SCM Exam 2
What is In-Sourcing?
(Back sourcing) Reverting to in-house production when external quality, delivery, and services do not meet expectations
What are LEAN Supply Chain Relationships?
- work together to remove waste, reduce cost, and improve quality and customer service - JIT purchasing means delivering smaller quantities, at right time, to right location, in right quantities - mutual dependency and benefits
Sustainable sourcing should seek to:
1. grow revenues 2. reduce costs 3. go green 4. manage risk 5. build intangible assets
What are import merchants?
A person or company engaged in the purchase and sale of imported commodities for profit
What are import brokers?
Agents licensed by the governmental regulatory authority to conduct business on behalf of importers, for a service fee
What is a collaborative negotiation?
Both side work together to reach favorable outcome.
Cost of Quality can be divided into:
Good: Appraisal, Prevention Bad: Internal/External Failure
Who developed Six Sigma?
Motorola in 1980 Became famous when Jack Welch used it
What is a distributive negotiation?
Process that leads to self-interested, one-sided outcome
What is Role of Management?
Provide atmosphere of cooperation Empower workers to take action based on their ideas Develop incentive system for lean behaviors
What are two of the most important functions of a supplier development program?
Providing information Training suppliers
What is Key Supplier Selection?
Typically conduced by a cross functional team using evaluation forms or scorecards. -often weighted -purchase cost becomes relatively less important
What is forward vertical integration?
When a company acquires one or more of their customers
5.1 The Profit-Leverage Effect states that a decrease in purchasing expenditures will directly decrease profit A. True B. False
False
What is a potential strategy for innovative products?
Innovative, high-tech, cutting edge, market leading supplier. Long term partnership. Single sourced
What are the Five S's of the visual workplace?
Sort Straighten Shine Standardize Sustain
What is Co-sourcing?
The sharing of a process or function between internal staff and an external provider Using dedicated staff at an external provider that works exclusively under your control and direction
Firms use the _____ strategy to reduce their own staffing levels. a. procurement b. outsourcing c. measurement d. management
outsourcing
Purchasing Process Steps: 2. Obtain authorization as necessary
-A Purchase Requisition may be routed to an authorized approver(s) depending on the type of material or service being requested and/or the dollar value of the request. -Multiple authorizations, in a prescribed sequence, to various management levels of the organization, may be necessary if the value exceeds a specific threshold.
What is the Return on Assets (ROA) Effect?
-A high ROA indicates managerial prowess in generating profits with lower spending
8.10 Which quality guru (i.e., expert) is credited with the concept that 'quality is free; defects are costly' A. W. Edwards Demming B. Joseph Juran C. Philip Crosby D. Shigeo Shingo
Philip Crosby
7.8 The process commonly utilized in continuous improvement is known as? A. Specific, Measurable, Achievable, Relevant, Time-Oriented (S.M.A.R.T.) B. Plan, Source, Make, Deliver C. Ready, Aim, Fire D. Plan, Do, Check, Act
Plan, Do, Check, Act
What are two key points of the profit-leverage effect?
-A 10% Cost Reduction generates significantly more Profit Before Tax than does a 10% Sales Increase. -This is one of the main reasons that Procurement Managers are under significant pressure from senior management to reduce purchase costs.
Purchasing Process Steps: 10. Reconciliation
-The invoice may need to be reconciled to the purchase order and goods receipt before payment is made. Sometime referred to as a "3-way match"
Bid:
A tender, proposal, or quotation submitted in response to a solicitation (i.e., RFP, RFQ) from a contracting authority.
6.10 The sourcing strategies including; maintaining safety and/or strategic stocks, developing contingency plans, strengthening relationships, and searching for alternatives, are appropriate for which item category? A. Non-Critical Items B. Bottleneck Items C. Leverage Items D. Strategic Items
Bottleneck Items
Many companies have a _________ as part of their executive leadership team.
Chief Procurement Officer
5.6 What is the term that is often used for the acquisition of services? A. Purchasing B. Contracting C. Requisitioning D. Ordering
Contracting
5.8 Benefits derived from implementing an e-procurement system include all of the following EXCEPT: A. Time Savings B. Real Time Access C. Trackability D. Decentralizing Purchasing
Decentralizing Purchasing
How does purchasing contribute to the primary goals of purchasing?
- Actively seeks better materials and reliable suppliers - Working with the expertise of strategic suppliers to improve quality and materials -Involving suppliers and purchasing personnel in new product design and development efforts.
Purchasing Process Steps: 7. Fulfillment
-The supplier ships/delivers the item(s) to the buying organization as per the PO.
Advantages of an e-Procurement System
-Time savings -Cost savings -Accuracy -Real time -Mobility -Trackability -Management -Benefits to the suppliers
What are the risks of outsourcing?
Potential loss of control Increased reliance on suppliers Increased need for supplier management
Which manufacturing process can be characterized as creating a custom product for each customer? a. six sigma b. continuous flow c. line flow d. none of the above
none of the above
Purchasing Process Steps: 5. Purchase Order (PO) is created and delivered to the supplier.
-A PO is generated and forwarded to the supplier to inform the supplier of the intent to purchase. -The purchase order will identify the item(s) to be procured, the quantity required, the requested delivery date(s) and the price to be paid. It will also identify the delivery location and any terms and conditions that relate to the order. -The PO is the Buyer's formal offer to the supplier to obtain the item(s). -The PO becomes a binding contract ONLY when accepted by supplier.
What are processing costs for small value purchases are minimized through?
