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Supply Chain Management Ch. 2

Terms in this set (47)

Describe the steps in a traditional manual purchasing system.
The user will initiate the purchase by issuing a purchasing requisition. If the store does not currently have that product, a purchase order is issued to a qualified supplier by a buyer.
Describe the e-procurement system and its advantages over the manual system. Are there any disadvantages to the electronic system? Do you think the e-procurement system will ultimately replace the manual system? Why or why not?
E-procurement can simplify purchasing, save money, and improve the entire supply line. Despite its many advantages though, e-procurement can result in constraints and limited options for buyers if not approached correctly. I think it will eventually replace the manual system, it just might take a while.
How can purchasing help to improve the competitive edge of an organization?
Purchasing can help the firm's competitive edge by providing better materials and reliable suppliers, while being able to work closely with the suppliers and being able to take advantage of the suppliers expertise in improving the quality of raw materials, and also being able to involve their suppliers and purchasing
What is the profit-leverage effect of purchasing?
A purchasing performance measure that calculates the impact of a change in purchase spend on a firm's profit before taxes, assuming gross sales and other expenses remain unchanged.
What is the return-on-assets effect on purchasing?
The ROA is a financial ratio, calculated after tax income divided by total assets. It effects purchasing because ROA indicates how efficiently management is using it's total assets to generate profits.
How does a merchant differ from an industrial buyer?
A merchant primary purchases are for resale purchases and an industrial buyer
purchases raw materials for conversion purposes.
Describe the purpose of a material requisition.
Material requisition is an internal document initiated by the material user to request materials from the warehouse or purchasing department
Describe a purchase order
a purchase order is a contractual commercial document issued by the buying firm to a supplier indicating the type, quantitates and agreed prices for products or services that the supplier will provide to the buying firm.
Describe a request for quotation
A request for quotation is a formal request for pricing from a supplier, commonly used when the purchasing requirements are clear.
Describe a request for proposal.
A request for proposal is a formal request for a project or product proposal issued by the buyer to qualified suppliers. The use of RFPs allows the supplier to develop part specifications based on their own knowledge of the materials and technology needed.
Does the material requisition serve the same purpose as the purchase order?
Material requisition and purchase order pretty much serve the same purpose
Why are small value purchase orders problematic?
The costs of the ordering costs exceeds the cost of the goods/services purchased.
How can purchasing more
effectively deal with this problem?
Several ways to deal with this is through corporate purchasing cards, blank check purchase orders and blanket purchase orders.
Should unit price be used as the sole criterion for selecting suppliers? Why or why not?
No, a supplier with the lowest per unit cost may not have the best quality or delivery rating
Explain backward vertical integration.
Backward integration refers to acquiring a supplier's operations.
What are the advantages of outsourcing compared to backward vertical integration?
Outsourcing enables the buying firm to focus on core competencies and to acquire better quality components and materials from qualified suppliers who can produce the components at a lower price due to higher volume and technology.
When should a firm outsource instead of making the items in house?
When the cost of making the product is higher than purchasing and when they are able the specify product attributes, forecast expected requirements and ensure the right quantity at a reasonable price
What factors should be considered while choosing suppliers?
A firm needs to consider the potential supplier's technology, their financial stability, quality delivery performance, their flexibility, service, and their willingness to share their technology information and willingness to participate in
What are the reasons to use a single supplier? Is this the most efficient way to purchase materials in general?
Reasons to use a single source include more consistent quality level, higher volume, and to build buyer-supplier trust and relationships. In general, this is true for any savvy corporations
Describe centralized purchasing and its advantages.
Centralized purchasing uses more of a centralized purchasing department or a division to handle important purchases for the firm. Some advantages are quantity of purchases and bargaining power and a consistent purchasing system throughout the entire corporation.
Describe decentralized purchasing and its advantages.
Decentralized purchasing focuses allowing an individual branch to handle its own purchasing decisions. Advantages include more flexibility, easier to build local relationships to source locally, which brings faster delivery.
Describe how the hybrid purchasing organization works.
A firm that uses either a centralized- decentralized or decentralized- centralized purchasing order
Describe how blanket orders and blanket order releases can be used to manage the procurement system of a business that owns a dozen large restaurants in a city.
This type of organization can use the hybrid purchasing structure to negotiate blanket orders and contracts at corporate level pricing structures and with delivery terms agreed upon. The organization can then use the blanker order releases to release orders at the firm level.
How does public procurement differ from corporate purchasing?
Public procurement is subjected to political pressure and public scrutiny. Also subject to special rules an regulations established by the government. Also must be in strict compliance of all rules and regulations
Describe the different types of bid bonds.
Bid or surety bonds guarantee the successful bidder will accept the contract. Performance bonds guarantee the work of the successful bidder will meet certain specifications and in the time specified. Payment bonds protect the buyer against any third party liens not fulfilled by the bidder.
What are micro-purchases? How can they be used to improve public procurement?
Government purchases of less than 2,500. They don't need to have a competitive quote?
Why do firms purchase from foreign suppliers?
This included cheaper prices and better materials provided, to be able to invest into the foreign company's local environment, and to take advantage of this potential growth.
What are the risks involved in global sourcing?
There are plenty of risks such as political instability, currency fluctuation, and most importantly cultural differences
What is countertrade? Describe various types of countertrade.
An exchange of goods or services for raw materials from local suppliers
Barter
compete exchange of goods or services of equal value without the exchange of currency
Offset
the exchange agreement for industrial goods or services as a condition of military related export, commonly aerospace and defense.
Counterpurchase
an arrangement whereby the original exporter agrees to sell goods or services to a foreign importer and simultaneously agrees to buy specific goods or series from the foreign importer
Describe how a typical government bidding process is conducted.
An invitation for bid is used to solicit sales bids. Specifications for the proposed purchases, instructions for preparation of bid, the conditions of the purchase, and the delivery and payment schedule are included in this invitation. The invitation also designates the time and date of bid opening. Sealed bids are opened in the public at the purchasing office and the facts about the bid are read aloud and recorded. A contract is then rewarded to the lowest responsible and responsive bidder.
How can global sourcing enhance a firm's competiveness?
They are able to compete globally
Describe the disadvantages of global sourcing and how it can adversely affect a firm's competiveness.
Global sourcing can be more complex when it comes to shipping terms and has more complicated logistic issues than a domestic supplier would provide. Even the quality levels of some global suppliers may not be acceptable for the firm to take.
Merchants
includes the wholesalers and retailers who primarily purchase for resale purposes
industrial buyers
purchase raw materials for conversion purposes
Return on Assets
a financial ratio calculated as after tax income divided by total assets (ROI)
Inventory Turnover
the number of times a firms inventory is utilized and replaced over an accounting period such as a year
Request for quotation
a formal request for pricing from a supplier
request for proposal
a formal request for a project or product proposal issued by the buyer to qualified suppliers
outsourcing
the process that occurs when a firm purchases materials or products instead of producing them in-house
blanket purchase order
a purchase order that negotiates for repeated supply over a fixed time period
breakeven analysis
technique that uses fixed and variable costs to determine the quantity where total costs are equal between two or more alternatives
centralization
single purchasing department, usually located at the firms corporate office, that makes all the purchasing decisions
decentralizations
system where individual, local purchasing departments, such as at the plant or field office level, make their own purchasing decisions
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