MGT 432 Midterm

What are advantages to contract management software?

-brings structure and visibility to contracts -relies on a central repository and database -easily searchable -overall,makes contract management much easier

How to conduct a category analysis? a. What points must you consider for internal fact gathering? b. What points must you consider for external fact gathering? c. What points must you consider for outcomes?

-building category strategy objectives: internal, external, and outcome fact gathering a.) need and history / complexity, labor, and production b.) existing suppliers and risks / current and future demand c.) $$$$ / industry forces (trend, risk mitigation)

How did purchasing's responsibility evolve across the three different eras?

-clerical era: necessity -transactional era: managerial function -strategic era: SCM and outsourcing make it strategic

How do firms determine strategies?

-customer base: who buys our stuff? -value proposition: what do we offer? -strategic positioning: who are we relative to the competition?

. What are two approaches to risk mitigation? Examples?

-impacts a supplier or impacts ur transportation the two general approaches are diversify/redundcancy supplier or geogrpahical region or to standardize your inventory or partys

How can sourcing strategies support cost leadership or differentiation?

-insource vs outsource (make vs buy) -supply base optimization -supply risk management -supplier involvement in innovation/supplier development -total cost of ownership (TCO)

What are some consequences of supply chain disruption?

-internal -supplier -customer ....all could cause issues with: -quality -development -ramp-up/roll-out -production -change order -parts shortage

What are four categories in the strategic sourcing matrix?

-leverage -critical -routine -bottlekneck

How does purchasing determine lowest total cost?

-purchase price variance= (actual-budgeted) x quantity -TCO= acquisition price + NPV(Sigma)(Ownership + End of the life costs)

. How can a company promote ethical sourcing behavior?

-rotate assignments -top management support -letters emphasizing no-gift policy -compliance officer/ombudsman -ethical standards and guidelines

What are some consequences of failing at any of the seven rights of purchasing?

-stock outs without material -quantity runs risk of going to different supplier -time: brief shutdowns or if it gets to a location too early, inventory holding costs -time and quanity problems cause uncertainty and risk - cause a lot of production problems -If delivered to wrong place, transportation costs increase and creates wrong quantity and wrong time -Supplier has to deal with regulations - need certified to supply to US government/ security clearance -Service: hardware is not good enough - need the support and provide after sale support like warranty -Price: hidden cost can inflate price

What elements define the four categories?

-suppliers -purchase quantity -approach

What defines complexity?

-supply market landscape -risk -technological uniqueness

What are the primary benefits to having a centralized purchasing structure?

PROS -Economies of scale -Standardization -More effective supply strategy -Close relationships with suppliers -Increases leverage -Reduced Duplication -Aggregation -Talent development CONS -Reduced flexibility -Increased bureaucracy -Slower

What are the primary benefits to having a decentralized purchasing structure?

PROS: proximity powers -More responsive -Closer relationships with internal customers -Better risk assessment and response CONS: -Leads to duplication -Reduces leverage -More costly than centralized -Your job is to know when the extra costs are worth it

What components are involved in measuring risk exposure?

Risk Exposure= risk probability X risk consequence

What is the agent-principal conflict in sourcing?

Sales representative acts on behalf of the supplier company and the purchasing manager acts on behalf of the buyer company. But the conflict comes about if the sales representative is friends with the purchasing manager.

How do contract management software work?

Stored in a centralized database that is searchable based on specific tags (e.g., Supplier; Component; Date; Spend Amount; Others)

What aspects of the supply chain does purchasing primarily influence?

innovation, quality, brand recognition

What is the triple match?

purchase order=receiving report=invoice from supplier

What visualization tool is used to understand risk exposure?

a risk heat map

What happened to the supply chain from the 70's to today?

-1973-mid 1980s: scarcity in inflation increase purchasing visibility -1905-1995: JIT partnership makes purchasing quasi-strategic -1995-today: outsourcing and SCM makes purchasing strategic

How does purchasing influence a firm's financial performance?

-Able to reduce costs of goods sold -Improves bottom line -Reduces assets -Above done by: -Finding alternate suppliers -Renegotiate existing contract

How can a contract law be cancelled?

-Cancellation for Default: •When terms of a contract are violated •Usually triggered by quality/delivery issues or late payment -Cancellation for Convenience: When either the buyer or the supplier can terminate at will... -Cancellation by Mutual Consent: •Usually takes place when vendor discontinues part or buyer no longer produce products that require a part

In today's competitive environment, how can one expect purchasing to evolve?