-Credit Card/Corporate Purchasing Card (P-card) -Blanket or Open-End Purchase Orders -Petty Cash -Stockless Buying or System Contracting -Standardization & Simplification of Materials & -Components -Accumulating Small Orders to Create a Large Order -Using a Fixed Order Interval
Purchasing Process Steps: 4. Make supplier selection
-If the Buyers already knows which supplier they will buy the item from, move to the next step -If not, a competitive bidding process may be initiated. A RFP or a RFQ may be issued to qualified suppliers, to identify proposed alternatives for supplying the desired material or service, and to obtain price and availability information. --Buyer issues a RFP for items which have not been previously purchased, or not purchased from a specific supplier being evaluated. Supplier(s) provides their proposal to supply the item(s) including price and delivery. --Buyer issues a RFQ for routine or repeat purchased items. Supplier(s) provides a price and delivery quote on the specific item(s) requested. -A Supplier is selected from the RFP or RFQ bids received based on criteria determined by the Buyer, including price, availability, quality, delivery costs, etc.
Purchasing Process Steps: 13. Close out the Purchase Order
-If the PO has been received complete, and all terms and conditions have been met, then the PO should be closed out in the purchasing system (whether manual or automated).
Purchasing Process Steps: 12. Reclamation of Taxes
-In some situations, the supplier will be obligated to charge a tax, but the buyer may be eligible to retain some or all of the tax based on corporate status.
What is the inventory turnover effect?
-Increased inventory turnovers indicate optimal utilization of space and inventory levels, increased sales, avoidance of inventory obsolesce. -Inventory is an asset but it is $ tied up
Purchasing Process Steps: 3. Identify and evaluate potential suppliers
-May be determined from a list of company approved Suppliers. -Alternatively, may use a Request for Information (RFI) to collect information from potential suppliers on their capabilities and interest in supplying the material or service.
What are the reasons for buying?
-Non Strategic -Cost Advantage -Insufficient Capacity -Temporary Capacity Constraints -Lack of Expertise -Quality -Multi Sourcing Strategy -Inventory -Brand Strategy
What are the reasons for making?
-Protect proprietary technology -No competent supplier -Overall lower cost -Better quality control -Use existing idle capacity -Control of lead-time -Control of transportation and warehousing costs
Purchasing Process Steps: 1. A need is identified, and a Purchase Requisition is issued
-Request for goods or services submitted to the Procurement/Purchasing organization for action. -Typically initiated by a user within an organization
Purchasing Process Steps: 9. Invoice
-Supplier prepares an invoice for the item(s) ordered and transmits to the Buyer. The invoice either accompanies the item(s) or is sent separately.
Purchasing Process Steps: 6. Supplier confirmation of the Purchase Order
-The Supplier formally agrees to supply the item(s) per the specifications, terms, and conditions described on the Purchase Order. -The Purchase Order then becomes a legally binding contract between the Buyer and the Supplier for the item(s) specified.
Where would e-Procurement not work?
-The procurement of mission-critical items that are available only through a few suppliers -Where the inventory of the item(s) is very low -Where procuring the item(s) involves complex negotiations -Where the potential to lower costs through an e-procurement platform is minimal.
What are the purchasing process steps?
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 created and delivered to the supplier. 6. Supplier confirmation of the Purchase Order 7. Fulfillment 8. Receipt of Goods 9. Invoice 10. Reconciliation 11. Payment 12. Reclamation of Taxes 13. Close out the Purchase Order 14. Analysis
Request for Proposal (RFP):
A detailed low-level capabilities evaluation document that is used to precisely determine a supplier's capability and interest in the production of a customized product or service.
Request for Quote (RFQ):
A document generally used to solicit bids from interested and qualified suppliers for goods or services that the organization needs to obtain.
5.9 Which of the following would be a good reason to outsource (buy) versus make an item? A. A firm lacks the technology or expertise to produce an item B. To utilize existing capacity within a company's own firm C. To have more direct control over the design and production of an end item D. No competent supplier presently produces the needed item
A firm lacks the technology or expertise to produce an item
8.9 Which Statistical Tool of Six Sigma is used to determine the frequency of a specific problems? A. Flow Diagram B. Pareto Chart C. Cause and Effect Diagrams D. Check Sheet
Check Sheet
6.8 An outsourcing program can result in all of the following positive outcomes, except? A. Reducing staffing levels B. Decreased need for supplier management C. Cost reduction D. Gains in manufacturing flexibility
Decreased need for supplier management
7.10 The best supplier candidates for Supplier Relationship Management (SRM) include all of the following EXCEPT? A. Preferred Suppliers B. Suppliers that provide lesser quantities of a crucial products/services 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
Purchase Requisition:
Document that defines the need for goods and/or services. An internal document. Does NOT constitute a contractual relationship with any external party.
5.2 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. A. True B. False
False
6.2 While paperless transactions are now possible through e-procurement and Web-based services, these would NOT be considered sustainable business practices. A. True B. False
False
6.4 The concept of Distributive Negotiations refers to both sides work together to maximize the outcome or create a win-win result. A. True B. False
False
7.1 An effective supplier certification program may increase the time spent on incoming inspections A. True B. False
False
7.2 Award-winning suppliers serve as role models for other suppliers and may therefore be exempt from audits and certification programs A. True B. False
False
7.4 A strong supplier partnership requires that both buyer and supplier adopt a strong tactical perspective A. True B. False
False
7.5 ISO 14000 is a widely accepted management and quality certification standard A. True B. False
False
8.1 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. A. True B. False
False
A preferred supplier is a supplier who has the lowest price. a. True b. False
False
Co-sourcing is the sharing of a process or function between two external providers a. True b. False
False
Leverage sourcing is a comprehensive approach for location and sourcing key suppliers which often include the business process of analyzing the total-spend by material category. A. True B. False
False
Sustainability sourcing policies should include such things as reporting of supplier compliance to stakeholders, and detailing ethical sourcing expectations to suppliers? a. True b. False
False
8.7 Which one of the following is NOT a quality tool of Six Sigma? A. Flow Diagrams B. Check Sheets C. Hysterical Charts D. Cause & Effect Diagrams
Hysterical Charts
What is an example of Pre-Transaction Costs?
