Should-Cost Modeling Handbook: a Comprehensive Guide to Applying Value Chain Intelligence in Procurement, Negotiation, Commodity Strategy, Value Engineering, and Supply Chain Optimization. by Kenneth Chan

Author:Kenneth Chan
Language: eng
Format: epub
Publisher: BookBaby
Published: 2021-06-28T14:41:54+00:00

Chapter 4:

Competitive Advantage Based on Purchasing Analytics

4.1. Story: Action and Negotiation

Chaos!

Joanne runs down a set of metallic stairs and into the shop floor. She takes a look at the digital board next to the production line. The inventory for the J subassembly is under 500 units, which is too low if they’re going to meet the production batch required for April.

Since Joanne arrived in China, things have not turned out so well. Beyond her working team, the relationship with GaMetals has tensed, and Susan has taken much of the blame. Prices of raw materials have increased in the last few weeks, posing a threat to the entire Ilumina launch. And now production has not been flowing as expected, and the inventory is low. It was Joanne’s commitment to the production process that drove her to the vendor’s manufacturing facility, but she isn’t sure if she’s really making things happen.

Joanne continues pacing through the aisle, where robots work alongside qualified workers on small, shiny parts. At the end of one of the assembly lines, Joanne sees a pile of components. Under Chinese characters, she reads a small font that says “Quality rejects.” She takes her palm to her forehead and wipes away the sweat while she sighs in desperation. A man with a tan shirt walks far away from her. She runs to meet him.

“Hey, David! How are you?” Joanne asks.

David is the plant manager, a middle-aged man with a comforting smile. He turns to Joanne and says “Hi! It’s great to see you, I was just going to call you.”

“Have you seen all the quality rejects accumulating on the production line?” Joanne asks.

“Exactly what I wanted to discuss! As you know, we bought that component from one of our partners, and their quality specs are failing our tests. We need to evaluate a local vendor that’s offering us the same component, but it would increase the unit cost by $0.17 while reducing quality costs by $0.08. Can you help me evaluate this change?” David says.

“Sure! Let me get my computer. We can run a scenario and then discuss with the rest of the team this evening. Hey, and what about the inventory for J?” Joanne asks with her eyes wide open.

“Don’t worry, we should be able to complete this run, and the vendor’s aware of our inventory level,” David assures her.

“OK, then let me run and I’ll meet you back at the control room.”

“Perfect!”

Standing Her Ground

“Hello, Susan?” Joanne sounds hesitant next to the speakerphone. Outside the window, the evening is settling in.

“Hi, Joanne,” Susan says. “I understand from David that things are running smoothly after this morning’s events.”

“Yes, things are under control, but we need to make some changes.”

Susan’s electrically transmitted voice sounds serious: “What do you have in mind?”

“Well, with this change of vendor, we would benefit from making adjustments to our drop-shipping process,” Joanne says.

“Impossible, I thought it was already closed with retailers.”

Joanne pauses for a few seconds and then resumes: “It was, but I’ve explored some options with the team, and we may be able to drive further cost reductions.

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