AM Flashcards
According to the experts what is the definition of strategic sourcing?
Strategic sourcing is an organizational procurement and supply management process used to locate, develop, qualify, and employ suppliers that add maximum value to the buyer’s products or services.
What is the main objective of Strategic Sourcing?
The main objective of strategic sourcing is to locate and form relationships with those suppliers that best promote the strategic and operational goals of your organization.
How can Strategic Sourcing be used as an approach to supply chain management?
Strategic sourcing is also an approach to supply chain management that formalizes the way information is gathered and used so that an organization can leverage its consolidated purchasing power to find the best values in the marketplace.
Why might you want to limit the amount of suppliers to your Fleet?
This allows you to gain leverage and purchasing power for the procurement of quality vehicles at the best price. Limited vehicle providers may yield a number of benefits including lower prices for paying in bulk. Bulk purchasing may increase your leverage over a dealer to discuss favorable pricing and other concessions. Volume purchases benefit both the vendor and the purchaser in that they can concentrate efforts on fewer relationships. For the buyer, consolidating the number of suppliers means you become a more desirable customer by making larger purchases and dealing repeatedly with the same buyer.
Describe the differences between traditional sourcing and strategic sourcing.
Traditional sourcing focuses on cost and strategic focuses on competence, long term relationships, few suppliers, trust, shared risk, specific activities, global playing field, network approach
What are the benefits of Strategic Sourcing?
Limited number of suppliers, lower prices from bulk purchasing, larger purchases for vendor, concentrate of fewer relationships, reverse logistics for defective products etc. Consolidating products or services with one supplier is a timesaver and a money saver. Other terms such as delivery, warranty and service may also be points of negotiation in a strategic partnership. Improved communication .Strategic sourcing may also lead to long term savings as well as cost effectiveness by leading to fewer defects and mistakes by suppliers. Strategic sourcing may also lead to long term savings as well as cost effectiveness by leading to fewer defects and mistakes by suppliers.
How can Strategic Sourcing generate benefits to the Fleet department?
Warranty
On-Time Delivery
Speedy Delivery
Order Accuracy
Service/Product Defects
Location
Employee Diversity
Long-term Goals
Sustainability Practices
Supplier Market Position
Financial Risk Profile
Supplier Ownership
Why is it important to measure Supplier Performance?
Having a system to measure supplier performance in these areas can lead to better decisions when it is time to decide between acquiring a new supplier or staying with the current one. Transparency in decision-making is also positively affected when you have objective reasons that are supported by data.
How does Strategic Sourcing benefit Suppliers?
Larger purchases and more orders improved communication and not having to juggle multiple small contracts with a vast array of customers. This allows for communication in real time which can help eliminate costly errors such as overproduction, underproduction and late shipments, and improve the ability for the supplier to order materials in a timely manner. Strategic sourcing may also lead to long term savings as well as cost effectiveness by leading to fewer defects and mistakes by suppliers.
What Risks are involved with Strategic Sourcing?
overpaying initial costs, takes more time to execute, supplier requirements may be too narrow, and potential disruptions to supply chain if supplier is affected
Describe some of the costs involved with Strategic Sourcing.
lifecycle and total cost of ownership
Why is Strategic Sourcing time consuming?
Strategic sourcing takes much more time to execute than traditional sourcing activities because it is more complicated, and requires more knowledgeable and skilled personnel. Also, your organization’s sourcing and purchasing work flows may need to be restructured. Ensure that your organization properly performs all strategic sourcing components by starting early enough to meet deadlines and having the right staff available.
What are the four steps in the Strategic Sourcing Process?
understand the spend, assess potential suppliers, create a strategy, select a supplier, cultivate a relationship
What should your purchasing team do during the first phase of the Strategic Sourcing Process?
identify their purchasing and price constraints, the time and money it takes for the supplier to acquire the assets, as well as the historic purchases in asset categories
What do you want in a Strategic Sourcing partner?
competent, trustworthy, communicative, and those that offer deals that are fairly priced
How can you create a strategy for Strategic Sourcing?
identify how competitive the marketplace is, ensure other departments are on board with supplier choices
What tool is discussed in order to help select Suppliers?
balance scorecard to objectively measure and compare offers
What are Performance Improvement Requirements and how are they used?
