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Beauty Purchasing & Planning
Terms in this set (242)
What are the pros and cons of the type of location the supplier is located?
+ higher level of service
+ limited options
+ faster/reliable communications
- higher costs
+ lower prices due to reduced labor cost
- freight cost / logistics (tolls / tariffs /...)
What are the main types of vendors?
EX: Albea - CCL - HCP - HCT - ...
EX: Mana -Thibiant - Intercos - Cosmetix West - ...
Turnkey / white-label vendor
What is Bidding?
A competitive process that enables the buyer to leverage several potential sources of supply through a single activity to obtain the most favorable business terms.
In order for the vendor bidding process to be successful, a number of conditions must be met. How?
Provide clear content (what, when, where, quantity,...)
Determine compressible spending (market conditions favorable?)
Ensure responsive and responsible competition (prequalify, bidding trap...)
Enable fair and ethical bidding process (same info, same time, award process,...)
What are the characteristics of direct and indirect cost?
-Expenses go directly into producing good
-> Direct Labor
-> Direct Material
-> Manufacturing supplies
-General business expenses that help you operating
-> Office expenses
What are characteristics of Sourcing and Purchasing?
-Category analysis/ strategy
-Invoice match/ payment
What is the procurement department's role?
Is to deliver the right material in the right amount to the right place at the right time and the right price
What is the overall process of purchasing
-Quotes & BA
Ship & Deliver
What does a buyer's market refers to what?
To a situation in which supply exceeds demand, giving purchasers an advantage over sellers in price negotiation
What does a seller's market refer to?
Is a market condition by a shortage of goods available for sale, resulting in pricing power for the seller
What does "High Supply + Demand Power" mean?
The buyers are just as dependent on the suppliers and vice versa
What does "Low Supply + Demand Power" mean?
Parties should work to offset low demand power
What's Standard Operating Procedures (SOP)?
Internal processes and methods to convey requirements to vendors
What's Product Specs and Briefs?
The details and technical specs for a product in development
What's Statement of Work (SOW)?
The specification of materials and process for putting together a product and all of its components
Describing not only what needs to be done but the method to be used
Contains a set of metrics
That way, you can ensure that there is no misunderstandings or faulty interpretations of the requirements
What's Time of Performance / Lead Time
When finished goods will be done
It's inappropriate to use expressions
"ASAP" or "Rush"
Put the exact date
What's Price + Payment Terms?
Net 30, Net 60 (2/15 net 30)
A discount period may be included where the supplier specifics the amount of the discount as well as the number of days the buyer can make payments and still earn a discount
What's Bill of Material (BOM)?
The comprehensive list of all components
DETAILS DETAILS DETAILS
Retail box and components - "shelf presence"
▶ Directions, inserts, trays
Shipping and handling
▶ How many units total?
▶ How are individual units packaged?
▶ Bar code or SKU number?
▶ Unit carton
▶ Seals and closure protection
What's Cost of Goods (COG)?
Unit price of each product or component
What's Minimum Order Quantities (MOQ)?
The minimum amount of units you need to purchase in a given order
What's Turnkey and White Label?
Full service manufacturing
What's Terms and Conditions (Ts&Cs)?
The key contractual terms for the order (can be in the PO/contract)
What's FOB (Freight on Board)?
A location where the products transfer from seller to buyer
Specify the level of service- overnight air, second-day air, & ground
What's Stability Testing?
Ensure that a new or modified product meets the intended physical, chemical, and microbiological quality of the product in its desired packaging and format
What's Shelf Life / Period After Opening (PAO)?
How long the products are safe for use
What's Safety Data Sheets (SDS)?
Contains info on potential hazards & how to work safely with the chemical product
What's Design Direction (DD)?
Visualized concept, needed for requesting feasibility
What's Design Turn Over (DTO)?
Final concept/packaging selection
What's Purchase Order (PO)?
Contains types, quantities, and agreed prices for products or services
What's PA/Price Agreement?
Pricing tool set up in PO that provides unit cost for PO and requisition lines
What's Letter of Intent (LOI)?
Document outlining the understanding the intent to formalize a legally binding agreement
What's RFQ / Request for Quotation?
Request for feasibility (time/cost)to supplier
Work in Progress (raw materials - WIP - FG finished goods)
What are contracts?
Represents a legally binding agreement made by two or more parties to complete a specific action at a specific point in time.
What does a written contract must contains?
1. Identification of the other party as the individual responsible for the contract
▶ Example: the vendor who is supplying the product, component, or formula▶
2. Some form of signature from the responsible party
▶ Remember: the person signing must have authority to sign and to bind the company
3. A clearly identified subject of the contract
▶ Example: you are purchasing 10,000 units of a lipstick from a turnkey vendor; all relevant details form the subject of the contract
4. Specific terms and conditions
▶ Purchase price, FOB, delivery date, payment terms, key legal provisions that will govern the purchase
5. Identification of consideration
▶ There must be a value exchanged for the contract to be legally binding
▶ So, I am paying my vendor x amount in exchange for the goods he is providing
A contract can be legally enforceable if what elements are present?
1. Mutual Agreement
▶ Offer and acceptance
▶ When a buyer places a PO, that is an offer to buy goods
▶ When the vendor (seller) acknowledges the PO, that is acceptance
▶ NOTE: soliciting quotes for COGs is not an offer to buy
▶ A contract requires a legal purpose.
For example, a contract to harm someone violates a legal statute and is not valid
▶ There has to be an exchange of anything of value.
So, it can be products in exchange for services or money. Or even services in exchange for services or money
▶ The parties to a contract must be legally competent to enter into the agreement and perform the obligations
▶ A minor or a legally insane person do not have capacity
What are the types of contracts?
