Supply Chain Chapter 5: Purchasing Management

Outsourcing

A decision by a corporation to turn over much of the responsibility for production to independent suppliers.

Profit Leverage Effect

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

Request for Proposal (RFP)

A detailed low-level capabilities evaluation document that is used to precisely determine a supplier's capability and interest in the production of a customized product or service.

Request for Quote (RFQ)

A document generally used to solicit bids from interested and qualified suppliers for goods or services that the organization needs to obtain.

Return on Assests (ROA)

A high ROA indicates managerial prowess in generating profits with lower spending

Purchase Order (PO)

A legal contract between a buyer and a supplier to purchase a specified number of products at a specified price.

Bid

A tender, proposal, or quotation submitted in response to a solicitation (i.e., RFP, RFQ) from a contracting authority.

competitive bidding

A transparent procurement method in which bids from competing suppliers are invited by openly advertising the scope, specifications, and terms and conditions of the proposed contract as well as the criteria by which the bids will be evaluated.

import brokers

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

Trading Companies

Buy products in one country and sell them in different countries where they have their own distribution network.

Inventory Turnover effect

Increased inventory turnovers indicate optimal utilization of space and inventory levels, increased sales, avoidance of inventory obsolesce

Benchmarking

Measuring what other businesses do best and matching their performance, is an effective approach to improving your supply chain.

competitive bidding

Offers submitted by multiple individuals or firms competing for a contract, privilege, or right to supply specified services or merchandise.

Four elements of cost

Quality, Service, Delivery, and Price (QSDP).

procurement

The process of selecting and vetting suppliers, negotiating contracts, establishing payment terms, and the actual purchasing of goods and services.

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.

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

Sealed Bid

a document enclosed in a sealed envelope and submitted in response to invitation to bid

Import Merchants

a person or company engaged in the purchase and sale of imported commodities for profit

Decentralized Purchasing

individual, local purchasing departments, such as plant level, make their own purchasing decisions

Payment Bond

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

Total Cost of Ownership (TCO)

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

centralized purchasing

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