-Competition is increasing (and will keep increasing) -Markets (resource and consumer) increasing globally -Change happens faster as new tech emerges and new rivals enter market -Customers are more empowered by readily available information -Risks have increased, greater disruption, threatening supply lines

Why would you want to purchase in bulk?

-Cost advantages that come with larger-scale production -Efficiencies tend to improve as scale increases -Supplier can spread fixed costs out over a larger number of products -Justify hiring more highly skilled workers and improved training programs -Labor efficiency improves and labor costs per unit go down

What is the four step process to understand customer needs?

-Define the buying center- who influences the decisions? -Assess source of power- who are the important decision makers? -Evaluate motivations- who are the influencers? How do the benefits compare to the risks? -Determine perceptions- how do key decision makers perceive us?

How do you create a hybrid structure to take advantage of both centralized and decentralized purchasing?

-Dispersed supply managers communicate detailed spend to a centralized group -Center group analyze the cumulative spend -Where savings can be found, the center group leads the buying process

What are some strategies for managing or mitigating supply chain risk?

-Dual- or multi-sourcing: If one supplier fails, you have a backup. -Geographical Diversification: If a disaster strikes, you have a backup. -Inventory Pooling: Pooling safety stock with other firms, including rivals lets you balance costs and risk mitigation. -Part Standardization: Using standard parts increases the number of supply options you can turn to when a disruption occurs.

How does purchasing influence a firm's market position?

-Effects on image and social policy -As a source of information

Who are purchasing function's primary customers?

-Finance -Operations -Sales -Research and Development *Your colleagues are your customers* -You need to have a processes in place so that there is no duplication, wide variety of vendors, quality problems, waste

How can you exert influence on the other negotiating party?

-Information Exchange: •Facts and evidence are presented by the salesperson without a specific request for action on behalf of the buyer. -Reccomendations •The salesperson implies that the buyer will benefit if she follows the salesperson's suggestions. -Requests •The salesperson frankly states what she would like the buyer to do. -Ingratiation •The salesperson praises the buyer's accomplishments so that they are more likely to agree to certain conditions. -Threats •The salesperson implies or directly states negative repercussions in case the buyer does not comply with the salesperson's requests. -Promises •The salesperson promises rewards if the buyer complies with the salesperson's requests .

What are the characteristics of MRO, capital equipment, and services spends?

-MRO: maintenance, repair, and operating items -ex: multiple, small dollar purchases -Capital equipment: machinery and equipment to product other goods -ex: infrequent, high dollar purchases -Service spends: Effort that supports a business but does not produce a tangible product -ex: ur service contract/ cell phone combination

How does contract law figure into sourcing?

-Offer •Expression of an intention to do business. -Acceptance of Offer •Meeting of the minds (agreement, mutual assent). -Consideration •Something of value is exchanged. -Contractual Authority of the Parties •Parties must be authorized to conduct this business. -Legal Subject Matter •Contracts about illegal activities are not enforceable in court.

What are the three phases of risk management?

-Phase 1: Disruption scanning and monitoring -Phase 2: Disruption assessment -Phase 3: Risk mitigation

What are some potential sources of supply chain disruption?

-Quality and Safety Defects -Supply Shortages -Legal Issues -Security Failures -Regulatory Compliance -Severe Weather -Terrorism -Piracy -Natural Disasters -Port Congestion & Work Stoppages -Political and/or Economic Instability -Exchange Rate Fluctuations

What three levels of cost analysis should be conducted for cost and performance of a spend?

-Strategic Level: labor, shipping, currency, regulatory -Tactical level: cost analysis, benchmarking, service levels, quality -Executive level: setup costs, transactional details, contingencies

How do you prioritize and set spend approaches with suppliers in each category?

-Strategic Sourcing Matrix -work with some suppliers more closely: automobiles need to work closely with engine and transmission -leverage: exercise buying power (take advantage of buyer discount)- complexity of market is very low -critical: supply marker is very complex -both critical and leverage are high volume, but leverage is not high technologically unique, not a lot of risk, better to have not a lot of competition -bottleknecks are imporatnt but high risk, do not forge long term partners all you care about is supply contitnuity -routine: office pens-cheap, low risk, small volumes - dont want too much time

What is the purchasing process?

