7 Handout 1 Flashcards
The process of managing a broad range of procedures associated with a firm’s need to acquire goods and services required to manufacture a product (direct) or to operate the organization (indirect).
Procurement
The process which takes the procurement process further by focusing more on supply chain impacts of procurement and purchasing decisions, and works cross-functionally within the business firm to help achieve the organization’s overall business goals.
Strategic sourcing
It represents the choice between internal production and external sources.
Make or buy decision
It involves hiring a third-party external service provider to perform a business function that is traditionally performed in-house by the company’s own employees.
Outsourcing
Outsourcing non-core activities helps the business to concentrate on its core functions like sales and marketing.
Focus
Outsourcing is usually less expensive than keeping a business function in-house.
Cost savings
Outsourcing frees an organization from investments in technology, infrastructure, and people that make up the bulk of capital expenditure.
Reduced capital expenditures
Outsourcing can improve an organization’s reaction to fluctuations in customer demand and technological changes.
Increased flexibility
This involves losing sensitive data and confidentiality.
Security risk
This involves lesser to no control over operations and deliverables of activities that an organization outsources.
Loss of control
This involves unmatched capacities and inexperienced capabilities of outsourcing providers to perform outsourced tasks.
Quality problems
This involves delays and inaccuracies in the work output due to insufficient time or attention given by the outsourcing provider.
Loss of focus
This occurs when the outsourcing terms and conditions are not clearly defined.
Hidden costs
This occurs when the philosophy of the outsourcing provider and the location where a business outsources lead to poor communication and lower productivity.
Incompatible culture
This is the opposite of outsourcing. Insourcing involves performing previously outsourced functions, in-house.
In-Sourcing
This is used to develop the ability to take the function of a supplier or a distributor. The integration can be forward, toward the customer.
Vertical Integration
This involves a strategic placement of business functions or activities close to the location where products and services are sold to improve efficiency and reduce costs.
Nearshoring
This strategy involves establishing a long-term relationship with a small number of suppliers.
Few Suppliers
This strategy is used for commodity products in many cases where price is the driving decision factor and suppliers compete with one another.
Many Suppliers
These are formal collaborations between two (2) companies.
Joint Ventures
They use computer and telecommunications technologies to extend their capabilities by working routinely with employees or contractors located in several geographic regions.
Virtual Companies
This step involves classifying the procurement activities based on two (2) categories (direct and indirect) depending on the consumption purposes of the acquired goods and services.
Identify and review requirements
This is applicable to manufacturing activities only.
Direct procurement
This concerns operating resources that a company purchases to enable its operations.
Indirect procurement
This step involves enforcing particular provisions or standards according to quantity, price, and functionality.
Establish specifications
In the case of small-volume requirements, purchasers need to find a standard item.
Quantity
This relates to the use of the item and the worth of the product.
Price
This relates to the users’ perceived value from using an item.
Functionality
This step involves searching for potential suppliers or contractors from a variety of sources, including the Internet, catalogs, salespeople, trade magazines, and directories.
Identify and select suppliers
This shall be issued to let the identified vendors know that the company is interested in some trade agreement.
Request for information (RFI)
This is issued to selected suppliers to bid or quote on delivering specific products or services and will include the specifications of the items/service.
Request for quotation (RFQ) or request for proposal (RFP)
This involves the capabilities of the potential vendor to help in developing and improving products or services of the interested party.
Technical ability
This involves the consistency of the potential vendor in meeting standard quality and specifications.
Manufacturing capability
This involves the market reputation and financial stability of the potential vendor.
Reliability
This involves unsolicited support of the potential vendor in terms of technicalities.
After-sales service
This involves the proximity of the potential vendor to the interested party to address efficiently the cases where support service is needed.
Location
This involves setting a basis for pricing and negotiation to arrive at the optimum deal.
Determine the right price.
The value of the commodity is based on the expenses of the supplier to create the item or raw material.
Cost-based
The value of the commodity is based on published, auction, or indexed price. Index price is the average price of goods relevant to its given class or category.
Market-based
The value of the commodity is based on a public proposal with the intent that companies will put together their best proposal and compete for a specific project.
Competitive bidding
This step involves the delivery of proper documentation required to buy materials between a buyer and seller.
Issue Purchase Orders
Is specifically defines the price, specifications, and terms and conditions of the product or service and any additional obligations for either party.
Purchase orders
This is used for a single transaction with a supplier, with no assumption that further transactions will occur.
Discrete
This is used for orders containing multiple delivery dates over a period of time, usually with predetermined pricing, which often has lower costs as a result of greater volumes on a longer-term contract.
Pre-negotiated blanket
This requires suppliers to maintain an inventory of items at the customer’s plant and the customer pays for the inventory when it is actually consumed.
Pre-negotiated vendor-managed inventory (VMI)
This involves the use of online catalogs, exchanges, and auctions to speed up purchasing, reduce costs, and integrate the supply chain.
Bid and auction (e-procurement)
This involves a company charge card that allows goods and services to be procured without using a traditional purchasing process, sometimes referred to as procurement cards or pCards.
Corporate purchase card (pCard)
This step involves monitoring and managing scheduled delivery dates to avoid possible missed dates in advance where possible.
Follow up to assure correct delivery
This step ensures that proper physical condition, quantity, documentation, and quality parameters are met.
Receive and accept the goods
Approve invoices for payment. This step involves the approval of invoice for payment according to the terms and conditions of the purchase order (PO).
