A methodology for cost and risk reduction in purchasing and supply management.

Automotive manufacturers in the UK and other industrialised nations face competitive pressures from rivals with lower underlying cost bases. Reducing costs and risks is of increasing importance, and purchasing and supply management can make a substantial contribution to this. This work delivers a validated methodology for meeting the challenges that purchasers are most often facing in automotive manufacturing facilities operating in industrialised markets. The aim of this research is to develop a novel methodology for identifying and implementing cost reduction activities for the purchasing function of automotive companies. Specifically the methodology presented here defines activities which implement continuous improvement in the purchasing process including; costing, sourcing, stocking, and social responsibility assessment. A literature review and interviews with practitioners in industry were used to explore how strategic purchasing is implemented in the field and identify the key issues facing practitioners. Using these findings, a skeleton methodology for strategic purchasing and supply management was developed. This skeleton methodology brought together; (i) the capturing of social responsibility competency in the supply base and a formal means of measuring and reporting supplier compliance, (ii) techniques for the identification of price reduction candidates and the comparison of dissimilar supplier bids, and (iii) techniques for the identification of stock reduction candidates and the use of supplier knowledge in stock reduction. A study was conducted to address each of these areas individually the results of which were validated through real-world findings from the purchasing environment of the industrial collaborator. The skeleton methodology was validated using a series of questionnaires with experts from industry and academia. The corporate social responsibility component of the methodology identified suppliers which posed a potential resourcing risk to the industrial collaborator, the acquisition cost reduction component found 8% of cost savings, and the inventory holding reduction component found 7% savings. The methodology has been shown to provide an operational link between a manufacturer’s strategic need to reduce costs and risks and the capabilities of purchasing functions and professionals. The implications of this work are that purchasing can now be used as a means to achieve a competitive advantage.