MAR 5465 Exam 1
Ch 3 - Conduct of Purchasing Personnel
- Ethics Policy: Company's rule of conduct - Reciprocity policy: Do you buy from customers that buy form you (should avoid this) - Contacts & visits to suppliers - Former employees representing suppliers Reporting irregular business deals w/ suppliers
Ch 3 - Procedural Areas
- Purchasing cycle (documents proper steps to follow in each stage) - Proper use of purchasing forms - Development of legal contracts - Operational procedures
Ch 3 - Characteristics of an effective Policy
- Action-oriented guidelines - Relevant - Concise - Timely & current; must be periodically reviewed
Ch 3 - Buyer/Seller Relationships
- Treat suppliers fairly with integrity - Support and develop suppliers motivated to improve - Provide prompt payment on invoices - Encourage suppliers to submit innovative ideas w/ joint sharing benefits - Develop open communication channels
CH 2 Responsibilities of Purchasing
- evaluate and select, review specs, primary contact with suppliers, method of award.
Why purchasing is important
-Increasing value and savings -Building relationships and driving innovation -Improving quality and reputation -Reducing time-to-market -Managing supplier risk -Generating economic impact -Contributing to competitive advantage
Ch.1 Q9. Discuss the 4 enablers of purchasing and supply chain excellence.
1)Human resources include supplier relationship management, data and analytics, cost analysis, social/collaborative technologies, and market analysis 2)Organizational design involves the process of assessing/selecting the structure of communication, labor, control, authority, and responsibility involved in achieving organizational goals. 3)Information technology includes developing technologies that are furthering the Supply Chain management field. Some of these are cloud computing, advanced tracking software, planning/forecasting software programs, and order execution software. These technologies help to streamline the Supply Chain Management process. 4)Measurement systems are very useful but may lead to roadblocks. There can be too many metrics, causing decision paralysis. There can be incorrect metrics leading managers to make incorrect decisions. Old data is also a major issue. The key to overcoming these roadblocks is to know what to measure, have a quality process in place, and obtain access to the right data.
Ch.1 Five Traditional rights
1. Getting the right quality 2. In the right quantity 3. At the right time 4. For the right price 5. From the right source
Ch.1 Four pillars of P/SCM excellence
1. Human Resources (supply chain individuals) 2. Organizational Design (centrally led with CF teams) 3. Information Technology (real-time systems software on demand and/or cloud-based tech systems; supporting supply chain planning and execution systems) 4. Measurement (quantifies value, utilizes goals and benchmarks, assigns ownership and accountability)
CH 2 Elements of the Purchasing Process
1. Identify user requirements 2. Evaluate user needs effectively and efficiently 3. Identify suppliers to meet that need 4. Develop agreements with suppliers 5. Develop ordering mechanism 6. Ensure payment occurs promptly 7. Ascertain that need was effectively met 8. Drive continuous improvement
Ch.1 CPSM-Certified Professional in Supply Management
A globally recognized professional credential offered by the Institute for Supply Management (ISM). The CPSM certifies that you have key knowledge and skills in areas such as finance, supplier relationship management, organization global strategy and risk compliance and that you are a leader in the supply chain management profession.
CH 2 Purchasing Objectives
Below 1. Supply assurance 2. Managing the sourcing process efficiently and effectively 3. Supplier performance management 4. Develop aligned goals with internal stakeholders 5. Develop integrated supply strategies that support business goals and objectives
Ch.1 Why purchasing is important?
