SCM 352 (Exam 3)
Purchasing includes
-Buying goods and services -Finding the best suppliers -Assuring that suppliers perform effectively -Creating long-lasting, win-win supplier relationships acquisition of required materials, services and equipment •Internet has enabled buyers to locate foreign suppliers more easily
Joseph Juran's Quality Trilogy
1. Quality Planning 2. Quality control 3. Quality improvement
Philip Crosby's Four Absolutes of Quality
1. The definition of quality is conformance to requirements 2. The system of quality is prevention 3. The performance standard is zero 4. The measure of quality is the price of nonconformance
Modes of Transportation -1
1. Trucks (motor carriers) -Most flexible mode -Have low fixed and variable costs -Competes favorably with rail and air -Primary disadvantages are weather and traffic problems
Purchases divided into general spend categories
1.Low risk functional goods -Lots of competition, price is the primary purchasing criterion 2. Innovative goods—unique items with customized specifications, considered high risk -FEWER SUPPLIERS, HIGHER PRICES -Do you think price is the primary vendor selection criterion here?
Modes of Transportation -2
2. Rail carriers compete most favorably when the distance is long and the shipments are heavy or bulky -Tends to be relatively slow and inflexible -Shipping cost is less than air and motor carriers -Offers point-to-point pick-up and delivery -One of the trends in passenger rail transportation is the use of high-speed trains
Modes of Transportation -3
3. Air carriers -VeryExpensive shipping cost -Very fast, particularly for long distances -Cannot carry extremely heavy or bulky cargo -Best for light, high-value goods that need to travel long distances quickly
Modes of Transportation -4
4. Water Carriers -Inexpensive, slow & inflexible -Includes inland waterway, coastal, deep-sea -Inland waterway transportation is used for heavy, bulky, low-value materials (barges, ie. coal, grain) -Competes w/rail & pipeline -Water carriers are often paired w/trucks for door-to-door -Container ships carry the majority of the world´s water-transported manufactured goods
Modes of Transportation -5
5. Pipeline Carriers -Limited in variety of goods they can carry -Little maintenance once pipeline is running -Materials hauled in a liquid or gaseous state -Long-term pipeline transportation tends to be very inexpensive only haul materials that are only liquid or gas growth potential is limited
Container on Flactcar (COFC)
A formal on intermodal transportation uses containers and rail carrier flatcars that carry the containers also piggyback service Trailer-on-flatcar service
Request for Proposal (RFP)
A formal request for pricing, services and plans which is used for complex and critical purchases. typically requested from buyers who are not sure what they want.
Lower control limits
A line is three standard deviations below the mean so 99.7% of the sample plots fall inside this limit
Upper control limits
A line that is 3 standard deviations above the mean so that 99.7% of the sample plots fall inside this limit
supplier co-location
A more advanced form of VMI A full time supplier representative resides in the buying firms purchasing department holding a dual position as both bot buyer and supplier This person may also contribute to the buying firms new product development and value engineering/value analysis components during the product design phase that are unknown to the engineering or design personnel
Competitive bidding (14)
A process wherein a contract is usually award to the lowest priced bidder a responsive bid is one that conforms to the invitation to bid and responsible bid is one that is capable and willing to perform the work as specified
cloud based SRM (14)
A service offered by an SRM software supplier Customers use the supplier SRM software through an internet portal for a subscription or usage fee
Import merchant (14)
A service that buys and takes title to international goods and then resells them to the buyer
Import broker
A service that performs import transactions for a fee. Import brokers do not take title to the goods Instead ownership passes directly from the seller to the buyer
vendor managed inventory (VMI) (14)
A strategic alliance based approach to controlling inventory and reducing costs buyers provide inventory information to a key supplier including historical usage, current inventory levels, sales forecasts and upcoming promotions The supplier then takes on the responsibility and risk for planning, managing and monitoring the replenishment of inventory at the buyer's facility
Incoterms (International Commercial Terms)
A uniform set of rules created by the International Chamber of Commerce for international transactions of goods with respect to shipping costs, risks and responsibilities of the buyer, seller and shipper
counter purchase (14)
AN arrangement whereby an exporter agrees to sell goods to services to a foreign importer for currency while simultaneously agreeing to buy goods or service from that same foreign import
Key supplier relationship
AN ongoing supplier relationship that has been beneficial and two parties see a reason to work together more often and share more information also Strategic alliance
