SCM 406 exam 2

liquidity ratios:

-current ratio= current assets/ current liabilities -quick ratio = (cash + receivables) / current liabilities

debt ratios

-debt-to-equity= total liabilities / equity -current debt-to-equity= current liabilities/ equity -interest coverage= (pretax income + interest) / interest

#1 reason why small businesses go out of business?

-running out of capitals/cash to meet payroll, light the place, buy raw materials, etc.

qualitative service factors (7)

-problem resolution: -technical ability: -ongoing progress reporting: -corrective action response: -supplier cost reduction ideas -supplier new product support -buyer/supplier compatibility

ISO 9001

-standard that sets out the requirements for a quality management system -helps business and organizations to be more efficient and improve customer satisfaction

key improvements in ISO 9001:2015 (2)

-structure -focus on risk-based thinking

who is ISO 9001 for?

-suitable for organizations of all types, sizes, and sectors -smaller companies that do not have staff dedicated to quality can still enjoy benefits of implementing this standard, ISO has many resources to assist them

rationalization and optimization of your supply base can result in:

-suppliers who provided value added services -lower order transaction costs because you have less suppliers to manage

in the portfolio analysis, which 2 quadrants get scorecard and measured?

CRITICAL AND BOTTLENECK (high risk)

the number of days it takes for a customer to pay you is called

days sales outstanding

a 90% learning curve means a supplier's labor costs can improve by 10% for every doubling of volume

true

a firm with a high current debt to equity ratio may have issues paying its bills:

true

benefits ISO 9001 will bring to a business or organization

-help access the overall context of your organization to define who is affected by your work and what they expect from you -enable you to clearly state your objectives and identify new business opportunities -help you put your customers first -work in a more efficient way -meet necessary statutory and regulatory requirements -expand into new markets -identify and address the risks associated with your organization

activity ratios

-inventory turnover= COGS/inventory -fixed asset turnover= sales/fixed assets -total asset turnover= sales/total assets -days sales outstanding= (receivables x 365) / sales

profitability ratios

-net profit margin= profit after taxes/ sales -return on assets = profit after taxes/ total assets -return on equity = profit after taxes/ equity

RPA (Rapid Plant Assessment process)

-presents 11 categories for assessing the leanness of a plant, and the RPA questionnaire provides 20 associated yes-or-no to determine if the plant uses best practices in these categories -includes a template for gauging a plants cost of sales (COS) as well as a set of typical operations measures ranging from yearly sales per employee to overhead to the number of hours needed to assemble a personal computer

supplier quality score based on (4)

-product quality -delivery -cost -responsiveness

what criteria do you measure?

-quantitive variables: delivery performance, quality performance, cost reduction for the supply chain -qualitative variables

reverse pricing analysis

-research industry norms for labor, overhead and profit margins -consult engineers for materials costs -if a supplier does not give you that information, you can research and get some benchmark figures to see if you think it's a good price quotation or not. -North American Industry Classification System (NAICS) -US Department of Commerce

4. cost structure- Porter's 5 forces

-see where power resides- with buyer or supplier? -bigger players in industry may insist on a cost structure break-down -you want the breakdown so you can see if there is any way you can get prices down

additional tools for supplier evaluation

-use process mapping tools -work closely with internal stakeholders (engineering, operations, marketing) by creating strategic sourcing or commodity councils -establish good data warehouse/repositories -electronic procurement tools- includes templates and "boiler plate" language -create preferred supplier lists (pre-qualification) *end lesson 10*

quality management system

-way of defining how an organization can meet the requirements of its customers and other stakeholders affected by its work

why should you be certified

-when an independent certification body audits your practices the requirements of the standard- is not a requirement of ISO 9001, but is a way of showing stakeholder that you have implemented the standard properly *end ISO 9001*

down select the potentials:

-your market intelligence -supplier-provided information: responses from RFIs, RFPs, or RFQs -supplier surveys and site visits -financial analysis

a benchmark index representing the average change in selling prices over time received by domestic producers is called:

PPI

costs may ____ over time as a supplier goes through a learning curve

decrease

suppliers cost structure: Total unit cost=

direct labor costs + material costs + overhead costs + margin or mark-up -what are cost drivers for material, labor, or overhead?

it's a good idea to measure performance of all your suppliers

false

all things considered, which firm has the best current ratio: a. Firm A with a current ratio of 2.1 b. Firm B with a current ratio less than 0 c. Firm C with a current ratio of 1.0

