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5.4 Process view of a supply chain
A supply chain is a sequence of processes and
flows that take place within and between
different supply chain stages and combine to fill
a customer need for a product
Definition of relationship
1. The state of being related....
2. The friendship, contact, communications etc which exist
between people
Concerned with people, contact and communication
Purchasing and supply relationships involve a degree of
closeness
Entered into for the purpose of mutual benefit
Important to establish effective relationships with
suppliers.
The nature of an effective relationship will vary with
circumstances and importance to the buying organisation
of the suppliers product or service
Then, we can understand that buyer-supplier
relationship is about the attitudes of both the
buyer and the supplier
It specifies what kind of relationship they
choose to have with their counterpart
Is it a transactional kind of relationship? Or
collaborative or alliance kind of relationship?
There three basic types of buyer- supplier
relationship.
6.2 Types of buyer-supplier relationship
There are three types of Buyer- Supplier relationships:
1.Transactional,
2.Collaborative, and
3.Alliance
6.2.1 Transactional Relationships
Is most common and most basic type of relationship
Such a relationship is neither good nor bad
Transactional simply describes an arms-length
relationship where in neither party is especially
concerned with the well-being of the other
Virtually all buying firms will have transactional
relationships
Most will have collaborative ones and some will have
strategic alliances
Characteristics of transactional relationships
An absence of concern by both parties about the
other partys well-being
With transactional relationships, there is little or
no concern about the other partys well-being
what one party wins, the other loses
One of a series of independent deals
Each transaction is entered into on its own
merits
Little or no basis exists for collaboration and
learning
Costs, data and forecasts are not shared
Arms-length transactions, not openness, are
characteristics of transactional relationships
Price is the focus of the relationship
Getting the best price is the focus of the transaction
Ideally, total cost analysis precedes any procurement
transaction
little or no concern for the others well-being, neither
buyer nor supplier will rush to the others assistance in
bad times or when problems arise.
A minimum of purchasing time and energy is required
to establish prices
Market focuses normally establish prices in
transactional relationships
Transactional purchases lend themselves to
e-procurement and, in some cases, reverse auctions
Advantages
Relatively less purchasing time and effort are
required to establish price
Lower skill levels of procurement personnel are
required
Much less judgment and managerial expertise
are required with the vast majority of
transactional procurements
Disadvantages
The potential for communication difficulties is much
greater with transactional relationships than with
collaborative or alliance ones
Considerable investment in expediting and the
monitoring of incoming quality is required to ensure
timely delivery of the right quality
Transactional relationships are inflexible when
flexibility may be required
Changing technology and changing market conditions
can require flexibility in buyer /supplier relationships.
Transactional procurements tend to result in more
delivery problems than do collaborative and strategic
alliance ones
Friends look out for friends, not opportunistic buyers
or suppliers
Quality with transactional relations will be
only as good as required
Transactional suppliers tend to provide the
minimum service required
Buyers tend to experience less effective
performance by their transactional suppliers
than do those employing collaborative or
strategic relationships
Transactional suppliers have much less to lose
from a dissatisfied customer than do
collaborative strategic relationship suppliers
Transactional customers are subject to more
supply disruptions than are collaborative or
alliance ones
Buyers who maintain continuing,
collaborative relations with their suppliers are
much less subject to supply shortages than are
opportunistic ones.