Identifying Sources Qualifying Sources Certifying Sources Supplier Database Update Training/Education of Supplier
5.7 Which of the following is NOT one of the primary goals of Purchasing? A. Ensure the uninterrupted flow of materials and services at the lowest total cost B. Improve the quality of the finished goods produced C. Increase the supplier base D. Optimize customer satisfaction.
Increase the supplier base
7.7 Benefits of implementing an effective supplier certification program include all of the following EXCEPT? A. Building long-term relationships B. Reducing time spent on incoming inspections C. Increasing the supplier base D. Recognizing excellence
Increasing the supplier base
7.6 The keys to developing successful supply partnerships include all of the following EXCEPT? A. Personal Relationships B. Individualized Objectives C. Mutual Benefits and Needs D. Performance Metrics
Individualized Objectives
8.6 LEAN manufacturing emphasizes all of the following EXCEPT? A. Continuous improvement B. Large batch sizes C. Reduction of waste D. Synchronization of material flows
Large batch sizes
8.8 What company originated the concept of Six Sigma? A. Ford B. Motorola C. Toyota D. IBM
Motorola
Competitive Bidding:
Offers submitted by multiple individuals or firms competing for a contract, privilege, or right to supply specified services or merchandise.
8.5 All of the following are included in the eight wastes EXCEPT? A. Overproducing B. Extra-Processing C. Overspending D. Waiting
Overspending
What are the components of the total cost of ownership?
Pre-Transaction Costs: Activities carried out prior to the actual buy and sell transaction Transaction Costs: Activities carried out as part of the actual buy and sell transaction Post-Transaction Costs: Activities carried out following the actual buy and sell transaction
What is an example of Transaction Costs?
Price Negotiation Delivery Confirmation Purchase order Administration Transportation Delivery/Receiving Reconciliation Taxes/Tariffs/Duties Invoicing/Payment Incoming Inspection Rejected Goods Return to Supplier Close-out
What is an example of Post-Transaction Costs
Returns from Customer Replacement Repair Parts & Labor Maintenance Disposal of Return Product
8.3 Which of the following is NOT one of the "Seven Tools of Quality Control" A. Scatter Diagrams B. Histograms C. Small Batch Scheduling D. Control Charts
Small Batch Scheduling
6.6 Managing a firm's external resources in ways that support the long-term goals of the firm can be referred to as? A. Ethical souring B. Functional sourcing C. Strategic sourcing D. Hybrid Sourcing
Strategic sourcing
7.9 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. Quality Systems Certification B. Supply Management C. Supplier Inspection D. Supplier Certification
Supplier Certification
Purchase Order (PO):
The Buyer's offer to the supplier to acquire goods or services. Becomes a legally binding contract ONLY when accepted by the supplier.
What is the Make vs. Buy decision?
The act of deciding whether to produce an item internally or buy it from an outside supplier.
What is the main insight of Total Cost of Ownership (TCO)?
The main insight is that the acquisition cost is often a very small portion of the TOC (accounting for only 25% to 40% of the total cost for most products)
What is procurement?
The process of selecting and vetting suppliers, negotiating contracts, establishing payment terms, and the actual purchasing of goods and services -Procurement is concerned with acquiring all of the goods, services and work that is vital to an organization. -Procurement is the overarching or umbrella term within which the action of purchasing can be found.
5.10 The sum of all costs associated with every activity in the supply stream of a product, is referred to as? A. Total Cost of Acquisition B. Total Cost of Ownership C. Purchase Requisition Cost D. Total Procurement Cost
Total Cost of Ownership
5.3 Outsourcing allows a firm to concentrate on core capabilities and reduce staffing levels A. True B. False
True
5.5 Duties, taxes, or customs imposed by the host country for imported or exported goods, are known as Tariffs A. True B. False
True
6.1 "Rationalizing the supplier base" would mean that the purchasing firm is attempting to reduce the number of suppliers in its supplier network. A. True B. False
True
6.3 A Supplier Code of Conduct is intended to inform suppliers of ethical sourcing expectations and is typically a condition for becoming an approved supplier. A. True B. False
True
6.5 Pain and Gain Share contract provisions are associated with supplier rewards and recognition programs. A. True B. False
True
7.3 Successful supplier relationships involve equal decision-making control between both the buyer and the supplier. A. True B. False
True
8.2 The primary design objective of a LEAN layout is to reduce wasted movements of workers and/or materials. A. True B. False
True
Buying materials and components from suppliers instead of making them in-house, is known as outsourcing. a. True b. False
True
6.9 Which of the following is TRUE? A. VMI stands for Vertically Managed Inventory B. 3PL stands for Third Party Leverage C. VMI stands for Vendor-Managed Inventory D. 3PL stands for Three Point Logistics
VMI stands for Vendor-Managed Inventory
8.4 Which one of the following is among the most important elements of the LEAN manufacturing philosophy? A. Quality inspections and a standardized product line B. Fully automated assembly lines and a large supplier base C. Large inventories and large batch sizes D. Waste reduction and continuous improvement
Waste reduction and continuous improvement
To provide metrics that are easy to measure, understandable and focused on real-value-added results is the goal of a. a good supplier evaluation system b. the purchasing department c. the firm's new strategy d. senior managers at the firm
a good supplier evaluation system
Processing costs for small value purchases can be minimized through the use of _____. a. corporate purchasing cards b. blanket purchase orders c. blank checks d. all of the above
all of the above
_____ refers to a company acquiring one or more of their sources of supply a. backward vertical integration b. leverage sourcing c. global sourcing d. further supplier integration
backward vertical integration
e-Procurement is:
the term used to describe the automation, through web-enabled tools, of the non-strategic and transactional activities that would otherwise consume the majority of a buyer's time, including: -Automation Provides increased enterprise level visibility of all purchases. -e-Procurement tools typically automate all or part of the following processes: --Solicitation development tools; RFI, RFP, RFQ --Execution and analysis --Reverse auction capabilities
Purchasing Process Steps: 14. Analysis
-Measurements of the efficiency and accuracy of the procurement process. -Specific PO data and information captured and used during periodic supplier performance meetings.
