supply chain exam 2 (peavey)

inventory is an asset but also...

capital tied up

strategic sourcing

A comprehensive approach for locating and sourcing key suppliers, so that an organization can leverage its consolidated purchasing power to find the best possible values in the marketplace

leverage items

commodity items where many alternatives of supply exist, and supply risk is low. Spend is high and there are potential procurement savings. (low risk high value)

Partnership should result in a win-win situation, which can only be achieved if both companies have [blank].

compatible needs

both [blank] should be set up to facilitate the free flow of information

formal and informal lines of communication

frequent feedback can help avoid [blank] and maintain good relationships

surprises

strategic alliance development

An extension of supplier development which refers to increasing a key or strategic supplier's capabilities.

collaborative negotiations

Both sides work together to maximize the outcome or create a win-win result. Requires open discussions and a free-flow of information between parties

drivers of strategic sourcing

Improve long-term financial performance Increase customer focus Improve product quality Reduce the cost of materials Reduce delivery lead times Optimize the number of global suppliers Deliver more innovative products, in less time and less expensively than competitors

functional products

MRO items and other commonly low profit margin items with relatively stable demands and high levels of competition i.e. office supplies, food staples, etc.

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. If not, the bond would be forfeited.

request for quote (RFQ)

a document used to solicit bids from interested and qualified suppliers for goods or services that the organization needs to obtain

return on assets (ROA) effect

a high ROA indicates managerial prowess in generating profits with lower spending

ethical sourcing

attempts to take into account the public consequences of organizational buying, or to bring about positive social change through organizational buying behavior

the make-vs-buy decision is based on three pillars

business strategy, risks, and economic factors

types of purchasing

centralized purchasing decentralized purchasing centralized/decentralized purchasing

The [blank] impacts must also be considered as part of the sourcing process.

environmental and societal

provide a [blank] than their competitors and are characterized as reliable, responsive, flexible, and cost effective.

higher value

when does a purchase order become a legally binding contract?

only when accepted by the supplier

quantitative reasons for making

overall lower cost control of transportation and warehousing costs

continual improvement plan

plan, do, check, act

examples of business strategy

process technologies skills required to make the product or deliver the service

what is the only part of the total cost of ownership?

purchase price

goal of strategic sourcing

reduce costs, improve the quality of the final product, and achieve a faster time to market

making a [blank] over time results in the elimination of waste in a system

series of small improvements

Make vs Buy is a [blank] decision.

strategic

specialized knowledge

tariffs non-tariff barriers countertrade

acquisition cost is often a very small portion of the tco

true

buyers and suppliers must be [blank] their capabilities in meeting customer requirements

willing to continuously improve

insourcing

Producing goods or services using a company's own internal resources

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.

distributive negotiation

Refers to a process that leads to self-interested, one-sided outcome

vendor managed inventory

Suppliers directly manage buyer inventories to reduce the buyer's inventory carrying costs and avoid stockouts for the buyer

for high-dollar purchases, the e-procurement process will generally also include

authorization of the purchase order and reconciliation of the invoice

e-procurement is the term to describe the...

automation, through web-enabled tools, of the non-strategic and transactional activities that would otherwise consume the majority of the buyer's time

supplier evaluation is a process to identify the [blank] suppliers

best and most reliable

a company can make [blank] and improve its customer service.

better supplier decisions

keys to successful strategic partnership

building trust having a shared vision and objectives developed personal relationships establishing mutual benefits and needs gaining commitment from top management managing change information sharing and lines of communication understanding and influencing capabilities continuous improvement measuring performance

trading companies

buy products in one country and sell them in different countries where they have their own distribution network

buy

buying materials, components, or products from a supplier instead of, or in addition to, making them in-house

centralized/decentralized purchasing (hybrid approach)

centralized purchasing for products and services used throughout the corporation. decentralized purchasing for products and services used only locally at each facility

innovative products

characterized by short product life cycles, volatile demand, high profit margins, and relatively less competition i.e. technology products such as the iPhone

benefits of resourcing

concentrate on core capabilities reduce staffing levels accelerate reengineering efforts reduce internal management problems improve manufacturing flexibility

advantages of centralization

concentrated volume leveraging purchase volume avoiding duplication specialization lower transportation costs no competition within units common supply base

