minimum cost. 2. To ensure the continuous flow of production. 3. To develop the main and attenuate sources of supply. 4. To ensure timely delivery. 5. To make optimum utilization of capital. 6. To acquire quality product so that quality output is served to the consumer.
Types of Purchasing: 1. Purchase made as per requirement: No purchase is made in advance. Purchase is done as need arises. Method usually applied for emergency requirement or infrequent goods. 2. Contract Purchasing: Contract of material is given to an agency. It has an advantage that low price of those materials whose cost fluctuates highly. 3. Market Purchase: Purchase is made from the market to take advantage of price fluctuations. 4. Schedule Purchasing: It is a cyclic purchase model. A schedule of purchase is made and it is used for those commodities whose price do not fluctuate.
Purchasing Procedure: 1. Purchase Requisition: All the departments of the organisation are asked to make a requisition for purchase. 2. Decision of Purchase: Collecting requisition from various departments and handed it to Purchase department / committee head. Purchase head decide what to purchase and in what quantity. 3. Study of Market conditions: Market trends are analysed to generate an idea of price and availability of product. 4. Selection of Vendors. 5. Placing of Purchase order. 6. Receiving of order. Functions / Responsibilities of Purchase Department: 1. Obtaining prices 2. Selecting vendors 3. Placing Purchase order 4. Settlement of complaints 5. Making and maintaining harmonious relations with vendors. There are many ways to run a purchasing department. What business functions are included is one. Some companies include various material management responsibilities, inventory control, warehouse and logistics in the one department. In larger companies you might find all of these functions as separate departments. The major question is always whether to be centralized or decentralized. This is usually a decision of top management, Chief Purchasing Officer, Director of Purchasing or possibly the Chief Executive Officer or owner. There is no magic formula to determine which way is the best. Centralized purchasing means buying and managing purchases from one location for all locations within an organization. This can also be run by a central location buying in to a
distribution warehouse that feeds smaller warehouses. This is called a hub and spoke system. The responsibility and authority to purchase, lease, or rent materials, supplies, goods, equipment, or services are placed with the Division of Finance and Operations, Purchasing and Stores Department. Purchasing is centralized to: *realize economy, efficiency, and effectiveness in the procurement function; *pursue quality assurance and standardization; *maintain the highest standards of ethics;
The control by a central department of all the purchasing undertaken within an organization. In a large organization centralized purchasing is often located in the headquarters. Centralization has the advantages of reducing duplication of effort, pooling volume purchases for discounts, enabling more effective inventory control, consolidating transport loads to achieve lower costs, increasing skills development in purchasing personnel, and enhancing relationships with suppliers. Advantages of Centralized Purchasing Volume purchasing – When the district is able to purchase a single item in mass, vendors are often willing to provide a discount. Purchasing in mass to take advantage of discounts is called volume purchasing. Warehouse – In order to take advantage of volume pricing, the district purchases items in bulk. Vendors typically require that the district take delivery of the items in mass. These bulk purchases are stored in the warehouse until the items are requested by the sites. Save time in researching products – Individuals spend hours to research the products and to find best price. The purchasing department has resources to help reduce the time to research products.
funding sources (account code check and budget approval). You lose freight options based on dollars or weight. Extended procurement time – One problem that is commonly associated with centralized purchasing is the perception “it takes too long”. It is difficult to change from decentralized purchasing to centralized purchasing. You can also run this operation with a designated buyer assigned to the site to do the buying. Decentralized purchasing is the opposite where each plant or office buys what it needs. The more decentralized an operation is. You lose discounts on quantity buys. They feel they are losing control of their site. Some will refuse to really cooperate in the changes in hopes to making the program look unsuccessful. the less control the home office has. Employees feel their privileges are being taken away.Disadvantages of Centralized Purchasing Good processes are not without their shortcomings. Many companies operate with a mixed system. vendor stock status. Listed below are some of the challenges of buying in a school district and suggestions on how to help the Purchasing department minimize their effects. Typically the delay in the request is either: time spent to research the product. You have a duplication of effort in buying and less buyer specialization. In reality. This operation allows any employee to buy what he needs. Also some support is lost from the supplier as there is no single contact for the supplier to deal with. the purchasing department processes vendor requisitions typically within one (1) day. Advantages of decentralized purchaseing Advocates of decentralization claim that local management has the incentive to control cost when the local operation is set up as a profit center. Volume buying may not be calculated for all your sites. and shipping. . The central operation may buy major commodities but allow local operations to buy all MRO supplies.
VENDOR RATING Vendor ratings are used to rate vendors as entities. but which we believe should be very carefully evaluated. will be closely monitored." Additionally. . products. marketing. These vendors. Vendors with a clear focus. organization. however. in particular. such as its strategy. technology." Vendors that have potential. are rated "promising. solid products and an advantageous market position may be rated "positive" or "strong positive. financials or support. they are also used to rate different aspects of a vendor." Vendors or product lines that lack these qualities may be rated "caution" or "strong negative. vendors that are rated a "strong negative" are put on a vendor alert list. while vendors that are rated a "strong positive" are put on a vendor opportunity list.
