With the implementation of TPM, there is an important paradigm shift in relation to the role of the purchasing department.
Prior to TPM
The Purchasing area is measured based on how much money it helps save by looking at the Price of purchase. All the efforts of the buyers are put into obtaining and "fight" Prices. Ideally, payment terms are also included, although the focus is usually on price. (1)
The relationship between the Purchasing Department and the areas that generated the request is low.
The relationship with suppliers tends to be a win-lose relationship. The goal is to get the best price, even at the expense of the supplier.
With TPM:
The Purchasing Area should be measured by how much money it helps save by looking at the Life Cycle Cost – CCV of what is purchased.
All efforts should be put into getting the best CCV, which differs from the Price in which it comprehensively analyzes the Good either Service to be acquired (Note that the CCV applies to any type of purchase).
Everything purchased must go through a Life Cycle Cost analysis.
The relationship with the areas that generated the request is high.
The supplier is seen as a strategic ally. Win-win solutions are sought.
There are two requirements that the Purchasing Department must meet when receiving an order.
- The Technical Specification and
- The calculation of Life Cycle Cost.
ET is a that purchase that should be based on a because that brings together the knowledge, experience, and lessons learned from the Pillars team. As such, it must include the perspective of all 8 Pillars, not just the sector making the request.
The minimum action is to limit yourself to buying following the Technical Specification.
This is how all companies should buy, with or without TPM…
One way more TPM, What enables Purchasing to make its contribution is to understand why it is requested "that", Since, by being in contact with new technologies and suppliers, technical buyers can contribute something superior that improves the CCV.
That's why the CCV is the second requirement. As defined by the JIPM: "He Life Cycle Cost of a product, unit of equipment, or system is the total cost of its entire useful life”. That is, you're not just thinking about today's outlay, but also about the entire lifespan. So be careful, because as the saying goes: cheap is expensive. And it's true…
Price is never enough to make a purchasing decision.
Let's see an example
Suppose a sector requests an Air Conditioner.
There are several possible paths here.
Application A
Let them ask for an AA and that's it.
Application B
They should ask for a 3000 Frigories AA.
Application C
They should ask for a 3000 Frigories AC with Inverter technology and accompany the ET with the CCV.
Which one would they have bought from your company…?
Which one to buy?
What does TPM say?
The Application A The order should not leave the department where the person requesting the AA works. The manager, or at most the person in Purchasing, should explain that without the ET and CCV, the order is unacceptable. It's that simple.
The Application B It's much better. It includes the Technical Specification but doesn't have a LCC. This creates more work when purchasing... And whatever is purchased can only be considered a good choice if the LCC is calculated. Otherwise, there's no way to know if what's being purchased is right for the company. It may be cheap (in terms of price) but very expensive (in terms of life cycle cost).
The Application C It's the only smart one. Both in business and for purchasing decisions in life itself...
In this case, price For example, the cost of installation, energy consumption, and annual maintenance are added to the purchase price. This is just an example, and in practice, all significant costs associated with the useful life of the good or service being acquired must be included.
Let's analyze some numbers
One 3000-BTU air conditioner costs 10K and the other 18K. Let's assume a 5-year lifespan for both products.
If I'm buying based on price, I'll go for the 10K and that's it. You have to look at the numbers more closely, otherwise you're comparing apples and oranges...
Life Cycle Cost Alternative “A”
Price: 10K
Installation: 1K
Annual Energy Cost: 4K
Annual Maintenance: 0.6K (Annual Filter Cleaning)
Shelf life: 5 years
CCV= 34K
Alternative Life Cycle Cost “B”
Price: 18K
Installation: 1K
Annual Energy Cost: 1K
Annual Maintenance: 0K (Self-Cleaning Filter)
Shelf life: 5 years
CCV= 24K
That is to say, that of price lower, what we would have bought if we didn't understand what it means Life Cycle Cost, ends up costing almost 42% more. Bread for today, hunger for tomorrow...
This is a simple example, and depending on what is being analyzed, it can be completed by adding other costs, such as spare parts or even breakage... (How much does a week of 40-degree wind chill cost with a broken air conditioner?)
It's more work, yes, but it's smarter and generates genuine savings. The other is a fantasy.
“Buy me an air conditioner”
When Purchasing receives an order that doesn't include ET or CCV, which is quite typical, by the way, it doesn't know what's really needed, so, to get around the problem, many companies opt for the "cheapest" (in price) and that's it.
Why is it not valid?
Because it lacks two features without which the purchasing process should not continue:
- The Technical Specification and
- The calculation of Life Cycle Cost.
These two points should be a condition sine qua nonThey're not there, there's no purchase. The purchasing process doesn't begin. This logically requires a political decision from the company, which will be key to generating significant savings. However, blindness and short-termism prevail too often...
The Plant must define who is authorized to approve both requirements before the request is passed to the Purchasing department.
What is the role of Purchasing?
Actively participate in the calculation and optimization of the CCV by providing data and alternatives.
Respect the Technical Specification sent and focus on finding alternatives that meet it.
If the Purchasing department traditionally persists in comparing only prices, the PM PI can train them to understand that every proposal that doesn't respect the ET is a waste of time.
The AA example is useful because it shows how, with very few numbers, it's proven that it would be foolish to buy even Class A equipment if it doesn't come with an inverter. Let alone buying Class B or C equipment, as is often found in companies...
For each particular case, it is necessary to evaluate how far it is worth going deeper into the CCV Calculation.
The Technical Specification should include the results of these analyses. This greatly simplifies the Purchasing Role.
When Purchasing focuses its role on demanding these two components (CCV and ET) and limits itself to purchasing according to the specifications approved by the Plant, it makes a significant contribution to improving the company's costs and combating losses.
This requires Purchasing to collaborate by providing data for the CCV calculation. Since price alone isn't sufficient to make a decision, the ordering pillar must provide all the information. Therefore, Purchasing's participation in the MP and PM pillars is essential.
With this double information, the buyer will be able to negotiate, and thus, Plant and Purchasing will be working together to make the company more competitive.
If, in addition to all of the above, we build a long-term relationship with the supplier—where, instead of being viewed with suspicion, they are included and treated as a strategic partner—the results will be even better. The supplier is involved in understanding the company's needs (beyond achieving a price that, despite being cheap, may end up being expensive). Win-loss is abandoned and a win-win is always sought.
Thus, the Purchasing Area adds several grains of sand to the required competitiveness.
(1) There are, of course, exceptions. Here we want to emphasize the differences to highlight one of TPM's contributions to competitiveness.