Since the supplier recognizes the transactional
and price nature of the relationship, it is not
motivated to invest time and energy in the
development of the potential buyers products
6.2.2 Collaborative Relationships
Collaborative and alliance relationships tend to
result in lower total costs than do transactional
relationships for several reasons
Process improvements and the adoption of
technical innovations require a high level of
certainty and continuity of demand
The risks and uncertainties present with
transactional relationships reduce the likelihood
of investments in R&D and training as well as the
procurement of new, more efficient equipment
focused on the customer firms needs
Thus, major opportunities for cost reduction
within supplying organizations may be lost
with transactional relationships
Cost reductions resulting from value
engineering and value analysis (VE/AA) are
much more likely with collaborative and
alliance relationships
Suppliers are more likely to take the initiative
to reduce costs through VE/VA when they are
involved in long-term relations than with
short-term transactional ones
Long-term performance agreements allow
suppliers an opportunity to reduce their costs
The extended learning curve effect with both
production and services allows collaborative and
alliance suppliers to reduce their costs and share
these savings with customers
Collaborative and alliance relations replace the
market forces employed by transactional
procurement with controlled competition,
benchmarking, and advanced supply
management pricing practices
The results are lower total costs, higher quality,
reduced time to market, and reduced risk of
supply disruptions
Researchers Stanley and Pearson found that the
three most important factors in a successful
buyer-supplier relationship are:
(1) two-way communication;
(2) the suppliers responsiveness to supply
managements needs, and
(3) clear product specifications
Both collaborative and alliance relationships
require a quality of management
Interdependence and necessity of
cooperation is the key difference between
collaborative relationships and transactional
ones
All elements of relationship management:-
trust building,
communications,
joint efforts, and
planning and
fostering interdependency,
managed to achieve competitive advantage
Interdependency provides many benefits to
both parties to the relationship:
cost competitive
customers firm enjoys the benefits of early
supplier involvement (ESI)
Improvements in cost, quality , time to
market, and the leveraging of supplier
technology result
end objective:- reduction in total costs
Improved quality
timeliness also result
Collaborative suppliers look out for their
friends, not their opportunistic customers
Collaborative relationship help
cushion(reduce) bad times
Both customers and suppliers who value each
other, based on long-term relations and
respect, are more likely to come to each
others aid during times of adversity
The relative level of certainty and continuity of
demand in collaborative and alliance
relationships increases
the likelihood of investments in R&D,
training, and the procurement of new,
more efficient equipment focused on the
customer firms needs
The major disadvantage of collaborative and
alliance relationships are:-
the amount of human resources,
time, and
energy required to develop and mange the
relationship
6.3 Supply Alliances
D/ce b/n collaborative relationships and supply
alliance- presence of institutional trust in
alliances
Supply alliances reap incredible benefits as a
result of:-
physical asset specialization and
human specialization
Dyer defines physical asset specialization as:-
specific capital investments (e.g., in customized
machinery, tools, information systems, delivery
processes and so forth) that
allow for faster throughput and greater product
customization.
Physical asset specialization allows,
for product differentiation and
may improve quality by increasing product
integrity
Human specialization refers to relationship
specific know-how accumulated by individuals
through long-standing relationships
substantial experience working together and have
accumulated specialized information and
language that allows them to communicate and
coordinate effectively with each other
results in higher quality, faster development
times, and lower costs
The Primary Benefits to Supply Alliances
Include:
Lower total costs
Synergies
Reduced time to market
Improved quality:- design of experiments and
supplier certification
Improved technology flow from suppliers
Improved continuity of supply Alliance
Alliance Share Several Attributes:
Focus of most supplier alliances:- achieving
the simultaneous objectives of continuous
improvements along with squeezing cost out
A high level of interdependence and
commitment is present
An atmosphere of cooperation exists
Potential conflicts are addressed and
resolved openly.
When problems occur, the focus is a search
for the root cause, not the assignment of
blame
The alliance is controlled:-
formal and informal interpersonal connections,
information systems, and
internal infrastructures that enhance learning
Openness exists in all areas of the relationship
including :-
cost,
long-term objectives,
technology, and
the supply chain itself
The alliance is a system evolves with the objective of
creating new benefits for both parties
The alliance partners share a vision of the future is the
area of the interface.
Ethics take precedence over expediency
The relationship is adaptable in the face of:-
changing economics,
completion,
technology, and
environmental issues
The design of experiments and supplier
certification are the norm with supply
alliances
It result is improved quality at a lower total
cost
Negotiations and renegotiations occur in a
win-win manner
Executive level commitment and alliance
champions protect the alliance form incursion
by nonbelievers
In supply alliances are so attractive, why arent
they the way to conduct all business?
