MGT 333 Exam 1

Zero defect (ZD) plans

"Do it right the first time" is far more cost-effective than making corrections after the fact.

What is the general rule for the amount of invoice variance?

+/- 5% or $25

What determines how high the supply level is in an organizational structure?

- amount of purchased material as a percentage of total costs - Nature of the products/services acquired - Extent to which supply and suppliers can provide competitive advantage

What are the 6 categories of supply strategy?

1. Assurance of supply strategies 2. Cost reduction strategies 3. Supply chain support strategies 4. Environmental change strategies 5. Competitive edge strategies 6. Risk management strategies

What are the 5 reasons for developing a supply process?

1. Large number of items 2. Large dollar volume 3. Audit trail 4. Consequences of poor performance 5. Contribution to effective organizational operations inherent in the function

What are the 3 types of risk in the supply chain?

1. Operational 2. Financial 3. Reputational

What are the steps to the Supply Management Process?

1. Recognize a need 2. Description of need 3. Identify possible sources 4. Select sources 5. Purchase order creation 6. Follow up, expedite 7. Receive order, pay invoice 8. Monitor and maintain relationships

What are the 7 steps in the procurement process?

1. Recognizing a need 2. Translate need into a commercial description 3. Search for suppliers 4. Select source 5. Agree on order/contract details 6. Delivery of product/service 7. Payment to suppliers

When there is not a contract in place, what are the four ways a buyer can communicate with a supplier?

1. Request for information (RFI) 2. Request for Quotation (RFQ) 3. Request for Proposal (RFP) 4. Request for invitation for bid (RFB or IFB)

What are the 4 responsibilities/roles of supply?

1. What is acquired 2. Supply Chain activities 3. Type of involvement in first 2 categories 4. Involvement in corporate categories

What are the 3 things managing supply risks require?

1. identification and classification of risks 2. Impact assessment 3. Risk strategy

Adding proper procurement operations to indirect spend can save approx. how much?

10-20%

How much revenue does supply account for in manufacturing/services companies?

50-80%, 25-35%

For an organization with annual sales of $500 million, purchases of $300 million and profit of $50 million, a 10 percent reduction in the cost of purchases would result in a profit leverage effect of

60 percent (sales increase of 60% would be required to achieve the same % increase in profit)

____% of the value of any given requirement is established during the first few phases of the standard acquisition process - recognition of need

70

The profit leverage affect of supply means that

A reduction in purchase spend increases profit more than an equivalent increase in sales

What is a process?

A set of activities that has a beginning and an end, occurs in a specific sequence and has inputs and outputs

In the future we will see a change from defensive strategies to more _____ strategies.

Agressive

Functional level of strategic planning

Allocation of internal resources, functional areas contribution

Specialization within the supply function

Allows staff to develop expertise in particular areas

How is the degree of centralization reflected?

Amount of spend managed or controlled by corporate supply

Corporate level of strategic planning

Answer questions about what business we are in, how we will allocate resources

What is direct spend?

Any goods that go to the end product or service

What is vertical alignment with the supply strategy?

At the business unit or functional level the process must be aligned with the organizations objectives

What is a centralized organization?

Authority and responsibility for most supply-related functions are assigned to a central organization

Decentralized organization

Authority and responsibility for supply-related functions are dispersed throughout the organization

Why do supply workers face a challenge when managing discrete goods rather than commodities?

Because consumer's tastes and preference changes more with these (TVs, phones, etc.)

Why are supply roles generally excluded from processing industries?

Because raw materials (like oil) are generally purchased through trading companies

What is horizontal alignment with the supply strategy?

Between and among functional areas

Information Flows

Between and among supply , and other internal functions and external sources

Who do supply executives usually report to?

CFO because of the impact on financials and cash flows

What is supply's effect on organizational risk?

Can create risks with suppliers who don't allow the company to operate as planned. Unethical suppliers can expose the organization to risk

Who generally has control over direct spend?

Centralized group - expertise

Direct spend is generally handled by who?

Centralized supply group because they are the items that touch the customer, so they are important

What kind of activity did most people consider the supply function to be?

Clerical

In private companies, custom specifications are seen as a means of securing _________

Competitive Advantage

Request for Bid

Competitive bid process with or without the negotiation after the bid is placed

When a team has decided that a task or function currently performed by company employees is a core competency, the team will probably recommend

Continuing to make

Business Unit level of strategic planning

Contribute to the corporate strategy and are decisions of a specific unit

Supply strategy should be linked to _____

Corporate strategy

What are the 3 strategic planning levels?

Corporate, Business Unit, Functional

What is the rising trend regarding teams?

Cross-functional teams

Internal business partnerships between supply and other functional areas such as marketing/sales, finance/accounting, and engineering are

Desirable because of interdependencies between and among functions

Is direct or indirect supply contributions easier to measure?