suppliers should be allowed to provide [blank] to the customer

constructive feedback

purpose of purchase order

controls the purchasing of products and services from external suppliers

types of collaborative negotiations

cooperative and collaborative

factors to consider when selecting a supplier

cost quality capacity service location reliability communication capability order system and cycle time willingness to share information product and process technologies

quantitative reasons for buying or outsourcing

cost advantage inventory considerations

types of distributive negotiations

counterproductive and competitive

spend analysis steps

defining the scope identify all of the data sources gathering and consolidating all of the data in one database cleansing the data and standardizing it for an easy review categorizing the data analyzing the data for best deals, ensure all purposes, reduce the number of suppliers per category repeating the process on a regular schedule

key areas of a typical spend analysis

Total Historical Expenditures and Volumes Future Demand Projections or Budgets Expenditure Categorized by Commodity and Sub-Commodity Expenditure by Division, Department, or user Expenditure by Supplier

using strategic sourcing tactics to identify the best suppliers can help companies maintain [blank] supply chains across all company divisions and partners

efficient and effective

primary objectives of purchasing

ensure an uninterrupted flow of materials and services at the lowest total cost improve the quality of the finished goods produced optimize customer satisfaction

consumers can drive the success of a company through their awareness and demand for [blank]

ethical business practices

sourcing decisions are made of [blank] and not [blank]

facts; perception

the competitive bidding process allows for negotiations

false

successful sourcing strategies are almost always different for [blank] products versus [blank] products.

functional; innovative

purchasing is the process of how...

goods and services are ordered from an external third party

preferred suppliers are potentially [blank] for a strategic alliance

ideal candidates

institute of supply management (ism)

identification, acquisition, access, positioning, and management of resources an organization needs or potentially needs in the attainment of its strategic objectives.

purpose of benchmarking

identify internal opportunities for improvement

framework for sourcing strategy development

identify the targeted spend area create the sourcing team develop a team strategy and communication plan gather market information develop a supplier portfolio develop a future state select suppliers and negotiate implement supplier relationship management

examples of pre-transaction costs

identifying sources qualifying sources certifying sources supplier database update

steps of strategic sourcing

identifying suppliers cultivating relationships continuously improving skills understanding and embracing the possibilities

Artificial Intelligence can [blank] supplier selection and increase the effectiveness of supplier relationship management

improve

A sound strategic sourcing strategy can create opportunities for your company to...

improve corporate image, increase sales and market share, and reduce costs.

additional make vs buy concepts

in-sourcing co-sourcing

risks

include lower quality, reliability, and predictability of outsources solutions as compared with in-house manufacturing or services, as well as risks inherent in the process of identifying and selecting the right supplier and structuring a workable ongoing relationship

economic factors

include the impact of outsourcing on capital expenditures, return on invested capital, and return on assets, as well as the possible savings achieved through outsourcing

business strategy

includes the strategic importance to the company of the product or service that is being considered for outsourcing.

benefits for suppliers of strategic partnerships with suppliers

increased operating efficiencies greater visibility into buyer's purchasing plans increased scope of business opportunities to develop, pilot, and showcase innovative solutions longer term buyer commitments; greater predictability of future business sustainable competitive advantage

benefits for buyers of strategic partnerships with suppliers

increased operating efficiencies preferred access to the suppliers best people influence over supplier investments and technology increased innovation from and with suppliers sustainable competitive advantages

what does automation provide?

increased visibility of all purchases

quantitative factors considered in the make vs buy decisions

incremental costs of either making or purchasing the item, such as the availability of manufacturing facilities, needed resources, and manufacturing capacity

inventory turnover effect

indicate optimal utilization of space and inventory levels, increased sales, avoidance of inventory obsolesce.

decentralized purchasing

individual, local purchasing departments, such as plant level, make their own purchasing decisions

industrial buyers

individuals within an organization who purchase raw materials for conversion into products, and/or purchase services, capital equipment, and MRO supplies.

rule in business strategy

it is desirable to chose in-house capabilities when a product or a function is critical to a company's performance or is considered a core operation

pre-transaction costs

activities carried out prior to the actual buy and sell transaction

import brokers

agents licensed by the governmental regulatory authority to conduct business on behalf of importers for a service fee

using a specific with a supplier that has a [blank] with your consumers can create an excellent product differentiation opportunity, potentially leading the consumer to prefer your product over others.

