Chapter 3: Procurement Strategies Flashcards
Enumeration:
5 Steps to a Supply Chain Market Analysis
- Define your objectives, scope, and commodity profile
- Research the market and pricing structure for your commodity
- Conduct in-depth supplier analysis
- Identify key market indicators
- Compile your findings and outline final recommendations
T or F.
Before you begin any analysis, it is also critical to understand the scope of your project.
False
analysis -> research
Define the ___________ and __________ of your efforts and develop a clear understanding of the profile of the commodity that you will research.
breadth
depth
The primary goal of performing a market analysis can vary, but a common goal is to develop key insights to drive better business decisions and improve your competitive position via your supply chain. Since every organization is unique, ensure you and your stakeholders are in alignment prior to executing this analysis
Define your objectives, scope, and commodity profile
Make sure you understand how pricing works for the goods or services you are
interested in; factors including material costs, labor costs, transportation costs, energy and utility needs, and overhead can influence the final price you pay.
Is the commodity’s availability influenced by the time of year? By geopolitical
events? By new laws coming into effect? This is the time to find out.
Research the market and pricing structure for your commodity
Identify the main players in your market and research them thoroughly. From
geographic locations to target customers and competitive advantage, it’s important to understand the context in which they operate.
Conduct in-depth supplier analysis
Enumeration:
Factors how pricing cost works
material costs
labor costs
transportation costs
energy and utility needs
overhead
One framework that can be helpful in this step is a ________________ diagram, which can make it easier to compare suppliers against one another.
SWOT (Strengths, Weaknesses,
Opportunities, Threats)
T or F.
It’s also not a bad idea to do some digging into their financial background and
research any lawsuits or other risky situations they may be up against.
True
Finding the right indicators for your commodity can be difficult, but it can play a
significant role in your research conclusion and ultimately, your recommended
business strategy.
How? When viewed in context, the right indicators can help you understand the
current state of the market, and when tracked over a period of time, these
indicators can become predictors of what’s to come in the market.
Identify key market indicators
Enumeration:
Four categories of indicators
- Economic Indicators
- Pricing Indices
- Employment Indicators
- Production Measurements
pricing trends, inflation rates, and production rates
Economic Indicators
Consumer Pricing Index (CPI), Producers Pricing Index (PPI), and Import/Export Price Indexes
Pricing Indices
unemployment claims, percentage of workforce fully employed
Employment Indicators
gross domestic product (GDP), industrial production rates, and capacity utilization rates
Production Measurements
In this step, keep in mind the context and culture of your organization. Developed and implemented the right way for your unique organization, your findings can enhance your business’ competitive advantage, reduce risk in your supply chain, and strengthen your financial position.
Compile your findings and outline final recommendations
T or F.
From decreasing your supply chain’s strategic impact to enabling business agility to outsmart unexpected circumstances, the outcomes of such an analysis can be far-reaching and surprisingly valuable.
decreasing -> increasing
the way in which the companies control and optimize the money they spend.
Spend Management
a company needs a mechanism by which they are not only able to save money but control costs
Spend Management
It involves cutting operations and other costs associated with doing business
Spend Management
raw goods and materials used in the manufacture of products
direct inputs
office supplies and other expenses that do no go into a finished product
indirect material
temporary and contractual labor, print services, etc.
services
__________________ is a continuous process of controlling and
improving the way a company spends money and typically
includes strategic procurement activities such as supplier management, category management, inventory management, and product development
Spend management
Tor F.
Ideally, an effective expense management strategy includes a comprehensive spent analysis and helps companies maintain control of their purchases, optimizes supplier relationships, and maximizes the ROI of every dollar they spend.
False
spent -> spend
T or F.
While spend management is often executed by procurement, it impacts many internal and external stakeholders of a business who are also concerned with budgeting and planning future profitability
True
T or F.
They need spend management to stay in business and improve an organization’s bottom line. Effective spend management will leverage real time analytics and insights to drive better decisions, create value, and cut costs
True
is meant to represent a holistic view of the activities involved in the “source-to-settle” process which includes the following:
- spend analysis
- sourcing
- procurement
- receiving
- payment settlement
- management of accounts payables and general ledger accounts
Spend Management
Enumeration:
Companies have recently been utilizing the following new tools that promise not only to automate paper intensive and manual processes, but also to help monitor and control spending activity and to create an integrated process in which each activity feeds into another
- e-sourcing
- e-procurement
- e-spend analytics
used for bidding and reverse auction
e-sourcing
used to control and monitor purchasing activities and contracts
e-procurement
used to gain insights into how much money is being spent on what types of services or products
e-spend analytics
Enumeration:
HOW SPEND MANAGEMENT IMPROVES PROCUREMENT?
