Chapter 7: Sourcing

Question 1

The broad set of activities carried out by organizations to analyze sourcing opportunities, develop sourcing strategies, select suppliers, and carry out all the activities required to procure goods and services

Answer 1

Supply Management

Question 2

The purchased cost of goods from outside suppliers

Answer 2

Cost of Goods sold (COGS)

Question 3

A balance sheet item that shows the amount a company paid for the inventory it has on hand at a particular point in time

Answer 3

Merchandise inventory

Question 4

The ratio of earnings to sales for a given time period

Answer 4

Profit margin

Question 5

A measure of financial performance, generally defined as earnings/total assets. Higher values are preferred because they indicate that the firm is able to generate higher earnings from the same asset base

Answer 5

Return on Assets (ROA)

Question 6

A term used to describe the effect of $1 in cost savings increasing pretax profits by $1 and a $1 increase in sales increasing pretax profits only by $1 multiplied by the pretax profit margin

Answer 6

Profit leverage effect

Question 7

The application of quantitative techniques to purchasing data in an effort to better understand spending patterns and identify opportunities for improvement

Answer 7

Spend Analysis

Question 8

Profiles the major forces and trends that are impacting an industry, including pricing, competition, regulatory forces, substitution, technology changes, and supply/demand trends

Answer 8

Industry analysis

Question 9

Spending that occurs when internal customers purchase directly from non qualified suppliers and bypass established purchasing procedures

Answer 9

Maverick Spending

Question 10

The use of resources within the firm to provide products or services

Answer 10

Insourcing

Question 11

The use of supply chain partners to provide products or services

Answer 11

Outsourcing

Question 12

A high-level, often strategic, decision regarding which products or services will be provided internally and which will be provided by external supply chain partners

Answer 12

Make-or-buy decision

Question 13

Organizational strength or abilities, developed over a long period, that customers find valuable and competitors find difficult or even impossible to copy

Answer 13

Core competencies

Question 14

The economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time

Answer 14

Corporate social responsibility

Question 15

A process by which a firm seeks to identify and quantify all of the major costs associated with various sourcing options

Answer 15

Total cost analysis

Question 16

Costs tied directly to the level of operations or supply chain activities, such as the production of good or service, or transportation

Answer 16

Direct costs

Question 17

Costs that are not tied directly to the level of operations or supply chain activity

Answer 17

Indirect costs

Question 18

A structured approach used by decision makers to develop a sourcing strategy for a product or service, based on the value potential and the relative complexity or risk represented by a sourcing opportunity

Answer 18

Portfolio analysis

Question 19

An information technology that allows supply chain partners to transfer data electronically between their information systems

Answer 19

Electronic data interchange (EDI)

Question 20

A supplier that has demonstrated its performance capabilities through previous purchase contracts and therefore receives preference during the supplier selection process

Answer 20

Preferred supplier

Question 21

A sourcing strategy in which the buying firm depends on a single company for all or nearly all of a particular item or service

Answer 21

Single sourcing

Question 22

A sourcing strategy in which the buying firm shares its business across multiple suppliers

Answer 22

Multiple sourcing

Question 23

A sourcing strategy in which a company uses a single supplier for one particular part or service and another supplier with the same capabilities for a different part or service, with the understanding that each supplier can act as a backup for the other supplier

Answer 23

Cross Sourcing

Question 24

A sourcing strategy in which two suppliers are used for the same purchased product or service

Answer 24

Dual sourcing

Question 25

An inquiry to a potential supplier about that suppliers products or services for potential use in the business. The inquiry can provide certain business requirements or be of a more exploratory nature

Answer 25

Request for information (RFI)

Question 26

Models that allow decision makers to evaluate various alternatives across multiple decision criteria

Answer 26

Multicriteria decision models

Question 27

A formal request for the suppliers to prepare bids, based on the terms and conditions set by the buyer

Answer 27

Request for quotation (RFQ)

Question 28

A description method that is used when the requirements are well understood and there is common agreement between supply chain partners about what certain terms mean

Answer 28

Description by market grade/industry standard

Question 29

A description method that is used when a product or service is proprietary or when there is a perceived advantage to using a particular supplier’s products or services

Answer 29

Description by brand

Question 30

A description method that is used when an organization needs to provide very detailed descriptions of the characteristics of an item or a service

Answer 30

Description by specification

Question 31

A description method that focuses attention on the outcomes the customer wants rather than on the precise configuration of the product or service

Answer 31

Description by performance characteristics

Question 32

A type of purchasing contract in which the stated price does not change, regardless of fluctuations in general overall economic conditions, industry competition, levels of supply, market prices, or other environmental changes

Answer 32

Fixed-price contract

Question 33

A type of purchasing contract in which the price of a good or service is tied to the cost of some key input(s) or other economic factors,such as interest rates

Answer 33

Cost-based contract

Question 34

The set of activities required to first identify a need, assign a supplier to meet that need, approve the specification or scope, acknowledge receipt, and submit payment to the supplier

Answer 34

Procure-to-pay Cycle

Question 35

A document that authorizes a supplier to deliver a product or service and often includes key terms and conditions, such as price, delivery, and quality requirements

Answer 35

Purchase order PO

Question 36

Terms and conditions for a purchased service that indicate, among other things, what services will be performed and how the service provider will be evaluated

Answer 36

Statement of work, or scope of work (SOW)

Question 37

The automatic transfer of payment from a buyer’s bank account to a supplier’s bank account

Answer 37

Electronic funds transfer (EFT)