Supply Chain- Exam 2
Inventory Turnover
# of times the company sold through inv in a given time period
What is a Purchase Order (PO)?
-A commercial document that is the official offer issued by a buyer to a seller to acquire goods/services -Becomes a legally binding contract when ACCEPTED by the supplier -Used to control the purchasing of products and services from external suppliers
More info on Step 12: Analysis
-Measurements of the efficiency and accuracy of the procurement process -Specific PO data and info captured and used during periodic supplier performance meetings
Components of TCO
-Pre-Transaction costs -transaction costs -post-transaction costs
3 Parts of Procurement
-Purchasing Management -Strategic Sourcing -Supplier Relationship Management
What processes does e-procurement tools typically automate all or part of?
-Solicitation tools such as RFI, RFP, RFQ -Execution and analysis -Reverse auction capabilities
More info on Step 6: Supplier confirmation of the Purchase Order
-Supplier formally agrees to supply items per the specifications described on the Purchase Order -The PO becomes a legally binding contract between the Buyer and Supplier for the items specified -PO becomes a binding contract only when accepted and confirmed by the supplier
More info on Step 9: Invoice and Reconciliation
-Supplier prepares an invoice for the items ordered. Either comes with the items or is separate -Invoice may need to be reconciled to the PO and goods receipt before payment is made, aka 3-way match -3-way match: Invoice, PO, Goods Receipt must all match
Advantages of E-Procurement system
-Time savings -Cost savings -Accuracy -Real Time -Management -Mobility -Trackability -Benefits to the suppliers
12 Steps of Purchasing Process
1) A need is identified and a Purchase Requisition is issued 2) Obtain authorization as necessary 3) Identify and evaluate potential suppliers 4) Make supplier selection 5) Purchase Order (PO) is a created and delivered to the supplier 6) Supplier confirmation of the Purchase Order 7) Fulfillment 8) Receipt of Goods 9) Invoice and Reconciliation 10) Payment 11) Close out the Purchase Order 12) Analysis
3 Ways that Purchasing Contributes to its Objectives
1) Actively seeking reliable suppliers 2) Working with the expertise of strategic suppliers to improve quality and materials 3) Involving suppliers and purchasing personnel in new product design and development efforts
3 Parts of the basic e-procurement prcess
1) An electronic issue, collection, and/or analysis of bids 2) An execution and analysis 3) An award of business via reverse auction Additional for high $ purchases: -Authorization of purchase order -Reconciliation of invoice
3 Primary Objectives of Purchasing
1) Ensure an uninterrupted flow of materials and services at the lowest total cost 2) Improve the quality of the finished goods produced 3) Optimize customer satisfaction
More info on Step 4: Make supplier selection
1) If Buyer knows the supplier they need, move to step 3 2) If not, a competitive bidding process can be initiated through the use of a Request for Proposal (RFP) or a Request for Quotation (RFQ). 3) Supplier is selected from RFP/RFQ bids received based on criteria determined by the Buyer
4 Elements of cost (TCO)
1) Quality 2) Service 3) Delivery 4) Price (QSDP)
Other factors of TCO
1) Quantity discounts 2) Cash discounts 3) Value-added services 4) Administrative expenses 5) Poor supplier quality
ROA Effect on Cost Reduction/Sales Increase
10% Cost Reduction results in a higher ROA than a 10% sales increase
More info on Step 2: Obtain authorization as necessary
A Purchase Requisition may be routed to an authorized approver depending on the type of material or service being requested and/or the dollar value of the request
Profit-Leverage Effect
A decrease in purchasing expenditures directly increases profits before taxes, assuming no decrease in quality or purchasing total cost
Request for Proposal (RFP)
A detailed capabilities document used to determine a supplier's capability and interest in the production of a product/service
Request for Quote (RFQ)
A document used to solicit bids from interested and qualified suppliers for g/s that the org needs to obtain
Which of the following would be a good reason to outsource (buy) versus make an item? A) To utilize existing capacity within a company's own firm B) No competent supplier presently produces the needed item C) To have more direct control over the design and production of an end item D) A firm lacks the technology or expertise to produce an item
A firm lacks the technology or expertise to produce an item
Accuracy
A reduction in errors; A virtual elimination of manual paperwork and paperwork handling
Time savings
A reduction in the time between need recognition and the release and receipt of an order
Request for Information (RFI)
A standard business process whose purpose is to collect written info about the capabilities of various suppliers
Mobility
Access virtually anywhere
What is the main insight of TCO
Acquisition cost is often a very small portion of the TOC
Pre-transaction costs
Activities carried out prior to the actual buy and sell transaction: -identifying source -qualifying sources -certifying sources -supplier database update -training/education of supplier
What is Purchase Requisition?