Purchasing Process Steps: 8. Receipt of Goods
-Once the item(s) arrives at the designated location, the Buyer will typically conduct some form of receipt process where the item(s) are checked to ensure that they conform to the details of the PO, including quality and quantity. -A confirmation of receipt may also be sent to the Supplier.
What is the profit-leverage effect?
-A decrease in purchasing expenditures directly increases profits before taxes (assuming no decrease in quality or purchasing total cost). -Bottom line impact is $ for $
Purchasing Process Steps: 11. Payment
-Invoice payment processed using an appropriate payment method assuming the item(s) is received and meets all of the criteria established on the PO.
5.4 A purchase order is legally binding once issued by the buyer. A. True B. False
False
What is Total Cost of Ownership (TCO)?
The sum of all the costs associated with every activity in the supply stream of a product.
Segmentation is NOT an advantage of the e-Procurement processes. a. True b. False
True
What is a key point & equation of the return on assets (ROA) effect?
-a 10% cost reduction generates a significantly higher Return on Assets (ROA) than does a 10% sales increase, given the same number/value of assets. Equation: Profit before tax / Assets = ROA
What are the elements of a supplier certification program?
-differentiate strategic supplier alliance candidates -buyers can monitor quality assurance methods and specify the type of acceptance sampling and statistical process control methods used -companies may choose to develop internal certification programs, and many also require external such as ISO 9000, ISO 14000
What are the benefits of a strategic alliance?
-increase revenue and profits for both -competitive advantage or block competitor -mitigate risk and ensure continuity of supply -position partners for future strategic opportunities
What are five key points to consider in development and implementation of an SRM system?
1. Automation 2. Integration 3. Visibility 4. Collaboration 5. Optimization
What are four trends in SRM?
1. Close alignment of sourcing with supplier relationship management 2. Focus on cross-functional engagement 3. Focus on innovation 4. Investment in people & soft skills
What are the basic steps for conducting a spend analysis?
1. Define the scope 2. Identify all data sources 3. Gather and consolidate all data into one database 4. Cleanse data (find/correct errors) and standardize for easy review 5. Categorize the data 6. Analyze data for: best deals per supplier, to ensure that all purchases are from preferred suppliers, to reduce the number of suppliers per category 7. Repeat on regular schedule
What are the primary goals of purchasing?
1. Ensure uninterrupted flows of materials and services at the lowest total cost. 2. improve quality of the finished goods produced 3. optimize customer satisfaction
What are the four manufacturing strategies?
1. Make-to-Stock (MTS) 2. Assemble-to-Order (ATO) 3. Make-to-Order (MTO) 4. Engineer-to-Order (ETO)
What are the three parts of procurement?
1. Purchasing Management 2. Strategic Sourcing 3. Supplier Relationship Management
What are the objectives of LEAN Manufacturing?
1. Satisfy internal customer demand 2. Communicate demand forecasts and production schedules up the supply chain 3. Quickly moving products in the production system 4. Optimize inventory levels across the supply chain 5. Increase value, capabilities, and flexibility of the workforce through cross-training 6. Extend collaboration and alliances beyond 1st tier suppliers and customers to include 2nd and 3rd tier suppliers and customers as well
What are the five key areas of a typical spend analysis?
1. Total historic expenditures and volumes 2. Future demand projections or budgets 3. Expenditures categorized by commodity and sub-commodity 4. Expenditures by division, department, or user 5. Expenditures by supplier
W. Edwards Deming
14 steps to quality management plan, do, check, act cycle improving production during WWII teaching senior managers in Japan about quality
Philip Crosby
4 absolutes of quality: 1. conformance to requirements 2. prevention 3. zero defects 4. price of nonconformance
What is strategic sourcing?
A comprehensive approach for locating and sourcing KEY SUPPLIERS, which often includes the business process of analyzing the total-spend by material category
What is a big bond?
A debt secured by a bidder for the purpose of providing a guarantee that the successful bidder will accept the contract once awarded. If not, the bond would be forfeited.
What is a performance bond?
A debt secured by a bidder for the purpose of providing a guarantee that the work will be on time and meet specifications.
What is Strategic Alliance Development?
An extension of supplier development which refers to increasing a key or strategic supplier's capabilities -better market penetration -extends to a firm's second-tier suppliers
What are the two key Six Sigma methodologies?
DMADV Define, Measure, Analyze, Design, Verify Designing DMAIC Define, Measure, Analyze, Improve, Control Improving
What are the Eight Wastes?