These are usually variables that add value to the process through increased service or decreased cost. the vendor rating may come in the form of some sort of award system or as some variation of certification. status. . or some combination of variables. The motivation for the establishment of such a rating system is part of the effort of manufacturers and service firms to ensure that the desired characteristics of a purchased product or service is built in and not determined later by some after-the-fact indicator. The process begins with the identification of vendors who not only can supply the needed product or service but is a strategic match for the buying firm. some sort of review process must take place. Then important factors to be used as criteria for vendor evaluation are determined. quality. For some firms. lead time. The process can be somewhat complex in that many factors can be complementary or conflicting. The process is further complicated by fact that some factors are quantitatively measured and others subjectively. and pooled to arrive at an overall vendor rating. After determining which factors are critical. It could be numeric rating or a Likert-scale ranking. a method is devised that allows the vendor to be judged or rated on each individual factor. The individual ratings can then be weighted according to importance. such as delivery. Vendors or suppliers are given standing. Most firms want vendors that will produce all of the products and services defect-free and deliver them just in time (or as close to this ideal as reasonably possible). price.Vendor rating is the result of a formal vendor evaluation system. Much of this attention to vender rating is a direct result of the widespread implementation of the just-in-time concept in the United States and its focus on the critical role of the buyer-supplier relationship. In order to accomplish the rating of vendors. One such vehicle is the vendor rating. The vendor rating may take the form of a hierarchical ranking from poor to excellent and whatever rankings the firm chooses to insert in between the two. or title according to their attainment of some level of performance. Some type of vehicle is needed to determine which supplying firms are capable of coming satisfactorily close to this and thus to be retained as current suppliers.
The vendor should demonstrate respect for the customer firm's bottom line and show an understanding of its needs. the rating system must be introduced to the supplying firm through some sort of formal education process. If problems are exposed. Of course the rating must be conveyed to the participating vendor with some firms actually publishing overall vendor standings. delivery. quality. Many buying firms require the vendor to show continuing improvement in predetermined critical areas. Each area has a number of factors that some firms deem critical to successful vendor performance. such as quarterly. the evaluation process can begin. Possible cost savings could • • . The prices paid should be comparable to those of vendors providing similar product and services. Sensitive to costs. There should be a low number of variances from purchase-order prices on invoiced received. the vendor should formally present an action plan designed to overcome any problems that may have surfaced. • • Price stability. Price accuracy. and service. Advance notice of price changes. Pricing factors include the following: • Competitive pricing. CRITERIA FOR EVALUATION Vendor performance is usually evaluated in the areas of pricing. The evaluation could be an ongoing process or it could occur within a predetermined time frame. The vendor should provide adequate advance notice of price changes. Quote requests should compare favorably to other vendors. Prices should be reasonably stable over time.Once established. Once the buying firm is assured that the vendor understands what is expected and is able and willing to participate.
Is all repair and rework acceptable? Durability. Are warranty problems resolved in a timely manner? State-of-the-art product/service. Are vendor invoices are accurate? The average length of time to receive credit memos should be reasonable. Is quality support available from the vendor? Immediate response to and resolution of the problem is desirable. The vendor should also exhibit knowledge of the market and share this insight with the buying firm. Quality factors include: • Compliance with purchase order. Is the time until replacement is necessary reasonable? Support. Does the vendor offer products and services that are consistent with the industry state-of-the-art? The vendor should consistently refresh product life by adding enhancements. The length and provisions of warranty protection offered should be reasonable. Does the vendor show an understanding of the customer firm's expectations? • Conformity to specifications.be suggested. Estimates should not vary significantly from the final invoice. Effective vendor bills are timely and easy to read and understand. Warranty. • • Delivery factors include the following: • Time. The product or service must conform to the specifications identified in the request for proposal and purchase order. It should also work with the buying firm in new product development. Does the product perform as expected? • • • • Reliability. is the actual receipt date on or close to the promised date? Does the promised date correspond to the . Is the rate of product failure within reasonable limits? Reliability of repairs. Does the vendor deliver products and services on time. The vendor should comply with terms and conditions as stated in the purchase order. • Billing.
• Technical support. and undamaged. documentation. Is the average time for delivery comparable to that of other vendors for similar products and services? Packaging. technical manual. invoices. . general information? Are support personnel courteous. are requests for information. Does the vendor demonstrate extra effort to meet requirements when an emergency delivery is requested? Finally. It should also be helpful with customer inquiries involving order confirmation. • Emergency support. Documentation. and invoice errors. etc. and installation situations? Does it provide technical instructions. repair. suitable. shipping discrepancies. and quotes swiftly answered? • Quantity. and knowledgeable? The vendor should provide training on the effective use of its products or services. Pallets should be the proper size with no overhang. proposals. The vendor should also provide up-to-date catalogs. Does the vendor provide technical support for maintenance. Does the vendor act as the buying firm's advocate within the supplying firm? • Inside sales. professional. Does the vendor deliver the correct items or services in the contracted quantity? Lead time.) with correct material codes and proper purchase order numbers? • • • • Emergency delivery. Does the vendor provide emergency support for repair or replacement of a failed product.vendor's published lead times? Also. Does the vendor furnish proper documents (packing slips. price information. and handle complaints effectively. Inside sales should display knowledge of buying firms needs. properly marked. these are service factors to consider: • Good vendor representatives have sincere desire to serve. Packaging should be sturdy. and technical information. Vendor reps display courteous and professional approach. shipping schedules.