A

days of sales outstanding (DSO)

number of days it takes for a customer to pay -the lower the better! = A/R/sales/day

days of payables outstanding (DPO)

number of days it takes the company to pay its inventory related bills -higher the better! = A/P/ COGS/day

inventory days of supply (IDS)

number of days of inventory in the company -the lower the better! = INV/ COGS/day

what are 2 ways to analyze price quotes?

order discount analysis learning curve analysis

net profit margin is equal to:

profit after taxes/sales

supplier performance measurement scorecards should consist of

qualitative factors quantitative factors

which of the following is one of the key criteria for evaluating a supplier?

quality

when a seller offers volume discounts (off price), best to perform a ____ to determine if the offer makes sense

quantity discount analysis

a cost-based system approach to measurement tracks not only purchase costs for an item, but also the costs of doing business with that supplier

true

is it possible to have negative cash to cash cycle time

true

supply base optimization is a continuous process once your supply base is rationalized

true

the PPI is a good benchmark to use. You can compare the price you are receiving from your supplier to the latest PPI to see if you are buying better or worse than marketplace

true

it's easier to compare performance supplier to supplier when using what system

using a weighted-point system where you can calculate a composite index score

economic conditions are favorable to the buyer when:

weak demand excess supply

quick ratio is more preservative because

you can quickly turn cash and receivables into cash

the key when rationalizing your supply base is to come up with the

"right" number of suppliers for your supply base

suppose a supplier is an excellent supplier with no nonperformance costs, then this supplier cost based measurement tool would be:

1.0

a weighted-point based measurement tool is the most objective approach for measuring supply

false

a qualitative measure to include a supplier scorecard would be

responsiveness to your concerns

activity ratios:

-effective asset utilization -how well are you turning over your inventory? -effectively using your assets? -ex. PSU classrooms, majority of the time they sit idle -ex. Waffle shop only takes cash, so their DSO=0

what other criteria would you want to look for when choosing a supplier?

-competition- who else are you doing business with? you want innovative products -are they sourcing responsibly? ethical company? good corporate social responsibility practices? -how are they treating their supply base? if they are treating them well, then their employees are treated well, then they will have a good reputation

site visit: use a survey that is...

-comprehensive and includes important performance categories -is as objective as possible -includes items and measurement scales that are reliable -is mathematically straightforward and simple to understand

RPA rating sheet and RPA questionnaire to rate leanness

-(1) poor -(9) excellent -(11) best in class -scores range from 11 to 121 -average scores are around 55

why was ISO 9001 revised?

-all ISO standards are reviewed and revised regularly to make sure they remain relevant to the marketplace -now takes into account the different challenges that businesses now face -for example; increased globalization has changed business and organizations, so ISO needs to reflect these changes

a supplier scorecard should be:

-as comprehensive and objective as possible -simple to understand -include performance categories important to managing your supply item

supplier evaluation scorecard components

-category -weight -subweight -score -weighted score -subtotal

1. manufacturing capacity- flex capacity

-comes in different forces -flex people capacity- technical talent, flex capacity of processes -new product launches? -new products involve forecast, so how good is your forecast? -could have a lot of error; can you handle 110% increase in forecast?

plant article 11 categories

1. Customer service 2. Safety, environment cleanliness, and order 3. Visual management system 4. Scheduling system 5. Use of space, movement of materials, and product line flow 6. Levels of inventory and work in process 7. Teamwork and motivation 8. Condition and maintenance of equipment and tools 9. Management of complexity and variability 10. Supply chain integration 11. Commitment to quality

Name three things that might prohibit a supplier from realizing learning curve gains

1. Underestimating the technical complexity of the product or process; 2. labor turnover; 3. underestimating or planning for wrong skill sets; 4. buyer changing engineering or material specifications after the buy; 5. requires a whole new shift at the higher volumes

supplier performance measurement three ways to measure suppliers

1. categorical system 2. weighted-point system 3. cost-based system (most subjective to most objective) (easiest ot hardest)

benefits of supplier development done right (6)

1. focus efforts on what matters most 2. align the organization 3. engage and motivate target suppliers 4. have a clear roadmap for the improvements required 5. measure and track results 6. build in well-defined report-back loops

4 things to test in financial analysis

1. liquidity 2. activity- how effectively is management managing assets 3. profitability- want them to last a long time to make money 4. debt- how much leverage do they have?