Direct. Indirect contains a lot of intangible contributions

If JIT processes are put in place, where do deliveries go?

Directly to their point of use

What is a requisition?

Document used to communicate the needs internally between users/specifiers and supply management according to established internal controls.

Gate 1 of requisition: Authority

Does the requisitioner have authority to make the request? (budget, etc.)

When did Supply really emerge?

During World War 1/2

Is the supply function static or dynamic?

Dynamic

What is the largest part of spend for a service provider?

Enabling delivery of services

How does the supply function contribute indirectly?

Enhances the performance of other departments or individuals

How does supply affect a company indirectly?

Enhancing the performance of other departments or individuals in the organization Used as an information source (gain ideas from suppliers on how to develop products)

What is assurance of supply strategies?

Ensure that future supply needs are met with emphasis on quality and quantity

What is the simple definition of supply?

Exchange of money for goods and services

It is recognized that in the transition from a centralized supply structure to a decentralized one, organizations are

Expect to increase the speed of response to specific divisional needs

True or False: Globalization of supply chains has increased the complexity of purchasing responsibilities and made identification of risk easier

False

True or False: Maverick buying is a talented member of the supply department whose creativity and innovations have saved the organization large sums of money

False

True or False: One of the most important steps in achieving the potential of supply function is hiring someone from outside of the company's industry into the top supply position

False

True or False: There is increased emphasis on purchase transactions and less on strategic supply management processes

False

The most common source of potential friction between SC and finance/AP is

Finance's inclination to hold on cash, which can result in postponing payments towards suppliers

What are aggressive strategies?

Firms take an imaginative approach to achieve supply objectives to satisfy short-term and long-term organizational goals

Supply Chain Management

Focuses on minimizing costs and lead times across tiers in the SC to benefit the end customer

What does the operational side of supply do?

Focuses on the current tasks

What does the strategic side of supply do?

Focuses on the future, opportunities for competitive advantage

How many information flows are within supply?

Four

What is strategic supply?

Future oriented and searches for ways to provide competitive advantage

Request for Information (RFI)

Gather information about potential suppliers' products and services

What is strategic spend?

Goods and services critical to the mission of the organziation

What is indirect spend?

Goods and services that are needed to run the organization

The larger the organization, the ______ the absolute spend with suppliers

Greater

What is one way companies make sure supply savings hit the bottom line?

Hiring financial controllers

The role of supply management is best captured by the following question

How can supply and suppliers help decrease costs and increase revenues?

What question does a function strategy answer?

How of each functional area's contribution to the business strategy

To effectively manage supply risks, the supply manager must

Identify and classify risks, assess the potential impact, and develop a risk mitigation strategy

Sourcing was presented in class as one of the main specialization within the SC. Which of the following you will consider to be the core responsibility of the SC professional working in sourcing

Identify and select the best suppliers

How does Supply have an effect on efficiency?

If there is rework or poor supplier relationships, it can cause poor operating results

What is the profit-leverage effect of supply savings?

Increase in profit obtained by a decrease in purchase spend

Outsourcing is

Increasing in volume and scope

The organizational structure (centralized, decentralized, or hybrid) of the supply functions

Influences supply processes, internal cross-functional relationships, and procedures and systems

Outward Flows

Information from within supply is sent to others within the organization, Information such as RFP's are sent from supply to external sources (suppliers)

Inward flows

Information within the organization are sent to supply, information from external sources are sent to supply (may come from suppliers)

Gate 2 requisition: Internal clarity

Is the need described in a clear and unambiguous way? Commodity coding should be used to describe the item/service

Request for Quotation (RFQ)

Issued when there is a unambiguous description for a need - commonly priced products - place a purchase order with the best supplier

What is the biggest advantage of the recognition of need phase?

It allows people to get the greatest cost savings and find value by recognizing when there is a need

If organizational objectives and supply objectives are incongruent

It will be difficult to translate organizational objectives into supply objectives

Why buy?

Lack expertise, reduce risk, lack of production capacity, flexibility, cost accuracy, substitutes, not enough volume

The ______ the amount of of spend, the greater the time that should be allocated to an acquisition

Larger

Concerns about outsourcing include

Layoffs, develop dependency on supplier, and loss of control

Decentralized purchasing authority is

Leveraging the divisional expertise

What is strategic sourcing?

Long-term supplier relationships and commodity plans with the objectives of identifying opportunities in areas such as cost reduction, technology, and supply market trends

Which of the following points is not considered a danger (or potential issue) of outsourcing?

Loss of centralization

What is the most common issue under the "what?" category?

Make or buy, insource or outsource?

What is the largest part of spend in a manufacturing company that produces goods?