1. a more comprehensive approach is needed for suppliers that are critical to the success of the firm's strategy or competitive advantage. ROE. Cash resources—financial resources and stability of the supplier. A 2001 article in Supply Management notes that while pricing. However. technical. 7. asset-turnover ratio. ROI. If two or more firms supply the same or similar products or services. For firms that fall into the latter category performance may need to be measured by the following 7 C's. Consistency—supplier's ability to exhibit quality and reliability over time. standardized evaluation criteria may not be valid. AWARDS AND CERTIFICATION . For example. Profit. for different types of firms or firms supplying different products or services. not just price. 3. a standard set of criteria can apply to the vendor's performance evaluation. delivery. Competency—managerial. and professional competence of the supplying firm. and service are suitable for supplies that are not essential to the continued success of the buying firm. 6. intellectual and financial resources. An excellent vendor provides follow-up on status of problem correction. Capacity—supplier's ability to meet physical. In this case. A supplier of brakes would be held to a stricter standard than a supplier of radio knobs. 4. 2. Cost—total acquisition cost. intellectual and financial requirements. administrative.• Problem resolution. the buying firm will have to adjust its criteria for the individual vendor. 5. Commitment—supplier's willingness to commit physical. Honda of America adjusts its performance criteria to account for the impact of supplier problems on consumer satisfaction or safety. The vendor should respond in a timely manner to resolve problems. quality. Control—effective management control and information systems.
quality. DaimlerChrysler awards its best suppliers the Gold Pentastar Award. supplier certification is desirable. utilize statistical process control (SPC). While it is uncertain whether individual firms are consistent in the manner in which they certify vendors. Supplier certification can be defined as a process for ensuring that suppliers maintain specific levels of performance in the areas of price. only a handful (less than a dozen) of DaimlerChrysler's vendors are good enough to garner the Platinum Pentastar Award. For example a quality certified firm maintains a level of quality such that customer-receiving inspection may be utilized with decreasing frequency up to the point where it is eliminated altogether. The attainment of a supplier award usually serves as an indication that the vendor has been rated as excellent. Serious buying firms view these programs as an integral part of their overall efforts to improve the total value of the company. Certification and awards-program recognition represents a final step in an intense journey that involves rigorous data collection under the total-quality-management-rubric as well as multitudes of meetings with suppliers and purchasing internal customers. For other firms. and service. Several hundred vending firms receive this award per year. Other firms may utilize a hierarchy of awards to indicate varying degrees of performance from satisfactory to excellent. the goal of supplier certification is quality at the source. BENEFITS . this will ensure that all of the supplier's products meet the customer's product specifications. Attainment of certification status or an award serves as an indicator of supplier excellence. However. Theoretically. delivery. Intel awards their best suppliers the Supplier Continuous Quality Improvement Award (SCQI). a quality certification would likely require that the vending firm be part of a formal education program. In this case. and have a quality assurance plan (set written procedures). Certification implies that participating firms have reached a level of excellence that other firms were unable or unwilling to achieve.Many buying firms utilize awards and certification programs to rate vendors.
This saves warehouse space and costs. JIT can lead to dramatic improvements in a manufacturing organization's return on investment. Requiring specific action to correct identified performance weaknesses.Benefits of vendor rating systems include: • Helping minimize subjectivity in judgment and make it possible to consider all relevant criteria in assessing suppliers. The process will continually evolve and the criteria will change to meet current issues and concerns. Facilitating better communication with vendors. Building vendor partnerships. which can be Kanban (看板 Kanban?). such as the presence or absence of a part on a shelf. Just-in-time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated carrying costs. Providing overall control of the vendor base. When implemented correctly. This means that the process is often driven by a series of signals. In order to achieve JIT the process must have signals of what is going on elsewhere within the process. especially with suppliers having strategic links. • • • • • • • Vendor ratings systems provide a process for measuring those factors that add value to the buying firm through value addition or decreased cost. Quick communication of the consumption of old stock which triggers new stock to be ordered is key to JIT and inventory reduction. Providing feedback from all areas in one package. Developing a performance-based culture. that tell production processes when to make the next part. Establishing continuous review standards for vendors. Kanban are usually 'tickets' but can be simple visual signals. and efficiency. However since stock levels are determined by historical demand any sudden demand . thus ensuring continuous improvement of vendor performance. Some have suggested that "Just on Time" would be a more appropriate name since it emphasizes that production should create items that arrive when needed and neither earlier nor later. quality.
