Chapter 3

Question 1

Can be defined as the act of obtaining merchandise; capital equipment; raw materials; services; or maintenance, repair, and operating (MRO) supplies in exchange for money or its equivalent

Answer 1

Purchasing

Question 2

A key business function that is responsible for acquisition of required materials, services, and equipment

Answer 2

Purchasing

Question 3

“Cast all your anxiety to GOD because he cares for you”

Answer 3

1 Peter 5:7

Question 4

Can be defined as the act of obtaining merchandise; capital equipment; raw materials; services; or maintenance, repair and operating (MRO) supplies in exchange for money or its equivalent

Answer 4

Purchasing Profession

Question 5

Wholesalers and retailers who purchase resale

Answer 5

Merchants

Question 6

Purchase raw materials for convention, services, capital equipment and operating supplies

Answer 6

Industrial Buyers

Question 7

It depends on situation and needs

Answer 7

Reactive Approach

Question 8

Before and Analyzing

Answer 8

Proactive Approach

Question 9

Benefits of Purchasing under Industrial Buyers

Answer 9

-Increase value and savings
-Building relationship and driving innovation
-Improving quality and reputation
-Reducing time to market
-Reducing supplier risk
-Generating economic impact
-Contributing to competitive advantage

Question 10

Is a manual, paper-based system

Answer 10

Traditional Purchasing Process

Question 11

What are the purchasing process

Answer 11

-Forecast and Plan Requirements
-Requirement Analysis
-Supplier Identification
-Contract and Negotiation
-Purchasing
-Supply Control and Inspection
-Supplier Measurement

Question 12

Is slow and prone to errors due to duplication of data entries during various stages of the purchasing process

Answer 12

Manual Purchasing System

Question 13

Steps of Manual Purchasing

Answer 13

1. Material Requisition/Purchase Requisition
2. The Request for Quotation (RFQ)
3. The Purchase Order

Question 14

Is where a single purchasing department, usually located at the firm’s corporate office, makes all the purchasing decisions, including order quantity, pricing policy, contracting, negotiations, and supplier selection and evaluation

Answer 14

Centralized Purchasing

Question 15

Is where individual, local purchasing departments, such as at the plant level, make their own purchasing decisions

Answer 15

Decentralized Purchasing

Question 16

Advantages of Centralized Purchasing

Answer 16

1. Concentrated volume
2. Avoid duplication
3. Specialization
4. Lower transportation costs
5. No competition between units
6. Common supply base

Question 17

An obvious benefit is the concentration of purchase volume to create quantity discounts, less-costly volume shipments, and other more favorable purchase terms

Answer 17

Concentrated volume

Question 18

Centralized purchasing eliminates the duplication of job functions

Answer 18

Avoid duplication

Question 19

Centralization allows buyers to specialize in a particular product or group of items instead of being responsible for all purchased materials and services

Answer 19

Specialization

Question 20

Centralization allows larger shipment to be mase to take advantage of truckload or railcar shipments, and get smaller shipments still can be arranged for delivery directly from suppliers to the points of use

Answer 20

Lower transportation costs

Question 21

Centralization minimizes this problem

Answer 21

No competition between units

Question 22

Advantages of Decentralized Purchasing

Answer 22

1. Better knowledge of unit requirements
2. Local sourcing
3. Less bureaucracy

Question 23

A buyer at the individual unit is more likely to know it’s exact needs better than a central buyer at the home office

Answer 23

Better knowledge of unit requirements

Question 24

If the firm desires to support local businesses, it is more likely that a local buyer will know more about local suppliers

Answer 24

Local sourcing

Question 25

Decentralization allows quicker response due to less bureaucracy and closer contact between the user and the buyer

Answer 25

Less bureaucracy

Question 26

Advantage of hybrid purchasing organization

Answer 26

-Flexibility and adaptability
-Cost efficiency
-Strategic supplier relationship

Question 27

Measures the impact of a change in purchase spends on a firm’s profit before taxes by the same amount

Answer 27

Profit leverage effect of purchasing

Question 28

Is a financial ratio of a firm’s net income in relation to its total assets

Answer 28

Return on Assets Effect (ROA)

Question 29

Formula of ROA

Answer 29

ROA=Net Income/Total Assets

Question 30

Shows how many times a firm’s inventory is utilized and replaced over an accounting period, such as year

Answer 30

Inventory turnover

Question 31

Is a good measure for computing the annual inventory turnover ratio

Answer 31

Monthly inventory average

Question 32

Formula of Inventory turnover ratio

Answer 32

=Cost of goods sold/average inventory

Question 33

Formula of Monthly Inventory turnover ratio

Answer 33

=cost of goods sold for the month/(beginning inventory + Ending inventory)/2

Question 34

Formula of Annual inventory turnover ratio

Answer 34

=Cost of goods sold for the year/average monthly inventory

Question 35

Extension of supplier’s evaluation

Answer 35

Supplier Certification