Procurement Midterm Exam

JIT

"Just In Time" Providing the exact quantity needed at the precise moment it is required

Process Efficiency tools

- ERP systems: suite of apps using a common data management system that integrates functions within an org. and connects to supply chain stakeholders - Cloud Computing : Private: operated for single org. internally managed or 3rd party Public: operated over network for general public Community: operated for specific orgs. internally managed or 3rd party Hybrid: combination of private, community, and/or public Elements: SaaS: Software as a Service, PaaS: Platform as a Service, IaaS: Infrastructure as a Service - Electronic Procurement Systems: app software package that allows requisitioning, authorizing, ordering, receiving, invoicing, and paying for goods/services through the internet - EDI: Electronic Data Interchange: allows computer-to-computer exchange of business docs. - Marketplaces: Electronic / Online Catalogs - Online Reverse Auctions: Online, realtime, dynamic declining price auction for goods and services between one buyer and a group of prequalified suppliers. Supplier with the lowest bid or lowest total cost bid is usually awarded the business. TYPES: Open Offer Auctions: enter offers until time expires Private Offer: Buyer offers Price and Quantity, buyer selects supplier and posts status Posted Price: Buyer posts price and accept first supplier to meet price - RFID: Radio Frequency Id: chip and antenna that emits a signal giving info about shipping containers and its individual contents

Five major costs of quality categories

- Prevention costs - Appraisal costs - Internal failure costs -External failure costs - Morale costs

Four Stages of quality function deployment (QFD)

- Product Planning: design req - Parts deployment: determine part types - Process planning: determine manufacturing req - Production Planning: determine production req

Reasons to Make instead of Buy

- Quantities are too small or no supplier is interested - Close coordination of supply and demand - lower cost - preserve technological secrets - reduce risk - reduce supply dependency - distance to supplier is too great - forecasts of shortage in near future

e-Procurement Advantages

- Time Savings - Cost Savings - Accuracy - Real Time - Mobility - Trackability - Management - Benefits to suppliers: Access to more suppliers, Lowers Barriers to entry

Types of Logistics Costs

- Transportation - Inventory carrying costs - Administrative costs

Market Niches

-Better than Competitors - Same as Competitors -Lower than Competitors

Types of Carriers

-Common Carriers: UPS, FedEx -Contract Carriers: work under contract for a firm -Exempt Carriers: commodity or people -Private Carriers: for certain firms only

Factors complicating quantity decisions

-Forecasts: Qualitative, Quantitative -Costs - Availability - Price-volume Relationships: buying in bulk cost less - Shortages

Four MRP Lot Sizing Rules

-Lot-for-Lot (L4L) -Economic Order quantity (EOQ) - Least-total-Cost (LTC) -Lease-unit-Cost-(LUC)

Efficiency Tools that reduce transaction costs

-P-cards -Blanket - EDI, and internet based systems - Online reverse auctions - Single Sourcing ( one supplier) - Outsourcing SVP - Standardization - Batch orders - Invoiceless payments

Service Quality Evaluation

-Reliability: ability to perform promised service dependably and accurately - Responsiveness: willingness to help customers and provide prompt service - Assurance: Knowledge and courtesy of employees and their ability to inspire trust and confidence - Empathy: caring, individualized attention the firm provides to its customers -Tangibles: physical facilities, equipments and appearance of personnel

Strategy Development Process

1) Analyze the environment: identify SWOT. Understand customers, environment, industry, and competitors 2) Determine the Corporate Mission: state reason for the firm's existence and identify the value it wishes to create 3) Form a strategy: build a competitive advantage

Six Major Supply Strategy Areas

1) Assurance of Supply 2) Cost Reduction 3) Supply Chain Support 4) Environmental Change 5) Competitive Edge 6) Risk Management

Supply Options for Large Orgs.

1) Centralized: authority & responsibility for most supply related functions assigned to a central organization. 2) Hybrid: authority & responsibility shared between a central supply org. and business units, divisions, or operating plants 3) Decentralized: authority and responsibility for supply functions dispersed throughout the organization Look at print out for ADV & DISADV

Nine Goals of Supply

1) Improve org. competitive position 2) Provide an uninterrupted flow of materials, supplies, and services required to operate the organization 3) Keep inventory investment and loss at a minimum 4) Maintain and improve quality 5) Find or develop best in class suppliers 6) Standardize the items and services bought and the process used to procure them 7) Purchase required items and services at lowest total cost of ownership 8) Achieve harmonious, productive internal relationships 9) Accomplish supply objectives at the lowest possible operating costs.