Performance improvements are crucial to keeping the buying and selling processes a positive experience. Some ways to accomplish this are by improving the cycle time, cost, quality, and delivery performance. This can be done both internally with your fleet and by the suppliers.
What type of teams should be created in order to help select suppliers?
cross functional sourcing teams. teams of subject matter experts that will organize, evaluate, select, develop, and manage suppliers
What systems should be developed and how can they help the organization?
By developing purchasing systems there will be a notable increase in the emphasis of links between external systems along with networking between purchasing sites with suppliers. Developing systems will also lead to an increase in useful technology and information systems. Some systems, like electronic data interchange systems allow companies to communicate in real time with suppliers as well as manage a centralized location for data to be accessed.
What are team member purchasing responsibilities?
Assign members of the team to be points of contact with specific suppliers and to research new potential suppliers.
What is a cross functional sourcing team?
comprised of a group of individuals who are maintaining relationships with the fleet suppliers and identifying the sourcing needs of the fleet
What is the Fleet Managers role in the cross functional sourcing team?
The manager’s role will be to oversee this cross functional team in thoroughly examining fleet purchasing activities and supplier selection. Fleet managers are the individuals responsible for making the final say in finding new sources and developing those lasting relationships between vehicle supplier and buyer
What is the focus of many purchasing groups and what are the fleet managers’ responsibilities?
finding the lowest cost and this provides many benefits, but fleet managers are responsible for voicing concerns when non-fleet members of the forcing team focus only on low cost suppliers without taking other fleet related concerns into mind. On the other side of things however non-fleet members often bring new and fresh ideas to the table that fleet employees may not have considered. Both of these factors contribute to the benefits and disadvantages of assembling cross functional teams.
What is rightsizing the Fleet?
determine correct customer service levels for internal service and rental fleets as well as understanding the vehicles task suitability
What is the Advertising cost on a vehicle invoice?
A percent of MSRP (typically 1%) or a flat dollar amount set by the factory.
Define the term Bid Assistance.
Additional negotiated rebates that may replace or be in addition to the national fleet rebates. Maybe targeted to specific model, region or other group. Government price concessions, Rifle Shot programs, Competitive Price Allowance (CPA)
What is the Dealer Invoice price and how is it calculated?
factory invoice The invoice amount the dealer pays the manufacturer for a specific vehicle. Not be confused with the dealer’s “actual” cost for the vehicle. “Actual” dealer invoice cost can only be determined by deducting manufacturer-provided holdback allowances, incentives, rebates, bonuses and other discounts from dealer invoice.
What are Factory to Dealer incentives?
Factory cash, Factory money, Cash in the trunk, Backdoor money. This is money paid to the dealer by the manufacturer to sell specific models. These incentives can come and go, according to market conditions. (e.g., a hot selling model most likely would have no incentives; a slow selling model may have a large incentive).
What is meant by the term financing on a Dealer invoice?
floor plan, floor plan assistance program, Supplemental floor plan assist program -flat dollar amount included in factory invoice as a finance charge to the vehicle
What are Fleet incentives and who funds them?
National fleet incentives, Commercial fleet credits. This is money given by a vehicle manufacturer to a fleet as an added incentive
for buying their product. Usually funded 100% by the factory.
What is Factory Holdback?
typically 2-3% of MSRP paid back to dealer. An amount paid by the factory to the dealer after the car has been sold, usually on a quarterly basis. Most manufacturers will pay dealers an amount equal to between 2% and 3% of either the invoice cost or the MSRP. The holdback is one of the reasons that “invoice cost” is not net cost to the dealer. The other reason is “factory to dealer incentives.”
Define the term MSRP.
manufacturer suggested retail price
What is triple net invoice?