control charts (13s)
Allow managers to monitor samples of process performance
Operating characteristic curve (13s)
An S-shaped curve used to illustrate the probability of accepting a shipment as a function of the shipment's quality
Offset countertrade
An exchange for industrial goods services as a condition of a military related export commonly used in aerospace and defense sectors
DMAIC Improvement Cycle
An important element of Six sigma consists of a sequence of 5 steps necessary to drive process improvements 1. Define 2. Measure (quality is to prepare a data collection plan and use check sheets to organize the data) 3. Analyze 4. Improve 5. Control
The Malcolm Baldrige National Quality Award
Began in 1987 by U.S. Dept. of Commerce Objectives: Stimulate U.S. firms to improve product quality Recognize U.S. firms (only) for quality performance Establish guidelines so that firms can evaluate their own improvement 6 categories: mfg., service, sm. business, healthcare, gov't, and nonprofits Winners since 1987—129 U.S. winners (8 repeats) through 2019 (over 1700 have applied—about 7% win; finalists pay $10-20K for site visits and fees)
"The firm wants the most control over product design, manufacturing and labor usage" best explains what reason for producing in-house?
Better quality control
containerships
Carry the majority of the worlds water transported manufactured goods can carry more than 10,000 standard 20 equivalents containers
C charts
Control charts for attribute data that count the number of defects per unit of output
Critical to Quality (CTQ) characteristics
Customer requirements deemed to be critical to achieving customer satisfaction
Lot tolerance precent defectives (13s)
Defines the upper limit of percent defectives a consumer is willing to tolerate
Strategic Alliance Supplier Relationships
Early supplier involvement buyer can take advantage of new proprietary technologies owned by the supplier and shorten the design cycle Vendor managed inventory (VMI) buyers provide inventory information to key supplier and supplier takes on the responsibility of managing inventories at the buyer's facility Supplier co-location full-time supplier rep resides at buying firm, holding a dual position as both buyer and supplier rep
Ownership costs
Fuel + Energy costs Maintenance + repair costs Warranty costs Training costs Insurance Costs
"The firm does not want to buy additional production capacity or hire additional personnel" best explains what reason for outsourcing?
Insufficient capacity
The ISO 9000 and 14000 Families of Management Standards
International Organization for Standardization in response to market demand (ISO) located in Geneva Switzerland has > 160 member countries; began in 1947; 18000 int'l standards •The ISO 9000 and 14000 standards govern quality and environmental standards in manufacturing, respectively. •The ISO 9000 family of standards were adopted in the US by ANSI and ASQ. •Companies can get either or both ISO 9000 and 14000 certified.
transportation planning
Involves matching one or more modes of transportation with the types of items to be shipped the needs of shippers and customers and the laws governing transportation
Opportunities for a defect to occur
It is used in the DMPO calculation and refers to the maximum number of defects that can occur per unit
P cards
Low limit corporate bank cards designed to streamline the purchasing and payment process Procurement cards
Green purchasing
Making environmentally conscious decisions throughout the purchasing process, beginning with product and process design and through product disposal
Purchase spend
Money the firm spends on goods and services
Functional goods (14)
Noncritical low risk goods such as office supplies, which are highly standardized and easily substituted and thus can be easily and cheaply purchased
Demings 14 points
Premise - The managers should be responsible for the organization's problems only management can fix problems through application of the right tools, resources, encouragement, commitment and cultural change 1. Create constancy of purpose for improvement of product and service 2. Adopt the new philosophy 3. Cease dependence on mass inspection 4. End the practice of awarding business on the basis of price tag alone 5. Constantly improve the production and service system 6. Institute training 7. Adopt and institute leadership 8. Drive out fear 9. Breakdown barriers between departments 10. Eliminate Slogans, Exhortations, and targets for the workforce 11. Eliminate numerical quotas for workers and managers 12. Remove barriers that rob people of pride of workmanship 13. Encourage education and self-improvement for everyone 14. Take action to accomplish the transformation
Pareto Chart
Premise of the Pareto Principle refers to Juran's thinking Twenty percent of something is responsible for 80% of the results Characteristic of Pareto charts They present problems from most severe to least severe show the magnitude of problems from biggest to smallest
Spend Categories
Purchases are commonly divided into categories with common characteristics such as raw materials, customized items, standardized items, and services, and then each of these general categories may be further subdivided.
