Purchasing and Materials Management Final

Basic means of mobility with respect to transportation

land (road, rail, and pipeline) water air radio frequency (RF) waves

what is the starting point for aligning the commercial agreement and the legal agreement?

making sure that the right people are entering into the commercial agreement in the first place

a maquiladora is an example of..

the foreign trade zone concept or industrial parks

a fair price..

the lowest price that ensures a continuous supply of the proper quality where and when needed.

Logistics

the management of inventory in motion and at rest

ethics relates to

the principles or standards of human conduct, sometimes called morals

conditions necessary for effective cross-functional teams include:

- Careful selection of team members -each has something to contribute - Strong leadership - Specific objectives and expectations -communicated to each team member - Normal job responsibilities provide time and resources - Performance evaluation and reward systems -foster team participation and team performance

a valid contract is based on which factors:

- Competent parties - either principals or qualified agents - Legal subject matter or purpose - An offer and an acceptance - Consideration (bargained-for exchange)

benefits of effective disposal programs include

- Cost recovery - Cost reduction and avoidance - Customer service - Quality control - Protect intellectual property and brand identity - Comply with government regulations - Reclaim valuable materials from customers - Control product liability - Improve public image

categories of material for disposal include:

- Excess or surplus materials - Obsolete material or equipment - Rejected end products - Scrap material - Waste - Hazardous waste

studies conducted in supply research include projects under the major research headings of:

- Purchased materials, products or services - Commodities - Suppliers - Supply processes

other supply management responsibilities include:

- Receiving - Logistics and warehousing - Inbound and outbound transportation - Production planning - Accounts payable - Investment recovery

Criteria for mode and carrier selection

- Required delivery time - Reliability and service quality - Available services - 3PL - Type of item being shipped - Shipment size - Possibility of damage - Carrier financial situation - Handling of claims

supply managers role in legal and ethics include:

- Should understand the basic principles of commercial law and ethics which will help recognize problems and situations that require professional counsel - Provide knowledge to avoid pitfalls in day-to-day operations - Continually look to maximize opportunities and minimize the risks for the organization - Monitor the legal and ethical horizons - Ensuring that the supply process is conducted ethically and in a socially responsible manner

conditions for competitive bidding

- There must be at least two, and preferably more, qualified bidders - The suppliers must want the business (a "buyer's market) - Specifications must be clear - No collusion between bidders

disposal channels

- Use elsewhere in the firm "as is" - Reclaim for use within the plant - Sell to another firm for use on an "as is" basis - Return to the supplier - Sell through a broker - Sell to a local scrap or surplus dealer - Donate, discard or destroy the material or item

incoterms are..

- created by the International Chamber of Commerce - a uniform set of rules to clarify the costs, risks, and obligations of buyers and sellers in an international commercial transaction; they determine who pays the freight, who pays the carrier, who handles the import clearance, and export clearance, and two of the terms address insurance

the Pareto curve or analysis is also called the

ABC 80/20

the legal authority of the buyer

Actual Authority: - express authority: the acts that the agent is expressly and directly authorized to perform - implied authority: all other authority that is necessary, usual, and proper to carry through to completion the express authority - third party role: the duty of the third party (supplier rep) to ascertain the scope of an agent's authority Apparent Authority: - created when the words or actions of the principal (employer) lead a reasonable person to believe that authority has been granted - the authority a buyer appears to have

the total cost of ownership

The acquisition price plus all associated cost elements

transportation costs based on distance, quantity and speed of delivery

Transportation costs increase as distance, quantity, and speed increases Two categories of rates: - Line Haul - moving products to a non-local destination - Accessorial - services not included in line haul rate (surcharges, etc.)

activity-based costing (ABC)

Tries to turn indirect costs into direct costs by tracking the cost drivers behind indirect costs

customer satisfaction depends on....

supplier performance

potential hidden costs in global purchasing include:

