Intro to Supply Chain: Exam 2

Strategic Stock

Internal Inventory

Pipeline Inventory

External Inventory

Obsolete inventory

NO longer usable in our supply chain; find a way to make $$ anyways

-- This inventory will never be used or sold at full value

Is it good to have high inventory turns?

Yes: sell more inventory to buy and sell more; making profit

Calculate Reorder Point

Demand x Leadtime

Know ordering costs

Preparation, transportation, receipt, material handling (PTRM)

EOQ (Economic Order Quantity) -- Calculate

the optimal order size to minimize the sum of ordering, carrying, and stockout costs

"Single-Period" Inventory Model

a type of inventory system in which inventory is only ordered for a one-time stocking.

The objective is to maximize profits.

Examples: Christmas tree lots, and Newspaper stands.

SEASONAL trend

Linear and 2D barcodes difference with the RFID..

RFID does not require direct line of sight.

Strategic is..

SOURCING (who do I buy from and how much)

Purchasing is..

Needed for the DAY and for the price

At what part of the supply chain is the purchase order legally binding?

when the SUPPLIER accepts it

Processes of Order

1.) RFI-- Request for Information

2.) RFP-- Request for Proposal

3.) RFQ-- Request for Quote

The Primary Objective of Purchasing

-- Ensure an uninterrupted flow of materials and services at the lowest total cost.

-- Improve the quality of the finished goods produced

-- Optimize customer satisfaction

Profit-Leverage Effect

-- A decrease in purchasing expenditures directly increases profits before taxes (assuming no decrease in quality or purchasing total cost).

--> KNOW THIS: Bottom line impact is $ for $

-- Increase in expenses decreases profit dollar for dollar as vice versa

QSDP: Total Cost of Ownership

Quality, Service, Delivery, and Price

Competitive bidding helps manage costs

True

Which elements require a detailed number of costs?

RFQ (Request for Quote)

Qualitative Factors

Non-Strategic - If it is a non-strategic item

Insufficient Capacity - A firm may be at or near capacity and subcontracting from a supplier may make better sense.

Temporary Capacity Constraints - the concept of "extended workbench" which involves short-term supplementing internal capacity with external capacity during time of constraint or overloaded work centers.

---During holidays, not enough space.

Lack of Expertise - Firm may not have the necessary technology and expertise

Quality - Suppliers may have better technology, process, & skilled labor

---External quality systems are better than what you already offer, have someone else take control.

Multi Sourcing Strategy - To achieve a multi sourcing strategy using an external supplier in addition to an internal source.

---Most supply chains have dual or multi sourcing strategies to ensure that if there is one bad operation cycle, you have other suppliers.

Brand Strategy - take advantage of a supplier's brand image, reputation, popularity, etc.

Does outsourcing allow you to reduce staffing?

Yes

Backward Vertical Integration

Refers to a company acquiring (i.e., buying) one or more of their suppliers.

--> Example: a manufacturer buying the key supplier of a critical material to take ownership of this aspect of their supply chain

Forward Vertical Integration

Refers to a company acquiring (i.e., buying) one or more of their customers.

--> Example: a manufacturer buying a wholesaler/distributor to take ownership of this aspect of their supply chain.

Centralized Purchasing

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

---One company doing all the buying for everyone else

Decentralized Purchasing

Individual, local purchasing departments, such as at the plant level, making their own purchasing decisions

--Everybody is buying on their own

Bid bond

a debt secured by a bidder for the purpose of providing a guarantee that the successful bidder will accept the contract once awarded. If not, the bond would be forfeited.

-- Before you participate in the bidding process, you have to put in a bid bond. It allows you to participate, if you win a contract and not take business. You forfeit the money you put down as a bid,

Performance Bond

a debt secured by a bidder for the purpose of providing a guarantee that the work will be on time and meet specifications

-- Performance bond gives you specification in milestones. Performance in anything being measured.

Payment Bond

a debt secured by a bidder for the purpose of providing protection against 3rd party liens not fulfilled by bidder

Inventory is usually one of the company's smallest assets, so there is careful management of that asset is an essential business requirement:

False

Which element of inventory is sold directly to the customer?

False

Cycle stock is..

inventory kept on hand to meet regular, immediate customer demand.

