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Second Semester > Business Chapter 15 > Flashcards

Business Chapter 15 Flashcards

Purchasing and supply management

1
Q

What is a supply chain

A

A supply chain is a network of organizations linked to each other through buying and selling of materials, products or services

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2
Q

Purchasing function

A

The purchasing function is a
strategic function in the organisation ensuring the effective management of the supply side of the organisation, hence the link with suppliers higher up in the supply chain

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3
Q

The purchasing and supply function should

A

*select suppliers;
*purchase and arrange for the transport of materials to the business;
*determine the quantity and quality of materials or services;
*decide what prices to accept;
*expedite and receive materials;
*control warehousing and inventory-holding; and
*determine the timing of purchases.

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4
Q

The importance of the purchasing and supply function to the business

A

Greatest expenditure for business
Inventory-holding
Contributions to the marketing of products
The management task of the purchasing and supply manager
Purchasing and supply planning

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5
Q

Greatest expenditure for business

A

Purchasing costs are a business’s biggest expense, especially in businesses where final products are purchased, for example, a corner shop, a boutique, a liquor shop or a hardware shop and no actual value is added to the product

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6
Q

Inventory-holding

A

Stock is held to prevent disruptions in the transformation process (production or
operational) that would be caused by an interruption in the flow of materials to a
business. The aim of inventory management is to keep inventory levels as low as possible without risking an interruption in the operational process (as a result of an out-of-stock situation)

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7
Q

Contributions to the marketing of products

A

By purchasing materials of the right quality and price at the right time, a manufacturer, such as the security gate manufacturer, can make the right final products available, in the right quantities at a reasonable price at the right time to its customers

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8
Q

The management task of the purchasing and supply manager

A

Purchasing and supply, like all other functional areas (marketing, finance, operations and so on), must be managed to ensure that the purchasing and supply function operates effectively and makes the best possible contribution to the sustainability of the business and efficient
customer service

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9
Q

Purchasing and supply planning

A

Strategic level. At this level, planning entails the purchasing and supply manager providing input to business planning
Tactical or middle-management level. This type of planning may cover the medium-term needs of the business
Operations level. At the lowest operations level, plans are formulated to allow the
daily functioning of the purchasing and supply function to proceed as smoothly as
possible

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10
Q

There are four main issues that need to be addressed in organizing the purchasing
and supply function

A

1.The place of the purchasing and supply function in the organisational structure.
2.The internal organisation of the purchasing and supply function.
3.Co-ordination with other functional management areas.
4.Cross-functional teams (organizing the purchasing and supply function according
to the supply chain management approach).

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11
Q

The place of the purchasing and supply function in the business is affected by two
elements

A

Centralisation or decentralisation, and the hierarchical level of the purchasing and supply function in the organisational structure of the business.

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12
Q

If an organisation has a head office with different business units, branches or
plants, there are various options, including the following:

A

A centralised purchasing and supply function, situated at head office, is responsible for purchasing.
*Each plant or branch does its own purchasing, which means that the purchasing and supply function is organised on a decentralised basis.
*A combination of centralised and decentralised functions is used, with some
materials and services bought on a centralised basis and other materials on a
decentralised basis

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13
Q

A centralised purchasing and supply structure has certain advantages

A

the standardisation of purchasing and supply procedures as well as materials or services purchased is possible. Standardisation has great cost-saving advantages

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14
Q

A decentralised purchasing and supply structure

A

Is particularly suited to a
business comprising geographically dispersed plants whose purchases are made from a number of their local suppliers.A decentralised purchasing and supply structure has the advantage that buyers have closer contact with internal consumers and local suppliers, and reaction times to the requests of users are quicker

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15
Q

Hierarchical level of the purchasing and supply function in the organisational structure of the business

A

1.The value of the purchased materials in relation to the total expenditure of
the business
2.The situation in the supplier market
3.The size of the business
4.The nature of the materials purchased and the specialised knowledge and
skills of buyers.
5.Top management’s perception

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16
Q

The value of the purchased materials in relation to the total expenditure of the business

