| One of the many analyses you need to do when you | | | | The third factor is that of quality. There are three |
| are developing a procurement sourcing strategy is the | | | | types of quality problem. |
| supply positioning analysis. This segments your | | | | The first is that of reputational risk. Say your |
| purchased items into four groups based on their | | | | purchased item is a service that interacts with your |
| importance and their criticality. The question you need | | | | customers. Outsourced call centres are an example of |
| to answer is "what makes a purchased item critical"? | | | | this. If the call centre personnel do not demonstrate the |
| Here are three factors that can make an item critical | | | | same levels of courtesy, efficiency and integrity that |
| to your organisation. | | | | your own people show when dealing with customers, |
| The first factor is that of financial impact. If the | | | | you run the risk of losing those customers who in turn |
| purchased item is used in the manufacture of a wide | | | | will let everyone they know of the bad service they |
| range of end items, for example, then it could have a | | | | have received. Your reputation is then damaged. |
| major impact on the financial performance of your | | | | The second type of quality problem is a safety one. |
| organisation. If the item is unavailable it may stop | | | | This can result in either injury, or worse, loss of life. |
| production which in turn may reduce your overall sales | | | | The third type of quality problem is that of |
| and profit. Equally, if the price of that item rises | | | | inconvenience either to your own employees or to |
| dramatically (possibly due to an industry-wide | | | | customers. This problem usually results in delays, |
| shortage) then it will have a big impact on the cost of | | | | breakages or warranty costs from having to replace a |
| manufacturing your product range with the result that | | | | defective item. |
| your profits drop. | | | | You need to assess your purchased items for all three |
| The second factor that can determine whether a | | | | factors (financial, critical path and quality). A technique |
| purchased item is critical is if it is on a critical path for a | | | | such as failure mode and effect analysis is useful for |
| project. For example, if your organisation builds an | | | | doing this. In this you list every conceivable cause of |
| asset such as a power station then there will be | | | | failure and then rate each one on a scale of 1 to 10 for |
| certain tasks and events that are on a critical path. | | | | the impact the failure would have, its likelihood of |
| This means that any delays to those tasks and events | | | | occurrence and the likelihood that you would be able |
| will delay the entire project. If the delivery of your | | | | to detect a problem and fix it before the failure |
| purchased item is one of these events then any | | | | occurred. If you multiply these three scores together |
| delays in delivery will delay the project with possible | | | | you will have a rating from 1 to 1,000. The higher the |
| contractual penalties that you then have to pay. | | | | score, the more critical your purchased item. |