Other stocks:

1.) Safety Stock: Extra inventory to protect against unexpected demand or delays.

2.) Strategic Stock: Inventory held for future needs or anticipated disruptions.

3.) Pipeline Stock: Inventory currently in transit between locations.

Strategic Stock references and looks at inventory that is in transit, supplier network or customer network

False; this is Pipeline Stock

Variable Cost

Inventory - production cost that is dependent on the unit volume produced is consider which of the cost below

Which is not an impact of having too little inventory on hand?

Increase sales

Having too much inventory...

generally reduces the incentive for process improvements because excess inventory can hide operational problems

Which ordering system requires If the inventory is less than target, a quantity necessary to bring inventory back up to the target level is ordered?

Fixed Time Period System

Order cost incurrent every time an order is placed includes all, except which one?

Storage cost

The point of benchmarking is to collaborate with external partners to drive service in supply chain

False;

Which bond classification is a debt secured by a bidder for the purpose of providing a guarantee that the successful bidder will accept the contract once awarded. If not, the bond would be forfeited?

Bid Bond

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

Import Broker

A bid is a proposal or quotation submitted in response to a solicitation from a contracting authority.

True

Which purchasing strategy where the firm's corporate office makes all the decisions?

Centralized

Which has the biggest impact on profitability?

Decrease in cost of goods sold

Match the benefits of an eProcurement System.

Time savings: A reduction in the time between need recognition and the release and receipt of an order

Mobility: Access virtually anywhere

Cost savings: Reduction in cost and overhead

Accuracy: A reduction in errors

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

True

Which is not considered a part of the Procurement umbrella?

Logistics

-- Supplier Management, Sourcing, and Purchasing are

-- Logistics focuses on transportation, storage, and distribution rather than the core procurement functions.

The point of benchmarking is to collaborate with external partners to drive service in supply chain.

False; Benchmarking means comparing your company's performance and processes against other organizations or industry best practices to identify improvements.

Which bond is based on meeting set requirements?

Performance Bond

The opposite of outsourcing is..

insourcing

Function products are usually single sourced

False

A firms strategic items are considered high value and high risk

True

Reverse Auctions

A sourcing technique where pre-qualified suppliers enter a website and at pre-designated time and date, and try to underbid competitors to win the buyer's business.

-- The sellers bid against one another to secure the buyer's business, driving the price to be paid for the item downward.

-- Bid prices are monitored until the session is officially over. The winning bidder is the seller who offers the lowest price.

VMI (Vendor Managed Inventory)

focuses on our PIPELINE side of inventory. This is external. External companies focuses on external factors.

CMI (Co-Managed Inventory)

The customer has way more control because you have to wait for their purchase orders, different than VMI.

Supplier Co-location

a representative of the supplier is actually embedded in buyer's purchasing department to forecast demand, monitor inventory and place orders.

Sustainability goals

Grow revenues, reduce costs, go 'green', manage risks, build intangible assets

A high Return on Assets (ROA) is an indication that a company has a high level/value of assets compared to a low profit margin.

False; High ROA: Company uses its assets efficiently to generate profits.

Low ROA: Company generates relatively little profit compared to its assets.

Industrial buyers purchase raw materials and other components for conversion into a finished product, but they do not purchase services or capital equipment.

False; Industrial buyers purchase both goods and services needed for business operations and production.

The practice of Supplier Co-location involves a supplier's employee being embedded in a buyer's purchasing department to forecast demand, monitor inventory and place orders for the item(s) provided by the supplier.

True

In-sourcing is defined as reverting to in-house production when external quality, delivery, and services do not meet expectations.

True

The purchasing tool described as "A detailed capabilities document used to determine a supplier's capability and interest in the production of a product or service" is called a Request for Proposal (RFP).

True

In the context of Total Cost of Manufacturing (TCM); procurement, manufacturing, inventory, warehousing, and transportation per unit costs each go down as volume goes up.

False; In Total Cost of Manufacturing (TCM), not every cost per unit decreases as production volume increases.

--Higher volume can reduce some costs, but it does not guarantee that all five costs decrease.

In a Spend Analysis, purchases that involve items representing a low percentage of the firm's total spend and having very little supply risk, are categorized as Leverage Purchases.