-SupplierSelection: •Identification •Evaluation • Approval •Monitoring -TransactionManagement: •PriceDetermination •PurchaseOrder •Follow-up&Expedite •Receipt &Inspection •SupplierPayment -RelationshipManagement: •PerformanceMonitoring&Improvement -Need Communication: •Recognition •Description

What major pieces of legislation influence the sourcing process and how?

-Uniform Commercial Code (UCC): Facilitates trade between states. -Sarbanes-Oxley Act (SOX): Transparency into financial statements, business processes, and procedures. -Dodd-Frank Act: Promotes transparency, reporting, and disclosure. -Customs-Trade Partnership Against Terrorism: Improves supply chain security. -Foreign Corrupt Practices Act: Prohibits the payment or receipt of bribes.

Which reactions are the most desirable? Least desirable?

-You want to have attraction/expert cause it builds commitment and relationships and a better work environment. -You do not want coercive power cause people just do things out of fear and do work as well

What are some unacceptable behaviors?

-accepting bribes or kickbacks -owning a stake in supplier company -giving preference based on friendship and not qualifications -applying different contracts to different suppliers

What are the three benefits purchasing may use to motivate customer agreement?

-accountability -Value proposition -Uncertainty

What sort of perception should purchasing create among its customers?

-wants to be both approachable and deemed as useful bc if you are useful but people dont want to bother you, you are stuck for them using you only when they need you. If they like you and think ur useful, would be proactively using you -if approachable - committed -if only useful- only have compliance when required -if approachable and useful; customer are committed and compliance and increase sales

What are two main categories of spend?

1.)direct or raw materials-> sophisticated and well defined purchasing strategies-> largest component to COGS 2.)Indirect materials-> often not separately tracked-> COGS, SG&A, R&D, Misc

What are each category's individual characteristics?

Critical: computers (Apple and Dell) -Suppliers: Unique and high risk -Purchase Quantity: Large volumes -Approach: Work with suppliers closely and forge long-term partnerships Leverage: computer case -Suppliers: Common and low risk -PurchaseQuantity: Large volumes -Approach: Exercise buying power (e.g., volume discount) and potentially have competitive bids Bottleneck: USBC plug - certain type of plug for new mac -Suppliers: Unique, high risk -Purchase Quantity: Small volumes -Approach: Seek guaranteed pricing and steady volume Routine: hardware or toilet trees -Suppliers: Common and low risk -PurchaseQuantity: Small volumes -Approach: Transactional approach, don't waste too much time on these.

What aspects of supply chain design may influence risk?

Globalized supply chain: -Longer lead times -Different regulations -Reliance on international transportation Outsourcing: -Less quality control -Possible subcontracting -Communications problems Clockspeeds: -Faster product lifecycle -Competition for supplier capacity -Shifting industry standards Customer Demands: -Customization leads to specialized inventory -Changing quantity makes demand planning guesswork Lean Production and JIT: -Less buffer inventory -More vulnerable to lead time variability

How does Porter's Five Forces model fit in category analysis? a. What do Porter's Five Forces and Strategic Sourcing Matrix have in common?

Threat of New Entry: •Time and cost of entry •Specialist knowledge •Economies of scale •Cost of advantages •Technology protection •Barriers to entry Competitive Rivalry: •Number of competitors •Quality differences •Other differences •Switching costs •Customer loyalty •Costs of leaving the market Supplier Power: •Number of suppliers •Size of suppliers •Uniqueness of service •Your ability to substitute •Cost of changing Threat of Substitution: •Substitute performance •Cost of change Buyer Power: •Number of customers •Size of each order •Difference between competitors •Price sensitivity •Ability to Substitute •Cost of changing

How does purchasing collaborate with... a. Operations? b. R&D? c. Sales & Marketing? d. Inventory?

a.) Avoid breakdowns or delivery failures.•To avoid unnecessary changes•Find reliable suppliers b.)Provide information on technology•Find suppliers with the right components•Ensure IP protection c.)Ensure timely delivery to customers•Find innovative suppliers with products that customers want d.)Minimize stockouts(quantity, quality, delivery)•Minimize overstock

What different powers may purchasing exercise to inspire: a. Commitment b. Compliance c. Resistance?

a.)-Attraction power: ability to influence others because they like and respect you -Expert power: ability to influence others through expertise, either factual or reputed b.) -Legitimate/status power: ability to influence others because of your position in a company -Reward power: ability to influence because of rewards- monetary, psychological, political c.) coercive power: ability to influence through punishment

What type of suppliers do not require inspection for each order?

dock-to-stock suppliers