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A company which has manufacturing activities in India, Malaysia, China and Indonesia has a corporate objective of reducing the total number of its suppliers
One of the most important objectives of the purchasing function is the selection, development and maintenance of suppliers. This is also called strategic supply management. Purchasing must select, develop and manage a supply base capable of providing performance advantages in cost, quality, technology, delivery, or new product development. Vendors must be both responsible and responsive as organizations need to be more and more flexible to meet customer demands. A car manufacturer like Maruti Udyog had to develop its suppliers in order to indigenize its components. By working closely, the company was able to reduce reliance on overseas suppliers, reduce overall cost and improve on-time delivery. This was done by sharing production schedules and forecasts, working with suppliers to reduce non-value-added time in their processes, and helping them to improve the scheduling of deliveries. Suppliers had to improve the scheduling processes, and do whatever was necessary to improve their delivery performance.
Supply base management requires that purchasing requires that purchasing pursue better relationships with external suppliers and develop reliable, high-quality sources of supply. This objective requires that purchasing work directly with suppliers to improve existing capabilities or even develop new capabilities. Effectively maintaining and developing sources of supply often requires purchasing to first identify suppliers who have the potential for excellent performance, and then approach these suppliers with the objective of developing closer buyer-seller relationships.
Company can save following cost , transportation cost .inventory holding cost ,handling cost , duties and taxation cost of financing.