Global Operations Strategies

1) International: Low local responsiveness, low cost reduction 2) Global: low local responsiveness, high cost reduction 3) Multidomestic: high local responsiveness, low cost reduction 4) Transnational: high local responsiveness, high cost reduction

Product Life Cycle

1) Introduction: best period to increase market share 2) Growth: practical to change price or quality image 3) Maturing: poor time to change image, price, quality 4) Decline: cost control critical

Eight Dimensions of Quality

1) Performance: primary function of product/service 2) Features: the "bells and whistles" 3) Reliability: The probability of failure within a specified time period 4) Durability: the life expectancy 5) Conformance: the meeting of specifications 6) Serviceability: maintainability and ease of fixing 7) Aesthetics: the look, smell, feel, and sound 8) Perceived Quality: the image in the eyes of the customer

Procurement Process

1) recognition of need 2) translation of that need into a commercially equivalent description 3) search for potential suppliers 4) selection of suitable source(s) 5) agreement on order or contract details 6) delivery of products / services 7) payment of suppliers

Capacity Requirements Planning (CRP)

CRP translates MRP material plan into required human and machine resources required by workstation and time bucket. Compares required resources by availability

Cost of Inventories

Captial costs Inventory service costs Storage space costs Inventory risk costs

Types of Demand

Dependent / Derived Demand: item is part of larger component and its use is dependent on the production schedule for the larger component Independent Demand: usage is determined directly by customer orders, Independent of production scheduling decisions

Materials Requirement Planning (MRP)

Designed for push or forecast driven systems Get the right materials to the right place at the right time Key inputs: Bill of Materials (BOM): what do we need to make one end product

Transportations

Different modes: Land, Water, Air, Radio

FOB Point

FOB = Free on Board OR Freight on Board who holds the liability of the freight? Who assumes responsibility for preparing and pursuing claims with the carrier? Who routes the freight? Overall, who is assuming all responsibility of the freight while it is in transportation in every aspect including cost, route, timing, replacement, etc.

Effective tools that optimize strategic spend

Goal: assure continuous availability at the lowest total cost of ownership. - Cross-functional sourcing team especially during need and recognition and description - Early supply and supplier involvement (ESI) - Favor Effectiveness over efficiency

Uniform Commercial Code (UCC)

Governs the purchases and sales of goods in the US, except Louisiana

Lean Thinking

Management philosophy focused on maximizing customer value while minimizing waste. focused on waste reduction from primary business function

Vender or Supplier Managed Inventory (VMI/SMI)

Merges ordering and inventory functions, relies on periodic billing procedures, requires suppliers to maintain minimum inventory, and improves inventory turnover rates

Reasons to insource

Necessity Argument: "We would prefer NOT to produce this product in house, but we don't have any other options" Opportunity Argument: " We would prefer to do this in house because it would give us a strategic competitive advantage"

Reasons to Outsource

Necessity argument: "We would prefer NOT to outsource this product or service, but we really don't have any other option" Opportunity Argument " We would prefer to outsource this product because it would give us a strategic competitive advantage."

Difference between Offshore and out source

Offshore: move part of business function to a company owned and operated facility over seas Outsource: use a different company for business function required

Issue an Rf"x"

Optional communication tool that is NOT used for a solicitation of business: RFI (request for info) Three options used for soliciting business: Request for quotation ( RFQ) Request for proposal (RFP) Request/Invitation for bid (RFB/IFB)

Inventory Costs

Ordering or purchase costs: managerial, clerical, material, telephone, mailing, fax, e-mail, accounting, transportation, inspection, and receiving costs associated with a PO Set up costs: all the purchaser and suppliers costs of setting up a production run Stockout costs: costs of not having the required parts or materials on hand when and where needed Variations in delivered costs: costs associated with purchasing in quantities or at times when prices or delivery cost are higher than at other quantities or times

Six Sigma

Prevent defects by using data to reduce variation and waste. 3.4 million defects per million opportunities focus on accuracy and quality

Role of Supply Management in Orgs

Primary Goals: 1)Ensure uninterrupted flow of raw materials at the lowest total cost 2) Improve Quality of the finished goods produced 3) Optimize customer satisfaction

Small Value Purchase Orders (SVP)

Processing costs for SVP are minimized through: 1) P-card: procurement credit card 2) Blanket: covers variety of items for repeated supply, good for MRO's and office suppliers

