A study of the effects of block order purchasing in ITAB Shop Concept Nässjö AB

University essay from Högskolan i Jönköping/Internationella Handelshögskolan; Högskolan i Jönköping/Internationella Handelshögskolan

Author: Ingrid Lundberg; Xinghua Sun; [2007]

Keywords: Logistics; purchasing;

Abstract:

ITAB Shop Concept Nässjö AB is a major actor in the shop interior decoration market. ITAB has during several years, seen their inventory levels increase and has experienced efficiency problems in their purchasing. Part of ITAB's problems is their customers’ very unsteady demand and their inability to give ITAB good information on when and where they will open or refurbish their stores. In ITAB’s efforts to improve their purchasing they have decided to move from a system where they exchange single orders with their suppliers, with a given, fixed delivery time, to a system of sending block orders and exchange forecasts. The block order system means that ITAB places an order for the full amount of an article needed during a set period. The suppliers will then deliver the amount needed by ITAB at several occasions specified by ITAB. Delivery schedules and forecast will give the supplier the information as to how much and when to deliver. However, this change has yet to be implemented. The purpose of this study is thus to analyse what effects such a change might have on ITAB and their suppliers.

The study made is based on a qualitative approach. The information used to analyse the problem was acquired through several semi-structured interviews with different managers within ITAB as well as two people within each of the supplier organisations. Five of ITAB’s suppliers were interviewed. The people interviewed in the supplier organisations all belonged to sales, or order department or production planning or vice president. Mapping was used to illustrate the current order flow, purchasing flow, and production flow within ITAB as well as the order flow in the supplier organisations.

The outcome of the interviews was that several of the suppliers showed a very positive attitude to the implementation of the block order system. The cooperation between them and ITAB seemed, according to both parties, to be working well. A good relationship is a good basis to introduce new routines and deepen the relationship. The suppliers believed that a forecast would give them the possibility to improve their production planning as well as their capacity use. However, each supplier set terms for its implementation. One being that the information sharing between the two companies must improve. ITAB also have to take the responsibility as well as ownership of everything they purchase. If this is the case, most suppliers aired a certain promise to be able to store ITAB’s products before delivering and to be able to implement the block order system. However, there need to be further negotiations between ITAB and the suppliers to discuss and settle the exact terms of contract.

It is the authors’ belief that some prerequisites must be fulfilled before ITAB implements the block order system. The information sharing between the two companies must improve. If the forecast shall give the suppliers some benefits, they need to be as accurate as possible. The communication about orders has to be timelier and fit the suppliers lead times better. Today, the suppliers often receive order information from ITAB too late, which causes difficulties. If the suppliers are to trust the forecasts, they must be as accurate as possible. It is the author’s belief that if this is not so the suppliers will increase their inventory costs as well as continue to have difficulties delivering. It is also the author’s belief that the communication between sales and purchasing in ITAB needs to improve so that the forecast can be updated in a timely fashion as well as correctly. More involvement of suppliers as well as purchasing and production within ITAB’s product development phase could help them prepare for changes, and prevent mishaps.

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