Jack Smart recently ran into an old colleague, Bob Lee, at a cocktail party. They had both worked together at a major accounting firm until five years ago. Jack started telling Bob about the just-in-time inventory management system that his company was planning to implement:
Jock: It really is a different approach. We hold seminars for our suppliers and we send some of our purchasing people out to inspect their plants. Most of our suppliers now deliver raw material a couple of times each day, rather than once a month. And our receiving staff save a lot of time because there is no inspection. We are also saving money in the administrative area, as we do not raise separate purchase orders or receive separate invoices from suppliers for each delivery. Our inventories are almost non-existent, so we have no storage costs!
Bob: But how can your company even think of doing this? We both remember the problems we used to find on our audits. How are you going to keep effective control over payments to suppliers? How can your company save money when they are reducing the size of orders and increasing the number of orders delivered? What about the risk of running down the levels of inventory? And how will these changes impact on your strategic priority of product quality?
Respond to each of the criticisms made by Bob. In your answer, explain the rationale behind improving supplier relationships and the likely impact of introducing a just-in-time system on the company’s strategic priority.