Increasing Value and Savings: o Supplier performance and expertise helps differentiate products and services, thus increasing their value o Purchased content is about 55% of COGS (major area for cost savings) o Avoid incurring additional costs through early involvement with supplier design and proactively responding to their requests for price increases Building Relationships and Driving Innovation: o The traditional approach is to bargain hard for price reductions o A newer approach is to build relationships with suppliers to jointly reduce costs and expect suppliers to contribute innovative ideas that continually add value o For these relationships to work, both the buyer and supplier must receive acceptable paybacks from their investments and realize positive gain Improving Quality and Reputation: o Buyers specialize on its core competencies and get support from supply base based on its own expertise and core competencies -Non-core competencies are candidates for outsourcing to experts -Further increases the importance of relationships among purchasing, external suppliers, and quality o Supplier quality can dramatically impact buyer quality -Lapses in supplier quality can potentially tarnish a buyer's reputation Reducing Time to Market: o Buyers connecting suppliers to engineers earlier can improve product and process designs (suggestions) o Early supplier involvement can lead to a 20% improvement in material costs, material quality, and new product development lead times Managing Supplier Risk: o Supply threats include poor quality, natural disasters, financial instability, operational problems, transportation delays, etc. o Risks are magnified by sourcing strategies that emphasized global sourcing, single sourcing, and JIT inventory o Must continually monitor their supply base for risk and develop business continuity plans to mitigate these risks Generating Economic Impact: o The ISM Report on Business (explained later) Contributing to Competitive Advantage: o Growing acknowledgement by executives of supply chain management's contribution to a firm's profitability -An indication of this enhanced status, reputation, and recognition is the higher salaries being paid to purchasing professionals (average $119,271) o More supply managers have received college degrees and earn more money with degrees than without -More colleges and universities now offer degrees in supply chain management o Continuing education through certifications also increases pay -Managing talent requires a constant focus on finding, developing, and promoting individuals who will contribute to making the supply chain management department recognized as a strategic competitor to the organization Purchasing multiplier: An economic input that amplifies the effect of some other variable
Ch 3 - Purchasing Policy Objectives
Intended to select suppliers that meet purchase and performance requirements. - Purchase materials & services that comply with quality standards - Promote buyer-supplier relations & encourage supplier contribution - Work closely with other departments
CH 2 Improving the Procure-to-Pay Process
Introducing improved buying channels within the procure-to-pay systems that lead to improved spending visibility, efficient invoicing and payment, and user satisfaction (more automated, must improve utilization of Human Resources)
Ch. 1 Q6. With the expected increase in AI, robotics, and automation, what knowledge and skills do you feel are required for a purchasing professional?
It is necessary for a purchasing professional to have a background in technology. They must be well oriented with the benefits that automation and AI will bring to the organization. This will ensure they reap the full benefits of new technology. (HR pillar)
CH 2 Basis of Authority for P/SM- law of agency, fiduciary responsibility
below
Value Chains
composed of primary and support activities that can lead to competitive advantage when configured properly
Ch.1 Supply Chain umbrella- functions under it
e.g. Purchasing, Inbound transportation, Quality Control, Receiving & Stores, Material Control, Production Planning, Shipping/Warehousing Distribution, Order Processing, Customer Service, Demand & Supply Management
CH 2 Purchase requisition, -traveling requisitions, reorder points, stock checks (record vs. physical on hand)
how purchasing becomes aware of purchase requirements
• Supplier performance management
o Def: Selection, development and maintenance of suppliers
• Strategic roles
o Demand, contract, and cost management, procure to pay improvement and supplier relationship management
• Traveling Purchase Requisitions/Bar Codes
o Description of item o List of approved suppliers o Prices paid to suppliers o Reorder point o Record of usage
• Manage the sourcing process efficiently and effectively by:
o Determining staffing levels o Developing and adhering to Adm budgets o Providing training and growth for employees o Introducing improved buying channels within the P2P system for greater spending visibility, efficient invoicing and payment and user satisfaction
• Relative effort spent on P2P differs according to specific sourcing situation
o Different firms and tasks have different requirements. Purchasing must have an efficient P2P process to ensure the best utilization of people to the right set of activities.
• Fiduciary responsibility
o Duty of purchasing management to safeguard a company's assets and handle its funds in a trustworthy manner with the best interests in mind for the company.
• Responsibilities of purchasing listed
o Evaluate and select right supplier to prevent maverick spending o Review specifications to obtain the right product o Purchasing acts as a primary contact with suppliers since they communicate with many departments in the company o Purchasing has the authority to award a contract to a supplier through bidding or negotiation.
Follow up
o Expedite process until it is finished
· Requisition
o Formal purchase requisition is sent
• Purchase requisitions
o Includes detailed description of material/service needed, along with quantity, approx. date, cost and authorization.
• Stages of the P2P process may differ between organizations
o Is the product new or always purchased? Is there a detailed approval process above x amount? o New items require more time to evaluate sources while repeated ones already have proven sources.
· Ascertain need
o Make sure current suppliers or inventory are capable of fulfilling request
Ch.1 Supply base
o Managing the supply base is a broader concept than purchasing -Differs from the traditional "arms' length" or adversarial approach -Requires buyers to collaborate with suppliers capable of providing world-class performance -A strategic, supercharged version of purchasing
• Develop integrated supply strategies that support business goals and Objectives
o Most important: support business goals and objectives, not always the case. o Purchasing can directly affect the long term growth, revenue and operating outcomes and plans of stakeholders and business units.
· Order placement
o Order is placed with a supplier
• Stock checks
o Physical counting of inventory to verify system records (record on hand, ROH) that matches with physical on hand (POH) levels.