it would not be necessary to carry any stock whatsoever. The carloads of raw materials would arrive on schedule and in the planned order and amounts. taking into consideration the state of transportation at the time. for it would give a very rapid turnover and thus decrease the amount of money tied up in materials. History The technique was first used by the Ford Motor Company as described explicitly by Henry Ford's My Life and Work (1923): "We have found in buying materials that it is not worthwhile to buy for other than immediate needs. and modeled TPS after it. and go from the railway cars into production. Ford's Today and Tomorrow (1926) describes one. With bad transportation one has to carry larger stocks." This statement also describes the concept of "dock to factory floor" in which incoming materials are not even stored or warehoused before going into production. Although Toyota visited Ford as part of its tour of American businesses. Ford had not fully adopted the Just-In-Time system. The concept needed an effective freight management system (FMS). Some have suggested that recycling Kanban faster can also help flex the system by as much as 10-30%. The technique was subsequently adopted and publicized by Toyota Motor Corporation of Japan as part of its Toyota Production System (TPS). That would save a great deal of money.rises above the historical average demand. However. but from Piggly Wiggly. and it was there that Toyota executives first observed a fully functioning and successful Just-In-Time system. . If transportation were perfect and an even flow of materials could be assured. Toyota famously did not adopt the procedure from Ford. and Toyota executives were appalled at the piles of inventory laying around and the uneven work schedule of the employees of Ford. Toyota also visited Piggly Wiggly. the firm will deplete inventory faster than usual and cause customer service issues. In recent years manufacturers have touted a trailing 13 week average as a better predictor for JIT planning than most forecastors could provide. We buy only enough to fit into the plan of production.
The chief engineer at Toyota in the 1950s. JIT is now regarded by Ohno as one of the two 'pillars' of the Toyota Production System. so that the line was down for several weeks. examined accounting assumptions and realized that another method was possible. The factory could implement JIT which would require it to be made more flexible and reduce the overhead costs of retooling and thereby reduce the economic lot size to fit the available warehouse space. this was thought to be a disadvantage because it forced the production lot size below the economic lot size.) The undesirable result was poor return on investment for a factory. measurements were substituted for adjustments. die change times fell to hours instead of days. Therefore over a period of several years. In some cases. Almost immediately. The number and types of fasteners were reduced in order to standardize assembly steps and tools. developed with Shigeo Shingo ( 新郷 重雄 Shingō Shigeo). Some of the changes were as simple as standardizing the hole sizes used to hang parts on hooks. With very simple fixtures. given the cost of changing the production process over to another product. Toyota was one of the first to apply flexible robotic systems for these tasks. Taiichi Ohno ( 大 野 耐 一 Ohno Taiichi?). Toyota engineers redesigned car models for commonality of tooling for such production processes as paint-spraying and welding. using crowbars and wrenches. These were adjusted by hand. So Toyota implemented a strategy now called Single Minute Exchange of Die (SMED). Further. It sometimes took as long as several days to install a large. multi-ton die set and adjust it for acceptable quality. Before the 1950s. identical sub-assemblies could be used in several models. At the same time.It is hard for Japanese corporations to warehouse finished products and parts. due to the limited amount of land available for them. quality of the stampings became . (An economic lot size is the number of identical products that should be produced. these were usually installed one at a time by a team of experts. Toyota engineers then determined that the remaining critical bottleneck in the retooling process was the time required to change the stamping dies used for body parts.
there is a whole new way of working the company must follow in order to manage its consequences. These problems include .inventory is defined to be waste. The ideas in this way of working come from many different disciplines including statistics. businesses are encouraged to eliminate inventory that does not compensate for manufacturing issues. JIT inventory systems expose the hidden causes of inventory keeping and are therefore not a simple solution a company can adopt. or waste. production management and behavioral science. Carrying the process into parts-storage made it possible to store as little as one part in each assembly station. Management are then tempted to keep stock there to hide problems within the production system.controlled by a written recipe. Under this way of working. After SMED. what it says about the management within the company. instead of adding value. When a part disappeared. that was used as a signal (Kanban) to produce or order a replacement. This does not mean to say JIT is implemented without an awareness that removing inventory exposes pre-existing manufacturing issues. allowing any stock habituates the management to stock keeping and it can then be a bit like a narcotic. reducing the skill level required for the change. Philosophy The philosophy of JIT is simple . and then to constantly improve processes so that less inventory can be kept. contrary to traditional accounting. Inventory is seen as incurring costs. industrial engineering. economic lot sizes fell to as little as one vehicle in some Toyota plants. Secondly. Further analysis showed that a lot of the remaining time was used to search for hand tools and move dies. Procedural changes (such as moving the new die in place with the line in operation) and dedicated tool-racks reduced the die-change times to as little as 40 seconds. and the main principle behind JIT. Today dies are changed in a ripple through the factory as a new product begins flowing. In the JIT inventory philosophy there are views with respect to how inventory is looked upon.
