Chapter 15

Question 1

Define Supply chain.

Answer 1

It is a network of organisations linked through buying/ selling of products.

Question 2

What is the purpose of purchasing and supply function?

Answer 2

The purpose of purchasing and supply function is to provide the right materials services and equipment; ensure that purchases are done at today’s price; satisfy quality requirements.

Question 3

What are some of the duties that the purchasing and supply function performs?
list 5

Answer 3

The purchasing and supply function should:
• Select suppliers,
• Decide the quality and quantity of materials or services,
• Decide what prices to accept,
• Control warehousing and inventory holding and
• Determine timing of purchase.

Question 4

Why is purchasing and supply function important to a business?
(There are 3 reasons)

Answer 4

1) Purchasing costs are the greatest expenditure for a business and saving on these cost has greater profit potential than similar increase in sales, also refer to as profit-leverage.

2) They ensure that the inventory levels and the cost of warehousing are as low as possible without risking interruption in the transformation process.

3) They ensure that right materials are purchased at the right time to make final products available in right quantities and at the right time to customers.

Question 5

What is the management task of the purchasing and supply manager?

Answer 5

Purchasing and supply planning

Question 6

Define purchasing and supply planning

Answer 6

This is where the purchasing and supply manager formulates purchasing and supply objectives and draws up the plans to achieve these objectives.

Question 7

Discuss purchasing and supply planning on the strategic level of management.

Answer 7

Planning at strategic level is of a long-term nature. It is aimed at developing supplier sources, safeguarding materials and maintaining competitive position.

Question 8

Discuss purchasing and supply planning on the tactical level of management.

Answer 8

Planning at the tactical level is of a medium-term nature. It includes budgeting, purchasing and supply methods and employing cost reduction techniques.

Question 9

Discuss purchasing and supply planning on the operations level of management.

Answer 9

Planning at operations level is of a short term nature. Plans are formulated to allow daily functioning of the purchasing and supply function smoothly. These include keeping records, maintaining purchasing and supply systems and pricing decisions.

Question 10

What are the four main issues that need to be addressed in organising the purchasing and supply function?

Answer 10

1) the place of the purchasing and supply function in the organisational structure.
2) internal organisation of the purchasing and supply function.
3) coordination with other functional management areas.
4) cross-functional teams.

Question 11

What are the two elements of the purchasing and supply function in the organisational structure?

Answer 11

Centralisation or decentralisation, and
Hierarchical level of purchasing and supply function in the organisational structure

Question 12

What is a centralised purchasing and supply function and what are its advantages?

Answer 12

Centralised function is where purchasing and supply manager has authority and is responsible for purchasing and supply function. Advantage: standardisation of purchasing and supply procedures.

Question 13

What is a decentralised purchasing and supply function?

Answer 13

A decentralised purchasing and supply function is suited to businesses comprising geographically dispersed plants whose purchases are made from a number of their local suppliers.

Question 14

How is the place/position of the purchasing and supply function determined in the organisational structure?
(List 5 factors)

Answer 14

It is determined by the following factors:
1) value of purchased material in relation to total expenditure of business.
2) situation in supplier market.
3) size of the business.
4) nature of materials purchased and specialised knowledge and skills of buyers.
5) top management’s perception.

Question 15

What are the two ways in which the purchasing and supply function can be organised internally?

Answer 15

1) informal structure, where buyers purchase any material and process.
2) specialist groups, where function is divided and each person takes responsibility for buying a specific material or service.

Question 16

What are the three levels where the coordination of the purchasing and supply function occurs?

Answer 16

Purchasing and supply activities must be coordinated:
1) internally
2) with purchasing environments (supplies)
3) with other functional management areas.

Question 17

What is a cross functional sourcing team?

Answer 17

A cross functional sourcing team is where a purchaser cooperates in a team with colleagues in other functional management areas.

Question 18

What are the 5 tasks of a cross functional sourcing team?

Answer 18

1) selecting suppliers
2) negotiating corporate wide purchasing agreements
3) developing cost reduction strategies
4) developing suppliers and evaluating their performance
5) developing sourcing strategies.

Question 19

How can the assessment of purchasing and supply management take place?

Answer 19

Management is intangible and difficult to measure quantitatively therefore, a questionnaire or evaluation sheet can be used to assess management.

Question 20

What are the 6 control criteria that can be used to assess effectiveness of the purchasing and supply activities?

Answer 20

1) supplier performance
2) timeliness
3) cost-saving
4) inventory holding
5) relationship performance with suppliers
6) relationship with other functional management areas

Question 21

What are the 9 steps in the purchasing and supply cycle?

