There are a number of traps in the root cause category called “unintended consequences.”
These refer to well-intentioned, but misguided, efforts at cost reduction and other forms of operations improvement. An example is “flavor-of-the-month” initiatives. For example, when total quality management(TQM) was topical, training programs and TQM teams flourished. Some organizations used the number of teams in action as the measure of TQM effectiveness.
One area where unintended consequences proliferate is in purchasing. We discuss the "purchasing mentality" in a previous section on partnerships
This paradigm looks to price as the cornerstone of supplier selection. It difficult to argue, at least on the surface, with using price to make decisions on suppliers.
However, having to compete and share business with others, paradoxically, adds uncertainty and reduces incentives to work hard at lowering cost. So one has to balance the need for lowest price against the need for lowest cost. The difference is that lowest price, as bid against others, may not result in the lowest cost.
This is because the low bid comes with unseen costs such as quality and delivery problems
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and an unwillingness to work to lower overall costs.
The consequence is higher cost in many forms. Table 26.2 lists examples of unintended consequences from blindly going with the lowest bidder. The examples show how both buying and selling companies might be affected.
The principal effect on the buying company added administration for every dollar purchased. This is incurred in the belief that it reduces the cost of material itself. On the other side, the selling company will hesitate to make the commitments needed for long-term market success. We don't think that “sole source” is the right path for every material requirement. But companies should have some method to make the trade-offs necessary to find the right mix.
There are a number of traps in the root cause category called “unintended consequences.”These refer to well-intentioned, but misguided, efforts at cost reduction and other forms of operations improvement. An example is “flavor-of-the-month” initiatives. For example, when total quality management(TQM) was topical, training programs and TQM teams flourished. Some organizations used the number of teams in action as the measure of TQM effectiveness.One area where unintended consequences proliferate is in purchasing. We discuss the "purchasing mentality" in a previous section on partnershipsThis paradigm looks to price as the cornerstone of supplier selection. It difficult to argue, at least on the surface, with using price to make decisions on suppliers. However, having to compete and share business with others, paradoxically, adds uncertainty and reduces incentives to work hard at lowering cost. So one has to balance the need for lowest price against the need for lowest cost. The difference is that lowest price, as bid against others, may not result in the lowest cost.This is because the low bid comes with unseen costs such as quality and delivery problems—and an unwillingness to work to lower overall costs.The consequence is higher cost in many forms. Table 26.2 lists examples of unintended consequences from blindly going with the lowest bidder. The examples show how both buying and selling companies might be affected.The principal effect on the buying company added administration for every dollar purchased. This is incurred in the belief that it reduces the cost of material itself. On the other side, the selling company will hesitate to make the commitments needed for long-term market success. We don't think that “sole source” is the right path for every material requirement. But companies should have some method to make the trade-offs necessary to find the right mix.
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