• Tactical responsibilities
o Plan requirements, requisitioning, supplier evaluation and selection, receipt and inspection, measuring supplier performance.
· Proposal evaluation
o Purchase requisition is evaluated and approved
• Supply assurance
o Purchasing must satisfy the operational requirements of internal customers. o Must provide an uninterrupted flow of high quality goods and services for ICs o Right price, right source, right specification, right quantity and right delivery time to the ICs.
• Develop aligned goals with internal stakeholders
o Purchasing must work closely with ICs/stakeholders and CFTs. o Communicate closely to prevent limited interaction from the past. o Stakeholders have a good stake in the outcome of purchasing's decision.
Ch.1 Purchasing
o Purchasing plays a dual role -A functional group (a formal entity on the organizational chart) -A functional activity (buying goods and services) o The purchasing group performs many activities to ensure it delivers maximum value to the organization -Supplier identification and selection -Buying, negotiation, and contracting -Supply market research -Supplier measurement and improvement -Purchasing systems development o Purchasing has been referred to as doing "the 5 rights" (explained later) o AKA procurement or acquisition
• Law of agency
o Rules that govern the conduct of agents o Given authority to act on behalf of another, should act with the best interests of the principal
• Forecasts and customer orders
o Signals needs for additional or new material for ICs. May use a MRP (material requirement planning to forward material requests to suppliers)
Ch.1 Strategic responsibilities
o Strategic responsibilities (orientation) have a major impact on long-term performance -Should not be pursued in isolation but aligned with overall mission and strategies of the organization -Strategies are different from tactical, routine, or day-to-day activities, but must be performed with tactical activities -A strategic activity is the development of a system empowering internal users to order routine supplies
• Create a superior P2P process to create competitive advantage
o Superior processes create competitive advs such as e-procurement (automatic routine purchases using a suite of tools) and sourcing management teams to improve the outcome of supplier evaluation and selection efforts. o Effective P2P systems provide clean data which is vital to perform a good spend analysis
Integrated supply strategies might fail because:
§ Historically not relevant, dismissed as a support function § Management has been slow to recognize the value that purchasing can provide
• Supplier performance management ensures that:
§ Suppliers are competitive § Identify new suppliers with potential and develop relations with these § Improves existing suppliers § Develops new suppliers that are not competitive with current ones These steps lead to performance advantages in product cost, quality, tech, delivery and development
When Integrated supply strategies are involved they can:
§ Update on supply market conditions, trends and translate these impacts on business outcomes § Identify emerging materials/tech to support plans in key performance areas, like new product development § Develop supply options and contingency plans to reduce risk § Support the requirements for a competitive supply base
CH 2 Payment process - Long term agreements
· Contract that specifies price and quantity for a long period to prevent changes.
CH 2 Packing list
· Details the content of the shipment by the supplier, including description and quantity of items in it.
CH 2 E-procurement and Reverse Auctions
· E-procurement are electronic solutions that automate routine purchase orders along with paperwork · Reverse Auctions (Aka E-Auction) are digital competitive bidding tools that work like auctions in reverse. The buyer identifies potential qualified suppliers and allows them to bid to get the contract, usually driving prices down considerably.
CH 2 Expediting
· Expediting is the process of personally or electronically contacting suppliers to determine the status of past-due or near-past-due shipments.
CH 2 Internal Customers
· Internal customers are members from the company, usually from other departments · Purchasing must satisfy the operational requirements of internal customers.
CH 2 Payment process - receiving report
· Report that mentions any changes in quality or quantity over or under the one agreed in the contract when received by the buyer.
CH 2 Self-run auctions, vs. software company run
· Self run auctions are organized and managed by the company giving the contract to the suppliers · Software company auction runs are managed by a third party specialized in electronic contract bidding.
CH 2 Payment process - Purchase order
· a written order by a buyer for merchandise or other property specified in the purchase requisition
CH 2 Payment process - invoice Blanket orders
· an open order, usually effective for one year, covering repeated purchases of an item or family of items that eliminates the need for redoing a purchase order
CH 2 Certified supplier
· have had their quality systems extensively audited by the buying firm and are capable of consistently meeting or exceeding the buyer's quality needs.
CH 2 Purchasing Authority
• Authority to conduct business and represent organizational interests • Created by executive committee • Authority to delegate certain tasks and assignments to other functional areas • Describes scope of and limits of authority given (this policy describes the areas where purchasing authority does or does not exist ((Ex: buying real state or insurance)).