DOWN TIME Defects Overproduction Waiting Non-utilized Talent Transportation Inventory Motion/Movement Extra-Processing
What does Total Cost of Manufacturing (TCM) incorporate?
Fixed and variable costs used in the manufacturing, storage, and delivery of the product Includes costs associated with: -Production and Procurement activities -Inventory and Warehousing activities -Transportation activities generally expressed as a cost per unit for each product
What are functional products?
MRO items and other commonly low profit margin items with relatively stable demands and high levels of competition ie: office supplies, food staples, etc.
What is centralized purchasing?
Purchasing department located at the firm's corporate office makes all the purchasing decisions
What are the benefits of a supplier certification programs?
Reduces amount of time and resources necessary for the buyer to conduct incoming inspection -builds relationship -decrease supplier base -recognize excellence
What are trading companies?
They buy products in one country and sell them in different countries where they have their own distribution network
What is the Buy American Act (1933)?
US government purchases and 3rd party purchases using federal funds must buy from US source if the US good is not more than a certain differential above the foreign good
6.7 The following term refers to an act that creates the greatest good for the greatest number of people? A. Rights and duties B. Corporate responsibility C. Utilitarianism D. Social sustainability
Utilitarianism
What are Green Purchases?
Variety of federal, state, and local initiatives to include environmental and human health considerations when making purchases
Who are the gurus of TQM?
W. Edwards Deming- made PDCA, considering father of TQM Philip Crosby- introduced concept of zero defects, focus on prevention not inspection Joseph Juran- created concept of cost of quality Karu Ishikawa- fishbone diagram
What is a potential strategy for functional products?
reliable, low cost suppliers. Multi-sourced
Sourcing Categories: Bottleneck
unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers
What are the reasons for a single supplier?
- To establish a good relationship - Less quality variability - Lower cost (100% of volume) - Transportation economies - Proprietary products or process - Volume too small to split
What are three resources of learning about and implementing sourcing practices?
-The center for advanced purchasing studies -Council of supply chain management professionals (CSCMP) -Institute of Supply Management (ISM)
What are the five characteristics of world-class procurement organizations?
1. Being a trusted advisor to the business 2. Driving suppliers to innovate 3. Providing analytics-backed insights 4. Protecting the business from risk 5. Taking an agile approach to staffing
What are the three international purchasing service providers?
1. Import Brokers 2. Import Merchants 3. Trading Companies
What are the four manufacturing processes?
1. Job shop - custom product per customer, high customization 2. Batch - small quantity of item in single production run 3. Line - standard products with limited number of variations moving on assembly line through stages of production 4. Continuous flow - used to manufacture items such as gasoline, laundry
What are the potential challenges of itnernational purchasing?
1. Knowledge of international trade policies and procedures 2. Awareness and cost of required tariffs and duties 3. Difficulties in communicating with suppliers due to language barriers, varying time zones, working weeks, holidays 4. Locating, evaluating, sourcing and expediting in global markets 5. Payments and currency management 6. Longer time span for negotiations 7. The potential for cultural, political, and labor problems 8. Potentially longer transportation lead times necessitating additional inventory 9. Specific and varying documentation requirements 10. Handling legal matters and the process for settling disputes
LEAN is composed of what three elements working in unison?
1. LEAN Manufacturing 2. Total Quality Management 3. Respect for People
What are the three main foundational aspects of Six Sigma?
1. Quality defined by customer 2. Use of technical tools 3. People involvement
How is strategic sourcing different from conventional purchasing?
It places emphasis on the entire life-cycle of a product, not just its initial purchase price
What is supplier relationship management (SRM)?
Maximize value of interactions through strategy
What is a sealed bid?
A document enclosed in a sealed envelope and submitted in response to invitation to bid.
Kraljic Matrix: Strategic Items
HSR, HV. High supply risk, high value 1. Ensure availability of supply 2. Focus on relationship building 3. Encourage process integration and innovation 4. Frequent communications 5. Establish mutually agreeable supplier performance criteria
One of the most sustainable sourcing strategies is to build _____. a. high profits b. intangible assets c. new markets d. none of the above
intangible assets
What are the advantages of decentralized purchasing?
-Knowledge of local requirements -Local sourcing -Less bureaucracy
What are the key principles of TQM?
-Management Commitment -Employee Empowerment -Fact Based Decision Making -Continuous Improvement -Customer Focus
What are the reasons for global sourcing?
-Opportunity to improve quality, cost, and delivery performance -To exploit global efficiencies --low cost of labor and materials --tax breaks and low trade tariffs -to respond to insufficient domestic capacity -to achieve access to better process and product technology -Due to a change in the domestic business environment -To take advantage of reciprocal trade and countertrade arrangements.
What are some commonly used criteria in supplier selection?
-Product and process technologies -Reliability -Quality -Order system and cycle time -Cost -Willingness to share information -Capacity -Service -Communication capability -Location
Preferred suppliers provide:
-Product and process technology, and expertise. -Product development and value analysis. -Information on latest trends in materials, processes, or designs. -Capacity for meeting unexpected demand. -Cost efficiency due to economies of scale.
What suppliers is SRM typically applied to?
-Providing high volumes of product/service -Providing lesser quantities of a crucial product/service -That serve many business units of a company or organization -Where intensive engineering, manufacturing and/or logistics interaction is essential
What are LEAN Green Practices?
-Reduce cost of environmental management -Lead to improved environmental performance -Increase the possibility that firms will adopt more advanced environmental management
What are the keys to successful strategic partnerships?
- Building Trust - Shared Vision and Objectives - Personal Relationships - Mutual Benefits and Needs - Commitment and Top Management Support - Change Management - Information Sharing and Lines of Communication - Capabilities - Continuous Improvement - Performance Metrics - Total Cost of Ownership
What are the objectives of strategic sourcing?
