KIRLOSKAR INSTITUTE OF ADVANCED MANAGEMENT STUDIES

Purchase Management Avion Inc. Case

Submitted To Prof. RajendraTodalbagi

Submitted By Nibir Mahanta KIAMS-Harihar Roll 63

Q1. What part of the value chain is most closely involved with the situation in the case? What is the responsibility of each part in order to maintain a smooth flow of material? Answer: The following parts of the value chain are mostly involved with the situation in this case:1. Procurement Department: The Procurement Department did not consider fully the demand that needed to be fulfilled. They calculated the demand to be 2500 whereas the actual demand was over 4000. The department was working in silo and had very little or no communication with the Marketing department. In a nutshell, they were interested in achieving Local Maxima rather than achieving Global Optima. Moreover, they maintained an arms length distance with vendors rather than considering them as strategic partners. 2. Production Department: The production department didnt provide the requisite data to the materials management/procurement team. They required materials after ten days instead of 14 days (which was planned). The change in operations plan was not informed. As such, there was erratic supply of materials. 3. Marketing Department: The Marketing Department knew that the demand was over 4000. As such, they should have informed the materials department regarding the demand and should have proceeded accordingly. 4. Forecasting: The demand forecasting was highly erroneous and had very little accuracy.

Q2. What initially appears to be the problem? What really is the problem in this case? Answer: Initially the problem was supposed to be the under-performance of vendors who didnt commit themselves to the process. The problem was supposed to be the order fulfilling rate of Foster but later on it was revealed that Avion was the root cause of problems. The Materials department had given Foster orders for only 2500 units and the lead time was supposed to be 14 days. But later on, as seen in the case, the Production Department needed the supply in 10 days. Moreover, the Marketing Department had to cater to a demand of 4000 whereas the order was for 2500 only.

Q3. How easy is it to switch supplier? What could complicate a firms ability to switch to a new supplier? Answer: It is quite difficult to switch supplier. The following reasons would illustrate the cause: 1. It is quite difficult to find a new supplier at a short span of time, i.e., non-availability of suppliers 2. The process of finding a new vendor would be quite time consuming. 3. The supplier might charge higher which would result in higher switching cost 4. A new supplier might not trust the company at first instance, and might look for a transactional or basic relationship rather than becoming a preferred supplier or a strategic partner 5. Relationship building might take a long time.

The following could complicate a firms ability to switch to a new supplier: 1. High switching cost 2. Lack of trust 3. Unreliable quality 4. Lack of information flow between supplier and buyer 5. The desired synergy might not be achieved. Q4. What does it mean to get to the root cause of the problem? Answer: The root cause of the problem seems to be the lack of information flow with the supplier company Foster. Getting to the root cause would mean diagnosing the problem and eliminating it. The problem can be eliminated in the following ways:1. Proper information flow between supplier and buyer 2. Develop a strategic partnership between the supplier and vendor (Gain Sharing) 3. Avions functional departments should work in an integrated manner rather than working in silos. 4. Ensure visibility across the supply chain Q5. What does it mean to be a good customer? Why does a buying firm want to be perceived by a supplier as a good customer? Provide a specific example of what a firm must do to be a good supply chain customer? Answer: A good customer (in the context of the case) is one who ensures that the supplier is also benefitted in the process of transaction. Benefit here doesnt mean merely monetary benefits but also benefits in term of gain sharing and learning. The customer should ensure that their relationship should not be of transactional or basic nature; rather they should look for strategic partners. The following are some of the characteristics expected of a Good Customer: 1. Proper communication to vendor/supplier 2. Encourage vendor to improve continuously so that both the supplier and buyer benefit. 3. Look for a long-term relationship 4. Any minor change in production should be intimidated so that changes can be made accordingly 5. Trust should be endowed in the supplier 6. The importance of the supplier and the suppliers product should be made clear to the supplier. 7. Every decision taken by the customer should also be informed to the supplier 8. An atmosphere of mutual trust and understanding should be built.

A firm wants to be perceived as a good customer owing to the following reasons: 1. Switching cost of supplier would be reduced. 2. Long-term strategic relationships can be developed which would benefit both the parties 3. Quality of products procured would be assured 4. Lesser quality checks would ensure a reduction in lead time and delivery of final products 5. Backward integration is not always possible 6. Long term plans can be drawn up on the basis that the vendor/supplier wouldnt change. Example: In Telecom Industry, the component suppliers like Ericsson, ZTE or Nokia-Siemens draw up the network planning by sitting with their clients,i.e., the operators like Airtel, Reliance, Vodafone etc. Sometimes even the network plan is left to the component suppliers like Ericsson and Ceragon and they plan the integration of sites according to the requirements of the clients.

Q6. Explain the importance of performance measurement in supply chain activities? Answer: Performance Measurement is important in Supply Chain because of the following reasons:1. Continuous monitoring results in lesser errors 2. Benchmarking of processes leads to better product quality 3. Continuous improvement can be achieved 4. Strategic sourcing (with vendors) can be achieved

Q7. Why can changes within the supply changes disrupt the normal flow of goods and services within the supply chain? Answer: Supply Chain takes into account the suppliers supplier and the customers customer. Supply chain constitutes of three kinds of flow, viz, money flow, material flow and information flow. Each flow is equally important for the supply chain to be effective and efficient. The flow of goods and services come broadly under material flow. Every minor change has an impact on these three flows. If proper information flow is not there, the value addition at each stage of the supply chain is interrupted and as such, the goods and services flow is disrupted. A minor change in the processes can have a major impact on the flow and as such it is important that the supply chain is largely stable and at the same time effective and efficient. Q8. Why might Avion want to reduce the lead time on its purchased materials and components? Answer: A reduction in lead time will give Avion the following advantages: 1. Lessen production disruption 2. Match the fluctuations in demand

3. Lesser stock outs of inventory Q9. Why do firms single source contracts? Answer: Single source contracts, though associated with a certain amount of risks, enjoys the following advantages for which firms single source contracts: 1. Builds trust and confidence in vendors 2. Eases the path for strategic sourcing 3. Long term relationship is built and hence long term plans can be drawn 4. Gain sharing is ensured 5. Cost reduction can also be achieved because of bulk purchases 6. Since the customer will be a valued customer, quality of products supplied would also be high Q10. Develop an action plan for Avion that addresses issues presented in the case. Be prepared to explain fully your recommendations. Answer: at the very outset, Avion should hold a meeting with Foster and discuss the issues. The production schedule should be intimidated and a proper re-planning should be done. Moreover, Avion should stop working in silos and break the functional barriers. Cross functional teams should be formed and the processes should be re-engineered. To ensure better information flow, ERP should be implemented which would result in better visibility and better information flow across the supply channel. At the same time, Avion should also involve Foster in the decision making process so that the suppliers interests are also not hurt.