An internal document that defines the need for goods/services
The sourcing strategies include: maintaining safety and/or strategic stocks, developing contingency plans, strengthening relationships, and searching for alternatives, are appropriate for which item category? A) Bottleneck Items B) Leverage items C) Strategic Items D) Non-critical Items
Bottleneck Items
Inventory Turnover formula
COGS / Avg Inv
Which Statistical Tool of Six Sigma is used to determine the frequency of a specific problem? A) Flow Diagram B) Pareto Chart C) Cause and Effect Diagram D) Check Sheet
Check Sheet
What is the term that is often used for the acquisition of services? A) Purchasing B) Contracting C) Requisitioning D) Ordering
Contracting
Poor supplier quality
Costs related to defective finished goods must also be considered. Examples: -Scrap -Rework -Recycling -Repair costs -Warranty admin -Recovery of materials
Benefits to suppliers
Customer order can be received/confirmed faster by the supplier and receipts and invoices can be processed faster by buyer, facilitating the supplier's receipt of revenue
What is Supply Management?
Deals with all acquisition activities beyond the simple purchase transaction
Benefits derived from implementing an e-procurement system include all of the following EXCEPT: a) Time savings b) Real time access c) Decentralizing purchasing d) Trackability
Decentralizing purchasing
An outsourcing program can result in all of the following positive outcomes, except? A) Cost reduction B) Reducing staffing levels C) Gains in manufacturing flexibility D) Decreased need for supplier management
Decreased need for supplier management
The best supplier candidates for Supplier Relationship Management (SRM) include all of the following EXCEPT? A) Suppliers that provide lesser quantities of a crucial product/service B) Preferred Suppliers C) Developmental suppliers that need to make improvements D) Suppliers that provide high volumes of products or services
Developmental suppliers that need to make improvements
Administrative expensives
Expenses associated with procurement activity, such as: -Screening potential suppliers -Negotiation -Order preparation -Order transmission
T/F: A purchase order is legally binding once issued by the buyer.
False
T/F: A strong supplier partnership requires that both buyer and supplier adopt a strong tactical perspective
False
T/F: An effective supplier certification program may increase the time spent on incoming inspections
False
T/F: Award-winning suppliers serve as role models for other suppliers and may therefore be exempt from audits and certification programs
False
T/F: ISO 14000 is a widely accepted management and quality certification standard
False
T/F: LEAN production is an operating philosophy or mindset that attempts to minimize the impact of supply variability and flaws in forecasting through the use of safety stock inventories.
False
T/F: The Profit-Leverage Effect stated that a decrease in purchasing expenditures will directly decrease profit
False
T/F: The concept of Distributive Negotiations refers to both sides work together to maximize the outcome or create a win-win result.
False
T/F: 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
T/F: While paperless transactions are now possible through e-procurement and Web-based services, these would NOT be considered sustainable business practices
False
Which one of the following is NOT a quality tool of Six Sigma? A) Check Sheets B) Hysterical Charts C) Cause and Effect Diagrams D) Flow Diagrams
Hysterical Charts
Real time
Improved communication within company and with suppliers
Which of the following is NOT one of the primary goals of Purchasing? a) Optimize customer satisfaction b) Ensure the uninterrupted flow of materials and services at the lowest cost c) Improve the quality of the finished goods produced d) Increase the supplier base
Increase the supplier base
Inventory Turnover Effecft
Increased inv turnovers indicate optimal utilization of space and inv levels, increase sales, avoidance of inv obsolesce. -Inv is an asset but it is also capital tied up (liability) -high the number= good
Benefits of implementing an effective supplier certification program include all of the following EXCEPT? A) Increasing the supplier base B) Recognizing excellence C) Reducing time spent on incoming inspections D) Building long-term relationships
Increasing the supplier base
The keys to developing successful supply partnerships include all of the following EXCEPT: A) Mutual Benefits and Needs B) Personal Relationships C) Performance Metrics D) Individualized Objectives
Individualized Objectives
Industrial Buyers
Individuals within an organization who purchase raw materials for conversion into products, and/or purchase services, capital equipment, and MRO supplies
LEAN manufacturing emphasizes all of the following EXCEPT? A) Large batch sizes B) Reduction of waste C) Continuous improvement D) Synchronization of material flows
Large batch sizes
Cost savings
Lower overhead costs in the purchasing area
More info on Step 3: Identify and evaluate potential suppliers
May be determined from a list of approved suppliers -Alternatively, a Request for Info (RFI) may be used to collect info from potential suppliers on their capabilities in supplying the material or service
What company originated the concept of Six Sigma? A) Motorola B) IBM C) Toyota D) Ford
Motorola
More info on Step 8: Receipt of Goods
Once items arrived @ location, buyer will conduct some form of receipt process where the items are checked to ensure that they conform to the PO, including quality and quantity -Confirmation of receipt may be sent to supplier
Significance of Purchase Price