- Improve the value-to-price relationship - Understand category buying and management process, to identify improvement opportunities - Examine supplier relationships across the entire organization - Develop and implement multi-year contracts with standardized terms and conditions across the organization - Leverage the entire organization's spend - Share best practices across the organization
What are the reasons for multiple suppliers?
- Need more capacity - Spread risk of supply disruption - Create competition - More sources of information - Dealing with special kinds of business
What can result from a rationalized supply base?
- Reduced purchase prices - Fewer supplier management problems - Closer and more frequent interaction between buyer and supplier - Greater levels of quality and delivery reliability
From an information perspective, strategic sourcing includes automation of:
- Request for Quote (RFQ) - Request for Proposal (RFP) - Electronic Auctioning - Contract Management
What tools does SRM use?
- Sourcing Analytics - Sourcing Execution - Procurement Execution - Payment and Settlement - Supplier Score carding
A supplier of choice:
-Achieved a specific and exceptional level of performance over time as measured by a set of criteria agreed upon by both buyer and supplier. -Typically a trusted partners who know the buyers organization, processes, procedures, and requirements. -Provides a higher value than their competitors and are characterized as reliable, responsive, flexible, and cost effective.
What are the advantages of centralized purchasing?
-Concentrated volume -Leveraging purchase volume -Avoiding duplication -Specialization -Lower transportation costs -No competition within units -Common supply base
Ethical policies should include:
-Supplier code of conduct -create specific provisions within supplier agreements for ethical sourcing -know where all purchased goods originate and how they're made -know suppliers' workplace principles -seek independent verification of supplier's ethical standards -include ethics as part of performance rating system -routinely report supplier compliance to key stakeholders
What are the seven tools of quality control?
1. Check Sheets - frequencies of specific problems 2. Cause and Effect Diagrams (Fishbone) 3. Control Charts - visually monitor process information 4. Histograms 5. Pareto Analysis - organized histo 6. Scatter 7. Stratification (Flow)
What are the 7 Elements of LEAN Manufacturing?
1. Waste Reduction 2. LEAN Layouts 3. Inventory, Setup Time, & Changeover Time Reduction 4. Small Batch Scheduling and Uniform Plant Loading 5. LEAN Supply Chain Relationships 6. Workforce Empowerment 7. Continuous Improvement
Why is a vendor managed inventory good?
Buyer: -Supplier tracks inventories -Determines delivery schedules and order quantities -Buyer can take ownership at the stocking location -Buyer may also be able to avoid taking ownership until the material is actually being used Supplier: -Avoids ill-advised customer orders -Supplier decides inventory set up and shipments -Opportunity for supplier to educate customers about other products
What is continuous improvement?
Kaizen, reduce process, delivery, and quality problems, such as machine breakdown problems, setup problems, and internal quality problems
What is early supplier involvment?
Key suppliers become more involved in internal operations of buyer's company, particularly with new product and process design, concurrent engineering, and design for manufacturability Suppliers asked to add their knowledge and expertise to company's new product development process
Kraljic Matrix: Leverage Items
LSR, HV. Low supply risk, high value 1. Consolidate volume as a negotiation tool 2. Use competitive marketplace to reduce costs 3. Automate supplier interfaces to minimize process related costs
Kraljic Matrix: Non-Critical Items
LSR, LV. Low supply risk, Low value 1. Simplify and streamline the purchasing process 2. Reduce number of suppliers and simplify ordering 3. Transferring buying responsibility to "users" within the company
What is spend analysis?
Collecting, cleansing, classifying, and analyzing expenditure data for the purpose of decreasing costs, improving efficiency, and monitoring compliance
What are the benefits of outsourcing?
Concentrate on core capabilities Reduce staffing levels Accelerate reengineering efforts Reduce internal management problems Improve manufacturing flexibility
LEAN vs Six Sigma
Lean- waste reduction while Six Sigma - variation reduction and no defects Lean less technical, Six Sigma uses tools like Root Cause Analysis, Statistical Process Control, and DMAIC Typically start with LEAN Both require strong management support
ISO 9000
Management and quality standards
What are LEAN Layouts?
Move people and materials when and where needed, ASAP Manufacturing cells --Process similar parts or components saving duplication of equipment and labor --often U shaped to facilitate easier operator and material movements
What is the Malcolm Baldrige National Quality Award?
Objectives: -stimulate firms to improve -recognize firms for quality achievements -establish guidelines so that organizations can evaluate their improvement and provide guidance to others Categories Measured: 1. Leadership 2. Strategic Planning 3. Customer and Market Focus 4. Information and Analysis 5. Human Resource Focus 6. Process Management 7. Business Results
What is Open/Closed competitive bidding?
Open: Sealed bids are opened in the presence of anyone who may wish to be present and evaluated for award of the contract. Closed: The sealed bids are opened in the presence only of authorized personnel?
What are the three rules that govern government & non-profit procurement?
Federal Acquisition Streamlining Act (1994) Buy American Act (1933) Green Purchases
What are the aspects of Job Shop?
Flexibility: Highly Flexible Variety: Very High Volume: Very Low Fixed Costs: Low Variable Costs: High Leads Time: Very long Strategies: ETO/MTO
What are the aspects of Continuous Flow?
Flexibility: Highly Inflexible Variety: Very Limited Volume: Very High Fixed Costs: High Variable Costs: Low Leads Time: Very short Strategies: MTS
What are the aspects of Batch?
