Purchasing Process and Supply Chain Managenment

1. AVION, INC.
A Case Study of the Purchasing Process in Supply Management.
Steve Greene
September 30, 2017
Greenville Technical College
Business 230 – W01
Purchasing and Supply Chain Management
David Lucero, Instructor

2. Introduction
• Avion, Inc. purchasing staff must determine future actions with a single-source supplier, Foster
Technologies.
• Recent report showed decreases material quality and on-time delivery.
• Avion needs to improve the purchasing process.
• Both companies need to improve cross-functional teamwork to better align work to accomplish goals.
• Both companies need better integration to improve supply continuity and supply chain management to
increase competitive advantage.

3. Presentation Outline
• Introduction
• Avion, Inc. as the buyer. Staff roles and responsibilities
• Foster Technologies as the supplier. Staff roles and responsibilities
• Problems defined.
• 3 types of analysis to uncover and resolve problems.
• Actions to resolve problems – Avion, Inc as the buyer.
• Actions to resolve problems – Foster Technologies as the supplier.
• Avion switching partners
• Performance measurements
• Conclusion

4. Avion, Inc. as Buyer. Staff Roles And Responsibilities
 Senior Executives
- Provide span of control so purchasing staff can manage the full purchasing process.
- Communicate this control to other departments so buying is centralized, measurable, and manageable.
- Set-up cross-functional teams to ensure proper production, control, and communication.
- Establish a strong framework and a process approach for the supply chain: better visibility, relationships, and continuity.
 Purchasing Professionals
- Establish and exercise their full span of control over the purchasing process.
- Provide supply continuity of high quality goods.
- Develop supply base management.
- Align goals with internal stakeholders. Especially with using IT tools like an ERP system.
- Develop integrated purchasing strategies.
 Materials Managers
- Plan for what Avion products will be made and when to maximize the performance cycle.
- Fulfill transportation and positioning needs.
- Have the right amount of inventory to service production requirements and control overall costs.

5. Foster Technologies, as Supplier. Staff Roles And Responsibilities
 Senior Executives
- Uphold performance measurements based on contractual agreements and plant capacity.
- Set-up cross-functional teams to ensure proper planning, production, control, and communication.
- Establish a strong framework and a process approach for supply chain: visibility, relationships, and continuity.
 Sales and Distribution Professionals
- Market and sell offering. Manage distribution networks. Perform post sale customer service at the right level .
- Manage customer expectations based on their product quality and plant capacity.
- Plan for smooth, long-range demand planning.
 Materials Managers
- Plan for what Foster products will be made and when to maximize the performance cycle.
- Fulfill transportation and positioning needs.
- Have the right amount of inventory to service production requirements and control overall costs.

6. Problems Defined
 In the case study, the Avion purchasing managers first thought that the two problems, product quality and on-
time deliveries, were due to poor supplier performance.
 Instead the problems resulted from Avion materials managers increased demands in order quantity and on-time
deliveries upon the Foster Technologies production team.
 Demanded quantity increased from 2500 to 4000 units a month and the lead-time required decreased was from
14 days to 10 days.
 This increased demands were much more than the Foster’s plant capacity and what Foster had stated in the
agreement.

7. Three analysis tools to uncover and resolve problems
 Root cause analysis. Asking the 5 Whys.
• Asking the why questions opens stakeholder dialogue and makes causes, especially human factors, more concrete to
understand, communicate, and resolve. It is a great Six Sigma tool that does not involve formal research.
 Gap analysis.
• Gap analysis involves the comparison of actual performance with potential or desired performance. If an organization does
not make the best use of current resources, or forgoes investment in capital or technology, it may produce or perform below
its potential.
 Pareto analysis.
• A technique for prioritizing possible changes to make by identifying the problems that will be resolved by making these
changes. By using this approach, you can prioritize the individual changes that will most improve the situation. Pareto
Analysis uses the Pareto Principle – also known as the "80/20 Rule"

8. Actions to Resolve Problems – Avion, Inc as the buyer.
 Senior Executives
- Establish a strong framework and a process approach to ensure supply chain visibility, relationships, and continuity.
- Set-up active cross functional teams to better plan, align, and control Avion operations.
- Ensure purchasing staff has full span of control of the full purchasing process: selecting suppliers, negotiating contracts and making changes.
- Deploy an information technology structure, like an ERP system, for real-time and shared intelligence.
 Purchasing Professionals
- Exercise their span of control of Avion’s supply base.
- Exert themselves as the primary Avion staff to complete the entire purchasing process.
- Perform analysis to uncover and resolve problems.
- Share staff resources, IT, engineering, and other information that will benefit this business partnership.
 Materials Managers
- Communicate need of production order changes. Communicate earlier when performance metrics fall short.
- Decrease or stopped production hen significant quality issues arise. Implement procedures to resolve on-going problems.