Purchase Order
• Drafted after supplier evaluation and selection is completed • Visibility throughout the company to encourage ICs to follow protocol • Legally-binding document, i.e., a contract o −Carefully define terms and conditions o −Standard legal language, i.e., boilerplate o −Offer and acceptance
CH 2 Maverick Spending
• End user selects a different supplier than supply management has approved • May be acceptable when there is little chance of risk • Loss of opportunity to control cost and/or leverage purchase volume • Exposes firm to greater risk
CH 2 Types of Purchases
• Raw materials • Semifinished products and components (Chassis, wiring, etc. before assembly) • Finished products • Maintenance, repair, and operating (MRO) items • Production support items • Services • Capital equipment (assets that last more than 1Y) • Transportation and third-party logistics providers
CH 2 Request for Quotation
• Supply management invites quotes or bids from a pool of qualified suppliers • Consists of necessary information to allow suppliers to accurately respond • Includes due date of bid • Defines whether substitute offers are acceptable • Normal practice is a minimum of three bids
CH 2 Bill of Lading
• Transfers ownership and possession when received. Used as a record of the quantity of goods delivered to a facility by the transportation carrier
When to Use Competitive Bidding
• Volume is sufficiently high • Specifications or requirements are clear to suppliers • Marketplace is competitive with adequate number of suppliers • Buyers solicit bids only from technically qualified suppliers who seek the contract • Sufficient time is available to evaluate RFQs (Request for quotation) • Buyer does not have a preferred supplier for a particular item
When to Use Negotiation
• Whenever criteria for competitive bidding are missing • Purchase requires agreement on a wide range of performance factors other than price • Buyer requires early supplier involvement • Supplier cannot determine risks and costs prior to contract award • Supplier requires substantial lead time to develop and produce requested item(s)
CH 2 Statement of Work for Services
• Work to be completed • When it is needed • What type of service provider required • Multiple details (Expectations for variety of selection criteria)
• By brand
Proprietary or unique products where brand name provides perceived advantage to user
Ch.1 Q2. What is the difference between purchasing and supply management? What is the difference between a supply chain orientation and supply chain management?
Purchasing management is a functional group and activity, it maximizes the organization and is a process of managing purchase functions. Supply management is a strategic process of managing resources, its the present and future needs of the company, strategic/cross functional approach of nature, managing the supply base. Supply chain orientation is the acknowledgment of supply chains importance. SCM is the managing the flow of the goods, endorsing supply chain orientation.
Ch 3 - Purpose & Advantages of Policies
Purpose: Define and clarify top management objectives Advantages: Define rules & procedures for employees, provide framework for decision-making and action, and is a way executives communicate their leadership and views
Ch.1 Q5. What are some of the factors that might influence how important purchasing is to the success of an organization?
Quality of good and service, availability of resource, availability of alternative resource, level of competition.
Ch.1 Technology in the supply chain via RFID, cloud computing, GPS etc.
Regardless of the type of IT platform or software used, supply chain systems should capture and share information across functional groups and organizational boundaries on a real-time or near-real-time basis. This may involve transmitting the location of transporta-tion vehicles using global positioning systems (GPSs), Internet-based systems to transmit material requirements to suppliers, or bar code technology to monitor the timeliness of receipts from suppliers. RFID tags are being used in more applications to capture real-time data about material and product movement across the supply chain. Improves time to market, quality, reputation, etc.
Ch.1 Q1. Why are more top managers recognizing the importance of purchasing/supply management?
SCM improves relationship building and innovation, improves reputation, time, competitive advantages, and operating cost of company.