E purchasing
Purchasing goods and service over the internet E-procurement
Supply base rationalization
Reducing purchase from marginal or poor performing suppliers while increasing purchases from more desirable top performing suppliers
End of life costs
Salvage value Disposal Costs
Analytic SRM
Software that allows the company to analyze the firm's supply base provides questions With which suppliers should the company develop long term relationships? Which suppliers would make the company more profitable? Analytic SRM enables long term supply base planning
Transactional SRM
Software that enables an organization to track supplier interactions such as order planning order payments and returns tends to focus on short term reporting and is event driven What did we buy yesterday? What supplier did we buy from? What was the cost of the purchase?
Developing the Sourcing Strategy
Sourcing strategy—a plan for managing the supply of purchased items •Reduce the size of the firm's supply base •Devise a program to further develop some current suppliers Implement a supplier certification program linked to spend analysis and goals and ties to corporate and supply chain strategies
Procurement
Specifications development, value analysis, supplier market research, negotiation, buying activities contract administration, inventory control, traffic, receiving and stores
Statistical quality control (SQC)
Statistical Process Control (SPC) -After problem is identified, analyzed, improved, and deemed to be under control: •More performance data is collected •Control charts are created •Operators collect and plot sample measurements in a continuous fashion (hourly, daily, weekly) •Corrective steps are taken quickly if the control charts indicate the start of an out-of-control situation these activities allow workers to take corrective steps quickly if the control charts indicate the start of an out of control situation
Acquisition Costs
Supplier visits and product assessment costs Purchase price + taxes + financing costs Transportation costs
Logistics Sustainability
The efforts of transportation companies to reduce carbon emission and improve supply-chain efficiencies and environmental performance
Sourcing
The entire purchasing process/cycle writing purchase specifications, searching for and selecting suppliers, negotiating the purchase price, and evaluating a supplier's performance
Acceptable quality level
The percentage of defects the consumer is willing to accept
The Make-or-Buy Break-Even Analysis
To calculate the break-even point, set the total cost of making equal to the total cost of buying: Make cost = Buy cost Fm + Vm(x) = Fb + Vb(x) where: Fm = Manufacturing fixed cost Fb = Buying fixed cost Vm = Manufacturing variable cost/unit Vb = Buying variable cost/unit x = Units manufactured or purchased
Soliciting and Evaluating Bids
Total cost of ownership (TCO)—common method for comparing competing price quotes TCO = NPV(salvage value) - purchase cost - NPV(operating + maint. costs) Where: NPV factors are calculated as: (1+d)-Year with d = annual discount rate
Truckload (TL) Carriers
Trucks that move shipments taking up an entire truckload
Natural Variations
Uncontrollable process variations such as humidity (weather conditions) highway traffic (driving time)
innovative goods
Unique items with customized specifications that are considered to be high risk and high cost for the buying firm
"The firm wants to avoid the layoff of skilled workers" best explains what reason for producing in-house?