Flexibility: Somewhat Flexible Variety: High Volume: Low Fixed Costs: Moderate Variable Costs: Moderate Leads Time: Long Strategies: MTO/ATO
What are the aspects of Line Flow?
Flexibility: Somewhat Flexible Variety: Limited Volume: High Fixed Costs: Moderate Variable Costs: Moderate Leads Time: Short Strategies: ATO/MTS
Kraljic Matrix: Bottleneck Items
HSR, LV. High supply risk, low value 1. Maintain safety/strategic stock 2. Develop contingency plans 3. Strengthen relationships 4. Search for alternatives
What is Small Batch Scheduling and Uniform Plant Loading?
Ideal schedule is to produce every product as quickly as possible and at same rate as customer demand Large batches exacerbate Bullwhip Effect Uniform plant loading: --plan to up capacity at earlier time to meet demand later --front loading or leveling --production is schedule is frozen in the up-front time period
What is decentralized purchasing?
Individual, local purchasing departments, such as at the plant level, making their own purchasing decisions
Joseph Juran
Quality planning, control, and improvement
What is Inventory, Setup Time, & Changeover Time Reduction?
Reducing inventory levels free up capital and reduce holding costs Lowering inventory will help to expose the hidden problems. Once problems detected, can be solved.
What is supply base rationalization?
Reduction in supply base to the lowest number of suppliers possible WITHOUT increasing risk
What is the Federal Acquisition Streamlining Act (1994)?
Removed restrictions on bids less than $100,000. Micro purchases (less than $2,500) can be made without bidding
Why is ISO highly sought after?
Represents achievement and maintaining of standard of excellence verified by independent third party organization
ISO 14000
Standards for environmental management
What is a vendor managed inventory?
Suppliers directly manage buyer inventories to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer. -confirmed order is made by supplier who then delivers and bills buyer
What is the specialized knowledge that companies must know for international purchasing?
Tariffs Non-tariff barriers: quotas, licensing agreements, embargoes, laws and regulations imposed on imports and exports Countertrade: International trade by exchange of goods rather than by currency
What is value engineering?
activities to help buyer's company to reduce cost, improve quality, and reduce new product development time
What is a strategic alliance?
an agreement between a buyer and supplier to pursue some agreed upon objectives, while remaining independent organizations -share information and resources -preferred suppliers are potential ideal candidates
Supplier development is:
buyer's activities to improve a supplier's capabilities
What is Waste Reduction?
encompasses wait times, inventories, material, and people movement, processing steps, variability, any other non-value-adding activity
Six Sigma is:
enterprise and supply chain wide philosophy emphasizing commitment toward excellence. Identification and reduction of defects (errors).
Why are systems good to support development in SRM?
helps in identifying and addressing supplier performance issues can be used to help make sourcing decisions
What is respect for people?
less hierarchy ordinary workers given great responsibilities Supply chain members work together in cross functional teams goal is NOT to reduce number of people, but to use people resources more wisely
Total Quality Management (TQM) is:
management philosophy that every employee must be committed to maintaining high standards of work in every aspect of a company's operations combination of quality and management tools Six Sigma integral
What is Workforce Commitment?
managers must support LEAN Manufacturing by providing subordinates with skills, tools, time, and other necessary resources to identify problems and implement solutions
Describe Make-To-Stock (MTS)
manufacture products for stock based on demand forecasts, push system critical issue is forecasting correctly features economies of scale, large volumes, long production runs, low variety, and multiple distribution channels lowest lead time features economies of scale, large volume, long production runs, low variety, and multiple distribution channels
LEAN is:
not a tool, its a culture provides value for customers through use of most efficient resources possible often results in: --Large cost reductions --Improved quality --
LEAN is:
operating philosophy of waste reduction and value enhancement create by Toyota Production SYstem
Describe Assemble-to-Order (ATO)
products ordered by customers produced quickly and are partially customizable product parts manufactured but not yet assembled hybrid of MTS and MTO 2nd in lead time when base components are made, stocked to forecast, but products not assembled until customer order received
Sourcing Categories: Non-Critical
routine items that involve a low percentage of the firms' total spend and involve very little supply risk
What is Six Sigma?
seeks to improve quality by identifying and removing causes of defects and minimizing variability in manufacturing and business processes Goal: Less than 3.4 defects per million opportunities (DPMO) "99.99966% good" structured and data-driven approach
Sourcing Categories: Strategic
strategic items and services that involve a high level of expenditure and are vital to the firm's success
What does operations management refer to?
the design, execution, and control of the operations that convert resources into desired goods and services, aligned with the company's business strategy managing the process to create goods and services goal to convert materials and labor into goods and services as efficiently and effectively as possible, while also controlling costs to maximize profits
Value is:
the inherent worth of a product as judged by the customer, reflected in its selling price and market demand
Describe Make-to-Order (MTO)
typically allows customers to buy customized products only manufactures when customer places order appropriate for highly configured products such as computer servers, aircraft, bridges 3rd in lead time relies on relatively small quantities, but more complexity
What is backward vertical integration?
when a company acquires one or more of their suppliers
In relation to the Purchasing Process Steps, leading procurement organizations:
will complete every step. Although many will be completed automatically by the e-Procurement system using defined rules for low-dollar or non-strategic purchases
What is the framework for Sourcing Strategy Development?
1. Classify the company's products and suppliers as either functional or innovative 2. develop strategic sourcing goals and strategies for each category 3. Create the sourcing team (typically cross-functional led by Procurement) 4. Develop a team strategy and communication plan 5. Identify the targeted spend areas and conduct a spend analysis 6. Gather information on supplier capabilities. Use request for Information (RFI) 7. Develop a supplier portfolio 8. Develop a future state 9. Conduct supplier selection and negotiation 10. Implement Supplier Relationship Management (SRM)
What are three attributes of supplier recognition programs?
