Please review the case below. It has many facets, including procurement, contrac

Question

Please review the case below. It has many facets, including procurement, contracts, manufacturing, operations, sales, marketing, and finance. It has strategic implementations for the entire company, but I want you to focus only on the procurement aspects of the case (and we will deal with the interactions between the procurement department and other departments later this semester). The VP of operations has interrupted your vacation with some startling news. One of your company’s important products is called "The Superwidget". The US Government, and the national governments of many NATO countries, Japan, Australia, Argentina and Brazil each buy thousands of these Superwidgets a year. Several companies manufacture a similar competing product and competition for Superwidgets is fierce, based on technical innovation, price, and delivery criteria. The Superwidget is manufactured from components, software, and firmware from numerous companies plus some internal fabrication of parts and subassemblies in your own plants. The final Superwidget usually sells for between $800 and $1200 per unit, based on some special features, warranty, and service. Your company has manufacturing facilities for the Superwidget in the US, Germany, Australia, and Brazil. These manufacturing facilities service specific areas of the world and there is no overlap. Your company buys a particular subwidget for about $100/unit. This subwidget is a critical component of your Superwidget. You source the subwidget from only one supplier in the US through an exclusive supply contract. Your key competitors have similar exclusive arrangements for their subwidgets from other suppliers. The phone call to your vacation spot is very disturbing. You have just been informed that deliveries of the subwidget will be late for the next 3 to 4 months. After your staff completed an analysis, it determined that your company does not have sufficient stock of subwidgets to cover the required deliveries for the next 4 to 6 months. Based on the introductory readings from Week 1 and Week 2, what are the procurement issues here? How do you address the aspects of this issue that concern procurement process?

Explanation / Answer

Here the major issue is in inventory management.

Japanese techniques like kanban talk about such situations where due to some sudden extigency there exist lack of raw material , subparts etc so the production can not be done.

Managing inventory is challenging no matter how big/small the company is. Right amount of inventory needs to be maintained. if more inventory is maintained it leads to inventory depletion , cost of carrying inventory. but if less inventory is maintained then their is cost of ordering , cost of shortage. Thus estimating the right amount . estimating the supplier and having the right backup to supplier is very neccessary.

Thus procurement process needs to assess on following points-

1. estimating the inventory required.

2. understanding the supplier's supplier

3. understanding the supplier's competitor

4. maintaining relations and backup for vital supplies

5.focusing on growing together - toyota style; allowing and helping the supplier to grow.

6. better forcasting and better assesment on the requirements.

Thus all above aspects needs to be considered for better procurement and to avoid any such situation.

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