False; The correct category is Routine Purchases (Noncritical Purchases), NOT Leverage Purchases.

Key takeaway: Low spend + Low risk = Routine Purchases.

When using a weighted-criteria evaluation system with five or more categories, suppliers should be ranked based on their score in only the two highest weighted categories.

False; In a weighted-criteria evaluation system, suppliers are ranked based on their total weighted score across ALL categories, not just the two highest-weighted categories.

Which one of the following is NOT a reason to have a single supplier?

To achieve transportation economies

To have less quality variability

To spread the risk of a supply disruption

To establish a good relationship

To spread the risk of a supply disruption

The primary goals of purchasing include all of the below, EXCEPT?

Develop as many good quality suppliers as possible for each material or service

Improve the quality of the finished goods produced

Ensure the uninterrupted flow of materials and services at the lowest total cost

Optimize customer satisfaction

Develop as many good quality suppliers as possible for each material or service

What are the four (4) primary reasons that companies hold inventory?

The four primary reasons companies hold inventory is to meet customer demand (Cycle Stock), buffer against uncertainty in demand and/or supply (Safety Stock), decouple supply from demand (Strategic Stock), and to decouple dependencies from the supply chain (Strategic Stock).

What is Strategic Sourcing?

Strategic Sourcing is focused on who do I buy from and how much. It is a comprehensive approach to managing a company's long-term interactions with the key organizations that supply the materials and services that the company needs. This reduces costs, improves quality of final product, and achieves faster time to the market.

Ethical Sourcing

Ethical sourcing attempts to take into account the public consequences of organizational buying, or to bring about positive social change through organizational buying behavior. This involves the Procurement organization ensuring that the products being sourced are acquired in a responsible and sustainable way, the people involved in producing these products should be treated fairly and work in a safe environment, and the environmental and societal impacts must also be considered as part of the sourcing process.

The Profit-Leverage Effect states . . . ?

The Profit Leverage Effects states that a decrease in purchasing expenditures directly increases profits before taxes (assuming no decrease in quality or purchasing total cost). The bottom line impact is going $ for $ so an increase in expenses decreases profit dollar for dollar.

Economic Order Quantity (Refer to Slide 38 in Chapter 04 -or- Pages 117 through 120 in the textbook)

Use the EOQ formula to solve

Calculate RBS Company's EOQ for their top selling Pen Set using the following information:

RBS Company expects to sell 300 Pen Sets per month for the next 12 months.

RBS Company purchases the Pen Sets from a supplier for $50 dollars each and incurs a cost of $100 dollars for each order that they place

RBS Company estimates that their inventory carrying cost is 24% annually.

245

Square

2 x Annual Demand x Order Costs

---------------------------------------------

Percentage x Cost from Supplier

Reorder Point (Refer to Slides 29 through 31 in Chapter 04 -or- Pages 114 and 115 in the textbook)

Use the Reorder Point formula to solve

Calculate RBS Company's Reorder Point, including safety stock, for their top selling Pen Set using the following information:

Demand (D) is 150 Pen Sets per month (30 days = 1 month).

Lead Time (LT) from Supplier X is 10 days.

Safety Stock (SS) is 125 Pen Sets.

175

Demand x Leadtime + (Any Stock)

Divide 150/30= 50 x 10 and add 125 Safety Stock

If a firms' net income (i.e., profits before taxes) is $11.7 billion US Dollars and it has total assets of $90.0 Billion US Dollars, the Return on Assets (expressed as a percentage) is

13%

Net Income/Total Assets

11.7/90 = 0.13

The inventory control tool that does not require direct line of sight to read the tag on a product(s), is known as

Radio Frequency Identification (RFI)

The term used to describe a debt secured by a bidder for the purpose of providing a guarantee that the successful bidder will accept the contract once awarded, is known as

Bid Bond

In which sourcing category would the following items typically be classified?

Item A is high value, low risk, and there are multiple potential suppliers: Leverage

Item B is low value, high risk, and there are a small number of alternative suppliers: Bottleneck

Item C is high value, high risk, and there are few suppliers, but they are excellent: Strategic

Item D is low value, low risk, and there are lots of potential suppliers: Non-Critical