positive brand image

Strategic sourcing is a specialty area whose [blank] is just beginning to be realized.

potential and profitability

risks of outsourcing

potential loss of control increased reliance on suppliers increased need for supplier management

components of the total cost of ownership

pre-transaction costs transaction costs post-transaction costs

companies must be [blank] that comes with the formation of new partnerships

prepared to manage change

relevant metrics

price and cost performance product quality delivery performance contractual compliance participation in product development initiatives cooperativeness in third-party production management support of ethics and sustainable practices

examples of transaction costs

prices 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 does a high turnover ratio indicate?

the company is generating sales efficiently to sell territory (beneficial)

what does a low turnover ratio indicate?

the company is not selling through products efficiently. the company is likely making/buying too much inventory for demand and may end up throwing out unusable products

supplier relationship management (srm)

the discipline of strategically planning for, and managing, all interactions with the third party organizations that supply goods or services to an organization, in order to maximize the value of those interactions.

purchasing is also a term commonly used in business to represent...

the function of, and the responsibility for, acquiring materials, supplies, and services for an organization

supply base

the group of suppliers from which a company acquires goods and services

corporate social responsibility (csr)

the practice of business ethics

sourcing

the process of identifying a company that provides a needed good or service

procurement

the process of selecting and vetting suppliers, negotiating contracts, establishing payment terms, and the actual purchasing of goods and services.

open competitive bidding

the sealed bids are opened in full view of all who may wish to witness the bid opening

closed competitive bidding

the sealed bids are opened in the presence of authorized personnel

total cost of ownership (TCO)

the sum of all the costs associated with every activity in the supply stream of a product

bottleneck items

unique procurement problems. Supply risk is high and availability is low. Small number of alternative suppliers. (high risk low value)

cost factors for the buy analysis

unit price of the purchased item transportation expenses incremental purchasing expenses receiving and inspection expenses any follow-on expenses associated with service or quality

two main ethical approaches of business ethics

utilitarianism; rights and duties

supplier co-location

very similar to VMI and CMI, except that a representative of the supplier is actually embedded in the buyer's purchasing group to forecast demand, monitor inventory, and place orders.

It is important to actively monitor a supplier's performance and provide [blank] on supplier performance at each stage of the evaluation process.

visibility and feedback

single-source

where there are multiple potential suppliers available for a product or service, however, the company decides to purchase from only one supplier.

merchants

wholesalers and retailers who purchase for resale

with trust, partners are more [blank], find compromise solutions to problems, work toward achieving long-term benefits for both parties, and go the extra mile.

willing to work together

cultivating a positive, long-term relationship by working closely with your suppliers can provide many [blank]

win-win scenarios

benchmarking

process of measuring performance against the best in the same or another industry

make

producing materials or products internally

qualitative reasons for making

protect proprietary technology no competent supplier control of lead time use existing idle capacity better quality control

srm is often a part of the rollout of strategic sourcing and is typically applied with suppliers

providing high volumes of a 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

reasons for global sourcing

opportunity to improve quality, cost, and delivery performance exploit global efficiencies to respond to insufficient domestic capacity to achieve access to better process and product technology due to a change in domestic business environment to take advantage of reciprocal trade and countertrade arrangement

it is preferable to [blank] monitor the purchasing function's performance against set [blank]

periodically; standards, goals, and/or industry benchmarks

multi-source

purchasing a good or service from more than one supplier. Companies may use multi-sourcing to create competition between suppliers in order to achieve higher quality and lower price.

centralized purchasing

purchasing department located at the firm's corporate office makes all the purchasing decisions

procurement contains 3 sections, which are...