9. Actions to Resolve Problems – Foster Technologies as the buyer.
 Senior Executives
- Uncover and resolve their production problems.
- Communicate directly with Avion executives when issues impact contracts and downstream production.
- Set-up cross-functional teams to ensure proper goal alignment.
 Sales and Distribution Professionals
- Review the fulfillment of Avion contracts and related contract changes.
- Better communicate changes in production and on-time deliveries with their upstream purchasing counterparts at Avion.
- Help smooth out long-range demand planning based on plant capacity.
 Production Managers
- Decrease or halt production when performance measurements were not met
- Communicate more with their sales directors and senior executives.
- Make a better plan for making Avion products
- Maximize the performance cycle.

10. Avion Switching (adding) Supplier
 Foster Technologies proved they could meet Avion’s requirements as stated in an original agreement, not Avion’s
increases in supplier demand. Switching to a different supplier would be a bad, knee-jerk reaction by Avion.
 Creates disruptions for all parties. Disruptions decease efficiency and challenge corporate communications,
procedures, and performance.
 Switching suppliers would almost be a re-start and would greatly increase lead time. Need to perform a new set of
supplier searches, audits, selection, and contract negotiation. New production planning, retooling and change-over,
manufacturing, and logistics.
 Could creates for Avion an industry view that they are a poor supply chain partner and a poor buying partner. Portrays
lower supply chain success for a new supplier.
 Under a single-source supplier relationship, Avion, Inc., can have more leverage and power. In the right situations,
such as high value goods, most companies prefer both a small supply base and long-term purchasing agreements.

11.  If you can’t measure it, you can’t manage it.
 Conveys what is important by linking critical metrics to important business outcomes.
 Objective metrics support fact-based decision-making.
 Communicates production requirements to other supply chain partners to meet quality standards and meet
downstream market demand.
 Metrics promote continuous improvement and the need for improvement. When suppliers know their performance is
monitored they perform better.
 This gives greater industry recognition to outstanding performance.
 Manufacturing Lead time. Measures of elapsed time between the release of a work order to the shop floor and the
completion of all work necessary to achieve product status.
Performance Measurements

12. Conclusion
 Both companies need to improve cross-functional teamwork to better align work to accomplish goals. Avion needs to improve its
purchasing process.
 The two companies need better integration for better supply chain management to increase their competitive advantage.
 The Avion and Foster Technologies should consider sharing staff resources, IT, engineering, and other information.
 Use root cause analysis, gap analysis, and pareto analysis to uncover and resolve problems. Luckily these were mostly human
factors.
 With better teamwork, performance measurements will improve. These include increased production in both quantity and quality,
lowered future development costs, decreased lead time, less inventories to hold, improved logistics, increases in fill rates, and
better on-time deliveries.

13. Credits of Sources
Robert M. Monczka, Kenneth J. Petersen, Robert B. Handfield, Gary L. Ragatz
“Success Factors in Strategic Supplier Alliances: The Buying Company Perspective.”
Decision Sciences. Volume 29, Issue 3. July 1998. Pages 553–577
Jakki T. Mohr and Robert B. Spekman
“Characteristics of partnership success: Partnership attributes, communication behavior, and conflict resolution techniques.”
Strategic Management Journal. Volume 15, Issue 2. February 1994. Pages 135–152
Cindy A. Claycomb and Gary L. Frankwick
“A Contingency Perspective of Communication, Conflict Resolution and Buyer Search Effort in Buyer-Supplier Relationships.”
Journal of Supply Chain Management Volume 40, Issue 4 December 2004 Pages 18–34
Petros T. Paranikas, Grace A. Whiteford, Bob W. Tevelson, and Dan M. Belz
“How to Negotiate with Powerful Suppliers.”
Harvard Business Review July – August 2015 Issue
Website author not listed.
“Determine the Root Cause: 5 Whys.”
ISixSigma
https://www.isixsigma.com/tools-templates/cause-effect/determine-root-cause-5-whys/