Paper Example on Developing Supply Management of Sam's Supplies

Introduction

For most of the businesses, getting supplies at the lowest possible price is the first goal. However, there is more to consider apart from the prices that suppliers quote. When choosing a supplier out of the many possible options, there are many factors that need to be considered as seen in this essay. For Sam, the errors observed in his business are as a result of poor selection of suppliers and they need to be corrected for the business to be successful in the future. The business relies heavily on the quality of products it gets from the suppliers. If the business does not get the right quality from the suppliers, the output is also likely to be poor. The aim of the essay is to analyze the factors that Sam should consider when choosing the right suppliers and to give advice to Sam on how to get the right suppliers.

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Overview of Sam's Business

Sam's operations for the past two years have been affected by the suppliers' failures. The errors in the supplies are many and the business could make losses due to this. Sam has no idea about how to analyze the suppliers but his friend Laura has offered guidance. The data from the ERP system can be analyzed to determine the way Sam can choose the right suppliers. The analysis of the business can be achieved through Spend Analysis and ABC analysis shown below:

Spend Analysis

The process involves analyzing, classifying and analyzing the expenditure of the business with the aim of reducing the costs of procurement, increasing efficiency of the business and increasing the control and compliance of the business (Kadkol, Mohanty, Jha, & Sebastian, 2015). The process is used to analyze the suppliers and the procurement process and to determine the parts that need to be improved. The use of spend analysis in Sam's business will identify who the suppliers are and how they perform. It will help to identify if the right purchases are made, the success and failure of the suppliers and how this can be improved. The first step in the spend analysis is to identify and consolidate the spend data from all departments to determine what is bought and how much is spent. The data can be collected from vouchers and invoices used. The second step is to clean the data by standardizing it to be uniform and to be easy to read. For example, data from international purchases could require currency conversion. In the case of Sam, the data is standardized and arranged in terms of suppliers.

The third step is to identify the scope of the spend data, whereby the data from the purchases are analyzed annually, quarterly or even semi-annually. The aim is to make sure it can be understood in the same way. The fourth step is to identify the suppliers and rank them in terms of their prices, performance and turnaround times among other factors. The most preferred suppliers are noted. In Sam's case, the ones with the least errors include China Supply and Small and Sweet. The fifth step is to categorize the supplies in their nature. In Sam's business, they can be arranged depending on what they supply. The last step is to analyze the data and make informed decisions depending on the suppliers that serve the business best. For some like quality Kitchen, their errors are at 95% and this means they should be disqualified. Sam can use this method to get direct savings, to resolve currency conversion issues, to ensure the contract terms are good enough for the business, to manage risks associated with the suppliers and the procurement, to ensure compliance and to reduce lateness. In order to have the best results from the analysis, Sam should analyze the suppliers in 2017 using their percentage of errors, whereby the ones with the highest percentage of errors should be ranked together and disqualified. For example, for the supplies from Quality Kitchen, they supplied 20 items and only one was good. The rest 19 items were defective. Such a supplier is scrubbed off and China Supply is retained.

ABC Analysis

The method is used to categorize inventory in terms of the ones that are most valuable, category A, and the least valuable, category C. The analysis is used to determine the purchases that matter most to a business and how to concentrate on things that are of high importance to the business (Ravinder & Misra, 2016). Category A is the products that contribute most to the overall profit of the business but have low costs. The data from Sam's business shows that some of the products have higher profits than others. For example, the products from Villa are more profitable as compared to the ones supplied by Folks and Knives. From the data, Sam should retain the profitable ones and discard the ones that do not attract high profits. The data available is inadequate for the use of this method because it does not indicate the costs of attaining each of these supplies. The purchase costs indicated may be inflated by other costs like shipping which can change with time. Sam should investigate more on the lowest costs of these products to avoid making the wrong conclusions.

The second category, B, refers to the supplies that have the potential to grow to category A but have not been boosted to this level. In Sam's case, the business has many products that make average profits and have average costs. They can be improved to reduce the costs and improve the profit margin. The recommendation is to increase efficiency and decrease the overreliance on the same suppliers so as to get exposed to other possible suppliers who can offer better services. Category C refers to the products that do not have much value but they are essential for the business to grow and continue. Sam should automate the operations that involve these supplies to reduce overhead costs and to ensure they are profitable. Sam should also understand the Pareto Principle as applied in ABC analysis. It implies that a business could be supported by only a small part of it. For example, only a portion of the suppliers may be effective in meeting the needs of the business (Boardman, Greenberg, Vining & Weimer, 2017). For example, Sam's business could be relying on only 20% of the suppliers while the rest 80% are offering only about 10% of the profits. The data available is not sufficient to determine this and needs upgrading.

Recommendations

The first recommendation is that Sam should update the data about the suppliers and arrange in them as per the ABC analysis and Spend Analysis methods above. The suppliers should be analyzed in a way that these two methods can be applied easily. The second recommendation is to have better material and information flow. According to Harrison and Van Hoek (2008), information and material flow in a business improves the chances of making higher profits. In Sam's business, the suppliers are mixed up and it may be difficult to determine the ones that create higher profits. The other one is to Baily (2017), a successful business is the one that has reliable suppliers that can deliver within a short period of time. Sam should categorize the suppliers in terms of their categories as explained in the ABC analysis above to determine the ones who can be discarded. The last recommendation is that Sam should look for fewer suppliers and should do away with the ones whose rate of errors is high. It is crucial for a business to have few but high-performance suppliers. Generally, Sam should consider the prices, quality of the supplies, the efficiency of delivery, alignment and convenience among other factors.

Conclusion

The business operations by Sam can be improved if there is a better management of the suppliers. For example, the ones who do not have high value can be allocated fewer resources and the ones with high rates of errors should be replaced. However, Sam should also consider the overall performance of the suppliers as well as the overall value they add to the business. For the ones that may have high value but low efficiency, Sam should negotiate with them to improve their services delivery instead of replacing them because the business will suffer from such a decision. Sam should also research more to increase the efficiency of the analysis. The data available may not solve all challenges affecting his business.

References

Baily, P. (2017). Procurement. In Contracting for Project Management (pp. 105-116). Routledge.

Boardman, A. E., Greenberg, D. H., Vining, A. R., & Weimer, D. L. (2017). Cost-benefit analysis: concepts and practice. Cambridge University Press.

Harrison, A., & Van Hoek, R. I. (2008). Logistics management and strategy: competing through the supply chain. Pearson Education.

Kadkol, S., Mohanty, B., Jha, A., & Sebastian, A. (2015). U.S. Patent Application No. 14/642,056.

Ravinder, H. V., & Misra, R. B. (2016). ABC Analysis For Inventory Management: Bridging The Gap Between Research And Classroom. American Journal of Business Education-First Quarter, 9(1).