● Better sourcing opportunities
● Increased process efficiency
● More spend visibility
● Better risk management
By mapping out all the costs involved in the supply chain
process, you can identify which suppliers are yielding the most value and which ones are not. Supply chain management becomes more efficient because you have a clearer picture of the vendors who are the most cost-effective.
Better sourcing opportunities
Spend management software eliminates manual processes
that take up valuable time and money and optimizes procure-to-pay processes like strategic sourcing and contract management
Increased process efficiency
Spend management systems provide accurate and timely
data that lead to more insightful decisions around procurement. Spend analytics support forecasting efforts that reduce maverick spend and capitalize on savings opportunities.
More spend visibility
An end-to-end spend management solution provides the means to assess the market, identify risk factors, and develop plans for navigating around them before they occur and well into the future.
Better risk management
Enumeration:
HOW SPEND MANAGEMENT SAVES MONEY
- Decreasing “maverick” spend
- Increase of spend economies of scale
- Increase process efficiencies
- Increase procurement efficiency
“_______” spend is the process whereby requestors buy items or services that are outside that preferred process.
Maverick
_______ are those who are creating a request for an item or service that will be turned into an order to a supplier
Requestors
T or F.
This that a “maverick” purchase results in individual or department buying an item that results in paying a premium for that item
True
Enumeration:
Tis is often hard to enforce unless some control mechanism (often technological) is put in place that:
- prohibits the type of purchasing
- sets up penalties for these types of purchases
- puts into place some type of approval or check and balance system
by directing more spend toward a particular supplier, a company can negotiate more favorable pricing based on how much money it spends with that supplier in a given year.
Increase of spend economies of scale
By consolidating this “spend”, and directing it toward one or a few suppliers, companies are able to get bigger discounts
Increase of spend economies of scale
Automating sourcing, procurement and payment processes will greatly improve the efficiency of paper based and manual processes. The general idea is not just to automate, but it also use the technology to improve upon these processes.
Increase process efficiencies
Process savings can be measured in various ways such as how long it takes to process a purchase order (PO) how many individuals need to touch the PO before it can be spent, how long it takes to reconcile and pay the supplier, and many other methods to measure these process improvements
Increase process efficiencies
This involves using e-souring tools for the bidding and contract award process similar to eBay in which there many have one buyer and many suppliers, or one supplier and many buyers.
Increase procurement efficiency
These supply chain management tools also help to develop product requirements that can be sent to supplier
RFP (Request for Proposal)
T or F.
The e-procurement of direct items (raw materials) is often much more complex than indirect (office supplies, etc.), as the deciding factor is not just price but also the way the product fits into the overall manufacturing of a product
False
e-procurement -> e-sourcing
It is managing the firm’s external resources in ways that support the long-term of the firms
Strategic sourcing
Enumeration:
Strategic sourcing
- Make-or-buy decision
- Identification and selection of suppliers
- Managing and improving supplier relationships and capabilities
- Monitoring and rewarding supplier performance
Whether to make or buy components is a strategic decision that can impact an organization’s competitive position. Cost has been the major driver when making sourcing decisions
Make-or-buy decision
Enumeration:
Reasons for buying or outsourcing
- Cost advantage
- Insufficient capacity
- Lack of expertise
- Quality
Enumeration:
Reasons for making
- protect proprietary technology
- no competent supplier
- better quality control
- use existing idle capacity
- control of lead-time, transportation and warehousing cost
- lower cost
The process of selecting a group of competent suppliers for important materials, components, and services which can impact on the firm’s competitive advantage is a complex one.
Identification and selection of suppliers
Enumeration:
Factors that firms should consider while selecting suppliers are
- product and process technologies
- willingness to share technologies and information
- quality
- cost
- reliability
- order system and cycle time
- capacity
- communication capability
- location
- service
Organization must develop the right capabilities for developing long-term relationship with their suppliers
Managing and improving supplier relationships and capabilities
T or F.
Before entering into any partnerships, it is important for an organization to conduct a thorough investigation of the supplier’s capabilities and core competencies
True
