Eskom Procurement Book 2015

PROCUREMENT AS A SUPPORT AND STRATEGIC FUNCTION WITHIN COMPANIES

• Lower production costs: The use of multiple suppliers for each purchased item can result in increased production costs through inconsistent quality and delivery; and through lower production volumes being offered to each supplier. Fewer, better suppliers being offered contracts for larger volumes of a given production item can result in lower production costs through economies of scale. • Ability to engage in more complex procurement strategies: Implementation of more complex purchasing strategies, such as early supplier design involvement, supplier development and joint productivity improvement projects, requires that the size of the supply base be manageable. It becomes more difficult to implement these types of complex purchasing strategies with a larger supply base owing to the need for increased communication between buyer and supplier as well as other activities required by these kinds of strategies. It is difficult to manage a large number of suppliers. It is also difficult to pursue advanced procurement strategies with a large supply base. In addition, a large supply base leads to the duplication of a wide range of procurement activities that can be wasteful. Finally, it should be noted that supply base rationalisation should be an on- going activity. A recent survey showed that almost half of the respondents had reduced their supply base by between 20% and 60% over a period of several years. Around three quarters of the respondents also indicated they commit about 80% of their total supplier spend to fewer than 100 suppliers [3]. Total Quality Management (TQM) can be summarised as a management system for a customer-focused organisation that involves all employees in continual improvement. It uses strategy, data and effective communications to integrate the quality discipline into the culture and activities of the organisation. TQM is a philosophy and a way of implementing the philosophy. There are a number of distinctive elements that characterise TQM: • Focus is on the customer: Quality is meeting the customer’s requirements; the ability to meet the customer’s requirements is vital for organisational survival and competitiveness. • Emphasises managing processes for long-term gain versus people for short-term gain: A process is the transformation of a set of inputs, which can include actions, methods and operations, into outputs, in the form of products, information, services or results. The emphasis is on the removal of causes of problems in the process itself, rather than managing the people in the process. The removal of causes of problems in the system inevitably leads to improved productivity and long-term gain. Also, the emphasis is on

4.5.2 TOTAL QUALITY MANAGEMENT WITH SUPPLIERS

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