A

The greater purchasing’s share of total expenditure, the more important the purchasing and supply function is

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17
Q

The situation in the supplier market

A

If the supply market is a monopoly (only
one supplier) or an oligopoly (only a few suppliers), as is the case in certain markets
in South Africa, negotiation should take place at a high level to negotiate the best
value for the business

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18
Q

The size of the business

A

In larger businesses, the purchasing and supply manager is usually placed on the same level as other functional managers, such as the marketing manager, the financial manager and the operations manager. In smaller businesses, the purchasing and supply function often falls under the financial manager or the marketing manager

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19
Q

The nature of the materials purchased and the specialised knowledge and
skills of buyers

A

This determines the status of buyers and the purchasing and supply manager in the business

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20
Q

Top management’s perception

A

The top management’s perception of the
importance of the purchasing and supply function will determine its status in the
organisation.

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21
Q

Internal organisation of the purchasing and supply function

A

The organisation may consist of an informal structure in which buyers purchase any material or service and process whatever requisitions or enquiries are placed on their desks
Developing open and personal relationships with suppliers of scarce or strategic materials is especially important

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22
Q

Co-ordination with other functional management areas

A

1.Various purchasing and supply activities must be co-ordinated internally in the
purchasing and supply function.
2.The purchasing environment (suppliers) must be co-ordinated with purchasing
and supply activities.
3.The purchasing and supply function must be coordinated with other functional management areas such as finance, marketing and production, and eventually with the needs of the final consumer.

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23
Q

Cross-functional sourcing teams

A

A cross-functional sourcing team consists of personnel from at least three function brought together to execute a purchasing related(materials or services) assignment or solve a purchasing related problem

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24
Q

What are the objectives of cross-functional sourcing teams

A

The objectives of using cross-functional sourcing teams are to obtain a wide
perspective on problems, to stimulate innovative thinking and to obtain the best value for the organisations and the customers

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25
Q

Control in the purchasing and supply function

A

Purchasing and supply planning and, more specifically, the formulation of objectives, is
therefore the first step in the control process

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26
Q

Steps of the control in the purchasing and supply function

A

Setting objectives,
Setting criteria and norms,
Measuring actual performance
Comparing actual performance with the norms
Studying deviations and taking corrective measures (if necessary)

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27
Q

The assessment of purchasing and supply management

A

This may include aspects such as:
*the leadership shown in the introduction of new ideas, systems, approaches or
strategies;
*the number or percentage of purchasing contracts established;
*the knowledge and skills to lead the purchasing and supply function in an
increasingly complex purchasing environment;
*the relationships established with strategic suppliers;
*the adequacy of performance appraisal and control systems in the purchasing and
supply function;
*the contribution to cross-functional teams;
*the role in the establishment and management of supply chains;
*the effectiveness of the use of the total purchasing leverage of the firm; and
*the appropriateness of purchasing and supply policies, procedures and practices

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28
Q

The following control points or criteria can be used to gauge the effectiveness of purchasing and supply activities:

A

Price proficiency
Supplier performance
Timeliness
Workload
Purchasing costs
Inventory holding
Cost-saving
Relationship performance with suppliers
Relationship with other functional management areas

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29
Q

Price proficiency

A

By, for example, comparing actual prices with planned (budgeted) or market prices, the number and value of discounts negotiated for a specific period, and determining which part of every rand turnover constitutes purchasing costs

30
Q

Supplier performance

A

By, for example, noting rejected orders, orders received late and the number of times it was necessary to expedite the process

31
Q

Timeliness

A

By, for example, noting the number of orders indicated as urgent and the number of operations interrupted or rescheduled as a result of shortages

32
Q

Workload

A

By, for example, looking at the number of orders and requisitions

33
Q

Purchasing costs

A

By expressing administrative purchasing costs as a percentage of the monetary value of purchases

34
Q

Inventory holding

A

By calculating inventory turnover, and making further enquiries into inventory losses and obsolescence of stock

35
Q

Cost-saving

A

By, for example, comparing costs with those of previous periods

36
Q

Relationship performance with suppliers

A

With suppliers, by means of a survey or scrutiny of supplier turnover, or number of alliances formed.

