How can we explain how important supply chain management is in the business industry? Many business go through the process of supply chain such as Public v Private Primary, Secondary, Tertiary sectors, Financial, Retailing, Manufacturing, Wholesale trades, Construction, Mining Quarrying/Farming, Services and Transport. Our lives moves and grows through supply chain management its part of a system in receiving our products, everyday goods, Raw materials, Packaging materials, Semi - finished goods, Finished goods , Machines & spares, Services and Office Equipment. It can be defined as a process of arranging, preparing, applying and taking efficient control, by storing goods or services and taking information from the original point to the point of its development or consumption for the intention of conforming to customer's orders and requirements. It involves coordination of all sectors involved in delivering the arrangement of inputs, outputs or outcomes that will meet a specification of customer or buyers requirement.
To go through the process of purchasing you must first characterize and define what is required and when it is wanted. Second identify the item, suppliers and evaluate. After that you negotiate the terms in which you want and negotiate the price or the order. The result is receiving the requirements, goods or services. The final stage is the payment procedure in which will either be in check or cash.
"To acquire the right quality material, at the right quantity, from the right source, at the right price." - Baily 2005
Our aim is to the theory or definition of purchasing which are six rights can impact on Adidas Salomon as they are the largest company supply sporting brands including the footwear, apparel, sporting and equipment and they also official Sponsor sport club, individual athlete and sport events supplier.
We're going to cover each of the six rights which are:
- RIGHT ITEM
- RIGHT PLACE
- RIGHT TIME
- RIGHT QUALITY
- RIGHT QUANTITY
- RIGHT PRICE
A product is what the company produces and provides for their customers. The right items for Adidas Salomon would be the raw materials which are the main resources that are used to produce Adidas Salomon footwear, apparel, accessories and equipment which are rubber, nylon; Fabric; Plastic; PVC and water which are the main materials that used to produce their product. This would also involve specification of the product as well as material requirements planning and manufacturing resource planning. It is important that Adidas Salomon to be specific in ordering their supplies and raw materials. To make a note every order or purchase or specification or the order must be documented.
For selecting the right place we should acknowledge where are our sources? Where are we getting our raw materials from? And where are we selling it to?
Our raw materials would be rubber, nylon; Plastic; PVC; Leather; fabric and water we're getting our materials from Brazil.
As for rubber and other materials will be manufactured in China, Vietnam Pakistan and Indonesia from there the products will be transported by ship and rail to Germany where the all the materials are put together and produced to Adidas footwear, apparel, accessories and equipment. Then the end products will shipped to the Asia, Europe and America distribution center where the products will be transported to retail stores.
In order for us to meet customer orders it is important to be right on time in delivering the product. This is a standard purchasing objective of achievement delivery on time. We can't afford to be too early or too late. If the delivery is too early there would be a problem in storing the goods and if the delivery is too late we would also have the same problem in storing the goods this brings us to where MRO (Maintenance, repair, operations) could be used. They also avoid the late delivery that can mean lost sales, production downtime and invoke damage clauses. If it happens these effect on cash flow, reducing the company efficiency and profits.
JIT is used in repetitive manufacturing which means that products are manufactured repeatedly. JIT's advantage in this case that it can reduce lead time as it can link manufacturing centers and create a balance between them so that the process can be in order. http://personal.ashland.edu/~rjacobs/m503jit.html
After ordering the supplies the next step will be defining the right quantity and quality. Miscalculation in approximating these statistics may affect the company in over- or under-supply.
This would define the increase in holding costs. It is vital to define the right number, size weight of the product in order to identify the right quantity for us to meet the demand. This information is required in every stockroom and storage room, it can also help us define the type of transportation required. For Adidas Salomon who is official sponsor sport club, individual athlete and sport events supplier it is crucial for them to provide the right amount of quantity of their products during this time. It cannot be too much or too little. Quantities can increase price requirements.
What is Quality?
"Quality is whatever the customer says it is" - (Baily 2008) and "Perfection is like infinity" - Womack and Jones 1996 cited in Baily, 2008)
It is what the customer will define the quality of the product or service. It is what any business is supposed to be aware of cause in the end it is all about what the customer requires and what they will purchase. Quality isn't just about quality of the product it counts as quality of the appearance of the product, design of the product, the service and time in delivering the product, this all will all determine the brand image of Adidas Salomon. Adidas Salomon is a huge brand name; the name has developed its own marketing strategy, so getting the right quality is very important in a huge company like Adidas Salomon.
Quality requires two things: specification and conformance.
Specification: when it comes to purchasing and supply getting the right specification is important, in order to get the right specification the buyer must be clear and detailed as it is used especially for ordering raw materials and quality of work for something to be built, established, or manufactured.
This is done in two stages:
- Decide the requirement.
- Describe it.
Adidas Salomon needs to order the right amount and the right requirements of the customer's orders as they are official sponsor sport club and sport events supplier. Team approach is crucial.
Conformance is making sure that Adidas Salomon and the retailers have received their supplies on time and whatever they have ordered has been received. This also determines Adidas Salomon's quality capability to meet customer needs and acceptable values and standards. Supplier capability is ensured by maintaining specification of the product, plan and time, making sure that the all the staff are contributing by doing that Adidas Salomon must develop training programs, ensuring that the statistical processes is under control for example the quantity must mean the customers orders as well as quality.
After conducting all of the above the next step would be confirming quality assurance, the effective method and actions that are used to accomplish requests for getting the right quality, this method would help Adidas Salomon reduce their errors.
Quality control is conceded out by examination of the Adidas Salomon products and ensuing that everything is under control and supervising any activities.
After conducting all the procedures in the above it now comes down to the price, the total acquisition cost (TAC) and selling price.
Total acquisition cost will calculate all of Adidas Salomon's delivery cost, services, cost of returns, inspection of the products and staff, inventory costs and handling costs. price has a lot to do with the supply and demand, if the demand is low the price is low, if the demand is high the price is high, when the supply is low the price is low and when the supply is high the price is high. If it comes to be equilibrium then the levels of supply and demand are the equal. Extra demand or Extra stock can be dealt with price increase. Adidas Salomon must plan the right price by negotiating prices on the materials (rubber, nylon; Plastic; PVC; Leather; fabric and water), labor (staff in manufacturing companies in China, Indonesia, Pakistan and Vietnam) and bought items and services such as transportation.
Adidas Salomon's success lies in its sport brand having the process of six rights impact which used to every part of their business, whether it right item, right place, right quality, right quantity, right time and the right price itself. By controlling the entire process from production to their store, Adidas Salomon well their company suppliers are complying with their standards. They measure how effective suppliers' activities are using the six right impacts through a key Performance. Performance and their ambition are always satisfying that interest with complete and accurate information.
- Baily P., Farmer D., Jessop D., Jones D. (2005) Purchasing Principles and Management ninth edition 2005, FT Prentice Hall
- Baily P., Farmer D., Jessop D., Jones D. (2008) Procurement Principles and Management Tenth edition 2008, FT Prentice Hall
- Just-In-Time (JIT) Lecture Notes [online] Available: http://personal.ashland.edu/~rjacobs/m503jit.html [Accessed 1 December 2009]