purchasing management, strategic sourcing supplier relationship management

qualitative factors considered in the make vs buy decision

quality, reliability, and reputation of the potential suppliers and the impact of the decision on customers

elements of total cost of ownership

quality, service, delivery, and price (QSDP)

other factors of total cost of ownership

quantity discounts cash discounts value-added services administrative expenses poor supplier quality

non-critical items

routine items that involve a low percentage of the firms' total spend and involve very little supply risk. (low risk low value)

purchasing contributes to objectives by

seek better materials and reliable suppliers work with expertise of strategic suppliers to improve quality and materials Involve suppliers and purchasing personnel in new product design and development

companies agree to [blank] to achieve a mutual benefit

share information and resources

both partners must [blank] and have objectives that are not only clear but mutually agreeable

share the same vision

key suppliers must have the right [blank] to meet cost, quality, and delivery requirements in a timely manner

technologies and capabilities

contracting

term often used for the acquisition of services

sustainability

the ability to meet current needs of the supply chain without hindering the ability to meet future needs in terms of economic, social, and environmental challenges.

make versus buy decisions

the act of deciding whether to produce an item internally or buy the item from an outside supplier

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.

business ethics

the application of ethical principles to business

e-procurement

the business-to-business (b2b) purchase and sale of supplies and services over the internet

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 and Reconciliation 10. Payment 11. Close out the Purchase Order 12. Analysis

cost factors for the make analysis

Direct labor expenses Incremental inventory-carrying expenses Incremental capital expenses Incremental purchasing expenses Incremental factory operating expenses Incremental managerial expenses Delivered purchased material expenses Any follow-on expenses resulting from quality and associated problems

objectives of strategic sourcing

Improve value-to-price relationship Understand the category buying and management process Examine supplier relationships across entire organization Develop and implement multi-year contracts Leverage the entire organization's spend

benefits for strategic alliances

Potential to increase revenue and profits for both parties. Potential to create a competitive advantage or block a competitor from gaining market share. Mitigate risks and ensure a continuity of supply. Position the partners for future strategic opportunities.

decision-making process in a company's strategic sourcing

Recognizing and accessing key issues, opportunities, strategies, and techniques, to achieve a competitive advantage. Identifying internal and external challenges that affect sourcing strategy. Defining issues involved in global sourcing, electronic procurement, negotiations, and ethics. Applying problem-solving skills to determine the best course of action pertaining to the above strategy areas.

procurement is concerned with

acquiring all of the goods, services and work that is vital to an organization.

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

payment bond

a debt secured by a bidder for the purpose of providing protection against 3rd party liens not fulfilled by bidder

profit-leverage effect

a decrease in purchasing expenditures directly INCREASE profits before taxes

request for proposal (RFP)

a detailed capabilities document used to determine a supplier's capability and interest in the production of a product or service

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

strong supplier partnerships involve "[blank] to work together to the mutual benefit of both parties, sharing relevant information and the risks and rewards of the relationship"

a mutual commitment over an extended time

import merchants

a person or company engaged in the purchase and sale of imported commodities for profit

competitive bidding

a procurement process in which bids from competing suppliers, for the right to supply specified materials or services, are requested

bid

a proposal or quotation submitted in response to a solicitation from a contracting authority

reverse auctions

a sourcing technique where pre-qualified suppliers enter a website and at pre-designated time and date, and try to underbid competitors to win the buyer's business.

request for information (RFI)

a standard business process whose purpose is to collect written information about the capabilities of various suppliers

ethical policies should include

a supplier code of conduct inform suppliers of expectations and create provisions within supplier agreements determine where all purchased goods originate and the manner in which they are made have knowledge of suppliers' workplace principles seek independent verification of supplier compliance with ethical standards include ethics as part of their supplier performance rating system routinely report supplier compliance to key stakeholders

strategic alliance

an agreement between a buyer and a supplier to pursue some agreed upon objectives, while remaining independent organizations.

co-managed inventory

an arrangement where a specific quantity of an item is stored at the buyer's location

the basic e-procurement process (EIP pie backwards acronym)

an electronic purchase requisition and/or purchase order an invoice a payment

utilitarianism

an ethical act is that which creates the greatest good for the greatest number of people, and should be the guiding principle of conduct.

purchase order (PO)

an external commercial document, the official offer issued by a buyer to a seller to acquire goods or services.

purchase requisition

an internal document that defines the need for goods and/or services

strategic sourcing requires [blank] of what organization buys, from whom, at what price, and at what volume

analysis

AI can quickly and thoroughly [blank] such as on-time in-full delivery performance, audits, evaluations, and credit scoring and provide information to use for future decisions regarding certain suppliers.

