Chapter 4 - Procurement
ISO 14000
- A series of standards for environmental management measuring a firm's environmental impact. - The benefits include reduced energy consumption, environmental liability, reduced waste & pollution, and improved community goodwill.
Procurement objectives
- Ensuring continuous supply - Minimizing inventory investment - Quality improvement - Supplier development - Access to technologies and innovation - Lowest total cost of ownership
Successful JIT Purchasing Program characteristics
- Quality - Transportation - Suppliers - Quantities
Portfolio spend categories
- Routine purchases - Bottleneck purchases - Leverage purchases - Critical purchases
ISO 9000
- a series of quality standards that provide basic definitions for quality assurance and quality management - companies wanting to sell in the global market seek this certification
The four elements of cost
- quality - service - delivery - price (QDSP)
2nd consideration of procurement strategy
Determine which strategic approach to take in dealing with external suppliers
EDI
Electronic Data Interchange
ISO
International Organization for Standardization
________________ was historically perceived as just a buying function for manufacturing, repair materials, and supplies
Purchasing
Discounts associated with purchase price
Related to the price quote, is normally a schedule of one or more possible discounts that the buyer may receive
1st consideration of procurement strategy
Which products and services should be produced internally and which should be purchased from outside suppliers (make-vs-buy)
3rd consideration of procurement strategy
Which strategic approach to take for the different types of products and services the organization buys
Pareto Principle
a small percentage of items account for a large percentage of dollars spent
User buy strategy
allows users in an organization to determine their own purchase needs, evaluate sources of supply, and execute the purchasing process
Procurement
an organizational capability that ensures the firm is positioned to implement its strategies with support from its supply base
Operational Integration
cut waste, reduce costs, and develop a relationship with a supplier that allows both buyer and seller to achieve mutual improvements.
Electronic Data Interchange
electronic transmission of data between a firm and its suppliers
It is an organization's process for evaluating the quality systems of key suppliers in an effort to
eliminate incoming inspections.
Just-In-Time Purchasing (JIT)
goal is to time-phase activities so that purchased materials and components arrive at the manufacturing or assembly point just at the time they are required for the transformation process
Spend analysis
identifies how much is being spent on each type of product or service across all locations in the firm
Procurement and logistics have much in common, primarily on the
inbound flow materials and products
JIT II or JIT 2
involves the integration of the suppliers personnel into the buyer's purchasing or manufacturing processes
Quantity discounts
may be offered as an inducement to encourage buyers to purchase larger quantities
Cash discounts
may be offered for prompt payment of invoices
Supplier audit program attempts to develop a detailed understanding of a supplier's
organization and capabilities
An effective procurement strategy includes volume consolidation through ____________________________
reduction in the number of suppliers
Forward vertical integration
refers to a company acquiring one or more of their customers
Backward vertical integration
refers to a company acquiring one or more of their suppliers
Service Pricing and Debundling
sellers typically offer a number of standard services that must be considered in procurement. Additionally, a wide variety of value-added services may also be offered and must be evaluated to find the lowest TCO.
The make or buy decision is a _________________ decision
strategic
Life Cycle Costs
the costs related to defective finished goods, scrap, rework, which are associated with poor supplier quality, must also be considered, as well as related warranty administration and repair of items that have been purchased.
Total Cost of Ownership (TCO)
the sum of all the costs associated with every activity in the supply stream of a product