1. Companies should recognize and celebrate the achievements of their best suppliers 2. Award winners exemplify true partnerships, continuous improvement, organizational commitment, and excellence 3. Award-winning suppliers serve as role models for other suppliers
What are the 8 ISO 9000 quality management principles?
1. Customer focus 2. Leadership 3. Involvement of people 4. Process approach 5. Systems approach to management 6. Continual improvement 7. Factual approach to decision making 8. Mutually beneficial supplier relationship
Benefits of Strategic Partnerships with Suppliers for Suppliers:
1. Greater visibility into buyer's purchasing plans 2. Increased operating efficiencies 3. Longer term buyer commitments; greater predictability of future business 4. Increased scope of business and revenue 5. Lower costs of sales; increased margins 6. Opportunities to develop, pilot, and showcase innovative solutions 7. Sustainable competitive advantage
What are the typical steps to approach supplier development?
1. Identify critical products and services 2. Identify critical suppliers 3. From cross-functional team internally to work with supplier 4. Meet with top management at supplier to get their support and involvement 5. Identify key development needs and projects 6. Define details of the agreement and the action plan 7. Monitor status of project/action plan and modify as necessary
What are the drivers of strategic sourcing?
1. Improve long-term financial performance 2. Increase customer focus 3. Improve product quality 4. Reduce the cost of materials 5. Reduce delivery cycle times 6. OPTIMIZE the number of global suppliers (often reducing the number of suppliers) 7. Deliver more innovative products, in less time, and less expensively than competitors.
What are some skill set requirements of purchasing professionals?
1. Interpersonal communication 2. Builder of relationships 3. Ability to work in teams 4. Analytical skills 5. Negotiation skills 6. Customer focus 7. Ability to manage change 8. Influencing and persuasion skills 9. Strategic skills 10. Understanding business conditions
What are the five benefits of Supplier Recognition Programs?
1. Motivate suppliers to perform better 2. Improve supplier loyalty and commitment 3. Encourage suppliers to adapt to the company's culture 4. Helps to create entry barriers for competitors 5. Encourages supplier participation in product innovation
What is the criteria for assessing and improving the purchasing function?
1. Participating in and leading multifunctional teams 2. Participating in value engineering efforts 3. Optimize supply base 4. M&A involvement 5. Utilize e-procurement 6. Further supplier integration 7. Contribute to new product development 8. Improve time to market 9. Initiate supplier cost reduction programs 10. Creation of strategic alliances
Benefits of Strategic Partnerships with Suppliers for Buyers:
1. Preferred access to the supplier's best people 2. Increased operating efficiencies 3. Lower costs 4. Improved quality 5. Enhanced service 6. Influence over supplier investments and technology 7. Preferred access to supplier ideas 8. Increased innovation from and with suppliers, leading to lower costs and incremental revenue 9. Sustainable competitive advantage
What are some relevant metrics for performance evaluation?
1. Price and cost performance 2. Receipt quality 3. Delivery performance 4. Financial stability 5. Contractual and standard compliance 6. Participation in product development 7. Cooperativeness in third-party production management 8. Support of ethic/sustainable practices
What do preferred suppliers provide?
1. Product and process technology, and expertise 2. Product development and value analysis 3. Information on latest trends in materials, processes, or designs 4. Capacity for meeting unexpected demand 5. Cost efficiency due to economies of scale
In 1990, supply chain chain management combined:
1. Quick response 2. Efficient Consumer Response (ECR) - increase level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers. 3. Just-in-Time (HIT) 4. Keiretsu Relationships- involves companies both upstream and downstream of manufacturing process, remaining independent but working closely together for mutual benefit
Why is ISO preferred?
1. They have to conform to externally defined set of standards for quality and delivery of service 2. They are usually more open to sharing supply chain information 3. They welcome building relationships with their customers 4. They have formal processes in place for continual improvement of their products, services, and processes 5. They are easier for procurement to initially quality and periodically audit 6. Certification is done by an external register agency 7. Firms have to be re-certified every three years
What is a payment bond?
A debt secured by a bidder for the purpose of providing protection against 3rd party liens not fulfilled by bidder
What are reverse auctions?
A sourcing technique where pre-qualified suppliers enter a website and at a pre-designated time and date, and try to underbid competitors to win the buyer's business -used by private companies, public sector agencies, and non-profit organizations
What is competitive bidding?
A transparent procurement method in which bids from competing suppliers are invited by openly advertising the scope, specifications, and terms and conditions of the proposed contract as well as the criteria by which the bids will be evaluated
What are the Six Sigma Certification levels?
Yellow- basic understanding Green- work as a team member, lead small projects Brown- passed Black Belt certification, but not done 2nd Six Sigma project Black- full time professional, posses Six Sigma skills Master Black- successfully led ten or more teams through complex Six Sigma projects
What are innovative products?
characterized by short product life cycles, volatile demand, high profit margins, and relatively less competition ie: technology products such as the iPhone
Sourcing Categories: Leverage
commodity items where many alternatives of supply exist and supply risk is low. Spend is high and there are potential procurement savings
Describe Engineer to Order (ETO)
components designed, engineered, and built to specifications once order received unique product every time quality very important longest lead time products unique and extensively customized for specific needs of individual customer
What is the inventory turnover equation?
Cost of Goods Sold (COGS) / Average Inventory
What are the four elements of cost?
Quality Service Delivery Price The sum of these is the TCO