1. Purchase Order:
The PO is the most comment type of contract used in the procurement field.
Can be used for recurring purchases or a one-time purchase. It will generally contain:
▶ What is being purchased
▶ Price being paid
▶ Terms of delivery
▶ Specific requirements of the order (i.e., legal terms and conditions, payment terms)
2. Master Purchase Agreement (MPA) or Master Services Agreement (MSA): these are usually long agreements that can serve as an overriding contract for goods/services
▶ PO usually still issues for each unique order
▶ Letter of Intent (LOI): Used when parties are seriously working on a final contract and want to put their preliminary effort into an agreement
▶ Non-Disclosure Agreement (NDA): Confidentiality agreement that protects sensitive information
What are some important provisions?
1. Legal Venue:
Where does a dispute need to be handled?
If you're in LA and the venue is listed as New York, NY, what are the ramifications?
▶ Think about ease of travel, different laws in that city or state, etc.
▶ What about when you're contracting with international suppliers? This may be quite difficult.
2. Assignability: The ability to transfer the contract to any future businesses you or the other party acquires
.▶ It's important for you to limit the supplier's ability to transfer the contract without your approval
3. Insurance: Make sure that the supplier carries insurance!
4. Liability Limitations: Suppliers will want to limit their liability for the products they are providing. These are really important provisions that usually get escalated to legal - you want the supplier to be liability and indemnify you for as much as possible to protect against any unforeseen circumstances (such as damaged goods, late or incomplete delivery, people being injured or harmed by the products the supplier produced, etc.)
What is expediting orders?
Refers to the process of following up with suppliers to accelerate the shipment of orders or to determine the status of a particular order and when it will be ready for shipment.
▶ Late production (air shipment vs ocean)
▶ Rush orders (rushing fee - line time)
▶ Back orders (partial shipment - split order/back order)
What has the procurement role has expanded to?
The role to control the entire sourcing and acquisition process
Requires not only the traditionally disciplined approach to managing critical business relationship but, also the ability to quickly understand and employ strategic new methods and tech
MUST BE A MASTER OF CHANGE
What is Standard Operating Procedures (SOP)?
Tactical procedures are the day-to-day methods the organization employs to convey its requirements to the supplier
What is generally used to describe material requirement for goods and services?
Goods -> Specification
Services -> SOW
What does Cash position relative to the overall economy often determines when>>>
New tech can be acquired or when additional product lines can be launched
What is JIT stand for?
Just in Time
What's SMI stand for?
Supplier Managed Inventory
A well-run operations and eliminate waste and non-valued added cost
What does Sales and Marketing do in procurement?
Provides critical data to operations and can be the basis for developing supply management strategies
-The timing of a new product launch typically generates requirement for additional capital equipment and marketing material
What happens to supply and demand when change occurs?
Can trigger decisions to hold acquisition plans for later or to accelerate them in the face of a temporary opportunity
Price is rarely in equilibrium
_________ requires the implementation of business processes through procurement activities that reduce cost and increase life-cycle value?
_______ are initiated by an internal user based on some planned and budgeted need that can be justified by a specific operational purposes?
What is Minority Business Enterprise (MBE)?
Suppliers, which are classified as minority or disadvantage businesses or sources which a certain geographical region or national boundary, to enhance your organization's own competitive position in these areas
What are the types of purchases request?
- Requisitions: Docs generated by the users or user department containing the specific information outline in the preceding paragraph
-Catalog Ordering: Is another automated method for ordering standard products
->Users accesses a listing of products available for ordering within the organization's electronic requisitioning system
->Are most commonly transmitted in real time directly to the supplier through electronic media
-Electronic Data Interchange (EDI): Its European counterpart maintained by the United Nations (EDIFACT) is a process widely used by large organizations and gov entities and their trading partners
-MRP & System-Generated Orders: Material requirements (MRP) systems or the somewhat newer version, manufacturing resource planning (MRPII), typically used in manufacturing operations, generate automated requisitions or special electronic listing of current and planned requirements that can be transmitted directly to a supplier
Wha are 2 keys considerations that must be addressed in any system for placing orders with suppliers:
-The format used to convey the order to the supplier
-The priority of placement
How to format ordering?
Each method had its own specific requirements, as you can see from the following: POs, blanket POs, contracts, credit cards, and system-generated orders
What is blanket POs?
Covers a procurement commitment to a supplier for specific products or services at an agreed-upon price for a set period of time or for a limited quantity or spending amount
-Eliminate many smaller orders so as to minimize the amount of paperwork processed
What is a procurement card?
a corporate credit card that employees can use only at designated suppliers to purchase specific kinds of items
Reduces the time it takes to place an order as well as the cycle time for payment to the supplier
National Association of Purchasing Card Pros adds additional savings can accrue through:
-Supply base consideration
-Reinforcement of general purchasing best practices
-A significant source of spend info
-Streaming payees in the accounts payable system
-An opportunity for suppliers to streamline their processes
-P-card is the limited amount of control over where purchases are made
What is system-generated Order?
There are a variety of orders that are generated internally through various planning and scheduling systems such as MRP or other automated inventory replenishment systems
What is an SMI program?
A relative of system-generated orders, insofar as replenshment signals are controlled by the supplier based on a negotiated levels of inventory or the receipt of incoming orders
How does manually order process goes?
Buyer must determine proper authorization, est the source of supply, and review requirements for legality and conformance to applicable regulations such as those related to EPA and OSHA
What is the FIFO method?
First in first out
Orders received in the buyers' queues are prioritiezed by the orders of receipt so that the oldest one becomes the next to be placed
What is the priority system?
