Supply Chain Exam 2 Taitt

Procurement

The process of selecting and vetting suppliers, negotiating contracts, establishing payment terms, and the actual purchasing if goods and services.

Procurement includes…

Purchasing Management, Strategic sourcing, and Supplier relationship management.

Purchasing

ordering or obtaining goods from an external third party

Supply management

identification, acquisition, access, positioning, and management of resources an organization needs, or potentially needs, in attainment of its strategic objectives.

Supply Management includes…

determining the materials and services that a company needs

Purchase Requisition

An internal document that defines the need for goods and services

Purchase Requisition may…

notify purchasing personnel of items to order, quantity and timeframe. May also contain the authorization to proceed withe the purchase.

Purchase Order

An external communication document to acquire goods and services

Purchase Orders…

Only become legally binding when accepted by the supplier.

E-Procurement

The business to business purchase and sale of supplies and services over the internet

Merchants

Wholesalers and retailers who purchase for resale

Industrial buyers

Individuals who purchase raw materials for conversion into products

Contracting

Acquisition of services

Request for information (RFI)

A standard business process to collect written info about suppliers’ capabilities

Request for Proposal (RFP)

A detailed capabilities document used to determine a suppliers capability and interest in producing a product or service.

Request for Quote (RFQ)

A document to solicit bids from interested and qualified suppliers

Primary Objectives of Purchasing

Uninterrupted flow of materials at lowest cost, improve quality of finished goods, customer satisfaction

Step 1 of Purchasing

A need is identified, and a purchase requisition issued

Step 2 of Purchasing

Obtain Authorization

Step 3 of Purchasing

Identify and evaluate potential suppliers (RFI)

Step 4 of Purchasing

Make supplier selection

Step 5 of Purchasing

Purchase order is created and delivered to the supplier (PO)

Step 6 of Purchasing

Supplier confirmation of purchase order

Step 7 of Purchasing

Fulfillment

Step 8 of Purchasing

Receipt of Goods

Step 9 of Purchasing

Invoice and Reconciliation

Step 10 of Purchasing

Payment

Step 11 of Purchasing

Close out Purchase order

Step 12 of Purchasing

Analysis of efficiency and Accuracy

Profit Leverage Effect

A decrease in purchasing expenditures directly increases profits before taxes. ($ for $)

ROA Effect

High ROA demonstrates managerial prowess in generating profits

Inventory turnover effect

High inventory turnover represents optimal utilization of space COGS/Avg inventory

Total cost of Ownership TCO

Sum of all costs associated with every activity in the supply chain (sum of QSPD)

Four Elements of Cost

Quality, Service, Delivery, and Price QSDP

Backward Vertical Integration

Buying one of your suppliers

Forward Vertical Integration

Buying one of your customers

Centralized Purchasing

The Purchasing department located at the firms corporate office makes all of the purchasing

Decentralized purchasing

Local purchasing departments make their own purchasing decisions (i.e. at the plant level)

Hybrid Purchasing

Centralized for product widely used and decentralized for products used only locally

Non-tariff barriers

Quotas, licensing, agreements, laws, etc. imposed on imports and exports

Countertrade

International trade by exchange

Sourcing

Identifying a company that provides a needed good or service

Strategic Sourcing

Locating and sourcing key suppliers to leverage its consolidated purchasing power to find the best value in the marketplace

Insourcing

Producing goods or services using a companies internal resources

Outsourcing

Buying goods or services from a third party

Single-Source

Multiple suppliers are available but a company chooses one

Multi-Source

Purchasing a good or service from more than one supplier to achieve higher quality and lower prices

Functional products like office supplies are generally…

Multi-sourced

Innovative products are generally…

Single-sourced

Spend Analysis

Analyzing expenditure data to decrease costs, improve efficiency, and monitor compliance

Non-Critical sourcing

routine items that make up a small portion of total spend and are low risk

Bottleneck

Unique procurement problems. Supply risk is high, availability low, and few alternative suppliers exist.

Leverage Sourcing

Commodity items with many supplier alternatives and low supply risk. Spending is high and there are potential savings.

Strategic

Strategic items and services that involve a high level of expenditure and are vital to the firm’s success.

Supply Base

Group of companies in which supplies are purchased from

Supply base rationalization

Reduction in the supply base to the lowest number of suppliers possible without significantly increasing risk

Distributive Negotiations

Lead to self-interested outcomes

Collaborative Negotiations

Both sides work together to find common ground

Reverse Auctions

A sourcing technique where pre-qualified suppliers enter a website and try to underbid competitors to win the buyers business

Vendor Managed Inventory

Suppliers directly manage buyer inventories to reduce the buyer’s inventory carrying costs and avoid stockouts for the buyer

Co-Managed Inventory (CMI)

An arrangement where a specific quantity of an item is stored at the buyer’s location.

Corporate Social responsibility (CSR)

Practice of business ethics

Supplier Co-location

a supplier representative is embedded in the buyer’s purchasing group to forecast demand, monitor inventory, and place orders.

Utilitarianism

an ethical act that creates the greatest good for the most significant number of people and should be the guiding principle of conduct.

Rights and Duties

Some actions are right in and of themselves, regardless of the consequences. Do the right thing!

Ethical Sourcing

Considers consequences of buying from a certain supplier or region to bring positive social change

Sustainability

the ability to meet the current needs of the supply chain without hindering the ability to meet future needs in terms of economic, social, and environmental challenges.

Raw Materials

Purchased items or extracted materials extracted materials converted via the manufacturing process into components and products.

Work-in Process

Goods in various stages of completion throughout the plant. (known as the “black hole”)

Finished Goods

Products completed and available for sale

Maintenance Repair and Operating (MRO)

Items used to support general operations and maintenance,

Service Inventory

Activities carried out in advance of the customer’s arrival

Cycle Stock

To meet customer demand

Safety Stock

To protect against uncertainty

Strategic Stock

To separate supply from demand (take advantage of volume pricing) or to separate operations in a process

Pipeline Inventory

Inventory in the process of being transported

Carrying Costs

Costs for having inventory on-site

Order Costs

Labor costs associated with placing an order for inventory and receiving the order

Periodic Review System

Inventory Levels reviewed at a set frequency

Continuous Review System

Inventory levels are constantly reviewed

Reorder Point

= Demand during lead time

Fixed-Time Period System

Inventory is checked in fixed periods and compared top a target inventory level

Fixed-order Quantity system

The same order quantity from order to order when inventory drops to the ROP

Economic Order Quantity (EOQ)

EOQ = SQRT of 2 x order cost x actual demand volume / Carrying Cost % x Unit Value

ABC System

Classifies inventory based on the degree of importance

Bin system

When bin one is empty items are reordered

Base Stock Level System

an inventory system that issues an order whenever a withdrawal is made from inventory. (used primarily for high cost items).

Single-Period Stocking

Inventory is ordered once (Christmas tree sales)

2D Bar Code

A graphical image that stores horizontal and vertical information.

RFID

does not require a direct line of sight to read a tag, and the information on the tag is updatable.

A cost reduction…

generates significantly more Profit Before TaxProfit Before Tax than does a Sales Increase.

ROA

Profit Before Tax ÷ Assets =