Purchasing Traditional Purchasing Values

Question: Describe about the Purchasing for Traditional Purchasing Values. Answer: 1. Traditional purchasing values method involves various steps such as material requisition, bidding, purchase order, shipping advice, invoice and payment. This method have been deemed to be slow and labour intensive as each transaction require its own paper trail and the process is repeated sequentially with every new transaction. On the other hand, Just-in-time method (JIT) is a production and stock management system in which materials are purchased and or material units produced or ordered only when actually needed to meet actual customer demand. In JIT system, the manufacturing system inventories are minimized whereas in some cases they are zero. It requires the producers to forecast demand in advance and consequently producing and maintaining an efficient inventory level: an inventory level that ensures improved quality, reduced costs and reduced lead time (Cachon Fisher, 2015). The traditional purchasing method can be viewed as one with a number of resulting inefficiencies such as it consists of a sequence of non- value adding activities which more often than not result into excessive documentation and consequently excessive order processing time. The overall result of this method is excessive administration cost with respect to transaction handling. This method also involves large lot sizes which increase holding costs and probability of wastage. The idea is less deliveries of large quantities. However, this system ensures that inventory is always available as and when needed since there are items in store or being manufactured always (De Toni Nassimbeni, 2014). On the other hand, the JIT system reduces the waste associated with inventory and it also delivers the ability to make frequent and timely deliveries to the customers. The buyer is able to exercise options on the delivery schedule and the method calls for increased innovation in the manufacturing systems. JIT systems makes use of technology and consequently ordering and carrying costs are reduced in the process. Processes are automated and as such, purchase orders can be processed through the systems, inventory records updated automatically therefore reducing manual handling and labor costs. However, the system has its shortcomings in that it involves a major overhaul of business systems during implementation and hence it may be difficult and costly to introduce. JIT also makes the business to be susceptible to a number of operational risks pertinent to the supply chain and a few distortions in supplies can bring into halt the production process (Fazel, Fischer Gilbert, 2013). The benefits accrued by the shop when it maintains both methods are several. While JIT ensures automation of the production and operations, traditional method ensures availability of some optimal inventory at all times hence hedging against the risk of interruption in supplies. JIT system is also expensive implement and therefore a hybrid of the two helps to meet the operational costs almost halfway as traditional method is ideal in cost savings involved with carrying costs and set up or ordering costs of inventory (Wilson, 2014). 2. For the purposes of this discussion, lets assume a situation where the chairs shop uses the JIT system entirely and another scenario where it uses the traditional approach entirely. The advantages involved in maintaining a JIT system in the chair manufacturing shop is that the system ensures improved productivity and quality. This yields a higher customer satisfaction level. Since the shop is manufacturing different types of chairs, the system can be designed such that an optimal product mix of the different types of chairs can be arrived at based on the buyers preferences and buying trends (Gunasekaran, 2014). JIT system is also able to update and monitor inventory levels therefore it will maintain a minimum inventory level such that there is no single time that each type of chair is not available in the manufacturing line. By minimizing the inventory levels, JIT frees up resources to employ elsewhere in the company and therefore working capital which would otherwise be held up in stock will be employed in other business processes. The main disadvantage that would arise in this case would be when there is a disruption on the supply chain and there is no inventory already maintained. This will result to stock outs and possibly the chairs shop may incur reputational costs associated (Monden, 2014). Lets now assume the chairs shop uses the traditional system altogether. The advantages that accrue on maintaining a traditional system is that at no time are there stock outs as the shop will be keen on ensuring that the chairs are available for production and delivery to the buyers. Even where there is a disruption on the supply line, there is always as a safety stock in holding available to the customers. The system also allows for the workers to excise human skills in all the processes and therefore improving interpersonal relations between them, the suppliers and the buyers and in this way they can be able to plan and determine the optimal inventory level that will minimize holding and ordering costs. However, the main disadvantage with this approach is that it may increase waste when not all inventories are purchased. It also increases the inventory costs as well as operational costs (Monczka Trent, 2015). While traditional approach assumes a functional organization devised to bring manufacturing costs to minimum for the particular component, the JIT system assumes an intermediate processes to that addresses the demands for subsequent stages of production directly. From a cost comparison view based on the ability to utilize economies of scale, a tradeoff may exist if the economies of manufacturing derived from the traditional approach are more significant and in this case a traditional system will be preferred from a cost dimension. However, a total cost comparison arising from other costs savings accrued for example in JIT system such reduction of waste, reduced inventory cost and improved quality of products may lead to the shop arriving at a compromise between the two systems so as to tap on the benefits accrued from the two approaches (Pearson Gritzmacher, 2013). References Cachon, G. P., Fisher, M. (2015). Supply chain inventory management and the value of shared information. 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