Priorities are est within the department to address specific needs
Jeopardize employee health require immediate attention, and buyers are required to put other work aside to address them
Separate priority is often assigned to orders with specific lead times so that user needs can be uniformly accommodated
What is cycle time?
Buyers' performance metrics for orders based on the date and time receieved and the date and time place with the supplier
will provided incentives to the buyers to place easy orders first - the ones requiring the least amount of sourcing or negotiations - to reduce the average turnaround time in the queue
What does a budget can be viewed as?
An organization's spending plan, budgets are allocated to specific departments or functional areas, cost centers, or projects, and incoming goods and services are charged against those accounts
Which department usually manages the control and allocation of expenses and is responsible for categorizing and reporting actual expenditures?
What is considered to be the benefits of having an effect on internal control systems?
Enables you manage significant risk and monitor the reliability of financial and operating info
What is the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
Developed a list of internal control questions to help senior executives and directors gain a better understanding of their organizations' control systems
What are some characteristics when it comes to competitive bidding?
-Corrections and clarifications
What are some bidding traps that can happen?
When a supplier intentionally bids for a new product without associated tooling or start up costs, thus providing a price that the more forthright compeition cannot possibly meet
What is a Reverse Auction?
Has enabled the acceleration of bidding from what formerly took months to a mere few days
"Reverse" bc the roles of buyer and seller are reversed, requiring the suppliers to bid down the price and the lowest price, rather than the highest price, wins the bids
An auction serves the additional benefit of ensuring to the buyer that fair and reasonable price has been est
What are cost categorized as?
Are those expenditures directly incorporated into the product or service being delivered to the end customer
The elements of cost that are associated with the organization's operation but not directly with a specific product or service
Cost remains constant
A cost that increases or decreases in relation to production or service volumes
- >Semi variable
Costs that change in response to changes in operational levels but not necessarily on a uniform basis
What are overhead costs?
Usually called general and admin expenses on the profit-and-loss-statement, are those costs generally connected with any eration of the organization as a whole and cannot be directly connected with any specific operational activity
What is total cost?
Of acquiring and using material or services
What is landed price?
Cost of transportation and customed duties
What is standard cost?
Are planned cost to manufacture specific products or to provide a unity of service, as defined for a specific time, either at the present time or for some specific date in the future
What is soft cost?
May or may not result in a benefit to the organization
What is hard cost?
Savings that are actually reflected in a lower price paid for an item or the elimination of specific headcount are
What is Return on total Assets (ROTA)/Return on Net Assets (RONA)?
are measures used to determine hoe effectively capital is deployed within the organization
What is Net Operating Margin (NOM)?
Reflects on the profitability of the organization by calculating the percentage of its total operating income (sales less direct cost) to its overall sales
What is current ratio?
current assets divided by current liabilities
What is the quick ratio?
A ratio which focuses even more precisely on the question of whether a company can pay its immediate debts.
What are the most valuable tasked performed by Procurement?
Developing bids & proposals
Evaluating supplier's response
Selecting the supplier that provides the greatest value to your organization
What is the requisitioner's responsibility?
If there are no formal processes within the organization for developing specifications
The individual initiating the request- to supply sufficient info to the procurement department so that the correct product or service is purchased
What is a cross-functional team?
Chartered within the responsibility to define and document the organization's specific need in that particular situation
When does the customer's input comes to play?
What is document control do?
Specifications and subsequent changes for standard products and services are usually documented and filed for physically maintaining the organization's specifications
What does direct materials used in manufacturing organization usually mean?
An engineering group or research and development group closely associated with making the product being shipped to the organization's final customer
Why is the supplier would be best to help formulate requirements, despite being a conflict of interest?
The supplier is the best position especially where there is no internal core competency in a particular commodity area
What does 3rd party consultants do?
Are experts in a particular industry or commodity to assist with the development of requirements and the writing of the specifications due to their unique domain knowledge
What are 2 elements of consideration when developing a specification?
1. An actual description of the product or material in terms of its physical characteristics, what it look like, functionality
2. There is an element of quantification that evaluates the level of performance
what is mean time between failures? (MTBF)
For equipment and the allowable number of rejected parts per million (PPM). Are typically systemized into an inspection process for determining acceptance at delivery and subsequent payment
What are technical specifications can be described as?
The physical characteristics of the material or product being purchased, such as dimensions, grade of materials, physical properties, color, finish, and other data an acceptable product
What are functional specifications described as?
Define the job to be done rather than the method by which it is to be accomplished
-Do not limit the supplier to providing a specific solutions, as in the case of a technical specifications, thus enabling the supplier to create the best possible solution
What are the performance specifications?
Which describe the parameter of actual performance the item or service must meet
You are primarily interested in the results rather than in method
What are common parameters?
What is benchmarking?
Provides a measurement as a guide for est a specific requirement
Can be a detailed process for determining how one organization is performing in relation to other organization
What is stastical process control?
method by which process variation is measured, tracked, and controlled in an effort to improve the quality of the process.
● Involves time-series analysis to improve the quality of the process
What is process capability?
Compares the actual process range of variation
-More than 1.00 indicates that the supplier's process is in the better control than the buyer requires, while a Cpk of less than 1.00 indicates that the suppliers will produce greater variation that the buyer will allow
What are characteristics of description of the work to be performed?
-Generate a detailed design for the lab work ares
-List all work to be performed by the nature of the subcontract required
-Submit work specification to at least 3 application subcontractors for each major trade
What are terms and conditions define as?
The contractual obligations of the suppliers and the procurement organization
Will be included in all solicitations for quotations, they should be considered an intergral part of the specification
What does Customization typically adds to?