Use of idle capacity
Spend Management
Use of smart purchasing practices to reduce purchase spend
Supplier scorecard
Used by buyers to track supplier performance
Request for quote (RFQ)
Used for relatively small purchases purchasing personnel send an inquiry form to one or more potential suppliers
Control limits (13s)
Used in control charts based on an assumption that the sampling distribution is normal and that the control limits are typically 3.0 standard deviations from the population mean (contains 99.73% of sampling)
Lean warehousing
Using techniques that move items more quickly through inbound and outbound warehouses and distribution centers
Consolidation warehouses
Warehouses that collect large numbers of LTL shipments from nearby suppliers and then consolidate and transport the items in TL quantities to a manufacturing facility located at some distance from the warehouse
Location Analysis Techniques
Weighted-Factor Rating Technique steps: analysis method can be used to compare the attractiveness of potential manufacturing or service locations along a number of quantitative and qualitative dimensions -Identify all factors considered important to location decision -Assign a weight to each factor (weights sum to 1.0) -Assign a performance score (0-100) to each factor, for each location considered -Multiply each factor score by its weight, and sum the weighted scores for each potential location -Select the location with the highest total weighted score
Type 2 error
When consumer's risk occurs in acceptance sampling
Attribute Data
Yes/no or pass/fail process data that indicate the presence of some attribute such as color satisfaction workability beauty whether or not a car was painted the right color
purchasing cycle
a 6 step process the first three steps involve preparing for the acquisition of goods and services and are generally done together to assess the current situation the final steps involve the actual acquisition of goods and services
reverse auctions (14)
a bidding process controlled by the buyer wherein all potential bidders (suppliers) are prequalified before the purchase requirements are released and the bidding begins
Supplier Relationship Management (SRM)
a broad suite of capabilities that facilitate collaboration, sourcing, transaction execution and performance monitoring between an organization and its trading partners
Supplier Certification Programs
a formal process for approving a supplier often takes place before a supplier is allowed to quote prices or receive an order
Process capability
a measure of the ability of a process to consistently produce a product or service within design specifications shows whether the process mean has shifted away from the design target and is off center
World Trade organization
a nonprofit organization based in Geneva, Swiss It helps to negotiate and enforce regional trade agreements goal is to ensure that producers, importers and exporters can conduct trade smoothly
Defects per million opportunities (DPMO)
a standard performance metric used in Six Sigma
The Make-or-Buy Decision
a strategic decision regarding whether the firm will purchase, make in house or do combination Outsourcing—buying goods and services and ceasing to make them in-house Insourcing, backsourcing, and re-shoring— using internal resources to make goods and services that previously were outsourced Nearshoring—the use of suppliers near or in the buyer's home country Co-sourcing—continue making some required units in-house while outsourcing the rest to suppliers
Modes of transportation
air, rail, truck , water and pipeline carriers
Check Sheet
allow users to determine specific problems and their frequencies Managers make a list of potential problem areas based on their observations direct employees to keep counts of each problem occurrence for a period
Flow Diagram
also called process maps a necessary first step when evaluating any manufacturing or service process rectangles - process action elements Ovals - wait periods benefits helps evaluate wait times It can help identify potential problems It can help identify if a firm has excess inventory
root cause analysis
brainstorming the potential causes for a problem within the 4 Ms Each branch on one of the four diagonals represents one potential cause
Ethical Sourcing
bring positive social change through organizational buying behaviors includes promoting diversity by intentionally buying from small firms, ethnic minority businesses and women owned enterprises sourcing from firms with good labor treatment or environmental protection reputations
Total Cost of Ownership (TCO)
common method for comparing competing price quotes This is a projected cost estimate that includes the initial acquisition costs, the estimated lifetime operating and maintenance costs and the end of life salvage and disposition costs
Common carriers
companies that transport goods or passengers on regular routes at set rates
Co-sourcing
continuing to make some required units in house while outsourcing the rest to suppliers
Variable data
continuous process data such as weight time length the time to serve a customer
Location Decisions
