Page 392 - Design for Six Sigma for Service (Six SIGMA Operational Methods)

352 Chapter Ten

10.3.12 Purchasing and Supply Process

As more and more companies move away from high levels of vertical inte-
gration to focus primarily on their core competency and purchase everything
else from suppliers, the role of purchasing and supply will continue to increase.
As globalization continues on its relentless path of growth, your suppliers are
now just as likely to be one block away as they are to be halfway around the
globe. Thus, purchasing and supply is fast evolving into global purchasing and
supply. Purchasing and supply involves the activities that are used to
1. Identify the best suppliers for goods and services
2. Specify exactly what is needed and find prospective suppliers to bid
on the organization’s purchase requirements
3. Negotiate the best purchase terms for the organization
4. Ensure that adequate legal contracts are signed
5. Ensure that goods and services are delivered as required and in a
timely manner
6. Ensure that certification for supplier payment is processed
7. Ensure that suppliers are well integrated (as required) into the orga-
nization’s operations
8. Ensure that supplier morale is high and stays high

Purchasing and supply is particularly important because this is the activity
that is responsible for integration of the firm’s activities with those of its
most important suppliers. In the U.S. automotive industry, for example,
there are tier-1 suppliers who supply to the major automobile companies,
tier-2 companies who supply to the tier-1 companies, and so on. Obviously,
the customer does not really care about who built what components; errors
made by a tier-2 supplier will give a company just as big a black eye as if
the company had committed the error itself. This all means that the job of
integrating supplier activities, the supply chain, in order to ensure customer
satisfaction, is extremely important to every company’s long-term success.

Purchasing Performance Metrics
Frequency of Material Shortage and Percent on-Time Receipts
Production activities are the areas in an organization that are most dependent on
the performance of purchasing and supply. Performance metrics such as
frequency of material shortages and percent on-time receipts indicate the degree
to which purchasing and supply facilitates the smooth flow of production.

Expenditure on Premium Freight
Expenditure on premium freight also measures the extent to which rush orders
have to be placed because of poor planning or unreliability of suppliers.