COST so the purchaser is well advise to investigate if this is truly requires
What does specifying a brand name limits what?
Competition and thus increases the likelihood of higher prices
One way to avoid a trap is to specify the brand name and include the verbiage "or equivalent" to allow for greater competition
What should the supplier should be concerned about?
With the size of the supplier; perhaps the organization would receive better service from a smaller supplier, where the volume of business would have more leverage
What is LC (Letter of Credit)?
Usually contains provisions triggering an automatic payment from the buyer's bank upon documented proof of shipment or at some specific predetermined time intervals
Most _____, including the US, charge _____ for the import and export of certain types of goods
The ______ supply chains typically require higher levels of inventory to buffer the long lead times and potential fluctuations in demand?
What is the Convention on Contracts for the Int Sale of Goods (CISG)?
Est uniform regulations in an attempt to standarized the rules governing international commerce but has not yet found universal acceptance
What does Open Competition said to?
Exist when there are multiple suppliers available to fill your specific requirements, and they are willing to vie for your business
What is sole-source situation?
The exact opposite of open competition
Often the result of a government-created monopoly, such as a local utility and there is little the buyer can do to gain concession
What is a single-source situtation?
A condition created by the buying organization, either through product customization where only one supplier is capable of producing the product
What are co-sources?
Multiple sources are sometimes used by the same organization either to foster competition or bc no single supplier is capable or fulfilling 100 % of the requirements
What is a consortium?
Small groups of buyers band together to purchase joinly and contract with suppliers as a single entity
What does the integrating supply mean?
Buyers can often provide service benefits, such as desktop delivery for office supplies or online procurement
What do you do when a specific info does not exist?
Proposals are often requested through a formal request for proposal (REP)
What happened in a prebid conference?
It is where all potential suppliers have the opportunity to recieve a briefing on the bid package from the buying organization's staff, should be used when the requirement is relatively complex
It can also be time consuming for both parties
Schedule a conference far enough in advance so that all parties may attend and so that you can have the right personnel available to provide answers
What is sealed bid?
Is an offer submitted in a sealed envelope that is opened with other bids at a previously designated time and place
The bid process may be open to any qualified suppliers that wishes to enter a bid
Or the bidding process may be open to only a specific group of suppliers
What are government contracting requirements are often>>>
Posted in a public bidding doc or online
What does automated bidding do?
Outbidding in this case means submitting realtime offers that go below the prices submitted by their competition
-Usually the lower bidders obtains the order
What is RFP (request for proposal)?
Is used when a specification or SOW has not yet been developed, or when the buyer has a general requirement and wants to solicit various ideas on how the requirement can best be met
The language of the RFP usually allows the supplier some freedom in determining the most effective solution and often enables the suppliers to est the specification
-Where modification is required to a product to meet some specific requirement and we have no particular solution in mind, RFP comes to play to solicit proposed solutions to the modification
-Often provides a framework that you can use to compare proposed solutions and evaluate proposals and to help you and your team select the most qualified source
Sections to have in it:
What is sourcing list?
Most organizations maintain listings of suppliers with whom they have est some form of the business relationship
What is an enterprise resource planning ERP?
Software has greatly aided this process
What is a supplier master record?
The database that maintains info about the suppliers such as their address, key contact personnel and payment terms
What is an environmental analysis?
Is another traditional element of the strategic sourcing plan?
What are some opportunity analysis will cover several elements:
- Determine how and with whom we are spending our funds
-Review spending history to find multiple items that are very similar
and can be specific to a single item
-Identify poor supplier performance
-Investigate Outsourcing Opportunities
-> Business process outsourcing (BPO) specifically, is a well est, a significant component of strategic sourcing
What are the primary objectives for outsourcing?
Reduce cost through lower wages for labor
An extension of the organization's capabilities, a more specialized workforce, greater spend visbility, up-to-date tech, temporary personnel, and importantly, the ability to meet variable demand without having to add employees
What are some important details that should be identified when developing an operational sourcing strategy:
If the "as-is" situation is not described in the SWOT, this may generate a need to conduct research
There is a gap between our needs and the situation in the market
-We need to identify this gap in specific terms
-Plan to bridge the gap
What is tactics?
Is employing the appropriate means available to meet the goals defined in our sourcing strategy
What makes an acquisition critical? What are number of factors?
-Items that directly support organization's primary business
-Items that are tailored to the organization's specific requirements
-Items that cannot be substituted
-Items whose demands is difficult to forecast
What is a solicitation?
Is the process of resquesting bids and proposals from potential suppliers
Is driven by the nature of what is being acquired and the makeup of the supply base in the particular market in which we are sourcing
Goods and services we typically source will have one of 3 possible general characteristics, determined by
the statement of work or specification, and the nature, and the nature of the nature of the market we discover the market we discover during the market analysis phase
Based on the Federal Acquisition Regulations
What are the 3 category of product?
1. The product or service is commercially available
"The product or service is available "off the shelf""
2. The product or service is commercially available but will need some modifications to meet our requirements or specifications
3. There is no commercially available product or service that can be used to meet our needs
-We will require one that is fully customized to meet the specific need
4. We generally exclude from these categories is the acquisitions of professional services, such as engineering or consulting
What are some characteristics when it comes to customization?
-Injection molding, application-specific integrated circuts (ASIC), and metal stamping, serve the custom need for producing specialized components in practically all industries
-We can use an RFQ, conduct a reverse auction or engage in competitive negotiations
-The purpose is to gain a better understanding of the supplier's position and capabilities
What is the issue when using mail or courier, especially FedEx and UPS?