Materials

What is it called when non-supply staff make unauthorized buying decisions?

Maverick buying

Supply Chain support strategies

Maximize the likelihood that the considerable knowledge and capabilities of SC are available to the buying organization

Expediting

May be caused by the buyer or the supplier

What is the return on assets effect?

Measure of corporate performance indicating that if purchase costs were reduced, inventory amounts would be as well

What is the profit-leverage effect?

Measured by the increase in profit obtained by a decrease in purchase spend

The greatest opportunity to affect value in the purchasing process is when

Needs are recognized and described

What is a good indicator of good supply performance?

No complaints from consumers

What type of organizations use consortia?

Non-profit - schools or healthcare

What is the standard statement of the objectives of the supply function?

Obtain right materials/services, right quantity, for delivery at the right time and right place from the right source, with the right service and at the right price

How many items are on a requisition for standard items?

One

What is another term for strategic supply?

Opportunistic

Customer focused activities

Outbound logistics, new business or product development, customer bid support

Before deciding to outsource, one company should consider the following

Outsourcing risk factors including risk of creating strategic vulnerabilities, The importance of the internal control over production process and quality, A switch back transition plan

What is Logistics Management?

Part of the supply chain that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer requirements

Commodity Management Teams

Permanent teams, aimed to achieve lowest total cost of ownership. Increased expertise, increased communication with suppliers

What is a supply strategy?

Plan designed to permit the achievement of selected goals and objectives

What is an example of a direct contribution that supply can make to a company's financial statements?

Profit-leverage effect, ROA effect

What is the direct contribution of supply?

Profit-leverage effect, ROA, etc. are all ways supply can affect the financials of a company and may impact the bottom line

What type of organization is subject to strict regulatory requirements regarding acquisition processes and policies?

Public

Why make?

Quantities are small, quality requirements are complex, keep IT knowledge internal, lower cost, reduce risk

Close to 70% of the value of any given requirement is established during

Recognition and description of need

Blanket purchase orders

Reduce costs by decreasing the number of purchase orders issued

Cost reduction strategies

Reduce the laid-down cost of what is acquired or the total cost of the organization acquisition and use - life cycle cost

If the buyer has a clear and unambiguous description or specification and wants to find out which supplier can deliver the best value when and where needed, he or she will typically issue a

Request for quotation (RFQ)

Insourcing

Reversing a previous buy decision

What are the 7 R's?

Right place RIght time Right quantity Right materials and services Right source Right service Right price

To contribute to organizational strategy, the supply department should

Seek opportunities to provide competitive advantage

How many items are on a requisition for special items?

Several if they have the same delivery date

What are the three cross-functional teams?

Sourcing, new product development, commodity management

Online reverse auctions are best suited for situations where

Specifications are clearly defined, there is a competitive supply market with qualified suppliers willing to participate and the buyer is prepared to switch suppliers if necessary

What is a common requisition type?

Standard requisition

How does supply effect management strategy?

Strategically sourcing suppliers who match the organizations goals

The ______ the buying organization is financially, the more attractive it becomes as a potential customer

Stronger

Superior suppliers prefer to do business with __________

Superior customers

Quality certification programs

Supplier agrees to perform the agreed-upon quality tests and supply the test data to the buying firm

What are the two externally focused activities of supply?

Supplier and customer

Supplier focused activities

Supplier development, raw material procurement, supplier evaluation, eprocurement, subcontracting

Which of the following is a consideration that favors buying a product

Supplier has unique know how capability

Consignment Buying

Supplier owns inventory in the buyer's facility under the buyer's control

Why would getting suppliers to take over inventory be advantageous for firms?

Suppliers tend to have lower inventory investment and carrying costs

How does supply effect the competitive position/customer satisfaction in a business?

Supply gets the supplier in order to make products by having materials, find suppliers with quick turnaround times for consumers, finding suppliers who are environmentally friendly

Who is responsible for accurately describing the need?

Supply management, user, cross-functional sourcing team

What is another term for a value chain?

Supply network, supply web

How does supply interact as an information source?

Supply provides information like prices, availability of goods, new sources of supply, new products, and new technology - they are located near the marketplace, so the information they can give is valuable

What is supply's effect on efficicency?

Supply selects suppliers, if they select someone who doesn't pay on time, makes poor quality, etc. it could affect how the company performs and there may need to be rework which is wasted time

Normally most organizational objectives can be summarized under four categories

Survival, growth, financial, sustainability

What are the two types of supply professionals?

Tactical and strategic

What is the largest amount of spend in a service company?

The cost to get the service to be performed

What does a process-oriented person consider?

The flow of information, materials, services, and capital throughout the process no matter how many functions touch it

Efficient and effective supply processes are needed because of

The large volume of items, dollar value, severe consequences of poor performance, the potential contribution to organizational objectives, and the need for an audit trail

How do suppliers effect image?

