GLM Chapter 7 - Supply Management

A purchase order (PO) is

a document that authorizes a supplier to deliver a product or service and often includes key terms and conditions, such as price, delivery, and quality requirements.

Return on assets is

a measure of financial performance, generally defined as earnings/total assets.

Total cost analysis is

a process by which a firm seeks to identify and quantify all of the major costs associated with various sourcing options.

Cross sourcing

a sourcing strategy in which a company uses a single supplier for one particular part or service and another supplier with the same capabilities for a different part or service, with the understanding that each supplier can act as a backup for the other supplier.

Single sourcing

a sourcing strategy in which the buying firm depends on a single company for all or nearly all of a particular item or service.

Multiple sourcing is

a sourcing strategy in which the buying firm shares its business across multiple suppliers.

Profit leveragea effect

a term used to describe the effect of $1 in cost savings increasing pretax profits by $1 and a $1 increase in sales increasing pretax profits only by $1 multiplied by the pretax profit margin.

A cost-based contract

a type of purchasing contract in which the price of a good or service is tied to the cost of some key input(s) or other economic factors, such as interest rates.

The first step of the strategic sourcing process, which is sometimes kicked off in response to an entirely new need within an organization, in the vast majority of cases, is

conducted to improve the performance of a firm's existing sourcing activities.

Portfolio analysis

is a structured approach used by decision makers to develop a sourcing strategy for a product or service, based on the value potential and the relative complexity or risk represented by a sourcing opportunity.

Cost of goods sold

is the purchased cost of goods from outside suppliers. It tells how much a company has paid for the goods that it sold to its customers.

Profit margin is

is the ratio of earnings to sales for a given time period.

Outsourcing

is the use of supply chain partners to provide products or services.

In the second step

of the strategic sourcing process, decision makers often need to develop a more detailed picture, or profile, of the internal needs of the organization, as well as the characteristics of the external supply base.

Spend analysis is

the application of quantitative techniques to purchasing data in an effort to better understand spending patterns and identify opportunities for improvement.