Answer 21

1) development and description of a need
2) choice of suppliers
3) research on prices and availability
4) issuing the order and concluding a contract
5) follow-up and expediting - determine whether materials received in good time
6) receipts, inspection and distribution
7) handling errors and discrepancies - if defective materials received the function should communicate with supplier
8) paying for the order
9) closing the order

Question 22

What does the quality of purchased products/service rely on?

Answer 22

1) determining the right quality for a given goal
2) describing quality so that both the buyer and seller understand it clearly
3) controlling quality to ensure the requirements are met

Question 23

How is the right quality determined for a given goal?

Answer 23

The right quality is determined by balancing suitability, availability and cost.

Question 24

What are three methods of describing quality?

Answer 24

1) specifications, are a description of non-standard materials able to perform a certain function.
2) standardisation, is the process of making materials, methods, practices and techniques uniform
3) other forms like, market grade and brands.

Question 25

How is quality control?

Answer 25

Quality is controlled by:
1) Inspection, which is a process used to ensure that material satisfies standard or specifications on order
2) Supplier-certification agreement with supplier, based on which the buyer and supplier’s quality controls work together for a specific time.

Question 26

What are the two reasons for holding inventory?

Answer 26

1) Operations can continue without interruptions resulting from shortages of material.
2) Utilise cost savings through longer production runs and volume discounts.

Question 27

What are inventory carrying costs?

Answer 27

Inventory carrying cost are cost of keeping inventory, these include, cost of storage, insurance, theft.

Question 28

What are inventory ordering costs?

Answer 28

Inventory ordering cost a cost of placing an order these include stationary, telephone, transport cost.

Question 29

What is the total inventory cost?

Answer 29

Total inventory cost is the sum of inventory carrying cost and inventory ordering cost.

Question 30

What is economic order quantity (EOQ)?

Answer 30

Number of units opposite the lowest total inventory cost is EOQ.
* this is where the total carrying cost of inventory is equal to the total ordering cost of inventory*

Question 31

What are the six inventory control systems?

Answer 31

1) the system of fixed order quantities
2) the cyclical ordering system
3) the materials requirements planning system (MRP)
4) the just in time system (JIT)
5) the quick response (QR) and automatic replenishment (AR) system
6) the efficient consumer response system (ECR)

Question 32

How does the system of fixed order quantities work?

Answer 32

Each time new inventory is required, a fixed quantity, the EOQ, is ordered to reach maximum level.

Question 33

How does the cycling ordering system work?

Answer 33

Inventory is checked at fixed intervals and then brought to maximum level again. Ordering times are fixed, but quantity varies.

Question 34

How does MRP system work?

Answer 34

It is a computer assisted system where the aim is to maintain minimum inventory levels. The total need for raw materials and components required are calculated by computer and ordered accordingly.

Question 35

How does the JIT system work?

Answer 35

It is an operation scheduling system. It virtually eliminates the holding of inventory. It requires suppliers to deliver materials of the right quality to business on the day they are needed and where they are needed – just in time.

Question 36

How does QR system work?

Answer 36

QR is where manufacturers supply products with to its retail customers in exact quantities on a continuous basis with minimal lead times resulting in minimal inventory levels, throughout the retail supply chain.

Question 37

How does AR system work?

Answer 37

AR is an integral part of QR. It restocks inventory based on actual product usage provided by retail buyer.

Question 38

How are suppliers chosen? (What are the 5 steps involved in the selection process)?

Answer 38

The selection process is as follows:
• Compilation of list of suppliers.
• Reduce list to shortlist.
• Shortlist suppliers requested to give a quote.
• Choose supplier
• Evaluation of supplier performance

Question 39

How can black economic empowerment (BEE) purchasing and supply be done?

Answer 39

1) Independent disadvantaged suppliers can benefit by lowering quoted prices for purpose of comparison with other quotations.
2) technical and managerial assistance can be offered to disadvantage suppliers.
3) specific pre-identified materials may be purchased from disadvantage suppliers.

Question 40

How is purchasing price determined?

Answer 40

Purchasing prices are determined by price list, quotations and tenders.
Price lists are used for purchases of standard materials of low monetary value. While, quotations and tenders are used for less standardised materials of higher value.

Question 41

What are the aims of buying at the right time?

Answer 41

1) To reduce risk of price fluctuations.
2) Ensure business supplied on ongoing basis with materials without interruptions.
3) To keep inventory holding at an optimal level.

Question 42

What are the 4 internal factors influencing the scheduling of purchases?

Answer 42

1) Business policy may prevent the buyers from buying speculatively.
2) Availability of funds in business determines when products are purchase.
3) Changes in marketing and operations requirements may influence time.
4) Physical facilities such as storage space can also influence timing.

Question 43

What are the 4 external factors influencing the scheduling of purchases?

Answer 43

1) Market conditions.
2) Economic activities.
3) Reliability of suppliers and lead time.
4) Government restrictions.