Role of SM: Financial Significance

Purchase Spend: the money a firm spends on goods and services. As the amount spent decreases as purchasing strategy grows, acquisition of materials and services occurs at lower cost Profit-leverage Effect: decrease in expenditure directly increases profits before taxes ROA (Return- on - Assets): high ROA indicates managerial prowess in generating profits with lower spending. Inventory Turnover Effect: how many times a firms inventory is utilized and replaced. Increased inventory turnover indicate optimal utilization of space and inventory, increases sales, avoidance of inventory obsolescence. Low Turnover = Bad sales level

Category of Needs

Resale: Resellers comprise retailers, wholesalers, distributors, agents, brokers and traders. What they can resell covers the full range of the remaining categories Raw and semi-processed materials: most of the users of the materials are converters, such as factories. This category includes commodities, agriculture, and industrial Parts, Components, and Packaging: assemblers use parts and components produced by their suppliers to create a finished product. Parts and components may be standard or specialized depending on the given situation MRO and SVP: every organization has MRO and SVP requirements. The availability of MRO suppliers is critical to maintain and continued uninterrupted operation of the office, factory, etc. Since MRO's are low in dollar value cost, SVP's are included in this category. For SVP's, assuring availability at minimum acquisition cost is a challenge Captial Assets: any requirement that accountants classify as capital, and there an investment becomes capital. Equipment, IT, real estate, construction, etc. anything that is an investment Services: intangible, nonmanufactured Other: Anything not covered in above categories such as energy and water investments. Also includes unusual and infrequent requirements.

Standardization and Simplification

Standardization: agreement on definite sizes, designs, quality, or other aspects of the product or service Simplification: reduction in the number of sizes, designs, or other aspects of the product or service - selective and commercial problem

Manual Purchasing Process Steps

Step 1) Material Requisition/ Purchase Requisition: state product, quantity, and delivery date Step 2) The Request for Quotation (RFQ): buyer identifies suppliers & issues a request for quotation for routine items (frequently bought items) OR Request for Proposal (RFP): products that have not been bought previously Step 3) The Purchase Order (PO): buyer's offer and becomes binding once accepted by the supplier. If initiated by supplier, referred to as Sales Order (SO)

e-Procurement Process

Step 1) Material users inputs Material Requisition Step 2) Material requisition submitted to buyer Step 3) Buyer assigns qualified suppliers to bid Step 4) Buyer reviews closed bids & selects supplier

Strategic vs. Nonstrategic Spend

Strategic: good or services critical to the mission of the organization Nonstrategic: non-mission critical spend. - dollar value and repetitiveness drive decisions - establish a small dollar threshold - prequalify suppliers

Need Identification Criteria

Strategic: mission critical, total spend, risk reduction, access to new tech or markets Traditional supply area: quality, quantity, delivery, price, service Additional current criteria: financial, risk, environmental, innovation, regulatory compliance, social and political factors (CSR: corporate social responsibility)

Third-party Logistics Provider (3PL)

Third party logistic and transportation providers for suppliers to outsource to. Creates opportunity for logistics/transport companies to provide more value-added services under deregulation 4PL: manages the 3PL

Insourcing and Outsourcing

Two ongoing questions for cross functional teams including supply, operations, accounting, and marketing: Which products/services are we currently buying that we should be doing in-house? Which products/services are we currently doing in-house that we should be buying from suppliers? insource: produce a product/service in house outsource: produce a product/service out of house

Strategy and Goal Alignment

Vertical Alignment: supply strategy and goals at the function or business unit level aligned with organizational strategy Horizontal Alignment: supply strategy and goals aligned with those of other functional areas

Supply Strategy Questions

What? Quality? How much? Who? When? Where? What Price? How? Why?

Total Quality Management (TQM)

a philosophy and system of management focused on long term success through customer satisfaction

Statistical Process Control (SPC)

technique that involves testing a random sample of output from a process in order to detect if nonrandom changes in the process are occurring

Safety Stock

held bec of uncertainty in supply or demand Trade off: cost of stocking out versus cost of holding inventory

Kaizen (Continuous Improvement)

relentless pursuit of product and process improvement though a series of small progressive steps. Follows a well defined and structured approach such as Plan-Do-Check-Act

Value Stream

series of steps executed the right way at the right time to create value for the customer

Enterprise Resource Planning (ERP)

software that integrates business systems and processes to combine and analyze information. Links customer orders through fulfillment processes

Classic Trade-off

the cost of carrying extra inventory vs. cost of purchasing or making more frequently End objective is to minimize total annual costs