Alliances are a very resource-intense approach
to supply management and tend to be
reserved for the most critical relationships
6.3 Which Relationship is Appropriate?
How does a supply management executive determine
whether a relationships should be transactional,
collaborative, or a strategic alliance? Several key
questions should be asked to determine the strategic
elements of a relationship:
1. Are there many relatively undifferentiated suppliers
providing what amounts to interchangeable
commodities? If so, a collaborative alliance or
relationship would not be appropriate: Try a
transactional relationship instead.
2.Does the potential supplier possess economic power
which it is willing to employ over its customers? A
transactional or very carefully developed and managed
collaborative relationship is usually appropriate.
3.If there is recognition by both parties of the potential
benefits of an alliance, but adequate qualified human
resources are not available at one or both firms, a
collaborative relationship is usually appropriate.
4.A collaborative relationship frequently is an appropriate
first step on the road to strategic alliances
5.Is one supplier head and shoulders above the rest in
terms of the value it provides, including price,
innovation, ability to adapt to changing situations,
capacity to work with your team, task joint risks, and so
on? If so, an alliance may be in order, assuming that
the supplier is willing to enter into an interdependent,
trusting relationship.
6.Are some suppliers strategic to your business? In
both words, do they have a major impact on your
competitive advantage in the marketplace? Are you
highly reliant on them to provide a unique product,
technology, or service? If so, an alliance may be vital.
7.Would your company benefit greatly if the supplier
were more integrally connected with your company,
perhaps with their engineers working side by side with
yours, or collocating their manufacturing facilities
adjacent or within yours? If yes, consider an alliance.
8. Do your customers require high degrees of flexibility
and speed of responsiveness, causing you to demand
the same performance from your suppliers? This is a
classic alliance driver.
Trust is another key factor differentiating the three
classes of relationships
The simplest definition of trust is being confident that
the other party will do what is says it will do.
Some level of trust must be present in all three of our
types of relationships
But the level of trust increases with collaborative
relationships and becomes an essential characteristic
with strategic alliance
Few of these relationships are pure:
A transactional relationship may have one or more
collaborative characteristics while a collaborative
relationship may have one or more transactional as
well as some alliance characteristics.
For suppliers and buyers who comprehend the
value of shifting from tactical, transactional
based relationships to strategic value-based
alliance relationships, it will be essential to
engaged the multidimensional assessment of
the elements to Total Cost of Ownership to
determine exactly where cost can be reduced,
value enhanced, and substantial competitive
advantage created.
Questions to be addressed before proceeding
While strategic supplier alliances receive a
great deal of media coverage and discussion
within the supply management community,
are they for everyone? Will the benefits of an
alliance out weight the effort, risk, and
resources required? For those supply
management professionals and organizations
that are investigating the possibility of
strategic supplier alliances, it can be helpful to
think over the following questions:
Is there a danger that the supplier may act in an
opportunistic manner over time?
Do electronic systems at the purchasing and supplier
organizations allow for optimum communication and
sharing of information?
Is the potential strategic alliance supplier well
equipped, in terms of knowledge, expertise, and
resources, to stay current in the industry?
Are both the purchasing and supplier organizations
willing to keep attention focused on the joint customer,
in order to establish supply chain objectives and goals?
Are there other suppliers in the marketplace, perhaps
now more accessible because e-procurement, who are
worth investigating before committing to a strategic
alliance?
Has the supply manger been thoroughly
trained in managing an alliance relationship?
Is the purchasing organization proud to be
aligned and associated with the supplier
organization, as they present a joint marketing
front for the links further downstream in the
supply chain?
Is the purchasing organization comfortable
with the level of risk associated with reducing
the supply chain?
Is the purchasing organization comfortable
with the level of risk associated with reducing
the supply base?
Are both supplier and buyer aligned in what their
ultimate customer considers to be valuable?
If there is substantial risk for the supplier to
develop new technologies, sub-systems,
products, processes, or service support, is the
buying firm willing to share or reduce the risks?
Are both supplier and buyer aligned in their
respective visions to be able to make long term
commitments to each other?
If an alliance is in order, are there sufficient
operational points of interaction where the
supplier can engage with the buying firm, such as
joint development programs, just-in-time
inventory, electronic communication, or
collocation of service personnel?
