Chapter 15 Purchasing + Supply Mng

Question 1

What is the purpose of the Purchase and Supply function?

Answer 1

To:

• select suppliers
• purchase materials + arrange delivery thereof
• determine quality + quantity materials / service
• decide acceptable price
• expedite + receive materials
• control warehousing + inventory holding
• determine timing of purchase

Question 2

What is the aim of inventory holding?

Answer 2

To keep inventory levels as low as possible

without risking an interruption in the ops process

Question 3

What does the Profit leverage effect mean?

Answer 3

If purchasing costs constitute major portion of total costs
then
a saving in purchasing costs has greater purchasing potential than a similar increase in sales.

Question 4

Purchasing and supply planning happens on 3 levels. Name them.

Answer 4

Strategic level
Tactical (or middle) Management level
Operational level

Question 5

In purchasing and supply planning, what does the Strategic level entail?

Answer 5

Supplier alliances
Supplier development
Supply-chain integration
Long term planning
Availability forecast
Policy formation
In/outsourcing decisions

Question 6

In purchasing and supply planning, what does the Tactical (middle) management level entail?

Answer 6

Systems integration
Negotiation
Interface development
Total quality management
Contracting
Cost-reducing techniques

Question 7

In purchasing and supply planning, what does the Operational level entail?

Answer 7

Communication with suppliers' ops staff
Expediting
File and system maintenance
Enquiries and quotations
Pricing
Returns and recycling

Question 8

What is meant with Cross-functional sourcing teams?

Answer 8

It consists of personnel from at least 3 functions brought together to execute a purchasing related assignment / solve purchase related problem

Question 9

What are the 9 control points / criteria used to assess the purchasing and supply activities?

Answer 9

1) price proficiency
2) supplier performance
3) timelines
4) cost-saving
5) workload
6) purchasing costs
7) inventory holding
8) relationship performance with suppliers
9) relationship with other functional mng areas

Question 10

What are the steps in the purchasing and supply cycle?

Answer 10

1) development and description of a need
2) choice of suppliers
3) research on prices and availability
4) issuing orders and concluding contract
5) follow-up and expediting
6) receipts, inspection and distribution
7) handling errors and discrepancies
8) paying for the order
9) closing the order

Question 11

Name 2 stockless systems.

Answer 11

JIT - just in time

MRP - materials-requirements planning

Question 12

What is the most general method of describing quality?

Answer 12

Specifications

Question 13

Besides specifications, what is another way to describe quality?

Answer 13

Standardisation

Question 14

What is used to control quality?

Answer 14

Inspection

Question 15

What are inventory-carrying costs?

Answer 15

Costs involved in keeping inventory.
Eg. 
Cost of storage
Salaries of warehouse staff
Insurance
Property tax
Obsolescence 
Wear and tear
Theft
Interest charges
Opportunity costs

Question 16

What does the Inventory-ordering costs involve?

Answer 16

These are costs involved in placing an order.
Eg.
Salaries of purchasing / expediting staff
Stationery
Telephone and fax costs
Online costs
Postage

Question 17

What does total inventory costs entail?

Answer 17

Consist of the sum of total costs involved of inventory-carrying costs and inventory-ordering costs

Question 18

Under inventory-control systems, what is EOQ about?

Answer 18

It is the Fixed Order quantity system.

Orders are placed as soon as a certain level is reached.
Not suitable to those where consumption or lead times are unreliable.

Question 19

In inventory-control systems, what is the cyclical-order system about?

Answer 19

Inventory is checked and reviewed at fixed intervals
Inventory is supplemented to max levels

Unsuitable for seasonal materials or materials used on irregular basis

Mostly used in grocery stores

Question 20

Under inventory-control systems, what is the MRP system about?

Answer 20

Materials-requirements planning system
Aim to keep minimum levels
Due consideration for lead times needed
Only work where suppliers are extremely reliable

Question 21

Under Inventory-control systems, what is the JIT system about?

Answer 21

Attempting to eliminate inventory holding
Requires regular deliveries
Quantities correspond with needs
Purchasing and supply must work closely with operations
Suppliers must be extremely reliable

Question 22

Under Inventory-control systems, what are the QR and AR systems about?

Answer 22

QR - quick response
AR - automatic-replenishment

QR : vertical strategy in supply chain.
strives to provide serv / products in exact quantities. Retail version of JIT
Merchandise is pulled by customer sales

AR : integral part of QR system. Defined as exchange relationship where supplier replenishes stock.
Goal is to manage inventory levels effectively

Question 23

In inventory-control systems, what is ECR about?

Answer 23

Efficient consumer response
Developed for grocery industry
Same principals as QR
Relies heavily on electronic data interchange EDI
Goal is to eliminate costs such as inventory holding + ordering costs.

Question 24

What are considered other methods of determining prices ?

Answer 24

Quotations
Tenders

Also called bids or bidding

Question 25

Name the 3 aims of buying at the right time.

Answer 25

1) to avoid ops interruptions
2) reduce risk of price fluctuations
3) keep inventory levels optimum

Question 26

What is the first external factor to determine the time of purchases?

Answer 26

Market conditions + government regulations

During recession there is a favourable buyers market. It is advisable to buy large quantities during these periods.