decisions that involve the market to be served the potential locations available to serve the market
Measurement Variations
either natural variations or assignable variations. When only the natural variations are present process is in statistical control
Barter
exchange of goods or service without invoking currency
risk pooling
explains the relationship between the number of warehouses, system inventories and customers service when the market demand is random it is very likely that higher than average demand from some customers will be offset by lower than average demand from other customers
R (range)
for variable data it is the difference between the largest and the smallest measurement in one sample
R bar
for variable data it is the center line for the R chart
R chart (13s)
for variable data it is used to track sample ranges or the variation of the measurements within each sample
x bar chart (13s)
for variable data used to track the central tendency of sample means
Cause and effect diagram
fours M's—material, machine, methods, and manpower they are used in the brainstorming the causes of the problem 4 diagonals - potential group of causes also Fishbone diagrams Ishikawa diagrams
Centroid Method
graphically finds a central location that tends to minimize the total transportation costs between the proposed facility and any number of markets the proposed facility will serve assumes transportation costs vary directly with distance and no shipping costs are considered
center of gravity technique
graphically finds a central location that tends to minimize the total transportation costs between the proposed facility will serve
Statement of Work
in response to a request for a price quote a supplier often attaches this document describing exactly what will be done and how
Using and Constructing P Chart (Attribute Data)
monitor the percent defective in each sample -where P ̅ is the mean percent defective -k is the number of samples -Pi is the percent defective in the ith sample -i is a specific sample The upper and lower control limits for the P chart are: UCLP = P ̅ + zσP and LCLP = P ̅ - zσP, - where z is the number of standard deviations and σP is the standard deviation of the sampling distribution.
yield management
offering the right service to customers at the right time for the right price revenue management
e marketplace
online marketplace where buyers and sellers meet to trade goods, services and information
Coal Slurry
pulverized coal particles suspended in water
Commercial buying - 14
purchasing goods and serviced for business purposes
global sourcing
purchasing items internationally
Empty Miles
refers to trucks returning from their deliveries
Verbal Quotas
requested for low cost noncritical purchases buyer selects a supplier and verbal agreement is made
Request for Information (RFI)
requested to collect information on price product design timing and other forms of interest
Invitation to bid (IFB)
similar to RFQ can entail high costs and complex services a number of suppliers will be asked to bid
backsourcing
taking back in house an outsourced item or function
Assignable Variations
that can be traced to a specific "fixable cause" are created by causes that can be identified and eliminated and this the objective of statistical process control
Supply base (14)
the list of suppliers the firm is currently using
Logistics
the movement and storage of raw materials, WIP, and finished goods •The delivery process creates customer goodwill Logistics management combines warehouse location planning, transportation management, and product returns management with the goal of meeting customer service requirements at the lowest possible cost
transportation security
the safeguard of transportation systems to ensure safe travels for general public and the safe and lawful transport of goods
national competitiveness
the set of institutions, policies and factors that determine the level of productivity of a country in turn sets the level of prosperity that can be earned by an economy
Deep sea transportation (15)
the use of oil supertankers and containerships
Foreign trade zones
to encourage trade, governments establish areas where parts and materials can be imported duty-free as long as the imports are used as inputs to local production of goods that are eventually exported also free trade zones
Less than truckload carriers (LTL)
trucks that move small packages or shipments taking up less than one truckload shipping fees are higher per hundred weight
Insourcing
using internal resources to make goods and services previously were outsourced
distribution center
warehouses that aren't used to store things but rather perform cross docking activities
countertrade (14)
when goods or service of domestic firms are exchanged for goods or services and in some cases currency from foreign firms
Six Sigma Training Levels
yellow belt (Has a basic understanding of Six Sigma methodology) green belt black belt master black belt
Data Samples
—collected and plotted on control charts -Sample measures can be classified as either variable data or attribute data. x ̅ chart & R chart or P chart