6.4 Situations where in Alliances May Not Be Appropriate
Quite obviously, alliances are not always appropriate
Professor Ralph Kauffman has identified 14 such
situations and has developed them into 5 major
categories:
1. Stability of the prices, market, and buyers demand
a. Price volatility: commodities traded on open markets
that have significant price volatility
The problem for a partnership/alliance is how to
share risks and benefits that may result from price
volatility
Some arrangements can be made to mitigate this
problem including price adjustment mechanisms
based on the costs or indexes and, for some
commodities, hedging in futures markets
b. Demand Volatility: Materials or services that have
significant volatility in individual buyer demand
If the buying firms needs are not predictable, the supplier
must deal with the likelihood of overstock or stock out or
erratic productions schedules
To do this may generate additional costs for the supplier
that must be built into the price that the buyer pays
c. High Switching Likelihood with High Switching Costs:
Situations with high switching costs that also have a high
likelihood of switching being desirable
Purchases that involve changing technology or critical
quality or other characteristics where there are at the same
time no strong suppliers may indicate a high likelihood of
needing to switch in spite of high switching costs
In such cases, maximum flexibility is desirable
2. Capability of potential suppliers
a.No Partnership/Alliance-Capable Suppler for the Item:
The lack of a capable supplier would dictate some
other form of supply relationship
No partnership or alliance would be preferable to
one with an inept(incompetent) supplier.
b.No Partnership/Alliance-Capable Supplier in the
Geographic Area:
Depending on the material or service required,
there may be regions where a partnership or
alliance is not possible on account of lack of a
competent supplier in that region.
c. Rapid Technological Change:
Situations of rapid industry wide technological
change where the buyer would be
disadvantaged if locked into one supplier
Not all supplier have the capability to remain
technological competitive
d. Mismatch of Clock Speed:
If the buying firms industry is changing and
developing more rapidly than that of the
suppliers industry it may be difficult to arrive
at a partnership or alliance that is fully
beneficial to the buyer
3. Competition in the supply market
a. Non competitive Market:
Noncompetitive markets where the supplier partner
may be in a position to take advantage of the buying
firm
Generally a partnership or strategic alliance will
reinforce the suppliers power relative to the buying
firm
b. Supplier Dependency Creation:
Situations where extreme dependency on a particular
supplier would be created by a partnership or strategic
alliance
If the buying company is relatively small compared to
the selling company and the buyers business is not
vital to the seller, the buyer may be at risk of future
supply
For example, a buyer becomes totally dependent
on a seller through a partnership or alliance for a
material vital to the supplier and for which there
are few if any, alternative suppliers
If the supplier determines at a future time that
the business is not compatible with its business
objectives, it may terminate agreement and
cause supply difficulty for the buyer
c. Neglected Areas:
Situations where purchases have been
mismanaged or not managed for years, e.g. many
types of indirect purchases.
In order to obtain the lowest total cost, a
relationship that leverages the free market
should be used
d. Suppliers Seeding to Reduce competition:
Situations where suppliers appear to be using
partnership/alliance as a marketing ploy(plan)
to eliminate competition and reduce industry
capacity
These may save cost in the short run but, if
the suppliers strategy truly is to reduce
capacity and competition, costs may increase
in the long run
Being locked into such a supplier would not
be desirable.
4. Benefits to the buying firm form the relationship
a. No Leverage from Partnership:
Situations where there is nothing to leverage
with a partnership/alliance
Typically, a partnership or alliance will leverage
some aspect of the exchange involved
Leveraged items include volume, total cost,
process or procedural cost, inventory, or
innovation
If there are no leverage possibilities, there may
not be a justification for the work involved in
establishing and maintaining a partnership or
alliance
b. No Hard Savings from Partnership:
Situation where hard savings are not present as
a result of a partnership/alliance
Soft savings such as non quantifiable quality
improvements and partial-person staff
reductions are nice but, unless they result in
some other cost avoidance, they never show
up on the bottom line.
