Chapter 2 Flashcards
Profit-Leverage Effect
A decrease in purchasing expenditures directly increases profits before taxes (assuming no decrease in quality or purchasing total cost)
Return on Assets (ROA) Effect
A high ROA indicates managerial prowess in generating profits with lower spending (caveat- ROA ratios vary from one industry to another)
Inventory Turnover Effect
Increased inventory turnovers indicate optimal utilization of space and inventory levels, increased sales, avoidance of inventory obsolesce
Material Requisition/Purchase Requisition
Stating product, quantity, and delivery date. May originate as a planned order release from the MRP system. Traveling requisition used for recurring orders.
The Request for Quotation (RFQ)
Buyer identifies suppliers & issues a request for quotation (RFQ) for routine items or a Request for Proposal (RFP) for more demanding products. Supplier Development is used to develop supplier capabilities.
The Purchase Order (PO)
Is the buyer’s offer & becomes a binding contract when accepted by supplier. When initiated by the supplier on their own terms, the document is a sales order. The Uniform Commercial Code (UCC) governs transactions in the U.S., except Louisiana.
Three Challenges in Setting SupplyObjectives and Strategies
Effective interpretation of corporate objectives and supply objectives
The choice of the appropriate action plan or strategy to achieve the desired objectives
The identification and feedback of supply issues to be integrated into organizational objectives and strategies
Six Major Supply Strategy Areas
- Assurance of supply
- Cost reduction
- Supply chain support
- Environmental change
- Competitive edge
- Risk Management
Three Categories of Supply Risk
- Operational: The risk of interruption of the flow of goods or services
- Financial: The risk that the price of the goods or services acquired will change significantly
- Reputational
Corporate Risk Management
- Supply risk is only one of the various risks to which any organization is exposed
- Today, large companies have a corporate risk management group headed by a risk manager or chief risk officer (CRO) that allows the company to assess their total risk exposure and seek the best ways of managing all risks
- The chief purchasing officer needs to work closely with the CRO in three areas of supply risks
Supply Strategy Questions Pt 1
- What
- Make or buy
- Standard versus special
- Quality
- Quality versus cost
- Supplier involvement
- How much
- Large versus small quantities (inventories)
Supply Strategy Questions Pt 2
- Who
- Centralized or decentralized
- Quality of staff
- Top management involvement
- When
- Now versus later
- Forward buy
- What Price
- Premium, standard, lower
- Cost-based, market-based
- Lease/make/buy
Supply Strategy Questions Pt 3
- Where
- Local, regional
- Domestic, international
- Large versus small
- Multiple versus sole source
- High versus low supplier turnover
- Supplier relations
- Supplier certification
- Supplier ownership
Supply Strategy Questions Pt 4
- How
- Systems and procedures
- Computerization
- Negotiations
- Competitive bids
- Fixed bids
- Blanket orders/open orders
- Group buying
- MRP
- Long-term contracts
- Ethics
- Aggressive or passive
- Purchasing research
- Value analysis
Supply Strategy Questions Pt 5
- Why?
- Objectives congruent
- Market reasons
- Internal reasons
1) Outside supply
2) Inside supply
