Prof. Howard Weiss explains the topic of GPOs, an important supply chain issue.
Your Heizer/Render/Munson textbook discusses purchasing throughout several chapters and, in particular, in the Supply Chain Management chapter (Ch. 11). Obviously, keeping costs low is a major goal in operations. In order to do that, for the first time in their history, Temple U., Penn State U., and U. of Pittsburgh have entered into a joint agreement for the purchase of office supplies.
The cost savings occur due to the increased negotiating power of the three schools. In addition, the transaction/setup/order costs are reduced because it is not incumbent on each university to manage purchasing contracts and orders. Because this is a more efficient process it could likely lead to savings due to procurement employee layoffs.
There are benefits other than costs. Quality and service can improve because vendors do not want to risk losing the larger contracts. Vendor choices are expanded since some vendors have minimum order sizes that individual schools could not meet.
The three universities are not the first to enter into a joint purchasing agreement. The Wisconsin Association of Independent Colleges has 24 members and, in addition to supplies, offers joint purchasing for property insurance. Its members have saved over $100 million since 2003.
Nor are universities the only institutions with cooperative agreements. In the 1980s, Congress endorsed Group Purchasing Organizations (GPOs) for the medical supply market. The reduced costs save the government money for programs such as Medicare. These GPOs are generally run by an organization that is not necessarily the hospitals themselves.
There are several conditions that must be met for the joint agreement to be legal. For example:
The agreement must not violate anti-trust laws by creating a buyer cartel.
The agreement must have the benefit of creating economies of scale or avoiding duplication of effort.
The total amount purchased by the group must be less than 35% of the total market for the items.
Participating parties must be allowed to make purchases outside of the agreement
GPOs are useful when the products or supplies are standardized. If a company needs custom products, then the GPO may not be able to help. In addition, if the GPO is run by a private company then the clients may not know how the GPO is prioritizing contracts. Finally, the increased demand might eliminate smaller vendors from consideration.
Temple University Professor Misty Blessley raises an interesting issue in her Guest Post today.
Last week, all across the U.S. people enjoyed the dazzling displays of Independence Day. Fireworks are pyrotechnic marvels: the heart-stopping booms, the cascade of dazzling colors, the incredible finales.
The value proposition of harnessing blockchain technology to transform supply chains is not new, as we discuss in Chapter 11 (see pages 451-2). The idea of a distributed ledger, that is transparent and immutable, lends itself to imagining a world where all participants involved in the process of producing, distributing, storing, selling, and consuming a product can view its origin and status in real time. The benefits of such traceability include improved food safety, reduced fraud and optimization in the distribution of scarce resources.
Quality control enhancement: AI can improve manufacturing quality control through vision systems trained on images and videos, accurately detecting complex product defects. Real-time monitoring identifies issues promptly to prevent future defects, and AI’s continuous learning enhances defect detection. (See Ch. 6)
Prof. Misty Blessley, at Temple University, shares her insights with our readers monthly.
The shift marks a return to the “just-in-time” inventory management strategy (our topic in Chapter 16) that many companies had employed before pandemic-driven product shortages and volatile shifts in consumer demand prompted a switch to a “just-in-case” stockpiling approach. Companies are now better able to predict shopper demand and feel they can hold leaner inventories amid moderating spending growth and fewer supply-chain disruptions. They prefer not to hold large inventories because the excess stock ties up capital, requires more space and people to manage it, and runs the risk of becoming outdated as trends change.