Typically arise from this method are ensuring that the request get to the right individual and the answers get back to the originator
What is "expression of interest"?
Is solicited through newspaper ads or through industry and gov publications
Mostly in cases where the methods is required by law
What is crowdsourcing?
Works through posting a set of requirements on a specialized job board?
Evaluating a supplier's offer means not only evaluating its bid or proposal from a cost perspective but also means?
Evaluating the supplier's ability to perform to the required level of speed and quality
The buyer reviewing a supplier offer evaluates 3 key criteria before reaching a decision to award the contact to specific supplier?
The evaluation process can be best performed in a what?
Cross-functional team environment where individuals perform seperate evaluations but some together to develop a consensus opinion
How to evaluate a supplier in an operational capacity?
A simple ratio of current output to capacity can provide a valuable indication of their ability
-Need to ensure that the supplier has the ability of systems to properly schedule order and keep track of current production operations to meet its customer's commitments
How to evaluate a supplier in a financial analysis?
- Measures of liquidity:
-> Current Ratio:
Tells you whether an organization is able to meet its current financial obligations
-> Calculated by dividing current assets by current liabilities
-> Quick Ratio:
Measures an organization's ability to fund its short-term financial obligations through its most liquid assets
->Calculated by taking current assets less inventories / current liabilities
->Receivables Turnovers Ratio:
Calculated by dividing net sales ($) by receivables
->Payables turnover ratio:
How long it takes, on average, for an organization to pay its bills
-> Calculated by dividing the cost of goods by payables
-> A low ratio may be a sign that the company has chronic cash shortages
-> Debt to equity ratio:
Calculated by dividing total liabilities by total equity
-High debt to equity ratio could indicate that the company may be over-leverage
How to evaluate a supplier's productivity?
-Quick evaluation by calculating the net revenue per employee
2 other measures commonly used:
1. Receivables turnover ratio:
-Measure of how fast the organization is able to collect its outstanding accounts receivable, often a reflection of the liquidity of its customer base
-Divide the current accounts receivables amount by the annual credit sales / 365
2. Inventory Turnover Ratio:
How many times a business's inventory turns over, was sold and replaced
-Higher number indicates that inventory is moving quickly and being minimally stocked
-Divided the cost of goods sold by the average value of inventory
What is a market share?
Total available market for a given product or service that the supplier has captured in terms of revenue
When you evaluate service; what will you look at?
-Full support for just-in-time delivery
-The flexbility to accomodate rush orders
-Strong engineering and design support
-An accommodating credit policy or a guarentee of satisfaction
-Responds to unexpected situations
What does quality mean in a sense for the buyer?
Conformance to specifications
Perceived value and desireabllity
When you evaluate ordering process and fulfillment; what will you look at?
-Systems employed for entering and verfying customers orders, level of automation and reliabliltiy
-Methods used to prioritze orders
-Processes used to schedule orders and monitors delays
-Comparative length of backlog
-Flexbility in meetings spikes and valleys of incoming orders
- Training and expertize of the staff
When you evaluate operations; what will you look at?
-Degree of automation and tech enablement
-Complexity of the product line
-Flexibility to fulfill additional requirements
-WIP tracking and lot tracking ability
-Record keeping including technical specification control
-Reliability of suppliers and methods use
-Training and expertise of staff
When you evaluate quality systems; what will you look at?
Quality systems: Consist of the methods used to ensure current quality and the process employed for longer-term improvements
-Systems used to evaluate and control quality
-Management commitment to quality improvement
-Processes employed for continuous improvement
-Internal and External audits
-Measures and methods used to determine customer satisfaction
-Supplier quality engineering
-Training and expertise of the staff
-Training programs for employees
When you evaluate cost control; what will you look at?
-Ability to properly account for cost by job
-Systems used to allocate costs by task
-Effectiveness of cost control inititatives
-Performance of value analysis
-Adherence to accepted standards of cost accounting
-Est of aggressive company-wide goals
-Ability to manage cost various to limit margin loss
When you evaluate finance; what will you look at?
-Effective profitability management
-Strong balance sheet
-Excellent credit ratings
How to look to evaluate listed above:
-Annual Statement and reports
-Ratio of current liabilities to current assets
-Cash Flow Statement
When you evaluate management; what will you look at?
-Evaluate the management team and its style of management to determine an organization's compatibility with that of your organization
-Management's commitments to other customers and to suppliers
-Management's maintance of long-term and short term needs
-Management's commitment to sound environmental practices and adherence to a code of ethics and social responsibility
What does looking in the supplier's balance sheet say about them?
1. The learning and growth perspective
2. The business process perspective
3.The customer's perspective
4. The financial perspective
What's a weighted average scorecard?
Defines critical areas and attempts to develop an objective, average score based on the opinions of the various team members
-During the initial development of the weighted-average matrix, the team assigns % to each of the major sections
Cost, qualitiy, tech, and services
What is weighted bid analysis?
It weighs one suppliers bid in comparison to others by transforming the value of their offer to some equivalent % based on their demonstrated performance or added value
What are some problems when it comes to the contract portion in procurement?
Verbiage, issues regarding under specifications, lack of supplier performance, and unseen financial obligations plague many organization
What do a properly admin purchase order (POs) and contracts also require close attention to?
Detail so that the supplier's compliance with the terms and conditions adds the full measures of values that were originally intended by the organization
Services in a sense of legality it is covered by?
State Laws, which establish precedents that can help resolves disputes
Goods are considered personal property and is covered by what?
Article 2 of the Uniform Commericial Code (UCC)
-Was developed to provide a measure of standardization in the laws of commerce between the states and has been adopted by 49 US states
(Except Lousisiana & DC)
What is satutory law?