37
Q

Relationship with other other functional management areas

A

By monitoring the diligent execution of requests to the purchasing and supply function, and the contribution purchasers make in cross-functional teams

38
Q

The steps of the purchasing and supply cycle

A

Development and description of a need
Choice of suppliers
Research on prices and availability
Issuing the order and concluding a contract
Follow-up and expediting
Receipts, inspection and distribution
Handling errors and discrepancies
Paying for the order
Closing the order

39
Q

Development and description of a need

A

To ensure that the desired products, materials or services are purchased, the buyer must take careful note of the specification, which is actually a description of the need. The specification describes the material and the required quality of that material.

40
Q

Choice of suppliers

A

The choice of the right supplier is the principal activity of the purchasing and supply function

41
Q

Research on prices and availability

A

The prices of standard materials or services and materials or services with a low monetary value are determined with the aid of price lists. The prices of
non-standard, specialized materials or custom-made items are often determined by tender or quotation in conjunction with negotiations

42
Q

Issuing the order and concluding a contract

A

They constitute a legally valid contract to which both parties are bound by law

43
Q

Follow-up and expediting

A

One of the administrative tasks in the purchasing and supply function is to determine whether materials are received, or services are performed in good time

44
Q

Receipts, inspection and distribution

A

Stores reception is responsible for checking the quantities and condition of materials when they are received and compiles an inspection report

45
Q

Handling errors and discrepancies

A

If defective materials are received or services are performed poorly, the purchasing and supply function should communicate with the suppliers concerning these in a way that will prevent future defective consignments, but still ensure good relations

46
Q

Paying for the order

A

It is the task of purchasing and supply to prepare authorisation for payment of the supplier

47
Q

Closing the order

A

Once the supplier has been paid, the purchasing and supply function must file all documents pertaining to the particular transaction or incorporate them into a system for future reference

48
Q

The quality of purchased products and services rests on the following considerations

A
  1. Determining the quality for a given goal
  2. Describing quality so that both the buyer and seller understand it clearly
    3.Controlling quality to ensure that requirements are met
49
Q

Right quality

A

The right quality is that quality that is purchased at the lowest price, which satisfies a specific need and performs the function for which it was purchased

50
Q

Determining the right quality

A

The best quality is therefore not necessarily the right quality. The right quality for a
specific purchase is determined by balancing suitability (technical requirements), availability and cost (commercial requirements).

51
Q

Description of quality

A

Quality refers to measurable qualities, a condition or characteristics of materials or
service usually expressed according to grade, class, brand or specifications.
1.Specifications are the most general method of describing quality
2.Standardisation is a further aid in describing quality
3.Other forms

52
Q

Control of quality

A

It is imperative to control the quality of incoming materials and purchased services.
Poor-quality materials and services interrupt the manufacturing process, expose workers to danger, have a detrimental effect on the final product, and ultimately reduce the satisfaction of end-users and alter the perception they have of the business and its products.

53
Q

The purchasing and supply function would be able to buy the exact quantity of materials required at a certain time if all of the following criteria were met

A

1.The operations function was 100 per cent certain of the quantity of materials to be
used in the manufacturing process.
2.The marketing function was 100 per cent certain about how many products were
going to be sold.
3.There were no supply problems in the supplier market.
4.The incoming materials completely satisfied quality requirements

54
Q

There are two major reasons as for why inventory is held

A

1.Inventory-holding helps to ensure that the operations process (or the marketing
process in a retailing organisation) can continue without interruptions resulting
from shortages of materials.
2.It allows businesses to utilise cost savings through longer production runs and
volume discounts

55
Q

Inventory-carrying costs

A

are those costs that are involved in keeping inventory. Larger order quantities cause larger inventory levels and therefore higher inventory-carrying costs. The opposite applies to small quantities and lower inventory levels

