Business Chapter 15

Question 1

What is a supply chain

Answer 1

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

Question 2

Purchasing function

Answer 2

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

Question 3

The purchasing and supply function should

Answer 3

*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.

Question 4

The importance of the purchasing and supply function to the business

Answer 4

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

Question 5

Greatest expenditure for business

Answer 5

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

Question 6

Inventory-holding

Answer 6

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)

Question 7

Contributions to the marketing of products

Answer 7

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

Question 8

The management task of the purchasing and supply manager

Answer 8

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

Question 9

Purchasing and supply planning

Answer 9

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

Question 10

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

Answer 10

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).

Question 11

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

Answer 11

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

Question 12

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

Answer 12

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

Question 13

A centralised purchasing and supply structure has certain advantages

Answer 13

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

Question 14

A decentralised purchasing and supply structure

Answer 14

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

Question 15

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

Answer 15

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

Question 16

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

Answer 16

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

Question 17

The situation in the supplier market

Answer 17

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

Question 18

The size of the business

Answer 18

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

Question 19

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

Answer 19

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

Question 20

Top management’s perception

Answer 20

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

Question 21

Internal organisation of the purchasing and supply function

Answer 21

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

Question 22

Co-ordination with other functional management areas

Answer 22

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.

Question 23

Cross-functional sourcing teams

Answer 23

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

Question 24

What are the objectives of cross-functional sourcing teams

Answer 24

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

Question 25

Control in the purchasing and supply function

Answer 25

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

Question 26

Steps of the control in the purchasing and supply function

Answer 26

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

Question 27

The assessment of purchasing and supply management

Answer 27

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

Question 28

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

Answer 28

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

Question 29

Price proficiency

Answer 29

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

Question 30

Supplier performance

Answer 30

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

Question 31

Timeliness

Answer 31

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

Question 32

Workload

Answer 32

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

Question 33

Purchasing costs

Answer 33

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

Question 34

Inventory holding

Answer 34

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

Question 35

Cost-saving

Answer 35

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

Question 36

Relationship performance with suppliers

Answer 36

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

Question 37

Relationship with other other functional management areas

Answer 37

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

Question 38

The steps of the purchasing and supply cycle

Answer 38

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

Question 39

Development and description of a need

Answer 39

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.

Question 40

Choice of suppliers

Answer 40

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

Question 41

Research on prices and availability

Answer 41

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

Question 42

Issuing the order and concluding a contract

Answer 42

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

Question 43

Follow-up and expediting

Answer 43

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

Question 44

Receipts, inspection and distribution

Answer 44

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

Question 45

Handling errors and discrepancies

Answer 45

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

Question 46

Paying for the order

Answer 46

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

Question 47

Closing the order

Answer 47

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

Question 48

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

Answer 48

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

Question 49

Right quality

Answer 49

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

Question 50

Determining the right quality

Answer 50

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).

Question 51

Description of quality

Answer 51

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

Question 52

Control of quality

Answer 52

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.