The Importance and Types of Warehouses
•Breakbulk orders received at distribution center and broken down for outgoing shipments •Consolidation warehouses collect of LTL shipments for outbound transport in TL or CL quantities
Warehousing Management
•Crossdocking -Receive bulk shipments -Break them down -Repackage various items into outgoing orders -Distribute orders to a manufacturing location or retail center
Supply Base Rationalization (supply base reduction)
•Definition reduce purchases from poor-performing suppliers while increasing purchases from more desirable top-performing suppliers •Supply base rationalization (reduction) benefits -Reduced purchase prices -Fewer suppliers to manage -More frequent collaborations between buyer and supplier -Greater overall levels of quality and delivery reliability Supply base optimization
Ethical and Sustainable Sourcing
•Ethical sourcing -Using suppliers that respect the environment during the manufacture of their products -Products being sourced are created in safe facilities by workers who are treated well and paid fairly (ie, no child labor, slave labor) •Fair trade product use of a disadvantaged producer in a developing country that receives a fair price for their goods
Sustainable Sourcing
•Green purchasing purchasing services or materials that meet environmental objectives of the organization •Sustainability includes green purchasing, social responsibility, and financial performance •Sustainable sourcing takes into account the long-term impact on people, profits, and the planet (3 P's)
Location Considerations
•Includes Taxes and Location Incentives -Tariff tax imposed by the govt. on imported goods to protect local industries and/or to raise revenues -Countries with high tariffs discourage companies from importing goods (can cause trade wars) Foreign Trade Zones offer storage, exporting, manufacturing, assembly, repacking, testing, and repairing services
Intermodal Transportation
•Intermodal use of multiple modes of transportation -Rail & motor carriers offer point-to-point pickup & delivery service known as trailer-on-flatcar (TOFC) service, container-on-flatcar (COFC), also called piggy-back service -Water & motor carriers offer point to point service for overseas manufacturers -RO-ROs or roll-on-roll-off containerships; truck trailers & containers directly driven on & off the ship, without the use of cranes
Comparing Six Sigma and Lean
•Lean is all about reducing waste •Six Sigma is all about improving quality, which in turn reduces waste •Lean Six Sigma— the melding of lean and Six Sigma practices
Manufacturing and Service Location Strategies
•Location decision steps involve -Identifying the markets to be served by the facility -Researching potential locations -Selecting a site that best meets the company's location requirements -(location decision precedes and then drives logistics mgt.)
The Origins of Six Sigma
•Pioneered by Motorola in 1987 •Today lean and Six Sigma are often combined to achieve exceptional results •General Electric was first large-scale adopter and advocate of Six Sigma
The Importance and Types of Warehousess (2)
•Private warehouses owned by the firm storing the goods (Amazon, Target) -Pro Reduces the cost, offers greater control, provides better workforce utilization, can generate income & tax advantages through leasing of excess capacity &/or asset depreciation -Con Owning a private warehouse represents a financial risk & loss of flexibility, binds firm to locations that may not prove optimal
Sampling Risk
•Producers Risk—when a buyer rejects a high quality shipment because the sample tested bad (type-I error) •Consumer's Risk—when a buyer accepts low quality shipment because the sample tested good (type-II error) •To minimize type-I and type-II errors, the sample size must be big enough to result in minimal errors
The Importance and Types of Warehouses (3)
•Public Warehouses owned by "for profit" firms which contract out services -Breakbulk, consolidation -Repackaging -Assembly -Incoming & outgoing quality inspections. -Material handling, equipment maintenance, & documentation services -Storage
Returns Management
•Returns management (also known as reverse logistics)—reverse flow of goods from customers to sellers -3-R's, which stands for return, refurbish, and/or recycle -Returns also can have a direct negative impact on the environment, customer service, the firm's reputation, and profitability if not managed properly
Acceptance Sampling
•Samples taken from a shipment of goods and compared to the quality acceptance standard •Quality of the sample is assumed to represent the quality of entire shipment •Acceptance sampling—used to determine whether or not a shipment will be accepted or returned
Six Sigma
•is a quality philosophy -Previously TQM •Includes quality assessment and improvement •Six Sigma tools can fix problems resulting in higher levels of quality and customer serviceat lower cost borrowed philosophy Deming, Crosby, Juran Allows the firm to reduce costs while maximizing revenue Six Sigma stresses a long-term commitment to identifying and meeting customer expectations, and continuous improvement