Manufacturer-to-dealer invoice price less holdback less advertising & financing. Dealer break even price, don’t always want to buy at this price because then dealer doesn’t make a profit
What is the most important document in a vehicle purchase?
factory invoice - the price the dealer pays the manufacturer for the vehicle, generally not t he net cost, which is influenced by the holdback and any factory to dealer incentives
What information do you need to know in order to get the lowest possible price for a vehicle?
what the dealer has actually paid for the vehicle - the dealer cost
What is a good starting price to use for negotiating with a vehicle supplier?
invoice price. True cost or triple net price
What type of information is contained on a standard factory invoice?
price, features and details regarding the purchase and delivery of the vehicle - also include destination and delivery charge / freight charge. Near the end of the invoice there may be a section detailing the invoice total, holdback, incentive programs and cost categories. will also include “ordering dealership” and “ship to” fields and the VIN
What is the most important strategy to use when considering multiple vehicles?
be consistent in evaluating each invoice and use the same starting point for each negotiation
What is the Formulae for Triple Net?
Invoice – Holdback – Advertising – Financing = Triple Net Cost
How can Fleet sales benefit a car dealer?
HIgher volume of sales. Typically, it takes dealers months to sell the same number of vehicles that it would sell to an organization at one time through a fleet purchase. If the dealer sells vehicles to a fleet, the potential also exists that the dealer will be able to sell the organization a contract to service the fleet, which brings in more income for the dealer
What are some of the vehicle manufacturer’s requirements for Fleet pricing?
can vary - purchase 5 or more vehicles, maybe be larger, may also be a term basis such as leasing 15 veh a year as well as purchasing/leasing 5 new vehicles each year
What are some of the advantages of purchasing vehicles in bulk?
price, save money, good deals on service of veciles, and get good price on trade ins, further cost savings with standardization
Why would an organization want standard vehicle specifications?
save money
What are the best practices for lowering costs using standard vehicle specifications?
centralize fleet management, distinguish needs from wants, conduct specification reviews, develop standards based on vehile role and location
Why is it important to centralize Fleet Management?
Organizations need to allow only the leader of the organization to be the decision maker when purchasing vehicles, instead of allowing each division of an organization to order vehicles for their own purposes. An organization may need a manager with enough confidence to say, “I understand that each of you has your own concerns about how your vehicle is used, but we need to move to thinking about the impact of vehicle selection globally and not just locally.”
What are potential areas to save costs when identifying needs and wants?
Cloth or vinyl seats instead of leather
Bench seats instead of buckets
Two-wheel instead of four-wheel drive
Gasoline instead of diesel
Four-cylinder engine instead of six or eight cylinders
Standard length pickup box instead of extended
Describe the two categories of pricing incentives.
National Fleet Incentives and Competitive Pricing Assistance (CPAs). If a company owns 10-15 vehicles it can receive a Fleet Identification Number and be entitled to a fleet discount from the manufacturer. However, if a Fleet Manager works with the manufacturer and negotiates an individual incentive instead of the national fleet incentive, often they can find a lower price through
CPA. Keep in mind that CPAs often can depend on the vehicle volume commitment, and whatever is agreed upon will be noted on the factory invoice.
What is a good indicator of the true vehicle cost?
total cost of ownership
What warranty considerations does the Fleet manager have to keep in mind during the purchasing process?
have a prediction of a vehicle’s expected life and how it adds to the warranty you will be paying for.
Who can a Fleet manager contact at the dealership for information on the
manufacturers Fleet programs?
commercial or government sales person at the dealership
What does a Fleet manager need in order to receive Fleet discounts?
fleet identification number
What is a volume rebate and how can the Fleet manager obtain it?
discount for purchasing multiple purchases at once, even if not taking deliery of all at one time
List the advantages of ordering vehicles from the factory.
Personalized customization
Can specify the vehicle to fit specific needs
Better pricing offered by the dealer
Opportunities to add or delete options that are not available in a retail sale
What are some of the disadvantages of ordering vehicles from the factory?
Longer wait time
Incentives may be lost during the wait period
Production windows may close unexpectedly and the factory may reject the order
Some options or popular models may not be available for fleet orders
Why might ordering from the factory be cheaper than ordering from stock?
When a dealer places a fleet order to the factory, the dealer does not have to worry about the vehicle sitting on the lot or trying to find a buyer. Instead the buyer is already setup and ready to go as soon as the vehicle is delivered. This helps the dealer cash flow and limits exposure to finance charges
What might make ordering from the dealership cheaper?
