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