Ch 3 - Procedure Manual
Acts as a reference guide (mostly for new employees in training) - All online & continually needs to be updated Provides consistency by documenting required steps (supports efficient operations) - May specify industry best practices Should be simplified & streamlined - Minimize number of steps & limit level of detail
Ch.1 Nearshoring, offshoring, reshoring
Availability of low-cost alternatives- a moving target o Shift toward outsourcing and offshoring (basing some of a company's processes or services overseas, so as to take advantage of lower costs) o Re-shoring (bringing some sourcing back) near-shoring (evaluating suppliers located closer; Mexico, central, and south America)
Ch 3 - Backdoor Buying (AKA Maverick Spending)
Buying from suppliers without following a company's pre-established purchasing policy. This arrangement goes outside of the normal purchasing policies of a company
Supply Chain Management (SCM)
Endorses a supply chain orientation and involves proactively managing the two-way movement and coordination of goods, services, information, and funds (the various flows) from raw materials through the end user
Ch 3 - Categories of Purchasing Policies
Environmental Policy: Required by governments. Involves use of recycled materials, proper disposal of waste materials, and documented disposal of hazardous materials Labor & Human Rights Policy: Required by governments, investors, & customers. Involves ethical treatment of suppliers' employees including living wages, safety & security, and overtime Minority/Woman Business Policy: The state management's commitment to diversity amongst a company's suppliers. Involves inviting diversity bids on new contracts, creating training programs to educate suppliers about supplier diversity, and extra incentive for MWB suppliers within a companies operations Corporate Social Responsibility Policy (CSR): The issue of sustainability within companies. Involves low-cost country sourcing, environmental issues, and labor and human rights violations Supplier Policy for Defective Material: Charge-back costs due to supplier nonperformance. Involves material inspection, repackaging return shipping, and cost of lost/delayed production Hazardous Materials Policy: Controlling or minimizing waste generation. Involves obeying environmental laws, proper handling of toxic waste, and using ISO 14000 (env management system)
Ch 4 - Internal Integration
How well you have a relationship with a customer (internally) - Resolve internal conflicts between departments and internal users
Ch 3 - Purchasing Procedures
Operating instructions detailing functional duties and tasks - Serves as a "how-to" manual - No uniform set of procedures applies to every situation
Supply Chain
Supply chain is a set of three or more organization linked directly by one or more of the upstream or downstream flows of products, services, finances, and information from a source to customer
Ch.1 ISM Report on Business
The ISM Report on Business is one of the most closely followed indicators of economic activity -Monthly surveys of purchasing managers in both manufacturing and nonmanufacturing sectors -Closely monitored by the financial sector -It is a change index (month over month) -A rating over 50 indicates the economy is expanding; less than 50 is contracting (supplier deliveries are opposite because slower deliveries mean that there is demand; less than 50 is expanding) -Regional reports for larger metropolitan areas are also available
Supply Chain Orientation
The higher-level recognition of the strategic value of managing operational activities and flows within and across a supply chain
Ch.1 Supply chains, Supply chain management, supply chain orientation, value chains
o Supply chain is a set of three or more organization linked directly by one or more of the upstream or downstream flows of products, services, finances, and information from a source to customer -Any time business is conducted a supply chain will exist o Supply chain orientation is a higher-level recognition of the strategic value of managing operational activities and flows within and across a supply chain -Do they value what we do? They need to o Supply chain management then endorses a supply chain orientation and involves proactively managing the two-way movement and coordination of goods, services, information, and funds (the various flows) from raw materials through the end user -Requires the coordination of activities and flows that extend across boundaries -Let developmental technologies to manage -For performance (Ex. new product development, customer order fulfillment, supplier evaluation and selection, and demand and supply planning) o Reverse Supply chains rapidly identify and return defective products back through the supply chain and then return them to customers defect-free (recalls) o Value chain is composed of primary and support activities that can lead to competitive advantage when configured properly (Michael Porter) -The accumulation of these activities results in the total value added by the firm o The supply chain is a subset of the value chain -At an organizational level, the value chain is broader than the supply chain because it includes all the activities in the form of primary and support activities (Direct materials and Indirect goods and services) o The original value chain focused on primarily internal participants, whereas supply chain is both internally and externally focused (but only direct/primary)
• Overall goals
o Supply continuity, managing purchasing process, supply base management, engage stakeholders, and develop sourcing strategies
Ch.1 Supply Management
o Supply management is a strategic approach to planning for and acquiring the organization's current and future needs through effectively managing the supply base, utilizing a process orientation in conjunction with cross-functional teams (CFTs) to achieve the organizational mission -Ism's definition is the identification, acquisition, access, positioning, and management of resources and related capabilities an organization needs or potentially needs in the attainment of its strategic objectives
Routine reordering systems - (reorder point)
o System that issues a resupply order when inventory of a given item reaches x quantity to prevent it from running out.
• By market grade or industry standard
o Well-understood specifications for standard items o Common agreement on what specifications mean
• Acknowledgment
o involves the electronic transfer of purchase documents between the buyer and seller o separate form notifying the user that purchasing has received and is processing the requisition
• Material packing slip
o −Details contents of shipment such as quantity and description of items
By performance characteristics
o −Focus on customer's desired outcomes
• By specification
o −Materials used o −Manufacturing or service steps required o −Physical dimensions
Three-way match required to pay supplier's invoice
o −P.O. o −Invoice o −Receiving report with accompanying quality inspection report, if required
• Receiving discrepancy report and invoice
o −Report that specifies shortages and overages from last delivery
• Prototypes or samples
o −Specifications often difficult to communicate in drawings or written descriptions