56
Q

Inventory-ordering costs are the costs of placing an order

A

Ordering costs include the salaries of purchasing and supply and expediting personnel. Larger purchasing and supply quantities result in fewer orders being placed and a decline in ordering costs

57
Q

Inventory control systems

A

The system of fixed-order quantities
The cyclical-ordering system
The materials-requirements planning system
The just in time system
The quick response and automatic-replenishment systems
The efficient consumer response system

58
Q

The objective evaluation of supplier performance is important for the following reasons:

A

1.Ineffective or unreliable suppliers are identified.
2.It leads to an improvement in supplier performance.
3.It serves as a guideline for the development of suppliers

59
Q

Pricing decisions

A

On the one hand, the price paid for materials or services must be reasonable and should enable the purchasing enterprise to make its own product or service competitive in the market. On the other hand, a reasonable price should also be fair to the supplier to ensure that a supplier sells its materials or service at a price that will ensure its sustainability and survival. The price should therefore be fair to the purchasing firm and the supplier in terms of profitability and value

60
Q

The aims of buying at the right time are:

A

1.to ensure that the business is supplied on an ongoing basis with the materials and
services required for it to operate without interruptions;
2.to reduce the risk of price fluctuations; and
3.to keep inventory-holding at an optimal level

61
Q

Contemporary issues in purchasing and supply

A

Information technology in supply chains
Social responsibility

62
Q

Information technology in supply chains

A

Planning software
Execution software
Events management software
Business intelligence(BI) software

63
Q

Social responsibility

A

Corporate social responsibility is a business’s commitment to managing the social, environmental and economic effects of its operations responsibly and in line with the public relations
This includes purchasing decisions relating to: People(community, diversity ,human rights ,safety)
Planet(environment)
Profit(ethical conduct ,financial responsibility)

64
Q

The system of fixed-order quantities

A

This system is based on the principle that each time new inventory is required, a fixed
quantity (the EOQ) is ordered

The system is advantageous because attention is focused only on a specific item
when the inventory level reaches the ordering point and the same quantity is ordered every time. However, the system is unsuitable for items whose consumption or lead times are unreliable

65
Q

The cyclical-ordering system

A

According to this system, each item in the inventory is checked or reviewed at fixed
intervals and is supplemented by an order to bring the inventory level to its maximum
level again

The system is suitable for seasonal materials or materials that are used on
an irregular basis, but where the acquisition of such materials can be planned far in advance on the basis of sales forecasts, for example, in a clothing store

66
Q

Materials-requirements planning system

A

MRP is a computer-assisted system used in complicated production processes such as
automotive parts manufacturing, where the aim is to maintain minimum inventory
levels. The system uses a computer to calculate the total need for materials that may be required by an operations process in a given period

67
Q

The just in time system

A

This is, in fact, a production- or operations-scheduling system and not an inventory
system. It virtually eliminates the holding of inventory. Its operation is based on
requiring suppliers to deliver materials of the right quality to the business on the day
they are needed and where they are needed – in other words, just in time

68
Q

The quick response system

A

Quick response (QR) is defined as a vertical strategy in the supply chain in which the
manufacturer strives to provide products and services to its retail customers in exact
quantities on a continuous basis with minimal lead times, resulting in minimum
inventory levels throughout the retail apparel supply chain

69
Q

Automatic replenishment system

A

Automatic replenishment (AR) is an integral part of any QR programme. AR can be
defined as an exchange relationship in which the supplier replenishes or restocks
inventory based upon actual product usage and stock-level information provided by the
retail buyer. AR therefore provides the final customer (consumer) with the desired
product and service in a timely fashion. The goal of AR is to manage inventory levels
effectively

70
Q

Efficient consumer response system

A

Efficient consumer response (ECR) was developed for the grocery industry and is based on the same principles as QR. ECR calls for the creation of a timely, accurate and paperless flow of information. It relies heavily on electronic data interchange (EDI) and strategic alliances between supply-chain members. The goal of ECR is to eliminate costs such as inventory-holding and ordering costs in an entire supply chain

Second Semester (27 decks)

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