Reduce Costs Associated with Raw Material Purchases

Supply Chain Management (SCM) techniques offer the opportunity to not only considerably reduce the costs associated with raw material purchases, but can significantly increase both delivered product quality and delivery/services levels.

Some of the tools used to apply lean to the supply chain include:

• Strategic (Hoshin) Planning techniques
• Outsourcing of functions in which the company doesn’t have a competitive advantage
• Supplier consolidation, partnering, and replenishment
• System-wide inventory reduction planning
• Kanban production scheduling
• Kaizen Blitz/Improvement Workshops

From the perspective of the customer, the supply chain is broken down into the following components:

1. First Tier Supplier – a supplier that invoices the customer for goods and services rendered directly by that supplier.

2. Second Tier Supplier – a supplier that invoices the first-tier supplier for goods and services rendered.

3. Third Tier Supplier – a supplier more than one step removed from the first tier supplier, providing goods and services to second tier suppliers.

Thus, if we consider ‘ourselves’ (or our company) the ‘customer’ (not exactly true in the lean sense, but common usage), our vendors are the ‘first tier’ suppliers, their vendors are ‘second tier’, and all other vendors are ‘third tier’.

Typical supply chain lean efforts focus on the first tier suppliers.

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