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