Covers act regulations enacted by the US Congress and State legislatures
What does a written contract must contain?
Identification of the other party as the individual responsible for the contract
Some from of signature of the above
A clearly identified of the contract
Specific terms and conditions
Identification of the consideration (as an exchange of value)
If a contract to buy $10,000 worth of parts has not yet been commited to writing and is canceled by the buyer after $2,000 worth of parts has been recieved and accepted, will the seller be able to force the buyer to honor the entire contract?
Since the value of the remaining portion of the contract exceeds $500 and there is no evidence in writing of any contract, the buyer is under no obligation to honor the original agreement
What is a determental reliance applies to?
When it can be shown that reliance on the oral promise will produce substanitial or unconscionable injury to the promise or will unjustly enrich the promiser
Oral promise to its determent is generally not considered sufficient reason to entitle it to enforce an oral contract
If an oral contract not required to be in writing (goods under $500) is modified to the extent that it falls within ?
The Staute of Frauds
The contract must be in writing to be enforceable
True or False:
Faxed signatures and documents, along with electronic data interchange (EDI) transactions, are generally considered reliable evidence of contractual obligations, other forms such as e-mail have yet to be fully accepted as legal
In order a contract to be legally enforceable ..
It is commonly agreed that 4 key elements need to be demonstrated:
1. Mutual Agreement
If a seller extents an offer in the form of a quotation but they buyer requires modification to some of the terms, it is considered a ?
Counteroffer rather than an acceptance
A solication is?
Not a offer to buy
What is one way to think of consideration?
Is by referring to the quid pro quo
What is the most common form of contract?
Most commonly required an audit trail
What is a blanket PO?
Indefinite delivery contracts, are used when the buyer wishes to est set pricing and terms but does not yet wish to place orders for specific quantities or delivery times
Requirements or indefinite-delivery contracts are?
Used when the buyer wishes to lock in pricing or lead time in exchange for a commitment to purchase all of the organization's requirements
-But specific quantities and delivery dates are not yet known
What is the definite quantity contract specified?
The amount being purchased during a given time frame but not the specific delivery dates
What are most fixed-price contract types are defined in the?
Are defined in the Federal Acquisitions Regulations (FAR) as they apply to gov purchases; however, they are commonly adapted for commercial use by procurement departments
-Which prices are agreed to in advance of the performance
What are the 5 types of fixed-price contract?
1. Firm Fixed Price: The price is not subject to adjustment
2.Fixed price with Incentive: A profit formula is est based on target cost and target profit within an agreed-upon max price
-Provides an incentive to the supplier to hold down the costs and thereby increase its profits
3. Fixed Price with Economic Price Adjustment: Allows pricing to be adjusted upward or downward based on est contingencies such as escalating labor and material rates
4. Fixed price with price redetermination: used when prices are anticipated to change cannot be predicted, such as during startup operations
5. Fixed price, level of effort: Is usually used in situation when the precise amount of labor or materials is unknown but the parties can agree on a standard level of effort & given price
What is a cost reimbursable contract?
Primarily used by organizations and large corporations as an inducement for supplier participation in situations where the initial research and development engineering or capital investment may be very high and the financial risk great
What is a cost plus fixed fee?
Contract that allows the supplier to recover actual cost plus a fee negotiated prior to the contract's inception
What is a cost plus incentive fee?
Provides an initially negotiated fee with a formula-based adjustment that reflects the relationship of total allowable cost to total target cost
What is a cost award fee?
Additional incentive for the supplier to produce excellent results by enabling the buyer to make a financial award in addition to the cost and negotiated fee
What is cost sharing?
Generally used in a partnering relationship where all parties share the cost and the accruing benefits according to a negotiated formula
-Is similar to a joint venture, where all parties own a portion of the operation
What is a cost only?
Covers reimbursement only for actual costs, w/out including a fee
What is a Time and Material Contract?
Used when there are no acceptable ways to determine what a fair and reasonable price may be for a particular project
What is the most common elements of an LOI (Letters of Intent)?
- Price and Terms
- Time and Conditions
- Binding or nonbinding clauses
- Licensing Agreements
-> Those can include:
-Partially Exclusive License
-End-user license agreement (EULA)
What are consigned Goods Contract?
Increasingly common for organizations to require suppliers to stock inventory at the buyers' sites to support rapid delivery
What is Supplier-Managed Inventory (SMI)?
Are included in a contract covering specific conditions, such as when and under what conditions the transfer of ownership from the supplier to the buyer takes place, which party bears the financial liabillity of loss during storage or potential obsolescence, and the general payment terms.
What are some other types of contracts:
-Master Supply Agreements
-Master Services Agreements
-Nondisclosure Agreements (NDA)
-Commercial Lease Agreement
What happens when there is a contract and there are different from each other but is for a particular service?
Conflicting terms, generally considered self-canceling, that is, they dont apply
-Under most circumstances, standard terms contain in the UCC become the default provision
What is an agent?
Is an individual with the authority to act on behalf of a principal, in most cases an employer
-Your organization may be legally bound by the terms of any contract you have formed
-Your organization will hold you personally responsible for any amount exceeding your designated authority should any liability arise
What is an apparent authority?
It differs from actual authority insofar as no specific charter is given to perform designated duties other than those typically associated with buyers' duties through common business practices
What is an example of an limited authority?
What does a legal counsel looks at when reviewing a contract?
-Intellectual property rights
-Reviews and Claims
-Reservation of rights
-Force Majeure (Outside of human's control, war, end of the world, natural disasters, etc)
What are some papers that Procurement Department keep and maintain?
