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7 types of purchases

raw materials
special items
standard production items
items of small value
capital goods

7 types of purchases: raw materials

sensitive commodities, steel and cement

7 types of purchases: special items

custom-ordered items and materials that are special to the organization's product line

7 types of purchases: standard production items

fasteners; steel valves, tubing

7 types of purchases: items of small value

maintenance, repair, and operating (MRO) supplies

7 types of purchases: capital goods

long-term assets not bought or sold in the regular course of business; land buildings goodwill

7 types of purchases: services

advertising auditing consulting waste removal

7 types of purchases: resale

formerly manufactured in-house but have been outsourced to a manufacturing supplier

conditions for competitive bidding

2+ qualified bidders
suppliers must want the business
specifications are clear
no collusion between bidders

Advantages of total cost of ownership (TCO)

highlight cost reduction opportunities, aid supplier evaluation and selection, provide data for negotiations, focus suppliers on cost reduction opportunities, highlight the advantages of expensive high-quality items, clarify/define supplier performance expectations, create long-term supply perspective, forecast future performance

aspects of the purchase agreement is subject to negotiation

quality, support, price, transportation, supply

aspects of the purchase agreement is subject to negotiation: quality

specification compliance, performance compliance, test criteria, rejection procedures, liability, reliability, design changes

aspects of the purchase agreement is subject to negotiation: support

tech assistance, product research development/design, warranty. spare parts, training, tooling, package, data sharing

aspects of the purchase agreement is subject to negotiation: price

PO price, discounts, escalation provisions, exchange terms, import duties, payment of taxes, counter trade credits

aspects of the purchase agreement is subject to negotiation: transportation

FOB terms, carrier, commodity classification, freight allowance/equalization, multiple delivery points

aspects of the purchase agreement is subject to negotiation: supply

lead times, delivery schedule, consignment stocks, expansion options, supplier inventories, cancellation options

arguments for single sourcing

exclusivity, outstanding quality/service = value, order too small to split, opportunities for discounts or lower freight costs, more important customer=more attention from supplier, cost of duplication prohibitive, easier to schedule deliveries, JIT, stock-less buying or EDI arrangements, focus on one, not many suppliers, prerequisite to partnering

arguments for multiple sourcing

traditional practice, keep suppliers "on their toes", assurance of supply, capable of dealing with multiple suppliers efficiently, avoid supplier dependence on one customer, obtain a greater degree of volume flexibility, strategic consideration, govn't regulations, limited supplier capacity, opportunity to test a new supplier, supply market volatility

indicator of a successful partnering effort

formal communication processes, commitment to our suppliers' success, mutual profitability, stable relationships, not dependent on a few personalities, consistent and specific feedback on supplier performance, realistic expectations, employee accountability for ethical business conduct, meaningful information sharing, guidance to supplier in defining improvement efforts, non-adversarial negotiations and decisions based on total cost of ownership

reasons for global purchaing

unavailability of items domestically, price/cost, govn't/marketing pressures, quality, faster delivery and continuity of supply, better technical service, technology, marketing tool, tie-in with offshore subsidiaries, competitive clout

potential problems areas in global purchasing

source location and evaluation, lead/delivery time, expediting, political and labor problems, hidden costs, currency fluctuations, payment methods, quality, warranties and claims, tariffs and duties, administration cost, legal problems, logistics and transportation, language, communications, cultural and social customs, ethics and social responsibility

supply officer ca be personally liable when:

making false statements concerning authority with intent to deceive, agents perform a damaging act without authority, performing an act which is itself illegal, performing an acting willingly that can danger anyone

a valid contract is based on 4 factors

competent parties (both principals or qualified agents), legal subject matter/purpose, an offer and an acceptance, consideration

3 options a buyer has when delivery fails to meet the contract

reject the shipment, accept the shipment, accept part of the shipment

criteria for deciding where to direct research efforts

value of product/service (top dollar), product profitability (red dollar), price/cost characteristics, availability, quality, data flow

4 common purchasing budgets

materials (operations), MRO (maintenance repair operations), capital, administrative

4 types of performance measurement systems

efficiency-oriented, effectiveness-oriented, multiple objectives, naive

4 types of performance measurement systems: efficiency-oriented

emphasizes cost and departmental operating efficiency

4 types of performance measurement systems: effectiveness-oriented

measure of direct and indirect contributions of supply

4 types of performance measurement systems: multiple objectives

considers both efficiency and effectiveness measures

4 types of performance measurement systems: naive

no goals objectives or pre-set performance measures, supply managers told that an appraisal will be made of their performance

supply management trends

emphasis on TQM and customer satisfaction, corporate social responsibility and sustainability, globalization vs local sourcing, risk management, safety and security, supply processes and technology, supply organizations, external and internal collaboration, metrics and performance measurement, innovation, public procurement

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