Chapter 5 - Purchasing Management

These are all of the highlighted notes on the slideshow

Procurement

overarching or umbrella term within which the action of purchasing can be found

Purchasing

term commonly used in business to represent the function of, and the responsibility for, acquiring materials, supplies, and services for an organization

Supply management

newer term that encompasses all acquisition activities beyond the simple purchase transaction

Institute of Supply management (ISM

defines Supply Management as the identification, acquisition, access, positioning, and management of resources an organization needs, or potentially needs, in the attainment of its strategic objective

includes the function of ___ the materials and services that a company needs

determining

Purchase requisition

an internal document that refines the need for goods or services

Does not constitute a contractual relationship with an ___

external party

it becomes a _____ only when accepted by the supplier

Legally binding contract

Request for Proposal (RFP)

detailed capabilities document used to determine a supplier’s capability and interest in producing a product or service

What are the primary objectives of purchasing

1. ensure an uninterrupted flow of materials and services at the lowest overall cost

2. improve the quality of the finished goods produced

3. Optimize customer satisfaction

Purchasing Process Step 1

a need is identified, and a purchase requisition is issued

purchasing process step 2

obtain authorization as necessary

purchasing process step 3

identify and evaluate potential suppliers

purchasing process step 4

make supplier selection

purchasing process step 5

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

The invoice may need to be ___ to the purchase order and goods receipt before payment

reconciled

time savings

reduction in the time between need recognition and the release and receipt of an order

cost savings

lower overhead costs in the purchasing area

accuracy

a reduction in errors

mobility

access virtually anywhere

trackability

real-time status tracking

A decrease in purchasing expenditures directly _____ before taxes

increases profits

A high ROA indicates ____ in generating profits with lower spending

ROA formula

profit before tax / assets

inventory turnover effect

costs of goods sold (COGS) / by the average inventory

total cost of ownership (TCO)

sum of all the costs associated with every activity in the supply stream of a product

What are the four elements of cost

Quality, Service, delivery, and price (QSDP)

the ___ insight is that the acquisition cost is often a tiny portion of the TCO

central TCO

Buy/outsource

buying materials, components, or products from a suppliers instead of, or in addition to, making them in-house

make -vs. buy is a

strategic decision

qualitative factors

more subjective and include control over the quality, reliability, and reputation of potential suppliers (internal or external) and the impact of decisions on customers and suppliers

quantitative factors

incremental costs of making or purchasing the items, such as the availability of manufacturing facilities, needed resources, and manufacturing capacity

insufficient capacity

A firm may be at or near capacity, and subcontracting from a supplier may make better sense

Risks associated with outsourcing include

potential loss of control, increased reliance on suppliers, and increased need for supplier management

Co-sourcing

1. the sharing of a process or function between internal staff and an external provider

2. using the dedicated staff at an external provider that works exclusively under your control and direction

backward vertical integration

refers to a company acquiring one or more of their suppliers

centralized purchasing

purchasing department located at the firm’s corporate office makes all the purchasing decisions

decentralized purchasing

individual, local purchasing deparments, such as at the plant level, make their own purchasing decisions

import brokers (definition)

agents licensed by the governmental regulatory authority to conduct business on behalf of importers for a service fee

import brokers (description)

take the burden of filling out import paperwork and clearing products through customs barriers for importers

bid

proposal or quotation submitted in response to a solicitation from a contracting authority

bid bond

Debt secured by a bidder to guarantee the successful bidder will accept the contract upon award. if not, the bond would be forfeited

Payment bond

debt secured by a bidder to protect against 3rd party liens not fulfilled by the bidder