criteria for supply evaluation (12)

1. manufacturing capacity- can the company meet capacity requirements? 2. delivery capabilities- on time? geographic distance? 3. pricing- does the company offer competitive pricing? 4. cost structure 5. reputation in the market- is the company credible? performance history? 6. quality 7. IT capabilities (eCommerce and others) 8. talent 9. corporate social responsibility (CSR) and environmental compliance 10. effective production planning systems 11. the supplier's sourcing strategies, policies, and techniques 12. potential for a long-term relationship

supplier evaluation and selection process (7 steps)

1. recognize need to go after new suppliers 2. work internally on the requirements 3. determine sourcing strategy (portfolio analysis) 4. identify potential supply sources 5. down-select 6. conduct a more thorough evaluation 7. select supplier and reach agreement

3 types of development programs

1. the "check and re-check" approach- covers a wide range of suppliers, evaluate process and product capabilities, provide recommendation/assignments 2. the "SWAT team" approach-target few problem suppliers, focus on resolution for specific issues, jointly develop and agree on implementable improvement plan with suppliers, agree on improvement timeline/future audit schedule 3. "dedicated team" approach- staff dedicated to supplier on extended basis, root-cause analysis of problems, hands on implementation support

key criteria for supplier evaluation:

1.reliability/delivery/continuity of supply 2. quality 3. cost

interest coverage

= (pretax income + interest) / interest -should be >3; low may mean difficulty in paying creditors

return on equity

= profit after taxes/ equity -represents return on shareholders' investment

net profit margin

= profit after taxes/ sales -represents after-tax return

quick ratio

=(cash + receivables) / current liabilities -at least 0.8 if supplier sells on credit; low means cash flow problems

days sales outstanding

=(receivables x 365) /sales -too high hurts cash flow; too low shows restrictive credit policy

inventory turnover

=COGS/ inventory -low means slow inventory or possible cash flow problems

current ratio

=current assets/ current liabilities -should be > 1.0 but look at industry averages

current debt to equity

=current liabilities/ equity -too high means supplier may be unable to pay its bills

return on assets

=profit after taxes/ total assets -represents the return earned on what a company owns

total asset turnover

=sales / total assets -too low means supplier may be inefficient in using its total assets

fixed asset turnover

=sales/fixed assets -too low means supplier may be inefficient using its fixed assets

debt to equity

=total liabilities / equity - >3 means highly leveraged

days sales outstanding should be as close to zero as possible?

FALSE, you want it low, but not too close to 0

supply base rationalization usually results in the ___ number of supplier to manage

RIGHT

Buyer/supplier compatibility:

Subjective rating concerning how well a buying firm and a supplier work together

Supplier new product support:

Supplier's ability to help new product development cycle time or product design

problem resolution:

Supplier's attentiveness to solving problems

technical ability:

Supplier's manufacturing ability compared to other suppliers

ongoing progress reporting:

Supplier's ongoing reporting of existing problems or recognizing and communicating a potential problem

corrective action response:

Supplier's solutions and timely response to requests for corrective actions, including engineering change order requests

Supplier cost reduction ideas:

Supplier's willingness to help find ways to reduce purchase cost

cash-to-cash cycle time is the time between receiving raw materials and receiving payment from customers:

TRUE

some buyers are now asking suppliers to break down price quotations so buyers can see labor, materials, overhead, and mark-up cost components

TRUE

ISO 9001 is based on the idea of __________

continual improvement

a price analysis is a good analysis for

a commodity type component

multiple suppliers advantages & disadvantages

ad:-higher competition, costs go down, less risks, ensures supply dis:-cannot get volume discount, increase complexity of purchasing

single supplier advantages & disadvantages

ad:-strategic partnerships -volume discounts decrease unit price -simpler/easier decrease order processing costs dis:-higher risk in case something goes wrong, become too powerful, supply shortage

Under what conditions can we use learning curves to estimate prices? In other words, when does the learning curve apply?

b. For custom-configured items with high labor content d. For items where you anticipate a ramp up in production (volume) over time

receivables turned into cash quicker than _____?

inventories

the most commonly used approach to measuring suppliers is

measuring suppliers based on categories with weights assigned to them

cross-sourcing ex.

supplier A: makes items 1,3,5 supplier B: makes items 2,4

SCAR

supplier corrective action requests