2.11 Working with Suppliers

Operations Management Working with Suppliers

“Let us ask our suppliers to come and help us to solve our problems.”

W. Edwards Deming

2.11 Working with Suppliers

Working with SuppliersIn this topic you will learn about:

Choosing Effective Suppliers The role that suppliers play in improving

operational performance

2.11 Working with Suppliers

What are suppliers? Suppliers are those people responsible for providing

goods or services to businesses Farmer supplying wheat to Kellogg's or beef to Asda Component manufacturer supplying bolts to a furniture

manufacturer Electricity company providing power to a theatre Fashion designer providing their summer range to a

boutique Regardless of the nature of a business they will

have goods and services provided to them from another business (B2B)

Most businesses will work with many suppliersAssume you run an internet shop selling just 1 specialist product, a cycle helmet, which you buy in from a supplier.

How many other suppliers are you likely to also deal with?Now imagine the scale of this if you were running a cycle shop in a city centre.

2.11 Working with Suppliers

Choosing effective suppliers

Before choosing suppliers businesses should set criteria for the selection process, identifying what are the most important factors for them Price Payment Terms Quality Capacity Reliability Flexibility

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Small businesses wishing to supply to larger oneswill often have to work hard to get their products or services accepted.What are the advantages to supermarkets of working with local suppliers?What are the risks to supermarkets of working with local suppliers?Why might small local suppliers want to supply tolarge supermarkets?

2.11 Working with Suppliers

Choosing effective suppliers - Price

Price is often a key consideration in choosing a supplier Keeps unit costs low Can either

pass on savings to consumer in the form of lower prices or enjoy higher profit margins

Businesses must however be careful that lower prices do not mean sub standard quality

Value for money is important

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Larger businesses are often able to exert pressureon smaller suppliers to secure low prices

2.11 Working with Suppliers

Choosing effective suppliers – Payment Terms

It is common place for suppliers to offer credit to its customers i.e. the option to receive the goods or service now but pay at an agreed point in the future.

Payment terms will vary depending upon the relative sizes of the firms and also nature of the product or service.

Payment terms can be In advance Upon delivery Pre agreed credit terms e.g. 30 days Payment Plan i.e. payment in stages

A business may wish to choose a supplier with generous payment terms in order to help their own cash flow.

If a large customer was to buy a new, bespoke IT system, the payment plan might be• 10% up front• 30% at testing stage• 50% upon completion• 20% after 2 years successful implementation Why might this plan help a supplier win the contract?

2.11 Working with Suppliers

Choosing effective suppliers – Quality When choosing a supplier for a component, quality will have a

direct effect on the quality of the finished product One poor quality component will affect the whole product

A top chef working with a poor quality steak will not be able to achieve the quality of meal he/she could with a quality steak

A pair of jeans with a poor quality zip will devalue the quality of the jeans

The quality may also impact upon the operational efficiency Need to rework manufactured goods Cause breakages to machinery Take longer to handle

In retail the quality of the stock will directly influence the reputation and image of the store

A poor quality product can damage the image of the retailer more than the actual manufacturer. Why is this?

2.11 Working with Suppliers

Choosing effective suppliers – Capacity and Reliability Is the supplier able to produce enough to meet your

demand Consistent quality? Correct quantity? On time?

Can you trust the supplier to deliver your order On time? Accurately?

If not then how will this influence operations Stoppages in production? Empty shelves? Letting down your customers?

Why might a business choose tobuy stock of one item from more than one supplier?

Reliability can also mean trust, can businesses trust their suppliers to adopt fair practices?

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2.11 Working with Suppliers

Choosing effective suppliers – Flexibility

Flexibility is the ability to respond to change To meet a sudden increase or decrease in demand Change an aspect of the product to meet changing

consumer tastes Respond to erratic demand

Seasonality Fashion

A business may consider the capacity utilisation of its suppliers

Flexibility can be particularly difficult in certain industries includingAgricultural and Pharmaceutical.

Why do you think this is?

2.11 Working with Suppliers

The role that suppliers play in improving operational performance Unit Cost

Price of components, stock or service Payment terms, avoiding bank charges Frequency and reliability of deliveries, minimising stock

holding costs Quality

Charge higher price Meet quality standards Meet customer expectations

Capacity Utilisation Achieve output targets Respond to changes in demand

Can you explain howall of these aspects

of working with suppliers and

operationalperformance are

interlinked?

2.11 Working with Suppliers

Activity –Your reputation in your suppliers hands?

You will need access to the internet to watch these video clips

You are the buyer for a high street retailer.Your average customer is aged 14-21, males and females, looking

for high fashion clothing.What would be your top 4 criteria for choosing a supplier?

Justify your answer.

Do retailers have a responsibility for ensuring the ethical behaviour of their suppliers?

In the light of these videos would you alter yourselection criteria? Justify your decision.