To justify the work involved in establishing
and maintaining partnerships and alliance,
there must be some hard savings
5. Internal Buy-In to partnership
No Internal Customer Buy-In:
Situations where the internal customers of the
buying organization do not joint ownership with
supply management of the partnership/alliance
arrangement
Most purchasing organizations use a team
approach to develop, implement, and maintain
partnership and alliance agreements
If that is not done, or if the internal customer
members of the team do not agree with all the
terms of the agreement, the partnership or
alliance will be likely to fail
Unit Seven
7.Specification and Standardization
7.1 Specification
What is specification?
Specifications are the most detailed method
of describing requirements
design specifications are the detailed
descriptions of:-
the materials,
parts, and
components to be used in making a product
They are the descriptions that tell the seller
exactly what the buyer wants to purchase
Specifications and standardization are two related
topics in the field of supply management
Specifications form what is called the purchase
description
Standardized parts, components, and services
may be included in the purchase description,
but standardization goes beyond mere
inclusion in a description
Standardization is treated in many companies
and supply chains as a philosophy for creating
competitive advantage
Purpose of specification
What are the importance of specification?
The purchase of specification forms the heart
of the procurement
purchase order or contract will be performed
to the satisfaction of the buying organization
frequently is determined at the time the
specification is selected or written
Purchase specifications serve a number of
purposes, among them to:
Communicate what to buy
Communicate suppliers what is required
Establish the tangible goods to be provided
Establish the intangible services to be provided, such
as :-
warranty,
maintenance, and
support
Establish the standards against which :-
inspections,
tests, and
quality checks are made
Balance the specification goals of:-
individual departments,
relevant suppliers,
desired product or service performance and cost
7.1.2 Categories of specification
Purchase speciation can be classified into two
brad categories:-
Simple (low detail) and
Complex (high detail)
The classification of simple or complex is a
reflection of the development of the specification
itself and not the complexity of the product or
service or the fulfillment of the specification
Complex or detailed specifications are used when
a simple specification is not possible or preferable
A complex specification requires more resources
and time to develop
Simple specifications:-
require less resources and time to develop than
complex specifications
completed with one sentence and
have little need for collaboration between
functional areas or supply chain members
There are six categories of simple specifications:-
1 desired performance,
2.function and fit,
3.brand or trade names,
4.samples market grades, and
5.qualified products
Ex. the specification of an accounting
department for supply management to
purchase12 Fujitsu Life book S Series model
4542 laptops with their default components
package and warranty is a complete, yet
simple, specification
1.Performance specifications
is the perfect method of describing a
requirement
Instead of describing an item in terms of its
design characteristics,
describe in words, and quantitatively where
possible, what the item is required to do
Potential suppliers are told only the performance
that is required
EX. Electronics, aircraft, and automobile companies,
for example, frequently use this method to buy
such common materials as electrical wire,
batteries, and radios
2.Function and fit specification
Such purchase descriptions are a variation of
performance specifications and are used in
early supplier involvement programs
With this approach, the design team
describes the function to be performed and
the way the item is to fit into the larger
system(e.g., automobile, computer, etc.)
together with several design objectives(cost,
weight, and reliability)
According to May, The optimal use of suppliers
special skills and processes is experienced when suppliers
are provided with a set of performance specifications.
3. Brand or Trade Names
Branding or differentiating a product is generally done to:-
develop a recognized reputation and
thus gain repeat sales,
protect the product against substitutes,
maintain price stability, and
simplify sales promotion
The primary reason most manufacturers brand their products
is to obtain repeat sales
Consumers develop a preference for brands
branded products sold at higher prices than unbranded
products of similar quality
Brand name products are among the simplest to describe on a
purchase order
4. Market Grades
Grading is a method of determining the quality of
commodities
A grade is determined by comparing a specific
commodity with standard previously agreed on
Grading is generally limited to natural products such
as lumber, wheat, hides, cotton, tobacco, food
products, and so on
The value of grades as a description of quality
depends on the accuracy
In buying graded commodities, industrial supply
managers often use personal inspection as a part of
their buying technique
Trade name, model number, part number, place of
manufacture, and similar identifying data describe
approved products on the QPL.