-POs and Contracts
-Supplier qualification records and periodic reviews
In any business transaction involving a commercial buying and selling requires both a valid offer and acceptance. There are 2 elements that typically lies a gap of expectations and requirments:
1. Your budget
When is negotiation is most likely to occur?
When conditions for competitive bidding are not present, such as when there is a sole-or single source situation
Competition can be evaluated from a number of perspectives:
-Number of qualifiable suppliers in the market
-Impact of the buyer
-Barriers to entry for the particular product or service
-Ability to substitute
-Role of market force
What is one of the fundamental keys when it comes to a successful negotiating fees?
Why is it important to have the right fact in terms of negotitations?
Can preclude the supplier from springing negotiation surprises as tactics
What is one of the best practices in preparing for and actually conducting negotiations is to>>>
Continually ask questions whose answers provide a better understanding of the situation and the needs of both parties
-Helps control the pace and directions of the negotiations, useful when you need to bring the discussion back to its key points
What are some common tactics when it comes to negotiatings?
-Generally, more can gained by listening than by talking. Accordingly, take copious notes and review them frequently
-Question how your statements will align with your objectives-pronouncements can be pointless or even counterproductive
-Avoid accepting the first offer
-Always ask questions, especially when there is useful information to be learned
-Do not make concessions without receving equal consideration. This does not necessarily mean that each and every concession need result in some consdieration ... but do keep track
-Attend to deadlines; est them sparingly and only when necessary
-Keep your wits about you and avoid reacting emotionally
-Issues need to be prioritized. When reaching an impasse on one, park it for a while and go on to the next
-Take breaks whenever you feel the need. Do not attempt to fight fatigue
-Refrain from bluffing, and use only data you can prove. Imagine the embarrassment and loss of face that could result in being discovered
-Last and final offers should mean exactly what they say
-Understand use body language as a communication tool for your advantage
Documentation should be approached from 2 points:
1. documenting the negotiation plan and its objectives and comparing the objectives to the actual outcome as a way of determining the team's effectiveness
2. Providing an executive summary of the actual negotiation so that auditors will be able to assess its impact, and providing an executive summary of the actual negotiation so that auditors will be able to assess its impact, and approving authorities will be able to understand what you are requesting
What is Contract Administration?
Officially begins at the time the contract is signed, although the department's involvements may extend into the earlier contract formation phase
-The central focal point for contract compliance is met requirements of the internal customer
What is a way ensure your supplier's performance?
Talk to employees and departments directly affected by the supplier's performance, to provide day-to-day operational information such as quality evaluations and on-time delivery reports
What is Supplier Relationship Management (SRM)?
To describe the activities related to monitoring and improving supplier performance
A pro procurement must set a firm to??
Proactive approach to monitoring day-to-day activities within the context of continuing fiduciary due delligence, ensuring that internal users receive the benefit of the bargin in good faith
Project Management is the application of?
Knowledge, skills, tools, and techniques to a set of activities in order to meet the detailed requirements of the project
What is a Grantt Chart?
That graphically tracks the progress of the project by illustrating on a calendar when events are scheduled to take place, how long they will take, and when they are expected to complete
What happens when you want to change after the contract?
Involves with revised specifications or additional requirements are monitored and documented through processes known by a number of names, such as engineering change orders (ECO) or specification change order (SCO)
Recorded by the Document Control Department or through the quality engineering group
What is a warranty?
Is a seller's guarantee to the buyer that if that product or materials beings sold does not perform as specified, the seller will take a particular remedial action
Types of Warranty:
-Express Warranties: provides specific assurances regarding the performance of a product or service
-An implied Warranty: Is provided by rule under the UCC simply by offering goods or products for sale, even when there is no mention of how the product will be expected to perform
What are the 2 types of implied warranties?
1. Merchantability: Means that the seller implicitly warrants that the product is fit and suited to be used for the ordinary purposes for which it would be purchase
2. Fitness for a particular purpose: Means that if the seller knowns the intended use by the buyer for the goods being sold, the seller then warrants that the goods will be suitable for that purpose
What happens when the contract is breached?
The UCC gives the buyer the right to ask the supplier of goods for adequate assurance that it can perform to the contract, should the buyer have reason to suppose that it will be unable to do so
What is anticipatory repudiation?
Occurs in situations where, prior to the time the performance is required, the supplier informs the buyer that it will be unable to perform
What are the purchaser remedies when the seller breaches the contract?
Under the UCC, the buyer has the right to be "made whole"
Several categories of damanges may be appropriatetly claimed by the buying organization as a result of loss:
What are the seller remedies when the buyer breaches the contract?
- Contract recovery
- Recovery of lost profits
What is hold harmless?
Language that places the liability for damages on the other party
Supplier contracts will often require that the buyer hold them harmless from any 3-party suits arsing from the performance of its obligations
What are ways that you can minimize the risk of loss or damage in shipment?
-Use a 3rd party logistics provider to leverage greater volume for improved service and faster recovery
-Specify terms that pass title to your organization only upon delivery to your facility. Keep in mind that the passage of title and who pays the freights are 2 separate specifications
-Specify your own packaging requirements
-Require shipment of the entire order prior to payment
What is mediation?
Is most commonly used method outside of the court system for reaching settlement in a dispute
What is arbitration?
a settlement negotiated by an outside party
What is project management body of knowledge (PMBOK)?
Is a collection of processes and knowledge areas generally accepted as best practices within the project management discipline
What are the 5 basics process groups and 9 knowledge area typically of almost all projects?