May lose dealer incentives while vehicle being built in the factory
What is the basic rule for negotiating vehicle price?
ensure you use the same terms and same starting point as the dealer.
What should the Fleet manager do in order to get the best price?
consolidate volume whenever possible since prices are are often tiered on order volume and order early to help manufacturer fill productions slots
What are the two approaches to negotiating?
start at dealer invoice and work down and start at triple net and work up
What is an alternative to negotiating vehicle prices?
bidding process
What is a Vehicle selector list?
predetermined list of vehicles that drivers can choose from to meet their vehicle requirements
What are some questions that managers should address in order to help them in the vehicle selection process?
How many choices of vehicles exist?
What is important to management?
How much input do drivers have?
Can drivers purchase options?
Philosophy – work or perk?
Why can offering too many choices be a disadvantage?
greater administrative burden, prevent bulk discounts
List some of the factors a Fleet Manager may consider in the vehicle selection process.
function, warranties, safety, cost, disposal, availability, morale, image, maintainability, environment
How can a Fleet manager get driver input and what information should they ask for?
annual survey or feelt steering committee. Ask about color, vehicle model, and options such as entertainment, style upgrade, GPS and towing capabilities
What are some considerations to be made when deciding whether the vehicle should be work or perk oriented?
organization philosphy, driver’s responsibilities, and HR
Why is it important to select the right vehicle?
The upfront cost is significant and a suboptimal vehicle will probably have to wait until the next time the vehicle is replaced.
What are some important vehicle selection considerations for both Government and Private Fleets?
gov is more cost conscious and more likely to purchase lower trim levels with fewer options and corporate are more concerned with image and more likely to use vehcile as incentive to retain staff
Why is it important to select vehicles that meet company needs?
determine vehicle function to determine which vehicles will be most appropriate for specific tasks
What vehicle selection input should be solicited from management?
insight into organizational priorities, cost considerations, work vs perk, exterior graphci designs, and environmental concerns
What are some concerns of stakeholders in the organization when developing selection criteria?
HR - relation concerns, leadership - cost concerns, driver - safety, sales management - reliability
List the four steps in the selector development process.
identify selection critera, rank criteria, assign a weight, conduct a trial vehicle selection
What stakeholders should the Fleet manager seek feedback from?
drivers, staff, customers, and organization leadership
List some factors that might impact the vehicle selection criteria.
terrain, vehicle duty cycle (8, 10, 12 hour days), environmental factors (snow, heat,dust), cost of purchase, vheicle lifecycle costs, and safety
What are quantifiable and non-quantifiable factors?
quanitfiable - cost, warranty, maintenance, environment. Non-quant - safety, image, morale
What should the Fleet Manager keep in mind while ranking selection criteria?
keep big picture in mind and rank by what is important to the organization and what will return the most value
What should the Fleet Manager consider while assigning a weight to the selection criteria?
consider the criteria and quantify how much more important each successive factor is to the fleet. See what is equally important and assign the same weights. If all equally important, no need to assign weight
How does the Fleet Manager test vehicle options against the selection criteria?
conduct a trial comparison by gaterhing necessary information and then evaluate 2-3 vehicles (minimum), score the vehicles and review the results
How does the Fleet Manager determine a points total in the selection process?
The fleet manager then scores each vehicle from 1 to 3 in each of the selection criteria and multiplies that score by the applicable weight to determine a point total.
How can the Fleet Manager manipulate the results of a selection matrix?
changing weights and ranking
Who should be included in a user input group and what are the responsibilities of the group?
drivers, managers, supervisors, and maintenace workers. Evaluate new products and options while keeping clear records of their notes in order to summarize and present for consideration
How should the Fleet Manager treat the input provided by several input groups?
take it seriuosly and consider it fully but don’t treat them as decision makers
Who makes the final decision on which vehicle to purchase?
fleet manager
What should be done once the final decision on vehicle selection has been made?
reconnect with the group that provided the input and explain final decisoin to ensure group knows their imput was used
What is Lifecycle Cost Analysis?
technique used primarily to evaluate bids on a basis other than low purchase cost
