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The consequences of choosing a poor supplier can also be reduced by using more than one vendor. Rather than placing all orders for an OEM component with one supplier, for example, a firm might elect to purchase 75 percent of its needs from one supplier and 25 percent from another. Thus, if a problem occurs with one supplier, another will be available to fill the firm's needs. If the product is proprietary—available from only one supplier—the buyer might insist that the supplier develop a second source for the component. Such a strategy is called "always a share," which means the buyer will always allocate only a share to each vendor. SUPPLY CHAIN MANAGEMENT AND PROFESSIONAL PURCHASING The purchasing profession is undergoing dramatic changes. Companies have recognized the impact that effective pur- chasing can make on the bottom line. For example, if a company can save $5,000 on a purchase, $5,000 is added to net income. If sales go up $5,000, of which most comprise additional costs, only $500 may be added to net income. Savings, though, don't come just from reducing the purchase price—those savings come from better management of the supply chain. Most large firms have elevated their directors of purchasing to the level of senior vice president and added the supply chain management responsibility to reflect the increasing importance of this function. SUPPLY CHAIN MANAGEMENT Supply chain management (SCM) began as a set of programs undertaken to increase the efficiency of the distribution channel that moves products from the producer's facilities to the end user. More recently, however, SCM has become more than just logistics; it is now a strategy of managing inventory while containing costs. SCM includes logistics sys- tems, such as just-in-time inventory control, as well as supplier evaluation processes, such as supplier relationship man- agement systems. The just-in-time (JIT) inventory control system is an example of a logistics SCM system used by a producer to minimize its inventory by having frequent deliveries, sometimes daily, just in time for assembly into the final product. In theory each product delivered by a supplier must conform to the manufacturer's specifications every time. It must be delivered when needed, not earlier or later, and it must arrive in the exact quantity needed, not more or less. The ultimate goal is to eventually eliminate all inventory except products in production and transit. To develop the close coordination needed for JIT systems, manufacturers tend to rely on one supplier. The selection criterion is not the lowest cost but the ability of the supplier to be flexible. As these relationships develop, employees of the supplier have offices at the customer's site and participate in value analysis meetings with the supplier. The salesper- son becomes a facilitator, coordinator, and even marriage counselor in developing a selling team that works effectively with the customer's buying center. Resellers are also interested in managing their inventories more efficiently. Retail- ers and distributors work closely with their suppliers to minimize inventory investments and still satisfy the needs of customers. These JIT inventory systems are referred to as quick-response (QR) systems or efficient consumer response (ECR) systems in a consumer product distribution channel. (Partnering relationships involving these systems are dis- cussed in more detail in Chapter 14.) Automatic replenishment (AR) is a form of JIT where the supplier manages inventory levels for the customer. The mate- rials are provided on consignment, meaning the buyer doesn't pay for them until they are actually used. These types of arrangements are used in industrial settings, where the product being consumed is a supply item used in a manufactur- ing process, as well as in retail settings. Efficient consumer response systems use automatic replenishment technology through electronic data interchange (EDI), or computer systems that share data across companies. Exhibit 3.6 illus- trates the communications associated with placing orders and receiving products that are transmitted electronically through EDI. Remember the automatic beer keg ordering system mentioned earlier in the chapter? That's an example of an EDI. Recent research has indicated that adopting systems involving both EDI and quick-response or JIT delivers a number of benefits to the firm, in addition to lower costs. These benefits include greater flexibility in manufacturing, improved stability of supply, and other operating benefits. 78 CHAPTER 3: Buying Behavior and the Buying Process

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