Supply Chain Chapter 5
TCO
1) pre-transaction costs 2) transaction costs 3) post-transaction costs
12 steps to purchasing
1) request for goods and services - submitted by purchasing dept. 2) purchase requisition sent to someone to authorize 3) identify and evaluate potential suppliers - RFI used to collect this info. 4) select a suppliern- use RFProposal if new supplier - use RFQuotation if have used them before, but don't know who's gonna give you the best deal 5) purchase order created and delivered to supplier 6) CONFIRMATION OF PURCHASE ORDER THEN LEGALLY BINDING 7) fulfillment 8) receipt of goods - check all items for quality and quantity 9) invoice and reconciliation - confirmation they received it 10) payment - is everything matches, pay 11) close out purchase order - important step which some companies miss (if receive 99 and ordered 100, don't close it yet) 12) analysis
Which of the following would be a good reason to outsource (buy) versus make an item?
A firm lacks the technology or expertise to produce an item
What is the term that is often used for the acquisition of services?
Contracting
Benefits derived from implementing an e-procurement system include all of the following EXCEPT:
Decentralizing Purchasing
A purchase order is legally binding once issued by the buyer.
FALSE
Which of the following is NOT one of the primary goals of Purchasing?
Increase the supplier base
Quiz
Questions
Duties, taxes, or customs imposed by the host country for imported or exported goods, are known as Tariffs
TRUE
The sum of all costs associated with every activity in the supply stream of a product, is referred to as?
Total Cost of Ownership
bid bond
a debt secured by a bidder for the purpose of providing a guarantee that the successful bidder will accept the contract once awarded
purchase requisition
a document that defines the need for goods and/or services - an INTERNAL DOCUMENT DOES NOT MAKE IT CONTRACTUAL
bid
a tender, proposal, or quotation in response to a solicitation from a contracting authority
contracting
acquisition of services ex: ongoing services for 1, 2, 5 years
competitive bidding
bids from competing suppliers for the RIGHT TO SUPPLY specified materials or services are requested
trading companies
buy products in one country and sell them in diff. countries where they have their own distribution network they mostly work with high production volume products such as raw materials, chemicals
transaction costs
carried out as part of the actual buy and sell transaction ex: delivery confirmation, price negotiation, taxes, inspection
post-transaction costs
carried out following the actual buy and sell transaction ex: returns from customer, maintenance, repair
request for information (RFI)
collect written info. about capabilities of various suppliers DONT KNOW EXACTLY WHAT YOU WANT YET - GENERAL
forward vertical integration
company acquiring one or more of their CUSTOMERS ex: manufacturer buys the wholesaler
performance bond
debt secured by a bidder for the purpose of providing a guarantee that the work will be on time and meet specifications
profit-leverage effect
decrease in costs directly increases profits before taxes
request for proposal (RFP)
detailed capabilities document to determine a supplier's CAPABILITY AND INTEREST in customized product or service. HAVE A SPECIFIC ITEM YOU WANT TO BUY IN MIND
tariffs
duties, taxes, or customs imposed by the host country for imported or exported goods
quantity discounts
encourage buyers to purchase larger quantities
bonds
incentive to ensure that the successful bidder will fulfill the contract awarded
decentralized purchasing
individual, local purchasing dept., such as plant level, making their own purchasing decisions
industrial buyers
individuals within an org. who purchase raw materials for CONVERSION into products, purchase services (financial law), capital equip, and MRO supplies ON THE TEST NOT JUST RAW MATERIALS
ISM
institute of supply management
countertrade
international trade by exchange of goods rather than by currency
purchase order (PO)
is a commercial document. It is the official offer issued by a buyer to a seller to acquire goods or services.
make vs. buy is a strategic decision
make - produce internally buy - from supplier, exterenal factors- costs, available capacity, quality, skill requirements, volume, timing
chief procurement officer (CPO)
many companies have this officer as part of their executive leadership team
cash discounts
offered for prompt payment of invoices - 2% off if paid in 30 days
gov. purchases
purchases and expenditures made in private sector by all levels of gov.