Complex specification
Complex or detailed specifications are descriptions that
tell the seller exactly what the buyer wants to purchase
A complex specification often goes beyond the design of a
product, to include specifications regarding:-
methodology,
packaging,
transport,
delivery schedule,
warranty, and service
There are four principle types of complex specifications: -
1.commercial standards,
2.design specifications,
3.engineering drawings, and
4.material and method-of- manufacture specifications
1.Commercial standards
Recurring needs for the same materials have led
industry and government to develop commercial
standards for these materials
is complete description of the item standardized
The description includes the quality of materials
and workmanship that should be used in
manufacturing the item, along with dimensions,
chemical composition, and so on
It also includes a method for testing both
materials and workmanship
Standard specifications have been prepared for
many goods in commercial trade
National trade associations,
standards associations,
national engineering societies,
the federal government, and
national testing societies all contribute to the
development of standard specifications and
standard methods of testing
Commercial standards are applicable to raw
materials, fabricated materials, individual
parts and components, and subassemblies
similar to purchasing by brand name
in both methods, the description of what is
wanted can be set forth accurately and easily
Commercial standards are more complex because
they require greater detail in the description
2.Design Specifications
For many items large number of buying firms
prepare their own specifications
By preparing its own specifications, a company
can often avoid the premium prices of brand
name items and the sole source problems of
patented, copyrighted, and proprietary products
Describing requirements with chemical or
electronic specifications, or with physical
specifications and accompanying engineering
drawings, entails some risk
For example, if a buying company provides
the exact chemical specifications of the paint
desired, it assumes complete responsibility for
the paints performance
3.Engineering Drawings
Engineering drawings and prints are occasionally
used alone, but more typically in conjunction
with other physical purchase descriptions
Engineering drawings may be part of design
specifications described above
Where precise shapes, dimensions, and spatial
relationships are required, drawings are the most
accurate method of describing what is wanted
Engineering drawings are used extensively in
describing quality for construction projects, for
foundry and machine shop work, and for myriads
of special mechanical parts and components
4.Material and method of Manufacture
These specifications are used most appropriately by
technically sophisticated large companies or
organizations dealing with small suppliers having
limited research and development staffs
When this method is used, prospective suppliers are
instructed precisely as to the specific materials to be
used and how they are to be processed
The buying firm assumes full responsibility for product
performance
It believes that its own organization has the latest
knowledge concerning:-
materials,
techniques, and manufacturing methods for the item
being purchased
Specifications of this type are expensive to
prepare
Inspection generally is very expensive
Material and method-of- manufacture
specifications are used extensively by the
armed services and the Department of Energy
A modified version of these specifications is
sometimes used by industry
For example Large purchasers of paint
frequently request manufacturers of a
standard paint to add or delete certain
chemicals when producing paint for them
7.1.3 Development of specifications
Developing specifications can be a difficult
task to manage because it involves many
variables,
1.Informal approach
It emphasizes the concept of a supply managers
responsibility to challenge materials requests
top management urges designers to request
advice from supply managers and work with
them on all items that may involve commercial
considerations
Emphasis on person-to-person communication
and cooperation between individual supply
managers and designers
Using this approach, a company-oriented, cost
conscious attitude is developed at the grass-roots
level throughout the organization
Two potential problems exist with the
informal approach:-
The 1st lack of formalization through
corporate policy or organizational structure
may render the supply manager powerless
and make the approach completely ineffective
The second problem is that the supply
manager may create animosity (hatred) when
it is appropriate to challenge a specification
2.Supply Management Coordinator Approach
In the supply department for individuals, materials
engineers, serve in a cooperation capacity with the
design department
The materials engineer searches for potential
supply management problems in attempt to
mitigate them before the specifications are
completed
The supply management coordinator approach is
highly structured, as well as expensive
It is also very effective
used whenever coordination problems stemming
from the technical nature of a firms product or
from the magnitude of its cost justify such an
investment
3.Early Supply Management Involvement
Progressive firms increasingly are creating
design policies to involve supply management
in the early stages of new product
development
design engineers and production engineers
consulting supply management preparation