- currency exchange premiums - commissions to customs brokers - terms of payment costs and finance charges: letter of credit fee, translation costs, exchange rate differentials - foreign taxes imposed - import tariffs - extra safety stock/buffer and transit inventory, plus inventory carrying costs due to longer lead times - extra labor for special handling - obsolescence, deterioration, pilferage, and spoilage - additional administrative expenses - packaging and container costs - business travel - fees for freight forwarders, consultants, or inspectors

an indicator of a successful partnering effort

- formal communication processes - commitment to our suppliers' success - mutual profitability - stable relationships, not dependent on a few personalities - consistent and specific feedback on supplier performance - realistic expectations - employee accountability for ethical business conduct - meaningful information sharing - guidance to supplier in defining improvement efforts - non adversarial negotiations and decisions based on total cost of ownership

third party logistics services (3PL)

- international and domestic transportation - warehousing - freight forwarding - customs brokerage

Key strategic decisions in supply management

- should we use target pricing? - should we negotiate with our supplier or accept their offer? - should we estimate the TCO for all purchases? - how can we understand what it costs our suppliers to mfg. their products or deliver their services? - how can we make a cost analysis on all our large dollar purchase items? - how can we achieve our objectives in negotiation with an important supplier?

potential problem areas in global purchasing

- source location and evaluation - lead/delivery time - expediting - political, labor and security problems - hidden costs - currency fluctuations - payment methods - quality - warranties and claims - tariffs and duties - administration costs - legal issues - logistics and transportation - language - communications - cultural and social customs - ethics and social responsibility

the partnership view of buyer-seller relationships includes...

- total cost of ownership - end-customer driven - long-term - opportunity maximization - cross-functional teams and top management involvement - strategic - both supplier and buyer share short and long-term plans - shared risk and opportunity - standardization - joint ventures - share data

reasons for global purchasing include:

- unavailability of items domestically - price and total cost-labor costs, exchange rates, equipment and processes, product and pricing focus - government pressures and trade regulations - quality - faster deliver and continuity of supply better technical service - technology - marketing tool - tie-in with offshore subsidiaries - competitive clout of leverage

Three categories of logistics costs

1. transportation (the bulk of the costs) 2. inventory carrying costs 3. administrative costs

components of the delivery decisions

1. what mode of transportation is most appropriate for a specific order? 2. what carrier is the best? 3. which supplier offers the best value?

the core links of a simplified supply chain

supply link -> internal link -> customer link

investment recovery is:

Effective, efficient, and profitable recovery and disposal of scrap, surplus, obsolete, and waste

one of the four types of warranties is

Express Warranty - affirmation of facts, promises, description, sample, or model pertaining to goods that are subject of negotiation

cost approach

Price is set greater than direct costs, allowing for sufficient contribution to cover indirect costs and overhead, and leaving a margin for profit

market approach

Prices are set in the marketplace and may not be directly related to cost

suppliers can establish prices via what approaches?

cost approach and market approach

focus of Lean Management

creating value for the customer while eliminating seven forms of waste (TIMWOOD)

in negotiations, what's negotiable?

everything

continuous supply is only available...

from a supplier that is making reasonable profit, covering costs in the long run.

indirect spend

often outside the loop of a structured sourcing process and supply authority and responsibility is often left in the hands of the internal user refers to purchases of goods and services that are not directly incorporated into a product being manufactured. Examples include computers, safety goggles, printed forms, office supplies, janitorial services, equipment, furniture, etc.

the learning curve

provides an analytical framework for quantifying the commonly recognized principle that one becomes more proficient with experience

target costing

selling price - desired profit = target cost - when a management team establishes the price at which it plans to sell its finished product, then subtracts out its normal operating profit, leaving the target cost that the organization seeks

supply performance benchmarking measures..

what results organizations have achieved

Key points about transportation and its cost to the organization

· Transportation is the majority of logistics costs, 63 percent in 2012 · Less than 1% of total purchase costs if very-high-value, low-weight, low-bulk electronic goods · As much as 40 % of total cost of an item if low- value, bulky, and heavy, such as agricultural commodities or construction materials

supply's role in environmental management and investment recovery include:

•Reduce MRO obsolescence and waste through better materials and inventory management •Reduce costs from scrap and materials losses •Lower training, handling, and other expenses for hazardous materials •Increase revenues by converting wastes to byproducts •Reduce use of hazardous materials through more timely and accurate materials tracking and reporting systems •Decrease use and waste of chemicals, solvents, and paints through chemical service partnerships •Recover valuable materials and assets with efficient materials recovery programs