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CHAPTER 4
PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES
• Lower production costs:
The use of multiple suppliers for each purchased
item can result in increased production costs through inconsistent quality
and delivery; and through lower production volumes being offered to each
supplier. Fewer, better suppliers being offered contracts for larger volumes
of a given production item can result in lower production costs through
economies of scale.
• Ability to engage in more complex procurement strategies:
Implementation of more complex purchasing strategies, such as early supplier
design involvement, supplier development and joint productivity improvement
projects, requires that the size of the supply base be manageable. It becomes
more difficult to implement these types of complex purchasing strategies
with a larger supply base owing to the need for increased communication
between buyer and supplier as well as other activities required by these
kinds of strategies.
It is difficult to manage a large number of suppliers. It is also difficult to pursue
advanced procurement strategies with a large supply base. In addition, a large
supply base leads to the duplication of a wide range of procurement activities
that can be wasteful.
Finally, it should be noted that supply base rationalisation should be an on-
going activity. A recent survey showed that almost half of the respondents had
reduced their supply base by between 20% and 60% over a period of several
years. Around three quarters of the respondents also indicated they commit
about 80% of their total supplier spend to fewer than 100 suppliers [3].
4.5.2 TOTAL QUALITY MANAGEMENT WITH SUPPLIERS
Total Quality Management (TQM) can be summarised as a management system
for a customer-focused organisation that involves all employees in continual
improvement. It uses strategy, data and effective communications to integrate
the quality discipline into the culture and activities of the organisation.
TQM is a philosophy and a way of implementing the philosophy. There are a
number of distinctive elements that characterise TQM:
• Focus is on the customer:
Quality is meeting the customer’s requirements;
the ability to meet the customer’s requirements is vital for organisational
survival and competitiveness.
• Emphasises managing processes for long-term gain versus people for
short-term gain:
A process is the transformation of a set of inputs, which
can include actions, methods and operations, into outputs, in the form of
products, information, services or results. The emphasis is on the removal
of causes of problems in the process itself, rather than managing the people
in the process. The removal of causes of problems in the system inevitably
leads to improved productivity and long-term gain. Also, the emphasis is on