1.2 Procurement Flashcards
Definition Procurement + Objectives
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- describes the methods/ processes of companies buying things externally (to provide goods and services for internal customers (eg materials, machinery, equipment, buildings))
- ensure flow of supplies to not interrupt processes of production
- optimize TCO/LCC for all goods and services
What does Strategic Sourcing include?
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What does Operational Purchasing include as tasks?
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- TCO optimization - identify potentials through make or buy evaluations
- negotiation supply agreements
- Supplier management
- commodity excellence (manage expenses and provide supply marke exertise
- handle supply requests and offers
- order placement and processing
- demand planning
What are the types of procurement?
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- direct material; internal customers are supply chain and production and influence production process directly
- indirect material; eg machinery, internal customers are staff, sales or laboratory; enables production or maintenance of plant
- finished products manufactured by third parties; external customers as recipients; complete companies product portfolio
Whats the Life Cycle Costs?
LCC
consider costs of utilization rather than before and after procurement
eg inspection, training, productivity, availability, lifespan, enegry, staff, tooling, facilities
Whats the Total Cost of Ownership?
TCO
all costs associated with procurement of direc material
= purchase price + Further (hidden) costs like those before during and after procurement
How do TCO and LCC relate to another?
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- both are calculation models to improve comparability of procurement alternatives
- LCC has stronger focus on costs of utilization than TCO
- TCO has stronger focus on costd before and through procurementW
When do we use TCO?
When do we use LCC?
TCO
- costs before and during procurement are high in relation to purchasing price
- utilization costs dont play a role or only secondary
LCC
- utilization costs are high in relation to purchasing price
Whats a contract manufacturer?
- someone who provides manufacturing services for another entity
What is the inhouse production depth?
What is the Share of value added?
- the share of internal production in comparison with overall output of goods (in house production /( in house production + procured goods ans services))
- if we have 0% here, we produce no goods but are only a retailer
_________ - internal share of value added is the share of internally generated added value
- = (turnover - procured material and services) / turnover
Whats…..
Offshoring?
Outsourcing?
- off: geographical shift; shift of activities to another country (onshoring: from foreign to us)
- out: organizational shift; shift of activities to another company
Difference between vertical and horizontal outsourcing
- vertical: moving activities upstream to suppliers or downstream to end customers
- horizontal: transferring activities to other enterprises at the same stage of production process
What are the benefits of outsourcing?
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- classic cost advantages based on higher efficiency (economies of sclae; economies of scope (clusters), economies of risk)
- cost advantages without higher efficiency; labor cos arbitrage; eg wage differences, labor cost differences in other countries
- soft cost advantages; less compelxity, access to know how specialists
Outsourcing and Make of Buy | Break Even
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- buy before break even point; make after break even point
- if costs for internal production higher than costs for outsourcing, then outsource
- if fully utilized, then outsource
Define….
- Module
- System
- several compontents containing different functions; units can be exchanged; part of system; medium variety
- functional closed unit having a main function; all elements need to be in relation with another; exchange possibility limited; very high variety
Whats the Benefits and Cons of
- On stock supply?
- procurement upon customer order?
- production synchronized procurement?
- less risk of shortages; no communication necessary; - need a lot of stock reach; no variation
- many variants possible for customer; no inventory needed; - long order lead times because complete purchasing cycle is integrated
- many varianty, short order lead ime; - most expensive; need emergency conept; need long term contracts
What are opportunities and risks of gobal sourcing?
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+ widen supplier base
+ less costs, eg labor
+ acces to know how and performance
+ penetrate new markets
- more ligistic costs
- misunderstanding possible
- distance = lack of control
- political risks or economical risks (external risks)
What does the Principle of Comparative Advantage State?
trading partners should focus on the production or service they are specialized in in order to realize comparative advantage (eg labor cost, know how, presence of natural resources, legislation, tech development)
Definition Category Management
management of a companies procurement related expenses by specific categories (type of use, location of use, location of origin; tools, dairy products)
Definition
- Category
- Commodity
- groups of goods
- trading goods / catalog goods
Benefits of the single sourcing approach?
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- stronger relationship; high level on integration
- need less to manage, simpler logistics
- volume discounts, better volume
You want to synchronize your products delivery with production.
- How is your inventory affected?
- What risks do you run with sychnronous delivery?
- reducing inventory lvs, minimize holding costs
- high dependency on suppliers reliability
Is this correct? Depreciation of assets is generally included
1. in internal share of added value
2. internal production depth
- Yas
- yes (dont include in calculation at all)
NOTE: assembly is to be included even though parts are external
Is this correct? The in-house production depth is a measure of the agility of the company
no, extend of internal production activities.