Only one part of the total cost of ownership (TCO)
All of the following are included in the eight wastes EXCEPT? A) Extra-processing B) Overspending C) Overproducing D) Waiting
Overspending
Which quality guru (i.e., expert) is credited with the concept that 'quality is free; defects are costly'? A) Joseph Juran B) Philip Crosby C) Shigeo Shingo D) W. Edwards Demming
Philip Crosby
The process commonly utilized in continuous improvement is known as? A) Plan, Do, Check, Act B) Ready, Aim, Fire C) Plan, Source, Make, Deliver D) Specific, Measurable, Achievable, Relevant, Time-Orientated (SMART)
Plan, Do, Check
More info on Step 10: Payment
Processed using an appropriate payment method assuming the items is received and meets criteria on PO
ROA Formula
Profit before tax / Assets
The process of how goods and services are ordered from an external third party -Described as the transactional function of procurement for goods/services -Represents the function of, and the responsibility for, acquiring materials, supplies, and services for an organization
Purchasing
Management
Purchasing personnel spend less time on processing of purchase orders and invoices, and more time on strategic value-adding purchasing activities
Trackability
Real-time status tracking
More info on Step 1: A need is identified and a Purchase is issued
Request for goods/services submitted to the Procurement/Purchasing org for action
Which of the following is NOT one of the "Seven Tools of Quality Control" A) Histograms B) Scatter Diagrams C) Control Charts D) Small Bath Scheduling
Small Batch Scheduling
Managing a firm's external resources in ways that support the long-term goals of the firm can be referred to as? A) Hybrid sourcing B) Functional sourcing C) Strategic Sourcing D) Ethical Sourcing
Strategic sourcing
Total Cost of Ownership (TCO)
Sum of all costs associated with every activity in the supply stream of a product
Formula for TCO
Sum of: quality, service, delivery, and price
An organization's process for evaluating the quality systems of key suppliers in an effort to eliminate incoming inspections can be referred to as? A) Supplier Certification B) Supplier Inspection C) Supply Management D) Quality Systems Certification
Supplier Certification
Contracting
The acquisition of services
What is 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
e-Procurement
The business-to-business (B2B) purchase and sale of supplies and services over the Internet
What is Procurement?
The process of selecting and vetting suppliers, negotiating contracts, establishing payment terms, and the actual purchasing of goods/services
More info on Step 7: Filfillment
The supplier deliver the items to the buying org as per the PO
What is e-procurement?
The term used to describe the automation, through web-enabled tools, of the non-strategic and transactional activities that would consume the majority of a buyer's time
More info on Step 5: Purchase Order (PO) is created and delivered to the supplier
To inform the supplier of the intent to purchase -PO= Buyer's formal offer to the supplier to obtain the items -To identify the item(s) to be procured, quantity required, delivery location, price to be paid, requested delivery dates, and terms and conditions that relate to the order
What is the sum of all costs associated with every activity in the supply stream of a product referred to as? A) Total Cost of Acqusition B) Total Cost of Ownership C) Purchase Requisition Cost D) Total Procurement Cost
Total cost of Ownership
T/F: "Rationalizing the supplier base" would mean that the purchasing firm is attempting to REDUCE the number of suppliers in its supplier network
True
T/F: A Supplier Code of Conduct is intended to inform suppliers of ethical sourcing expectations and is typically a condition for becoming an approved supplier.
True
T/F: Duties, taxes, or customs imposed by the host country for imported or exported goods, are known as Tariffs
True
T/F: Outsourcing allows a firm to concentrate on core capabilities and reduce staffing levels
True
T/F: Pain and Gain Share contract provisions are associated with supplier rewards and recognition programs.
True
T/F: Successful supplier relationships involve equal decision-making control between both the buyer and the supplier
True
T/F: The primary design objective of a LEAN layout is to reduce wasted movements of workers and/or materials.
True
The following term refers to an act that creates the greatest good for the greatest # of people. A) Rights and duties B) Utilitarianism C) Social sustainability D) Rights and duties
Utilitarianism
Which of the following is TRUE? A) VMI stands for Vertically Managed Inventory B) 3PL stands for 3rd Party Leverage C) VMI stands for Vendor-Managed Inventory D) 3PL stands for Three Point Logisitics
VMI stands for Vendor-Managed Inventory
Which one of the following is among the most important elements of the LEAN manufacturing philosophy? A)Large inventories and large batch sizes B) Waste reduction and continuous improvement C) Quality inspections and a standardized product line D) Fully automated assembly lines and a large supplier base
Waste reduction and continuous imrpovement
Merchants
Wholesalers and retailers who purchase for resale
Profit-leverage effect on Cost Reduction/Sales Increase
a 10% Cost Reduction generates more PROFIT than a 10% Sales Increase
Return on Assets (ROA) Effect
high ROA indicates managerial prowess in generating profits with lower spending
More info on Step 11: Close out the Purchase Order
if PO has been received complete, and criteria is met, PO should be closed out in the purchasing system
Automation provides ________ _________ of all purchases
increase visibility