They are directly related to public relations, so poor treatment of suppliers can effect the firms image - also, there needs to be legal and ethical practices when choosing the supplier

What is the impact of supply on public organizations?

They have a lot more regulations to follow - Federal organizations are larger while municipal are smaller

What is the impact of supply on private organizations?

They have fewer constraints, custom specifications to gain competitive advantage

How does supply effect training ground?

This allows people to be exposed to pressure of decision-making and see how they can handle these issues

Why is it advantageous for a supply company to hold safety stock for the buyer?

This reduces the amount of stock the buyer needs to hold and the amount of all buyer's stock is added together, so it's reduced for the supplier, too.

How do many managers foster process orientation?

Through cross-functional teams

An organization may decide to continue to produce a good or service in-house rather than outsource

To control the quality of customer service and to reduce risk

Value Chain

Trace a product or service through its moves, transformations, and identifying costs at each stage

What is difficult for developing a supply strategy?

Translating organizational objectives to supply objectives

What is another term for operational supply?

Trouble avoidance

What is operational supply?

Trouble avoidance - transactional day-to-day operations associated with purchasing

True or False: By identifying and eliminating the causes of uncertainty and risk in the SC, the supply manager may be able to reduce the needed inventories and therefore buy a lower quantity

True

True or False: Purchasing activity could require a large spectrum of involvement of SC personnel. Among those activities there are certain ones that require no involvement of SC/ purchasing personnel

True

True or False: Some of the reasons an organization may decide to make rather than buy are: need to control the production process, stringent quality requirements, and very small quality requirement

True

True or False: Supply is of great consequence in most manufacturing organizations since the costs of purchased materials and services greatly exceeds labor and other costs

True

True or False: Supply managers may be able to provide information to identify risks to the organization, and can develop strategies to mitigate those risks

True

True or False: Terms such as purchasing, procurement, supply and supply chain management are terms that are used almost interchangibly

True

True or False: The 3 levels of strategic planning are corporate, business unit, and functional

True

True or False: The procurement of indirect or noncore spend is more likely to be outsourced than procurement of direct or core spend

True

True or False: hybrid supply structures can capture the benefits of both centralized and decentralized organizational structures

True

True or Fasle: Supply makes a significant contribution to organizational risk management since many supply decisions have downside risks that might impact the organization's strategy

True

True or false: Some operational risks in a SC are beyond the control of the purchaser or supplier and some are within their control

True

In a decentralized organization, what is one way to avoid separate supply techniques?

Use a supply council that manages the supply decisions

Process Quality control programs

Use statistical control charts to monitor various production processes to isolate developing problems and make needed adjustments (corrections) before bad product is produced.

Request for Proposal (RFP)

Used for more complex requirements in which price is only one key decision factor. Buyer is planning to negotiate price and terms

Improving the efficiency and effectiveness of the process for small value orders can be achieved through

Vendor/supplier managed inventory systems and the use of purchasing cards

What question does a corporate strategy answer?

What business are we in? How will we allocate our resources among these businesses?

When developing supply strategies, the supply manager must determine

What to make or buy, what to insource or outsource, and what standard items or what customized items will be acquired

What does a pareto analysis tell us?

Which items are C ranked, 70-80% of transactions account for 10-15% of spend

Project teams

brought together to complete specific projects, one time projects, or tasks within a limited time

Service triad

buyer who may be manufacturing or service based, contracts with a supplier to deliver services directly to the buyer's customer

Consortia

collaborative purchasing to deliver a wider range of services at a lower total cost

Ongoing teams

continue indefinitely

Gate 3 Requisition: Internal clearance

descriptions should be reviewed before documenting and communicating externally with customers

Bill of Materials (BOM)

frequently needed line items in organization that make a standard item over a long period of time

What are the advantages to direct contribution of supply?

inventory reduction and purchasing savings are tangible evidence

Lean purchasing/supply management

manufacturing context and implementing JIT tools to ensure every step of the process adds value

Outsourcing

may reduce operating costs, improve focus on core competencies, and gain access to world-class capabilities

What question does a business unit strategy answer?

mold the plans of a specific business unit

Supply strategy has to be congruent with _____

organizational strategy

Subcontractor

prime contractors who bid out part of their work

The supply function in public sector organizations can differ from those in private sector organizations int the following areas

regulatory requirements regarding the acquisition process and policies

What are the 4 organizational objectives?

survival, growth, financial, sustainability

What does a functionally oriented person consider?

the steps for which his or her department is responsible

One purpose of a requisition is

to clarify the description of need before communicating with potential suppliers

Traveling Requisition

used for ordering recurring requirements and standard parts