suppliers in Japan charged JIT customers a 5% price premium. Environmental concerns During the birth of JIT. transportation. machine reliability. the 1992 railway strikes resulted in General Motors having to idle a 75. For example. waiting time. Transaction cost approach JIT reduces inventory in a firm. specifically pipeline (in transport) inventory and . wasted in traffic jams 2) Inventory. process variability. Zero buffer inventory means that production is not protected from exogenous (external) shocks. unless it is used throughout the supply chain. lack of flexibility of employees and equipment. This violates three JIT wastes: • • 1) Time. motion and product defect). However. In the U.. at the right time.backups at work centres. Toyota suffered a major supplier failure as a result of the 1997 Aisin fire which rendered one of its suppliers incapable of fulfilling Toyota's orders. As a result. This effect was investigated by Newman (1993). In short. processing.000-worker plant because they had no supplies coming in. and inadequate capacity among other things. inventory. multiple daily deliveries were often made by bicycle. and in the exact amount”. exogenous shocks reducing the supply of input can easily slow or stop production with significant negative consequences. it can be hypothesized that firms are simply outsourcing their input inventory to suppliers (Naj 1993). the just-in-time inventory system is all about having “the right material. and as such its practice involves the philosophical aim of reducing input buffer inventory to zero. who found. at the right place. on average.S. Cusumano (1994) has highlighted the potential and actual problems this causes with regard to gridlock and the burning of fossil fuels. without the safety net of inventory. with increases in scale has come the adoption of vans and lorries (trucks) for these deliveries. The JIT system has implications of which are broad for the implementors. Stocks JIT emphasises inventory as one of the seven wastes (overproduction.
with respect to petrol or diesel burned while not physically moving.S Reduce Setup Times 2) Q Total quality control . Where input prices are expected to rise storing inputs may be desirable. Price volatility JIT implicitly assumes a level of input price stability such that it is desirable to inventory inputs at today's prices.F Redesign/relayout for flow .000-worker plant because they had no supplies coming in.W Balance workstation capacity . JIT becomes untenable in high capital cost production.• 3) Scrap.C worker compliance . n the U. Demand stability Karmarker (1989) highlights the importance of relatively stable demand which can help ensure efficient capital utilisation rates. Quality volatility JIT implicitly assumes the quality of available inputs remains constant over time. Karmarker argues without a significant stable component of demand. the 1992 railway strikes resulted in General Motors having to idle a 75.L Reduce lot sizes . 1) F Design Flow Process . firms may benefit from hoarding high quality inputs..S. JIT Implementation Design Based on a diagram modeled after the one used by Hewlett-Packard’s Boise plant to accomplish its JIT program.O Link operations .M Preventative maintenance . If not.
P Standard Production Configuration .S Level Schedule .UC Underutilize Capacity 4) K Kanban Pull System .Q Quality Expectations .P Process design with product design .W establish freeze windows .M fail-safe methods .L Reduce lot sizes 5) V Work with vendors .P Standardize and reduce the number of parts .D Demand pull .D Frequent deliveries .L Reduce lead time .U Project usage requirements ..I Automatic inspection .M quality measures .C Implement Carroussel to reduce motion waste .T Transit .C Implement Conveyor belts to reduce motion waste 7) P Improve Product Design .S Stores .B Backflush .W Worker participation 3) S Stabilize Schedule .Q Quality Expectations 6) I Further reduce inventory in other areas .
The result was a factory that eventually became the envy of the industrialized world. In some cases. Even with this. many vehicles began to be built to order. the company eliminated multiple suppliers. Since assemblers no longer had a choice of which part to use. . This dramatically improved the company's return on equity by eliminating a major source of risk. Toyota had to test and train suppliers of parts in order to assure quality and delivery. Another surprising effect was that the response time of the factory fell to about a day. while simultaneously implementing careful statistical controls for quality control. completely eliminating the risk they would not be sold. line stops had so little economic effect that Toyota installed an overhead pull-line. apparently from nowhere. and has since been widely emulated. In the first week. and a dramatic improvement in product quality. The result was a severe quality assurance crisis. as in-process inventory was built out and sold. line stops fell to a few per week. But by the end of the first month. the entire production line had to be slowed or even stopped. but in contrast to that a huge amount of cash appeared. This improved customer satisfaction by providing vehicles usually within a day or two of the minimum economic shipping delay. No inventory meant that a line could not operate from in-process inventory while a production problem was fixed. Also. every part had to fit perfectly. Many people in Toyota confidently predicted that the initiative would be abandoned for this reason.Effects Some of the initial results at Toyota were horrible. Eventually. When a process problem or bad parts surfaced on the production line. the rate had fallen to a few line stops per day. line stops occurred almost hourly. This by itself generated tremendous enthusiasm in upper management. that permitted any worker on the production line to order a line stop for a process or quality problem. Toyota redesigned every part of its vehicles to eliminate or widen tolerances. similar to a bus bellpull. After six months.