non-profit purchases
purchases and expenditures made in the private sector by all types of non-profit organizations
centralized purchasing
purchasing dept. at the firm's corporate office make all the purchasing decisions
backward vertical integration
refers to a company acquiring one or more of their sSUPPLIERS ex: manufacturer buying key supplier of critical material
in-sourcing
reverting to in-house production when external quality delivery, and services do not meet expectations
administrative expenses
screening potential suppliers, negotiation, order prep, and order transaction
co-sourcing
sharing of a process or function b/t internal staff and an external provider using dedicated staff at an external provider that works exclusively under your control
total cost of ownership (TCO)
sum of all costs associated with every activity of supply stream 4 elements: quality service delivery price (QSDP)
E-procurement
the business-to-business purchase and sale of supplies and services over the INTERNET may not work well for complex negotiations
Procurement
the process of selecting and vetting suppliers, negotiating contrasts, establishing payment terms, and the actual purchasing of goods and services Part of Source in PSMDRE 1) purchasing management 2) strategic sourcing 3) supplier relationship management
merchants
wholesalers and retailers who purchase for RESALE ex: clothing store
benefits w outsourcing
- concentrate on core capabilities - reduce staffing levels - accelerate re engineering efforts - reduce internal management problems - improve manufacturing flexibility
reasons for global sourcing
- exploit global efficiencies - improve quality, cost and delivery performance
advantages of decentralization
- knowledge of local requirements - local sourcing - less bureaucracy
advantages of centralized pruchasing
- leverage from concentrated volumes - control - avoiding duplication - specialization - no competition within untis
risks with outsourcing
- loss of control - inc. reliance on suppliers - inc. need for supplier management
reasons for buying / outsourcing
- non-strategic item - cost advantage - insufficient capacity - temporary capacity constraints ("extended workbench" - using external in times of overload along with internal) - lack of expertise - quality - multi sourcing strategy - inventory considerations - brand strategy
reasons for making
- protect proprietary technology - no competent supplier - overall lower cost - better quality control - use existing idle capacity - better control of lead time - control of transportation and warehousing costs
The Profit-Leverage Effect states that a decrease in purchasing expenditures will directly decrease profit
FALSE
The purchasing function is one of the most value-enhancing functions in any organization, and therefore, it is not necessary to periodically monitor the purchasing function's performance against a set of standards or industry benchmarks.
FALSE
Outsourcing allows a firm to concentrate on core capabilities and reduce staffing levels
TRUE
inventory turnover effect
a high turnover rate is beneficial b/c it means the company is generating sales efficiently to sell inventory the number of times a company sold through inventory in a given period low turnover rate = buying too much or little and have to throw out excess
supply management
a newer term that encompasses all acquisition activities beyond the simple purchase transaction
import merchants
a person or company engaged in the purchase and sale of imported commodities for a profit they buy and take title to the goods being imported and then sell the goods domestically
a bid
a tender, proposal, or quotation submitted in response to a solicitation from a contracting authority sealed bid - enclosed in a sealed envelope and submitted in response to an invitation to a bid
pre-transaction costs
activities carried out prior to the actual buy and sell transaction ex: certifying sources
import brokers
agents licensed by the governmental regulatory authority to conduct business on behalf of imports, for a service fee they take the burden of filling out import paperwork, clearing products through customs
payment bond
debt secured by a bidder for the purpose of providing protection against 3rd part liens not fulfilled by the bidder
return on assets (ROA) effect
decrease in spending on expenditures increases the return on those assets higher ROA than sales increase when reduce costs
poor supplier quality
defective goods, scrap, rework, repair costs
other factors in make vs. buy
quantitative - incremental costs of making or purchasing the item (availability of manufacturing facility, resources needed) qualitative - control over quality, reliability, reputation of supplier
non-tariff barriers
quotas, licensing agreements, embargos, laws and regulations imposed on imports and exports
request for quote (RFQ)
solicit bids from interested and qualified suppliers for goods or services you need know they have exactly what you want - ask for quantity, how they're going to supply and what cost
value-added services
special delivery, special packaging, promotional displays
Purchasing
the action of obtaining merchandise, capital equipment, raw materials, services, or maintenance, repair and operating (MRO) supplies in exchange for money, or its equivalent - transactional function of procurement - also used in business to represent the function of, and the responsibility for, acquiring materials, supplies, and services for an organization - purchasing department can be a separate dept. of part of scm dept. GOAL - uninterrupted flow of materials and services at lowest total cost - improve quality - satisfy customer
