Tuesday, March 31, 2009

Point IV: Ending the Practice of Selecting Suppliers on the Basis of Only the Price

Deming suggests that businesses should minimize their long-term costs rather than minimize the initial cost.

Instead of generating business based on price alone, management should minimize the total cost by working with a single supplier. Using a sole supplier prevents added variability from multiple suppliers and forms a bond between the supplier and corporation creating a strong partnership as if the two were actually only one larger business.

Once a bond with a single long-term supplier has been established, it is easier for the business to request what it needs from the supplier and for the supplier to respond accordingly to meet these needs, thus reducing costs for both parties. The supplier will send to the business consistent materials at a set price.

This consistency produces a better outcome of the final product than competing with various suppliers for the cheapest price on the cheapest materials available at the time the transaction takes place.

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