analyze supplier-related data

potential challenges

knowledge of international trade policies and procedures awareness and cost of required tariffs and duties difficulties in communicating with suppliers due to language barriers, time zones, holidays locating, evaluating, sourcing and expediting in global markets payments and currency management longer time span for negotiations potential for cultural, labor, and political problems potentially longer transportation lead times necessitating additional inventory specific and varying documentation requriements handling legal matters and the process for settling disputes

advantages of decentralization

knowledge of local requirements local sourcing less bureaucracy

preferred suppliers achieve a specific and exceptional [blank] over time as measured by a set of criteria agreed upon by both buyer and supplier.

level of performance

when suppliers are making components rather than finished products...

manufacturing errors will likely be caught during assembly and not be passed on to the consumer directly

procurement professionals and managers interested in [blank] can expand their knowledge by taking online courses taught by industry leaders

maximizing strategic sourcing skills

when there are multiple suppliers, a single failure...

may not be fatal

when identifying alternative suppliers, it is important to keep track of any considerations that may make one supplier [blank] at certain times of the year or under certain external conditions.

more beneficial

The expansion of the global marketplace in recent years has made it necessary for companies to take a [blank] to the integration of supply chain processes and overall business growth.

more holistic approach

functional products are intended to be [blank]

multi-sourced

advantages for multiple suppliers

need more capacity spread risk of supply disruption create competition more sources of information dealing with special kinds of business

does purchase requisition constitute a contractual relationship with an external party?

no

qualitative reasons for buying or outsourcing

non-strategic insufficient capacity temporary capacity constraints lack of expertise quality multi sourcing strategy brand strategy

buyer-supplier partnerships are easier to manage with a rationalized supply base, and they can result in

reduced purchase prices fewer supplier management problems greater levels of quantity and delivery reliability closer and more frequent interaction between buyer and supplier

supply base rationalization

reduction in the supply base to the lowest number of suppliers possible without significantly increasing risk

forward vertical integration

refers to a company acquiring one or more of their customers

backward vertical integration

refers to a company acquiring one or more of their suppliers

ethical sourcing involves the Procurement organization ensuring that the products being sourced are acquired in a [blank] way.

responsible and sustainable

examples of post-transaction costs

returns from customer replacement repair parts and labor maintenance disposal of returned product

innovative products are intended to be [blank]

single-sourced

e-procurement tools typically automate all or parts of these processes:

solicitation tools such as RFI, RFP, RFQ execution and analysis reverse auction capabilities

rights and duties

some actions are just right in and of themselves, regardless of the consequences. Do the right thing!

strategic

strategic items and services that involve a high level of expenditure and are vital to the firm's success. (high risk high value)

strong supplier relationships are important to achieving a win-win competitive performance for the buyer and supplier. These require a [blank] as opposed to a tactical perspective.

strategic perspective

outsourcing

the traditional definition involves purchasing an item or service externally, which had been produced using a company's own internal resources previously.

supplier relationship management

there is a connection with the supplier's salesperson and the buyer's procurement person, but all the information and interactions do not flow exclusively through this connection

traditional supplier management

there is a single point of contact from the supplier side (sales) to a single point of contact on the buyers side (procurement) with a competition on price

preferred suppliers

those that best meet your company's overall purchasing requirements

how are many steps completed in leading procurement organizations?

through automated systems and pre-defined rules for aspects like low-dollar value purchase, non-strategic purchases, etc.

advantages of an e-procurement system

time savings cost savings accuracy real time management mobility trackability benefit to the suppliers

advantages of a single suppliers

to establish a good relationship less quality variability lower cost transportation economies proprietary product or process volume too small to split

why are purchase requisitions generated by user department?

to notify purchasing personnel of items to order, their quantity, and timeframe. it may also contain authorization to proceed with the purchase.

partnerships tend to be successful when...

top executives are actively supporting the partnership.

purchasing can usually be described as the...

transactional function of procurement for goods and services

The people involved in producing these products should be [blank]

treated fairly and work in a safe environment.

tco is the sum of the cost elements in QSDP

true

typically [blank] who know the buyers organization, processes, procedures, and requirements.

trusted partners

what does a purchase order indicate?

types, quantities, and agreed prices for products or services

key supplier selection

typically conducted by a cross functional team using evaluation forms or scorecards

measure performance

you can't improve what you don't measure total cost of ownership