Having employees focused on specific areas of the system will allow them to process goods faster instead of having them vulnerable to fatigue from doing too many jobs at once and simplifies the tasks at hand. the Just-InTime Inventory System (JIT) can have many benefits resulting from it. workers don’t have to be working. Having employees trained to work on different parts of the inventory cycle system will allow companies to use workers in situations where they are needed when there is a shortage of workers and a high demand for a particular product. Increased emphasis on supplier relationships. 4. Having a trusting supplier relationship means that you . In the commercial sector. The main benefits of JIT are listed below. it meant eliminating one or all of the warehouses in the link between a factory and a retail establishment. 5. Better consistency of scheduling and consistency of employee work hours.The just-in-time philosophy was also applied to other segments of the supply chain in several types of industries. 2. Employees who possess multiple skills are utilized more efficiently. Cutting down the set up time to be more productive will allow the company to improve their bottom line to look more efficient and focus time spent on other areas that may need improvement. 1. The flows of goods from warehouse to shelves are improved. the tool used here is SMED. Small or individual piece lot sizes reduce lot delay inventories which simplifies inventory flow and its management. No company wants a break in their inventory system that would create a shortage of supplies while not having inventory sit on shelves. If there is no demand for a product at the time. Set up times are significantly reduced in the factory. This allows the reduction or elimination of the inventory held to cover the "changeover" time. Benefits As most companies use an inventory system best suited for their company. 3. This can save the company money by not having to pay workers for a job not completed or could have them focus on other jobs around the warehouse that would not necessarily be done on a normal day.
Toyota is especially susceptible to an interruption in the flow. Having management focused on meeting deadlines will make employees work hard to meet the company goals to see benefits in terms of job satisfaction. For that reason. These interventions have now been going on for twenty years and result in improved margins for Toyota and the supplier as well as lower . several other suppliers immediately took up production of the Aisin-built parts by using existing capability and documentation.can rely on goods being there when you need them in order to satisfy the company and keep the company name in good standing with the public. One of the other key tools to manage this weakness is production levelling to remove these variations. there was an exception to this rule that put the entire company at risk by the 1997 Aisin fire. Thus. Problems Within a JIT system The major problem with just-in-time operation is that it leaves the supplier and downstream consumers open to supply shocks and large supply or demand changes. long-term relationship with a few suppliers is preferred to short-term. since Toyota also makes a point of maintaining high quality relations with its entire supplier network. not an end. However. a strong. they could be removed. Supplies continue around the clock keeping workers productive and businesses focused on turnover. Once the barriers were exposed. For internal reasons. This long-term relationship has also been used by Toyota to send Toyota staff into their suppliers to improve their suppliers' processes. Toyota is careful to use two suppliers for most assemblies. 6. lowering inventory forced each shop to improve its own quality or cause a holdup in the next downstream area. As noted in Liker (2003). price-based relationships with competing suppliers. who used the analogy of lowering the level of water in a river in order to expose the rocks to explain how removing inventory showed where flow of production was interrupted. since one of the main barriers was rework. promotion or even higher pay. With very low stock levels meaning that there are shipments of the same part coming in sometimes several times per day. this was seen as a feature rather than a bug by Ohno. Just-in-time is a means to improving performance of the system.
. Kanban is a signaling system to trigger action. Kanban System Kanbans maintains inventory levels. These signals are tracked through the replenishment cycle and bring extraordinary visibility to suppliers and buyers. However. production. kanban historically uses cards to signal the need for an item. According to Taiichi Ohno. other devices such as plastic markers (kanban squares) or balls (often golf balls) or an empty part-transport trolley or floor location can also be used to trigger the movement.final customer costs and a more reliable supply chain. Kanban is a concept related to lean and just-in-time (JIT) production. or supply of a unit in a factory. kanban is a means through which JIT is achieved. The Japanese word kanban is a common everyday term meaning "signboard" or "billboard" and utterly lacks the specialized meaning that this loanword has acquired in English. As its name suggests. Toyota encourages their suppliers to duplicate this work with their own suppliers. a signal is sent to produce and deliver a new shipment as material is consumed. the man credited with developing JIT.
Visual puns. Origins The term kanban describes an embellished wooden or metal sign which has often been reduced to become a trade mark or seal. a symbol of strength. Often produced within rigid Confucian restrictions on size and color. may be used as kanban on a pharmacy's sign to advertise a treatment for anemia. to that in focus. In the late 1940s. The supermarket only stocks what it believes it will sell and the customer only takes what they need because future supply is assured. Toyota was studying supermarkets with a view to applying some of their management techniques to their work. In addition. the signs and seals are masterpieces of logo and symbol design. as a kind of store. In 1953. this expression in the Japanese mercantile system has been as important to the merchants of Japan as military banners have been to the samurai. Kanban became an effective tool to support the running of the production system as a whole. it proved to be an excellent way for promoting improvements because reducing the number of kanban in circulation highlighted problem areas. For example. This led Toyota to view earlier processes. Toyota applied this logic in their main plant machine shop. which is controlled by kanban that gives the permission to produce. This interest came about because in a supermarket the customer can get what is needed at the time needed in the amount needed. Operation . The process goes to this store to get its needed components and the store then replenishes those components. sumo wrestlers. calligraphy and ingenious shapes — or kanban — define the trade and class of a business or tradesman. It is the rate of this replenishment.It was out of a need to maintain the level of improvements that the kanban system was devised by Toyota. Since the 17th century.
