Order Routine Specification

After selecting suppliers, the buyer negotiates the final order, lis ting the technical specifications, the quantity needed, lite expected time of delivery, return policies, warranties, and so on. Many Industrial buyers lease heavy equipment like machinery and irucks, The lessee gains a number of advantages: conserving capital, gelling the latest products, receiving better service, and some tax advantages. The lessor often ends up wiili a larger net income and the chance to sell to customers who could not afford outright purchase.

In the case of maintenance, repaie; and operating items, buyers are moving toward blanket con ira ci s raiher iban periodic purchase orders. A blanket con tract establishes a long-term relationship in which i he sup pilfer promises to rcstlpply the buyer as needed, at agreed* upon prices, overs specified period of time. Because the stock is held by the seller, blanket contracts are sometimes called sfocktess purchase pians* The buyers computer automatically sends an order to the seller when stock is needed. This system locks suppliers in tighter with the buyer and makes ii difficult for o|)t-suppliers to break in unless the buyer becomes dissatisfied with ihe in-supplier's prices, quality, or service,

Companies that fear a shortage of key materials are willing to buy anil hold large inventories, They will sign long-ierm contraéis with suppliers to ensures steady flow of materials. DuPontf Ford, and several other major companies regard long-term supply planning as a major responsibility of their purchasing managers, Por example, General Motors wants to buy from fewer suppliers who are willing to locale close to ils plants and produce high-quality components. In addition, business marketers aré using the Internet lo set up extranets with i m port tint customers lo facilitate and lower the cost of transactions. The customers enter orders directly on the computer, and these orders are automatically transmitted to the supplier, Sonne companies go further and shift the ordering responsibility to their suppliers in sysiems called vendor-managed inivniary, These suppliers are privy to the customer's inventory levels and take responsibility to replenish it automatically through continuous replenishment programs,

-OTI1W is a term that s u m m arizes three de si rabie outcomes of a tt-tO'U transaction:

c C)T—deliver on lime h [F—in full ■ Nil—no error

AU three matter. If a supplier achieves on-time compliance of only 00 percent, in-full compliance of$Ü percent, and no error compliance of 70 percent, overall performance computes at S0% X 90% X 70%—only 50%!

Continue reading here: The Benefits of Vertical Coordination

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