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CHAPTER 4
PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES
good suppliers to the next level of excellence. In order to do this effectively,
organisations must develop and implement supplier evaluation systems to
identify poorly performing and best-performing suppliers. They can then look
to eliminate or upgrade poorly performing suppliers and to develop stronger
relationships with top performing suppliers.
During the initial phases of rationalisation, a reduction in overall numbers of
suppliers usually results. This is, however, not always the case for every family
or group of purchased items.
Several advantages typically arise from supply base rationalisation:
• Use of world-class suppliers:
Choosing and working with the best
suppliers supports higher buyer-firm performance. Instead of working with
multiple adequate suppliers, procurement can concentrate on closer working
relationships with fewer, better-qualified, suppliers. The key benefits of doing
business with world-class suppliers include: fewer quality issues; fewer
delivery problems; insight into leading technology; opportunities for developing
closer relationships and learning from one another; opportunities to lower
product cost; and improving product performance through joint engineering
and/or joint value analysis projects.
• Use of full-service suppliers:
The set of suppliers in an optimised supply
base is often larger and more capable of offering a range of services. Some
of the expected benefits of using full-service suppliers include: access to
suppliers’ engineering and technical capabilities, design services, testing
capabilities, tooling and production capabilities. The full-service approach
relies on a supplier to provide, for example, an entire system of components,
activities and services as well as to manage its own supply base. Apurchaser
can also use a full-service supplier to perform, for example, complete design-
to-build work.
• Reduction of risk:
The reduction of the supply base to fewer, better suppliers
can reduce risk. This occurs through the reduced risk of: Poor quality; poor
delivery performance; paying too high a price for purchased items and so
on. Maintaining a large supply base can increase risk in these areas, more
suppliers create the opportunity for increased performance variability or
increased supply issues.
• Lower supply base maintenance costs:
Procurement groups and
individuals within these groups interact with suppliers in many ways including
contacting suppliers with regard to, e.g., design specifications, quality and
other performance requirements, negotiation of contracts, performance
problems and so on. Each of these activities costs procurement personnel
time and money and increases the potential for miscommunication. When a
firm uses a smaller number of better suppliers, supplier ‘maintenance’ costs
tend to decrease over time.