This consists of a board created especially for holding the kanban cards. the best one can do is to respond quickly to observed demand. A simple example of the kanban system implementation might be a "three-bin system" for the supplied parts (where there is no in-house manufacturing) — one bin on the factory floor. which also contains a kanban card. for example. the bin and kanban card are returned to the factory store. This 'spare' bin allows for the uncertainty in supply.An important determinant of the success of "push" production scheduling is the quality of the demand forecast which provides the "push". Most factories using kanban use the coloured board system (Heijunka Box). is part of a pull system that determines the supply. Kanban. The secret to a good kanban system is to calculate how many kanban cards are required for each product. Thus the process will never run out of product and could be described as a loop. has six simple rules) and that close monitoring of these rules is a never-ending problem to ensure that kanban does what is required. one bin in the factory store and one bin at the suppliers' store. . This can be used to ensure that intermediate stocks held in the supply chain are better managed. The supplier's inbound product bin with its kanban card is then delivered into the factory store completing the final step to the system. by contrast. with only one spare so there will never be an issue of over-supply. This is exactly what a kanban system can help: it is used as a demand signal which immediately propagates through the supply chain. Taiichi Ohno states that in order to be effective kanban must follow strict rules of use (Toyota. Where the supply response cannot be quick enough to meet actual demand fluctuations. In contexts where supply time is lengthy and demand is difficult to forecast. providing the exact amount required. When the bin on the factory floor is empty. then stock building may be deemed as appropriate which can be achieved by issuing more kanban. or production. according to the actual demand of the customers. usually smaller. use and transport that are inherent in the system. The factory store then contacts the supplier’s store and returns the now empty bin with its kanban card. The bins usually have a removable card that contains the product details and other relevant information — the kanban card. causing significant lost sales. The factory store then replaces the bin on the factory floor with a full bin.
or not" recommendations. and the monetary value of the purchase to be made. which may include a detailed analysis of the supplier’s managerial and service capabilities. VENDOR RATING Vendor rating is a system providing a single. a conference with potential suppliers may be held at the buyer’s plant. These vendor ratings represent an overall view of a vendor and his initiatives. additional evaluation steps may be necessary. focused perspective on a vendor and his major products. For complex as well as high-value/volume purchases. thus further reducing the list. It also varies with the buyer’s knowledge of the suppliers being considered. . Electronic kanban systems. Integrating E-Kanban systems into ERP systems allows for realtime demand signaling across the supply chain and improved visibility. the information already in the purchasing department’s file is usually sufficient. • It is a rigorous part of purchasing procedure. and report the performance of a supplier in terms of a range of predefined criteria. rank. thereby giving investors a clearer sense of a vendor's overall "fitness". For an extremely complex purchase. which may include such things as: Quality of the product or service Delivery performance Price (to supply materials at as low price as possible) The type of evaluation used for the sources of supply varies with the nature. analyze. E-Kanban systems can be integrated into enterprise resource planning (ERP) systems.E-Kanban Systems Many manufacturers have implemented electronic kanban systems. • It is a system used by buying organizations or industry analysts to record. Data pulled from E-Kanban systems can be used to optimize inventory levels by better tracking supplier lead and replenishment times. The research rates a vendor's strengths and challenges. • It is also known as performance monitoring. the complexity. or E-Kanban systems. much like the industry's use of "buy. help to eliminate common problems such as manual entry errors and lost cards. For simple and low-volume /value purchases. From the discussion it is usually easy to identify those suppliers who understand the complexity of the purchase.
response to inquiries. Usually. when a firm’s financial condition begins to deteriorate. Such visits are made to determine if the suppliers are both capable and motivated to meet contractual obligations. Consistency of success and integrity in price behavior would provide a measure criterion. which is measured as a percentage of acceptable shipments or delivery. special services rendered. It should be the policy for the quality-control section to inform the purchasing department of the facts concerning each shipment/delivery. three important factors are evaluated. the following aspects are evaluated: i) Adequacy of Equipment: Is the equipment modem or out-of-date? Are the production rates adequate? Look for bottlenecks and the number of backorders. • Ability to serve more satisfactorily. Plant visits should be made after the choice of suppliers has been narrowed to a few. good relations may provide the buyer’s company lower-priced items plus good quality and delivery performance. • Saves both time and money. ADVANTAGES • Helps in finding best vendor for the organization. Quality Evaluation is simply reviewing the supplier’s record in respect to meeting the required specifications. Past performance provides an excellent insight into probable future success. iii) Labour-Management Relations: It is beneficial for the buyer to understand the labor-management relations in the supplier plant as poor relations may result in erratic delivery performance and inconsistent quality standards. purchasing and user departments can fulfill the corporate objective of obtaining the quality products with minimum costs. • Not guided by tunnel vision. delivery performance. The key to successful analysis is to identify the important characteristics of the particular purchase. For example. Price Evaluation in its simplest form is the net price quoted in each instance for conforming goods compared to the prices quoted by competitors.Financial strength and stability of the supplier company may be essential to assure continuity of supply and reliability of product quality. • Easy comparison of various vendors and maintaining better relation with best performers • Can be used as a feedback to vendors for improving the performance. • Basis for making future purchase decisions. Service Evaluation includes prompt submission of data. Most of the elements in this factor are subjective in nature. A competent buyer should be able to read and interpret financial reports and make intelligent conclusions from the data. • Rates the entire performance of vendor. while continuing to deal with the distressed company with caution. the buyer should begin looking for another supplier. On the other hand. during the plant visit. • Purpose of this scheme is to establish a procedure by which quality control. ii) Competence of Technical and Managerial Staffs: A contract requiring complex coordination of development and production coupled with state-of-the-art design requires managerial skills to have successful performance. GOALS OF VENDOR RATING • Rectification of defects. and other intangibles. Usually. .