1. Project initiation
2. Project planning
3. Project execution
4. Project Controlling
5. Project Closeout
9 knowledge area:
1. Project integration management
2. Project scope management
3. Project time management
4. Project cost management
5. Project quality management
6. Project human resources management
7. Project communication management
8. Project Risk Management
9. Project procurement management
Project management processes are typically described in what terms:
-Inputs: Docs, plans, designs
-Tools and techniques: Mechanisms applied to inputs
-Outputs: Docs, products
What Work breakdown structure (WBS)?
Proven approach to effective project planning is the development of a project
Building a WBS help:
-Provide a detailed illustration of project scope
-Create accurate cost and schedule estimate
-Build project teams
what is CPK used for?
Process capability Index. Entails comparing the performance of a process against its specifications
A process is capable if virtually all of the possible variable fall within the specification limits
What is an 6 sigma?
Is the quality movement and improvement program that has grown from TQM
1. Define customer requirement and improvement goals
2. Measure variables of the process
3. Analyze data to est inputs and outputs
4. Improve systems elements to achieve performance goals
5.Control the key variables to sustain the gains
What's MRP/ ERP?
It stands for Material Requirements Planning. ERP is a system that is considered some of the most powerful tools available to the organization that needs to plan and manage manufacturing operations and control inventory. It is used to determine when to place orders for standard materials so that they arrive exactly when needed.
It stands for Electronic Data Interchange. It is widely used as a process for exchanging data related to procurement between computers It is typically conducted between trading partners who have already negotiated contracts with one another.
It refers to the processes used to exchange various procurement-related information between organizations that are using the internet to transfer data.
It is considered to be one of the most logical steps in reducing a transactional processing load in the procurement department.
What's an e-catalog? Give me an example of an e-catalog where you would purchase goods?
An e-catalog is an electronic catalog. It is formatted like a regular catalog that you see in print but it is formatted that you can see and use on the internet, instead of making a call. A perfect example when ordering an e-catalog is looking at your options on vendors and the goods and services they provide on their page on Alibaba.
What's Automated RFP,RFI, & RFQ?
It is essentially pre-made templates that send out to suppliers so that way it eliminates the time to do one individually to the vendors you want to seek out towards.
What is a Make or Buy Analysis?
It is a process that determines if the organization should or should not produce a particular product or service in-house or a third-party supplier and simply give their money for them to do it.
What's a Viability Study?
It is when a business is evaluating the supplier to see if they can meet the requirements that they are looking for.
What are the Benefits of Buyer versus the Benefits of Leasing?
Benefits of Buyer:
-No fees for early termination
-Can be sold at any time
-Total costs are lower over time because the use of the equipment can be extended far after it is been paid for
Benefits of Leasing:
-Little to no cash to obtain the equipment
-Payments are considered expensive and may provide tax advantages
-Several disposal options at the end of the lease
-Tiny fear of obsolescences
What is direct material and what is indirect material?
A direct material primary means for raw materials for the goop. Indirect material is the type of material that isn't the product but materials to make the product become its final form.
What is Cycle Counting?
It is physically counting inventory to ensure accuracy of how many SKUs are in one location.
Why would you want to dispose of Surplus assets? What are surplus assets?
Surplus Assets are when there are too many of a certain thing. That can be material, scrap, or no longer in use equipment. You want to dispose of those surplus assets is because there is no longer in use. There are different ways to dispose of those surplus assets can it can be helpful to keep what is needed and those that need to get rid of.
What are Finished Goods and how is it different from WIP?
Finished goods are goods that are already assembled and ready to be on the shelves. WIP stands for Work in Progress. WIP is goods that are in "the oven" waiting to be ready to be on the shelves. That needs to be assembled.
What is Logistics? What is the difference between Military Logistics, versus Commercial Logistics?
It derives from an ancient French Military term for soldiers' barracks or quarters, Logistics is the process of strategically managing the procurement, movement, and storage of materials, parts, and finished inventory through the organization. Military Logistics is about how to manage and when to move resources to the places they are needed. Commercial Logistics is when an organization is strategically moving goods and services from starting point to finish.
What are the different available modes of transportation and give a brief description of each.
A) Air: It is typically referring to aviation or airplanes.
Airfreights services are Federal Express, UPS, & DHL.
B)Water Transport: Goods that are carried by boat.
C) Pipeline, oil, and gas: This is a significant element of the US transportation system. It is usually transportation that is powered by petroleum. Pipeline operates 24 hours, 7 days per week.
D)Rail: Refers to land transportation of passengers and goods on railroads. Amtrak is the typical railroad company that does the transports of goods in the US.
E) Road: Transporting goods in a truck on the highway from point a to point b.
Tariff is a type of tax that is imposed by the government on imports and exports on goods. Each country varies on the tariff tax.
What's a Rules of Origin?
They are used to determine if the goods come from is no longer easy when raw material and parts criss-cross the globe to be used as inputs in scattered manufacturing plants
What's Anti-dumping Duty?
It is a type of tariff that the gov imposes on foreign imports it is believed that are priced below fair market value.
What's Ad Valorem Tariff:
Is a type of tariff that imposes in percentage over the value of the good
What's Rates of Duty:
It is when all goods imported into the US and are subjected to duty or duty-free entry in accordance with their classification in the HTSUS
What's the Sherman Antitrust Act?
Prevented monopolies or mergers where competition was endangered
What's Robinson-Patman Act (1958):
Barred direct or indirect price discrimination that would substantially reduce competition. It exclusively charges lower prices to certain customers simply because they purchase in larger quantities than other customers. It prohibits the purchaser from knowingly receiving a discriminatory price or forcing the supplier to provide one.
What's Federal Trade Commission (FTC) Act (1914):
Created the Federal Trade Commission to investigate illegal trade practices
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