The application of supplier collaboration to mining equipment purchasing strategies in order to improve the value added to operations : a literature review

Roux, Marius T. (2007-03)

Thesis (MBA)--Stellenbosch University, 2007.

Thesis

ENGLISH ABSTRACT: Purchasing strategies impact on the value added to operations by the items included in the specific purchasing strategy. In mechanised mining operations the mining equipment plays a significant role in the production process as it is the primary production tools. This study reviews literature on the application of buyer-supplier collaboration to purchasing strategies in order to improve the value added to operations and focus on mining equipment purchasing. Most authors agree that the origin of this type of relationship is the adoption of the production management concept of Just-in-Time. Models for buyer supplier collaboration include one dimensional models such as the Traditional and Advanced Supply Management model, Models on the automotive industry, and Supplier partnerships. The one dimensional models mainly compare traditional market type supplier relationships to advanced partnership or relational type relationships. The models reviewed also include multi-dimensional models such as the portfolio management models and the strategic supplier segmentation model. These multidimensional models propose the adoption of a variety of supplier management models based on certain contextual parameters relating to the purchase and expands on the one dimensional models. The benefits of buyer-supplier collaboration include reduced inventory, increased inventory turnover, reduced scrap, increased quality, reduced costs, improved delivery reliability, design and productivity, reductions in lead time, and additional effort from suppliers. The risks associated with buyer-supplier collaboration include significant resource requirements, lack of support from suppliers, shifting of inventory, industry type exclusivity, higher switching costs, and increase in supplier's power. Buyer-supplier collaboration has certain requirements to be successful. These include a fundamental change in the purchasing strategy relating to supplier selection criteria, number of sources and time horizon, multi-dimensional evaluations, a move to single-sourcing and long term relationships. The development of buyer-supplier collaboration is dependant on similarity in industry and technology, prior experiences change, effective communication and information sharing, and experiential learning. Other success factors include two-way information sharing, top management support, shared goals, early communication to suppliers of specification changes or new products, suppliers adding distinctive value, total quality management initiatives and Just-in-time initiatives. The models for buyer-supplier collaboration form the basis of most discussions on implementation. The main implementation guidelines reviewed include the implementation of operational links relating to design, logistics and quality. The more complete implementation models include the model for Five phases in the development and evolution of purchasing partnerships. The most complete models are the portfolio management models to supplier relationship management which includes contextual analysis as well as relationship analysis and implementation. Portfolio management models were found to be the most applicable to application in industries other than manufacturing. The final part of this study applies the theory to mining equipment purchases. The theory and application of buyer-supplier collaboration were developed for the manufacturing industry and therefore several issues arise in the application of these approaches in the mining industry. No significant literature was found relating to the application of buyer-supplier collaboration to mining equipment purchasing strategies. Applying the portfolio management approach to the mining equipment purchase and suppliers, reveals that mining equipment purchases are strategic in nature and buyer-supplier collaboration is the applicable management approach. Several areas of possible value add were identified and include acquisitions costs, replacement parts, efficiency and productivity of mining equipment. The initial review of the implementation of buyer-supplier collaboration at a mining operation reveals early performance improvements in terms of service levels. The review also indicates the existence of some of the risks associated with this type of relationship, mainly the shifting of inventory to the supplier.

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