Receiving section.” . The suppliers are assigned the categories such as “preferred. and given an opportunity.• A supplier or vendor rating system will allow a company to benchmark their supplier's performance against the performance of similar suppliers serving the company Source selection is an essential responsibility of any purchasing function. neutral or unsatisfactory. it is possible for a buyer company to have best quantity. and improved delivery performance from the supplier company. TECHNIQUES OF VENDOR RATING CATEGORICAL PLAN :Under this method the members of the buying staff related with the supplier are required to assess the performance of each supplier. Members:. It has assumed importance in view of growing need of the buyer company to survive in a fiercely competitive market. The consolidation of the individual rating is done on the basis of the net plus value. quality control department. manufacturing department etc. are held by senior men of the buying staff to consider the individual rating of each section. their products and the list of factors for the evaluation purposes. Through proper selection of source. a strong supplier base can be developed in the long run. based on practical considerations and awareness about establishment of good and healthy relations with the suppliers. vigorously and continuously. If time-tested and scientific policies. Socioeconomic factors also need to be considered in source selection. The rating sheets are provided with the record of the supplier. required quantity. The members of the buying staff are required to assign the plus or minus notations against each factor. are pursued. Several techniques have already been proposed for vendor rating. the buyer company should develop and use a comprehensive vendor performance evaluation system. The periodic meetings. usually at the interval of one month.
The cost-ratio is calculated in percentage on the basis of total individual cost and total value of purchase. the most strategic issue is the identification of various costs and their allocation among different variables and suppliers. The vendor with the lowest net adjusted unit price will be the best supplier. The plus cost ratio will increase the unit price while the minus cost ratio will decrease the unit price. the vendor rating is done on the basis of various costs incurred for procuring the materials from various suppliers. The rating is done on the basis of memory. The cost-ratios are ascertained for the different rating variables such as quality. then delivery cost-ratio will be : 5000*100 100000 = 5% All such cost-ratios will be adjusted with the quoted price per unit.00. As compared to other methods. For example :The total delivery cost is Rs. The net adjusted unit price will indicate the vendor rating. the degree of subjective judgement is very high as rating is based on personal whim and the vague impressions of the buyer. Its quality heavily depends on the experience and ability of the buyer to judge the situation. 1. and thus it becomes only a routine exercise without any critical analysis.This is a very simple and inexpensive method. 5000 and the total purchases are Rs. Certain important heads of quality costs and delivery costs can be listed as under : QUALITY Inspection costs DELIVERY COSTS Postage and telegrams . COST RATIO PLAN:Under this method. price and timely delivery etc.000. Under this method.
All the cost-ratio are calculated for all the suppliers on individual basis. On the basis of the value of the each cost-ratio. costlier means of transportation. Price P-Factor comparison P=Pa-Po/Po*100 Where Po=lowest price Pa=accepted price Points P1=20% 60 P2=60% 40 P3=75% 30 Net price=(Lowest net price/Respective net price)*100 This % will be multiplied by the weighted point of price. of scheduled delivery/No. Delivery D-Factor comparison D=No. Quality Q-Factor comparison Points Q1=Accepted without remarks 100 Q2=Accepted with some rejections 60 Q3=Accepted due to acute shortage 40 Q4=Totally rejected 0 Accepted rate=(Accepted lots/Total lots) *100 It will be multiplied by the weighted-point of quality factor.Cost of defectives Reworking costs Telephones Extra cost for getting quick delivery for example. the consolidated rating of each supplier is done. of actual deliveries*100 Points • D1=90-100% 100 • D2=60-75% 60 . Relatives weightages of attributes are assigned by the process of grading. WEIGHTED-POINT METHOD Attributes for quality. price and delivery are separately identified. Manufacturing losses on rejected items.
• D3=40-50% 50 Critical Incident Method Records of events and occurrences of buyer-vendor relationship is maintained They reflect positive and negative aspects of actual performance. Improved performance Determining the competence of a vendor Checklist System Vendor rating is done on the basis of: • Financial strength • Size • Product service • Price • Quality .
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