specifications
Because, supply management has commercial
experience and the market information
required to in considerations of specifications
4.Early Supplier involvement
To properly implement early supplier
involvement, a buying company should first
establish the policy of involving supply
management in the design process
Early supply involvement coupled with early
supply management involvement can
improve product quality and reliability,
while compressing development time and
reducing total material cost
5.Consensus Development Approach
Consensus development calls for
specifications to be greed upon by the
department managers
This collaborative approach falls short of
developing a formal team
When specifications conflicts arise and
consensus cannot be reached, final authority
for the decision should rest with the
department having responsibility for the
products performance
6.Cross-Functional Team Approach
This approach recognizes that a good specification is a
compromise among basic objectives
A specifications cross-functional team is established
,with representatives from:-
design engineering,
production engineering,
supply management,
marketing,
operations,
quality and standards
On new product development, members of the design
team are involved, as appropriate, throughout the
development of the product and its specifications
7.2. Standardization
A uniform identification that is agreed on is called a
standard
In business practice, the concept of standardization is
applied in either industrial or managerial
standardization
Industrial standardization can be defined as the
process of establishing agreement on uniform
identifications for definite characteristics of :-
quality,
design,
performance,
quantity,
service, and so on
Managerial standardization deals with such things as
operating practices, procedures, and systems
7.2.1 Source and types of standardization
In industry, there are three basic types of
materials standards:
international standards,
national standards, and
company standards
If a designer or user can not adapt a national
or international standard for his or her
purpose, the second choice is to use a
company standard
7.2.2 Benefits of Standardization
Standardization benefits an organization in a
variety of ways:
it enables mass production,
enables customization,
improves supplier coordination,
improve quality,
enables simplification,
enables delayed differentiation and, as a
result of many of the other benefits, lowers
inventories.
1. Enables mass production
Standardized parts and components enable
management to stabilize production processes and
focus on continuous improvement, thereby
reducing costs
2.Enables customization
Standardized parts and modules enable
manufacturers to make a wide variety of finished
products from a relatively small number of parts
With standardization, the wide variety of finished
products may be assembled when ordered, thereby
reducing inventory carrying costs and increasing
flexibility to meet specific consumer demands
Ex. Dell exemplifies this in its ability to customize
computers
for customers on the same the day the order is placed
3.Improves supplier coordination
Standard parts and components are
repetitively manufactured to the same design,
enabling investment by the producing
company in better machinery, training, and
materials
The result is a significantly lower defect rate
4.Enables delayed differentiation
when customization of the product is accomplished as
close to customer demand as possible, the differentiation
of the product or service is delayed
For example, suppose a customer purchases a computer
online with a customized configuration of standard parts
and modules
The manufacturer has two possible ways to fill the order
The manufacturer can preassemble hundreds or even
thousands of computer configurations that customers may
want to they are ready to ship when the demand occurs
Or, using delayed differentiation the manufacturer stocks
standard components and modules that can quickly be
assembled into customized configurations
Delayed differentiation results in carrying much lower
inventory levels
5.Lowers inventories
Lower inventories results from the number of
distinct parts carried being reduced
Better quality from greater use of standards parts
and components reduces safety stock, thereby
reducing overall inventory levels
Standard parts and modules usually have more
certain and shorter supplier order lead times
Reduced uncertainty in production lead time
reduces the need for additional inventories
required for unreliable lead times
Shorter lead times directly translate into smaller
order quantities
7.2.3 Development of standardization
The benefits of standardization cannot be fully
realized when solely developed internally by design
engineers
The next level up is to involve cross-functional teams
with internal members from :-
supply management,
marketing,
quality and other relevant functional areas
A standardization program can be approached in
various ways; but because so many departments and
suppliers are affected by standards decisions, a team
effort is the most appropriate approach
A standard team typically consists of
representatives from:-
engineering,
supply,
operations,
marketing, and transportation
Relevant suppliers should also be included in the
team under the guidance of supply management
The standards team typically is charged with the
responsibility of obtaining input from all user
departments and relevant suppliers, reconciling
differences between them, and making the final
standards decisions
THANK YOU
FOR ACTIVE PARTICIPATION